Experience is Everything: Retail Trends in 2019 and Beyond
During the 2018 holiday shopping season (November 1 through December 24), U.S. consumers spent an estimated $850 billion, the strongest in the past six years Thanks to near full employment and rising wages, consumers have boosted their spending accordingly, which hit its highest level in nearly two decades.
However, despite this positivity in overall retail sales, times are changing. Every week a new national retailer seems to announce store closures or declare some form of bankruptcy. Having been in the retail real estate industry for over 17 years, I have to say this is one of the most disruptive eras I’ve ever seen. But not without good reason. Retail is about evolution. The industry has always adapted to constantly changing consumer behaviors and preferences, and the best retailers are those that change with the consumer. Last year’s fashion is no longer in style, or in fast fashion that could be last week’s fashion! Electronics companies are constantly improving technology and the once high-tech gadgets become obsolete and irrelevant. The physical and virtual stores of retailers are really no different. Yes, there is online retail, and it’s a huge disrupter in the way consumers shop and buy goods and services, however, consumers are still driven by the same fundamentals which include VALUE, CONVENIENCE, EXPERIENCE and ETHOS.
Clearly there is proof that online retail is competitive with bricks and mortar, but I believe that the retail real estate industry is slowly, and in some cases quickly, adapting to this competitive pressure. It’s much faster to create a website than open a store or build a new shopping center! Instead of viewing online retail as purely competitive, and an “either-or” situation, I would suggest there is a symbiotic relationship between physical stores and an online presence. Many online retailers are adapting to this reality as well, such as Amazon, which has a nearly 50% market share of all online sales in the U.S. yet made a momentous shift with their purchase of Whole Foods in 2017. Amazon currently has 527 physical stores but wants 4,000! If 50% of the e-commerce has that outlook, one might assume other online retailers will follow suit with their overall business strategies.
Where online retail competes best, in my opinion, is on convenience. The ability to research thousands of brands and prices from the comfort of home before buying is a huge convenience. Selecting your product at what appears to be the best value and having it delivered to your front door is another huge convenience. However, when the product shows up and it’s not what you ordered, is counterfeit, doesn’t fit, or just doesn’t work, the hassle to return the product reduces the value and convenience factors considerably. Also, I’ll add that online retailing is not very profitable, due to increasing shipping costs. I once heard it said that the only businesses that make money in online retail are UPS and FedEx!
In my last blog, I wrote about the symbiotic relationship between online and physical stores. It’s true. When a consumer orders online and needs to return, it may actually be easier to return to a physical store versus mailing the product back to the retailer. This act of returning merchandise is one of the greatest opportunities physical stores have to increase sales and customer engagement. Retailers are really just now optimizing this symbiotic relationship. In many cases, due to online sales, they just don’t need the same number of stores, so they are closing them. In other cases, the retailer’s product or business model is defunct and doesn’t have the financial capability to modernize, so they go bankrupt. Some retailers are better positioned to evolve their business model through this symbiotic relationship than others, but all will have to do it eventually, for some it will be much more painful than others.
Eventually, all retail will adapt to this symbiotic relationship and the industry will find an equilibrium, we’re seeing it now with the slowdown in Amazon market share capture. Currently overall online sales continue to grow but so do brick and mortar sales. According to the U.S. Department of Commerce Statistics E-commerce sales rose from $390 billion in 2016 to $453 billion in 2017, a 16% increase and Brick-and-Mortar sales rose from $2.985 trillion in 2016 to $3.043 trillion in 2017, a 2% increase. Additionally, as a percentage of total retail sales, e-commerce sales have risen from 5.1% in 2007 to 13% in 2017. At some point, this growth will stabilize, and we’ll understand the market share online sales will ultimately represent but I think we are close to a stabilization based on Amazon’s growth trajectory.
This perspective is further substantiated with the fact that many online-only retailers are also figuring out their business models and realizing what retail is really about, which is customer experience and ethos. Sure you can argue that the cheapest most convenient products and services ultimately win the day, but I would counter that the retailers and shopping environments that endear themselves to customers will ultimately prevail.
Clicks to Bricks
We’ve all seen online-only retailers like Warby Parker, Bonobos and Untuckit begin to open physical locations in the Dallas area. These stores are attractive to consumers because they give them a chance to experience the brand and the products in person. To attract shoppers, these stores focus on the customer experience, both by establishing a presence in lively entertaining districts such as Legacy West, and by creating Instagram-worthy interiors that are destinations in and of themselves.
As a bonus, opening a brick-and-mortar location also improves an online retailer’s brand visibility. In some cases, online sales have increased up to 30 percent in a given area after the opening of a physical location, simply due to more people seeing and hearing about the company.
The evolution of the department store experience
Startups like Neighborhood Goods are challenging the traditional model of a department store, which features fixed displays and specific brands, by infusing the concept with new life in a way that’s particularly attractive to younger generations.
Described by “a department store with a story,” Neighborhood Goods sells a continually-changing selection of products and brands, in an always-evolving configuration—almost like a series of pop-up shops under one roof. With something new happening all the time, shoppers find themselves more immersed and more engaged in the experience, and much more likely to return again and again.
More shared retail space
Just as stores like Neighborhood Goods are finding success by displaying a variety of brands in a shared space, food halls are quickly becoming a prime example of how the “sharing” economy has infiltrated the consumer retail realm. As Cushman & Wakefield’s Retail team just explored in their recent report, “Food Halls: The Sharing Economy Meets Mealtime,” consumers love the broad selection and fun experience that food halls provide, while occupiers appreciate the lower operating and food costs and steady customer base.
The wide selection of restaurants in one place harkens back to the focus on the consumer experience.
“Today’s fast-casual approach offers artisan restaurants and other food-related boutiques under one roof—this is more than just sustenance, it is an experience,” said Phil Colicchio, industry expert and co-lead of Cushman & Wakefield’s new F&B, Entertainment & Hospitality Consulting team.
As we start the new year, it will be interesting to see what other retail trends emerge and take hold. Beyond a craving for unique experiences, consumers are also driven by other motivations, such as convenience mentioned previously and authenticity. That’s why, for example, we’re seeing more Dallas office buildings incorporate retail shops—it’s extremely convenient for people who work there. And it’s why the Millennials and Generation Z are so focused on socially responsible brands that stand for something—because they crave authenticity.
So many factors play into retail trends, but one thing remains true, year after year: Consumers will always want and need to shop (both online and in stores). Retailers just have to be prepared to evolve accordingly.