<< Read Part 1: Retail Apocalypse: Fact Or Fiction?

<< Read Part 2: Retail Apocalypse: Fact Or Fiction?

The end is nigh for retailers! Is that the actual current state of retail? For some, it can be. For others, not so much. Previously in this article series, the first thing we established was the history of retail and how it changed over time and how the industry continued to change over time. It was never the end of retail, but simply a change in how retail was done. The second part that we established was that the most recent trend, online retail, was not actually the cause of retail as a whole, but was taking more of the market share of the retail growth as a whole.
Retail, much like other businesses, is constantly in a state of “adapt or die.” That is the most prominent factor for the success of any commercial enterprise, especially those within the service industry (retail, restaurant/food, hospitality in particular), stems from the ability to adapt to its environment, whether that be physical, social, or economic. I would be doing us no justice if I did not acknowledge the impact of the COVID-19 virus has been having on the economy on a local, regional, and national scale; however, the focus on the final part of this article series is different. It brings about some optimism of things that are coming in the future of retail and some of the companies that are set up to take advantage. Some companies are “laggers” within the industry because they are slow to change and falling behind the trends. Some companies are leaders within the industry, pushing the envelope of the industry and forging a path that was not considered feasible or sustainable. For the future of retail, let us focus on those leaders.

E-Commerce

We have general information to discuss and understand the current major trend: online shopping. Using information from the U.S. Department of Commerce (which I conveniently used in my previous article), the market share for E-Commerce as a total of retail sales for 2017 through 2019 were 13.2% (2017), 14.9% (2018), and 16.0% (2019). Logic would dictate, based on this trend since 2010 that, if all else is equal, E-Commerce should be about 17.5% of overall retail sales within the U.S. Once again, to acknowledge the current State of Emergency that our country with regards to the COVID-19 virus, people are avoiding travel, going to crowded locations, sporting events, and so on. However, people need to shop. COVID-19 creates a situation where people: 1) do not go out in person to shop as much, thus affecting discretionary income in the local economy as a whole and 2) are more inclined to do E-Commerce sales, opting for either home delivery and pickup orders. I would not be surprised if online sales for businesses surged and at the end of the year E-Commerce carves out 18% to 18.5% of total retail sales. The increased usage of technology (smart phones and apps associated with them to be more specific) also results in the current trend to increase its market share.

Off-Price Retail

Another trend that is occurring comes from Off-Price Retail. This form of retail was popularized as “basement sales” or “factory sales” to help drive through an overstock of inventory during the early 1900s through the 1950s; however, it was through the vision of Alfred Marshall that Off-Price Retail began to become a major niche within the market. In 1956 he created Marshall’s, owned now by The TJX Companies (TJX), as a business to offer steep discounts for overstocked items and out of season goods. During the 1970s, the economy was rather volatile with drastic changes in oil prices, drastic concerns about high unemployment and inflation rates (stagflation) led consumers to look for discounted pricing to assist with their personal finances. This led to many other businesses such as Burlington (BURL), TJ Maxx (TJX), Nordstrom Rack (JWN), and Ross Stores (ROST) to get into the off-price retail game by the early 1980s.
The most recent players to join in Off-Price Retail stems from Macy’s (M) with its Backstage concept in 2015 and Saks OFF 5th (owned privately by Hudson’s Bay Company) beginning in 2016. For Macy’s, the Backstage concept has driven overall foot traffic within its location (creating a shop within a shop) have increased overall sales by approximately 7% at those locations. For Saks OFF 5th, the off-price brand made up many of the locations of Saks (out of 150 locations for Saks, 110 are OFF 5th stores).
Overall, off-price retail has a very specific and strong niche within the retail market and is becoming more prominent within retail as a whole, overall growing in overall sales compared to regular-priced retailers. Taking into account Q4 of 2019 as a comparative time frame for retailers, TJX Companies increased by 6% in comparable sales to the previous year, whereas Macy’s overall decreased by .5%. Nordstrom's full-price comparable sales increased by 1%; however, its Nordstrom Rack (Nordstrom’s Off-Price brand) sales increased1.8%.
Looking at Q4 of 2018, TJX Companies increased by 6% in comparable sales, whereas Macy’s overall increased by .7%. Nordstrom full-price comparable sales increased .3%; however, its Nordstrom Rack sales increased 3.8%. For the last two years of sales, these examples highlight the impact of Off-Price Retail as a current trend for retailers to pursue. Regarding this trend, Macy’s appears to be getting some of this market share due to it driving overall sales within its locations with Backstage. The company has pushing for a rapid expansion of Backstage to utilize its space and continue to diversify its retail portfolio. What other retailers will join in the Off-Price bandwagon?

Technological Edge

Outside of specific retail tends, technology is an ever-changing aspect of any industry, where a few companies lead the retail pack in pushing various technology. One such technology allows customers to try on clothing virtually by calling it “extended reality” and it implements certain styles of clothing on the consumer so they can get an idea of what it will look like on them. This experience is provided by Tilly’s (TLYS) at its Ontario, California store, to give the customer an experience to eliminate a point of friction for them. This experience has increased foot traffic to their location by approximately 30%. IKEA has an app for customers to use on their phone that provides selections to be augmented into a person’s room, giving them an idea of how the furniture will fit and look within their home; furthermore, providing a convenient experience for them to share with their friends.
Another aspect of shopping involves voice-based shopping, typically through Amazon’s (AMZN) Alexa, Apple’s (AAPL) Siri, or Google (GOOGL) Home. Currently, if ordering through these devices, it often has to be very brand and item-specific, whereas a broader question leads these “assistants” to recommend local businesses that have the items you are looking for (with Alexa prompting the query to Amazon.com of course). This is a growing technological trend that continues to develop with younger generations.
Many companies are beginning to utilize “chatbots” which are programmed robots that respond to inquiries or offer advice. Whole Foods (WFM) uses a chatbot that provides recipes given the ingredients purchased, but chatbots are still in the experimentation phase for most retailers to answer basic questions. Actual robots within stores is becoming more common. Recently, Lowe’s (LOW) introduced LoweBot at multiple locations in San Francisco that can answer many questions (in multiple languages) through voice activation or by customers typing in questions on its touch screen. The LoweBot is able to conduct real-time inventory management, determine trends, direct customers on where to go for items, and answer basic questions. Although it is still in its beginning stages, the LoweBot has freed up employees to help customers with more complex questions, thus creating better customer service and providing a different in-store experience for the customer.

Is There a Retail Apocalypse?

There will never be an actual retail apocalypse. Shopping trends change and the retail sector is still growing as a whole. Companies must adapt to maximize their profitability to address those changes. Retailers must embrace the concepts that are taking larger market shares which currently are E-Commerce and Off-Price Retail. Leading in other fronts, such as technology can help reduce long-term operational costs, provide a diverse shopping experience for consumers, and reduce workload on employees so they can focus on more intensive tasks at hand. The landscape of retail is changing, but the industry is far from dead.