HRC’s Retail Predictions for 2021

Despite the arrival of the vaccine, we expect the first half of 2021 to reflect a continuation of 2020’s acceleration toward digital and omnichannel as most shoppers remain at home. However, we anticipate pent-up demand to be unleashed in late 2021, bringing relief to some of the retail sectors that have struggled since the industry was thrown into turmoil last spring.

The year 2020 was a year of mass turmoil, which descended upon retailers with virtually no warning. This brought significant opportunity for those in home, home improvement, backyard, pet, food, and other sectors that previously, had only experienced modest growth rates.

Retailers in these sectors that invested in robust store fulfilment of digital orders and digital capabilities ended 2020 with strong results, despite the pandemic.

2021 is likely to be a good year for retail, with increased consumer spending in the back half of the year due to pent-up demand in categories that suffered the biggest declines in 2020. Spending will also likely increase because many consumers will have additional savings, due to a lack of spending on discretionary items in 2020.

Here are more of our predictions for the next 12 months.

Retail will experience two different calendar halves
While the first half of 2021 will see a continuation of 2020’s spending patterns on home and backyard categories, exercise equipment, food, and comfort and active apparel, we expect that the second half of 2021 will see the unleashing of pent-up demand for entertainment, eating out, travel, work apparel, and other discretionary categories that have been hardest hit.

Digital will continue to dominate as consumers’ new shopping habits are reinforced
The shift from stores to e-commerce will continue to accelerate in 2021. The decline in store traffic will also continue, but begin to reverse by Q3 of 2021. Over the past year, digital and omnichannel grew to become 50% or more of some retailers’ sales, and the need to create and enhance these capabilities—whether it means investing in processes, tools, or talent—will remain a critical priority in 2021.

Retailers will need to strategically build on their category strengths
By expanding into relevant, adjacent categories, retailers can increase share of consumers’ wallets. The success of pharmacy and dollar sectors’ expansion into food and consumables is a great example of capitalizing on traffic and consumer brand trust. Other potential opportunities for success include categories such as household cleaners and other replenishable categories that are considered “essential.”

Additional bankruptcies are likely in discretionary sectors that have suffered in 2020
Retailers with weak balance sheets and declining sales will remain at risk. As such, we expect that landlords may make additional acquisitions of troubled retailers to avoid loss of tenant income, as evidenced with their purchases of J.C. Penney, Forever 21 and Aeropostale.

The store role, processes, and customer experience must be redefined

Given the continued reduction in store traffic and growing customer expectations for more seamless in-store experiences, retailers must focus on improving the shopping experience. Doing so will help increase conversion rates and transaction value, and enable them to capitalize on their foot traffic.

To effectively compete, retailers must find the right balance in their stores of serving walk-in traffic and fulfilling digital orders in stores.

Antony Karabus and Farla Efros are CEO and president of HRC Retail Advisory, a leading retail consulting firm that works with many of North America’s leading retailers to strengthen their operational capabilities, and profit and growth strategies.