As we step into 2020, retailers will be hoping for a positive start to the new decade. While relatively few will be expecting the next 12 months to provide a bumper year, many will hope to reshape their businesses and move on from the difficulties that characterised the 2010s. But what have they learned over the past few years to inform these decisions, and what trends can we expect to shape the retail landscape in 2020?
Shifting consumer confidence
2020 has opened with reports of gloomy Christmas trading figures and low consumer spending, with even the normally robust grocery segment coming under pressure. The biggest strain is being felt in the middle of the market, where retailers are finding it more difficult than ever to differentiate themselves.
While there is the potential for an uptick thanks to the so-called ‘Boris bounce’ and an expected period of relative stability, the overriding trend of consolidation in the sector and prudent consumer spending will continue, making any bounce short-lived.
Despite this, the message is still ‘muddle in the middle, value at the edges.’ While the mid-market will continue to struggle in 2020, discounters, online sales and convenience stores will continue to grow. There is also good news for specialty retailers, and I expect brands like Mountain Warehouse to continue its strong growth trajectory. While still strong, the luxury sector is not as buoyant as it has been in recent years, largely because the ‘Brexit bounce’ that it experienced is starting to even out.
Department stores are also likely to consolidate over the next 12 to 18 months, and it will not be a surprise if one of the big players disappears from the high street, particularly as grocers and the likes of Next adopt department store models by stocking multiple brands.
Retail margins squeezed
Consumers will remain acutely price conscious in 2020, and the challenge for retailers is to be price competitive, smarter about promotions, and to find a way to counter the trends for consumers shopping on discount.
A particular challenge is the continued trend towards online marketplaces and away from retailer-owned ecommerce sites. If a consumer purchases an item from ASOS rather than a retailer’s own website, that retailer is making considerably less money. It will be essential for retailers to establish what their ecommerce strategies should be when they are not in full control of pricing and margins.
A combination of targeted pricing strategy, promotions and dynamic pricing in store should eventually open opportunities to grow margins, while repeat customers should be rewarded in this discount environment, spurring more frequent transactions and more lifetime value.
Experience becomes the differentiator
Retailers will increasingly need to differentiate themselves through experiential innovation. In many ways there has been a bifurcation in the industry between wants and needs. To achieve decent margins, retailers need to be firmly in the ‘want’ category, which requires delivering an experience. Fail, and they are simply selling a commodity, which will put them in direct competition with the grocers and Amazon.
Developing a truly joined-up omnichannel experience will be key. This requires retailers to build a single view of the customer, ranging from historical purchases to preferences, so that they receive a consistent experience however they shop – whether online, instore, or on the phone to customer service.
Data-driven, agile retail
Agility is likely to be an important retail buzzword in 2020. In a retail sense, we define this as a combination of flexibility, efficiency and data insights, all of which will be essential to understand and meet constantly changing consumer requirements. This will be enabled by increased access to data and smarter analysis of how this should feed into product design, assortment and buying decisions.
We expect retailers to acquire technology that can enable them to find the right insights from consumer data. This will drive productivity improvement in everything from warehousing, to logistics, to inventory management.
Authenticity will be key
The power of authenticity should not be underestimated. It is more important than ever for brands to develop and showcase a clear sense of purpose and a strong track record of ethical sourcing, sustainable policies and inclusive values.
Retail has been grappling with the issue of sustainability for some time, but with consumer calls for action getting louder, 2020 could be the year where we see tangible change in the mainstream. It is likely that we will see brands partnering with suppliers to develop more environmental manufacturing practices, in addition to using innovative and recycled materials.
Inclusivity when it comes to product, services and practices will also become a bigger trend in 2020. Consumers are not only more likely to purchase from retailers that share their values, they are more likely to trust and share information and data with them.
Take bold steps bravely
What does this all mean for retailers looking to compete in 2020? It’s clear that the industry is undergoing a period of significant change as consumers’ habits and expectations shift. While this is undoubtedly a challenge, it is also an excellent opportunity to take stock and restructure for success.
But to succeed, action is needed now. Fail to take bold, decisive steps and 2020 could be a long and difficult year.
Want to continue the conversation? Contact us.