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The dawn of 2020 was the start of a bright new decade. But it turned out to be a most challenging year. A global pandemic created a massive shift to e-commerce. Consumer spending habits changed. Demand in several consumer verticals fluctuated wildly.
Amid all this, the global retail industry stands at the frontline, always ready to embrace new tools and tactics to get ahead in a sometimes confusing marketplace. What are the expectations and forecasts for tomorrow and even next year? The answers can only come by continually following the shifts happening in the retail industry today, so brands can figure out their next moves and stay competitive.
Despite the uncertainty, the world’s leading marketing, finance, and research organizations have kept their fingers on the pulse, releasing reports on the future of retail.
Here are the key takeaways from the five most interesting retail reports so far.
In this article:
eMarketer: In With the New (but Let’s Keep Some of the Old)
Retail Dive: Welcome to a New Era of E-Commerce
Ernst & Young: New and Different Consumers Emerge
Bain & Company: Winning the Retail Model
Deloitte: Convenience Always Wins
Finding Direction in the Disruption
eMarketer’s “The Future of Retail” report identified 10 trends to watch out for against the backdrop of a shaky, uncertain market. Several point to a broader and significant theme: despite the fact direct-to-consumer (D2C) retail is going mainstream, traditional approaches to marketing are still in play.
This is evidenced in the rise of frictionless commerce. More than offering convenience, frictionless shopping will increase in popularity as consumers blend their online and offline shopping experiences. These include services such as buy online, pick up in-store (BOPUS), self-checkout, mobile order ahead, and online-to-offline (O2O) returns via partnerships between digital-first and brick-and-mortar brands.
Although digital natives by nature, D2Cs will still need to rely on traditional marketing methods to increase brand awareness. TV ads, out-of-home advertising, and word-of-mouth marketing will all remain an important part of creating the omnichannel experience that is defining retail in a digital-first future.
Key takeaway: The online and offline retail worlds will continue to merge, creating a more experiential and convenient consumer experience. Though digital, data-based tech will surge, traditional marketing will remain relevant.
On how to build a campaign strategy for the future of retail:
The “end of the beginning of e-commerce” is here, according to retail futurist Doug Stephens in a fascinating interview at Retail Dive.
Over the years, there has been a steady increase in e-commerce of products that are easy to transact online, such as clothing, electronics, and booking vacations.
Let’s not forget Amazon began as a bookseller — and there is nothing easier to buy and ship online than a book. But now, e-commerce is entering a new realm involving online purchases that are often sensitive in nature, such as luxury goods, perishable foods, pharmaceuticals, and furniture.
These product categories make up a considerable proportion of the retail industry. Transitioning them to e-commerce will demand highly advanced solutions for online product display, as well as shipping services that can efficiently handle the complex fulfillment side. Only with the help of sophisticated retail tech will consumer confidence rise to the level needed to create a critical mass of customers for these categories.
Online companies like Amazon and Alibaba are heading in that direction, and they are expected to become more aggressive as they compete for this new retail space.
As the online realm expands to include more retail areas, the purpose and character of the traditional brick-and-mortar store will change. Stephens predicts physical stores will no longer be a transaction hub. Instead, they will become a channel for customer acquisition, where experiential shopping and engagement happens. The purchase itself will only occur where the future of retail is truly headed: on digital channels.
Key takeaway: To satisfy new demands from consumers, retailers will be expected to provide engaging and experiential offerings in brick-and-mortar settings while offering sophisticated online transaction capabilities.
Ernst & Young identified four distinct types of consumers who emerged in response to COVID-19 lockdowns: those who chose to “save and stockpile” (35% of consumers), those who made significant cuts to their spending (27%), those who remained calm and kept their existing spending routines (26%), and those whose lifestyle had indeed changed, although their spending habits didn’t (11%).
Faced with an unemployment crisis, EY’s “Future Consumer Index” detailed data-based models of five consumer types likely to emerge in a post-pandemic environment. Each represents a different approach to spending based on individual experiences during the crisis:
Consumers cautious about the future, due to cuts in annual income, may choose to “stay frugal” and careful in their spending. Those who are more confident, riding out the pandemic with minor or no impact on their income capabilities, will be “back with a bang.” This group looks forward to traveling, dining, and socializing, once conditions are safe again.
Key takeaway: Expect new consumer behaviors to emerge in the wake of the pandemic, as people adjust to different habits and attitudes formed during a time of economic uncertainty.
For more on how consumer behaviors are shifting:
While Ernst & Young’s report focused on the consumer, Bain & Company turned its research to the retailer in its report “The Future of Retail: Winning Models for a New Era.” And it mainly boils down to IT.
Bain identified what it calls an “IT investment debt” on the part of traditional retailers. Unlike digital-native companies, such as Amazon, traditional retailers do not invest enough in data analytics, online consumer tech, and robust data systems that support scalability. The world’s top 10 traditional retailers will spend $100 billion less on IT than Amazon in the next five years. This does not bode well in a future that will be far more digitized than it is now.
Based on this idea, Bain identifies two types of traditional retailers: legacy laggards and unsustainable innovators, neither of which can scale or find the path to profitability.
Moreover, these two retailer models currently form 30% of the market. Unless these retailers can adapt, whether through a strategic partnership or another tactic, they won’t survive. That’s a massive chunk of the market that will be up for grabs soon.
On the other hand, Bain describes five retail models with the potential to take over this market share:
In a shifting market sphere, companies that can transition to one of these models will live on.
Key takeaway: The marketplace of the future will require retailers to invest in IT and data. Those that do will have the capability to excel in three areas: absolute scale, fast innovation, and data-based analytics.
Though uncertainty surrounds the global retail community, Deloitte has expressed some good news in its “2020 Retail Industry Outlook” report.
More than two-thirds of U.S. adults surveyed say when it comes to shopping, three factors matter most: fair pricing, product quality and variety, and convenience. These are great starting points for retailers that want to focus on satisfying their customers in today’s rapidly shifting marketplace.
Even so, 2020 will be a challenging year as digitization of the market increases fast. Deloitte recommends retailers focus their efforts on preparing for the new market that will emerge with a few key tactics:
The Deloitte report also focuses largely on a word that continues to create a buzz across the retail world: convenience. Retailers must consider a new definition of convenience, which is no longer limited to same-day or free shipping.
Instead, convenience must be a defining feature of the entire customer journey, providing additional services, solutions, and experiences that stretch beyond purchasing a product.
The report even mentions “deliberate inconvenience” as a marketing strategy, in which a company creates a following based on making a product inconvenient or hard to acquire, such as through VIP-only events or limited editions. By exploring the boundaries of the concept of “convenience,” brands can work even harder to stand out and gain customer mindshare.
Key takeaway: Convenience is critical, but it’s not just about making shopping easy. It must include digitization of the entire customer journey, differentiated branding, and ingenious product strategy.
For more on how to digitize the customer journey:
The retail industry is facing a watershed moment. The rapid rise of e-commerce, mainstreaming of the D2C concept, and volatility in consumer sentiment are signaling the start of a new era.
However, there is some assurance in knowing that not everything is going to change. There is still a place for traditional marketing tactics. Although the consumer landscape may seem to be undergoing massive upheaval, there are many consumers who want to return to “normal” and will revert to regular shopping habits when they can.
People remain people, and some of the basic concepts of retail — convenience, product quality, and branding — will still be important, even in a digital-first retail world.
Originally published on August 7th, 2020, last updated on August 16th, 2022.