Retail Trends and Predictions

Retail Banking Industry Canada SurveyRetail Trends and Predictions: Economic headwinds, “feel good” shopping, Omnichannel and vendor integration, upgrades in stores, service and marketing.

 


 

1). The shift to “feel good” immersive shopping- Millennials and “Henrys” (high incomes not rich yet)

 

  • Millennials will drive retail profitability in 2016, as more of them enter the workforce and increase purchases across all categories. They are driving retail investments in omnichannels and social media marketing. The shift to this new generation means adopting business models to cater to a greater online presence that is driven more by experiences rather than physical product.

 

  • Giving new meaning to products has become critical, especially on feel-good and do-good indicators such as convenience, carbon footprints and social responsibility. Sephora’s ColorIQ and Best Buy’s Geek Squad are good examples. ColorIQ matches a skin tone in a consumer’s photo with a shade of foundation and Best Buy’s Geek Squad will deliver your TV and take the old one. Retailers are more likely to focus on becoming lifestyle stores, with an element of discovery. Discovery requires an immersive consumer experience to touch all senses- from visual presentation, animation, and in-store events and a more experiential website.  For example, Beats headphones are aligned with athleisure – great fashion outerwear because that’s what millennials want. The concept can transcend apparel, electronics and more if it contains a fashion component.

 

  • Henrys (high incomes not rich yet) are the biggest risk to retail next year. Most existing sales growth in retail in 2015 has come from price increases and not from rising consumer transactions. Henrys will be the first segment to cut back dramatically if economic conditions deteriorate. Luxury retailers will be impacted the most by these adjustments. Arcus research indicates that two emerging downside risks in 2016 in Canada will be the continuing slide of the Canadian dollar and a potential real estate correction. The correlation between interest rates and real estate is profound (a 0.8% increase in rates will result in a 10% correction in real estate).

 

 

 2) Debt and the Economy: ominous clouds on the horizon

 

  • Debt fueled a lot of sectors in 2015: consumers are depleting their savings fast to buy houses, cars, furniture and clothing indicating some significant downside risk in 2016. In 2015, spending on credit-cards increased by 8 per cent, restaurants and fast food by over 12 per cent, auto loans by almost 4 per cent1, furniture sales are up 17 percent, home improvement is up 10 percent2 – all this with very modest real wage gains. These numbers could look very different in 2016.

 

  • Arcus is projecting a 2.5% decline in retail in Canada in 2016 driven by a real estate correction in the second half of 2016 (already begun in Alberta) and a Canadian dollar that could drop to 64 cents vs. the US dollar if crude oil prices decline to $20 a barrel (Goldman Sachs projection), increasing the cost of imported retail products by up to 50 percent next year.

 

  • The economic signals are ominous- the household debt to income ratio is at a record high of nearly 165 per cent2, 7.6% of Canadians are employed in construction vs, the long-term average of about 5 per cent.3 About 80 per cent of Canadians are in debt and a 2 percent rise in rates will mean two-thirds would have trouble affording their debts. Canadians spend 14 percent of after tax income on debt, up from 11 percent in 1990, even though interest rates are 14 percent lower.4

 

 

3). Omnichannel Integration: tying physical and digital stores

 

  • Driving the trend is the consumer shift to browsing instore and shopping online after price comparisons. The big challenge in 2016 will continue to be the struggle to offer true “omni” capabilities by integrating legacy systems. These challenges are at the back end of retail but have significant implications for the consumer experience instore and online. Managing the complexity of seamless integration of inventory and demand will require better integration of people, processes and technology, which means better process design work, updated procedures and alignment of employee training to reflect new operating standards.

 

  • Some successes in omnichannel strategies are emerging- Bloomingdale’s has succeeded in tying their in-store experience with their online store giving a sense of continuity. Most others in Canada have separate e-commerce stores delinked from brick and mortar storefronts creating a disjointed customer experience. Another problem has been the emergence of suppliers becoming key rivals of retail companies.

 

  • The power of pricing has shifted even more to consumers in 2015. The trend towards multi-channels, means retailers need to maintain consistent pricing across channels. Retailers that still operate in silos will get hit hard in 2016 as consumers find gaps in pricing quickly. Pricing consistency is critical at the last mile to give associates credibility instore. Retailers that invest in pricing strategies backed by good consumer policies will build their brands in 2016.

 

 

4) Consumer buying journeys are changing: Transparency matters

 

  • Consumer experience and the buying journey have never been more integrated. If they are buying online, on their mobile or in store, they will expect consistent branding, service, response time and prices. Those that don’t have these aligned are likely to see diminished sales.

 

  • Retailers will need to tap into up-selling and cross-selling by leveraging the power of higher high transparency of the internet. They will need to identify products that attract consumers to their sites and use them to cross sell and upsell. The shift in some categories from cross selling is dramatic- for example, Amazon is already the largest clothing retailer in the world. The brand has grown by cross selling across multiple product categories.

 

 

5). Employee Productivity: need for an innovation-driven culture

 

  • Retail companies have struggled with change management, employee engagement and productivity, especially as staff are required to learn new processes and take on new roles across the value chain. Retention is a significant issue and needs to be addressed with a new open and innovative culture that celebrates new ways of doing things.

 

  • The migration to omnichannels means employees need to be more flexible and acquire new skills to take on new roles that require expanded capacity to deliver across more capabilities. They need to perform more critical tasks across multiple touchpoints such as connect with internet orders, update stock positions and product counts.

 

 

6). Inventory Accuracy: Manage diverging shopping and buying locations

 

  • More consumers are interacting with product in different channels- separate from the purchase location. Visibility into demand projections is becoming very complex. Having product at the right time and place has been a challenge in 2015. Target’s empty shelves were a great example of a mismatch between what consumers wanted and what was on offer instore. The focus of retailers has been on ensuring inventory aligns with consumer demand.

 

  • Retail companies are falling short on inventory accuracy resulting in disappointed shoppers and lost revenue of up to 15 percent each year.  The push for 3rd party shipping means the vendor matrix has an added layer of risk and unpredictability. The key will be to “close the loop” in the chain where product is received, stocked and moved to shelves because floor resets drive sales spikes as a result of greater product visibility and freshness.

 

Data Sources: 1. Equifax 2. Bank of Montreal 3. Moneris 4. The Globe and Mail