Shoptalk 2018: Debunking Retail’s ‘New Normal’

We’ve entered a new era of retail.

The popular narrative suggests that brick-and-mortar is facing a “retail apocalypse,” in the face of aggressive eCommerce growth and shifting consumer habits. Recent headlines paint a picture of looming doom for physical storefronts, as legacy brands like Toys ‘R Us shutter in the face of eCommerce’s tough competition.

At Shoptalk 2018, the fate of brick-and-mortar was front and center — and it didn’t seem to be going anywhere. Instead, brands have entered into what Shoptalk CEO Anil Aggarwal calls a “new normal —” one shaped by a decade of technological innovation, and disruptive change.

But what does this new normal look like?

“It’s about being better at finding and identifying the right consumer, knowing who the customer is, and where you need to be,” Kasey Lobaugh, principal, Deloitte Consulting, said. Lobaugh recently helped author a study that suggests that brick-and-mortar retail is actually thriving — just not in the same way is has before.

“Retail is actually growing faster than the GDP,” Lobaugh said, noting a 3.5 percent growth in overall retail sales in 2017.

To understand the shift, you need to trace the lines of larger economic trends. Over the last five years, rising cost-of-living expenses like healthcare, food, and housing, has taken a disproportionate toll on low-income consumers, leaving them with less disposable income, and less of a willingness to shop online. In turn, physical retailers that offer price-based incentives have seen a 37 percent growth in sales over the last five years.

On the other hand, Lobaugh says, high-income consumers (who earn more than $100K) saw an increase in their spending power, partly due to a healthier stock market and a more stable post-recession economy. In turn, brands that offer “high-end” retail experiences have seen an 81 percent growth in revenue, which seems to fall in line with the emergence of more thoughtful, personalized, marketing interactions. High-income millennial consumers, Lobaugh noted, are also the most dominant spenders on mobile, which skews the perception of the overall eCommerce landscape.

“This has really created a ‘tale of two consumers,’” he said.

Where sales fall flat, and perhaps where the idea of an “apocalypse” stems from, are for brands that fall somewhere in between. Revenues for middle-of-the-road retailers remained at a sluggish two percent, and have slipped into the negative over the past year.

The brand response

Macy’s is no stranger to brick-and-mortar hardship. The legacy brand has shuttered more than 100 locations nationwide since 2015, in an effort to reallocate spend on expanding their digital presence.

CEO Jeff Gennette echoed Lobaugh’s words during his opening keynote speech.

“Each of us needs to define where we exist, and find where we compete,” he said. “…Yesterday’s playbook isn’t going to help us win tomorrow.”

Gennette said a major part of their strategy was redefining brand mission to incorporate a “human touch, and the power and convenience of technology.” This meant finding ways to make the brick-and-mortar more digital-friendly. To do this, they’ve invested in developing mobile pay-and-go and in-store pickup offerings, immersive AR and VR capabilities, and more personalized messaging delivered across both online and offline channels.

“We’re not in the commodity business, we’re in the experience business,” Gennette said.

Target, a one-stop-shopping mecca that has built a brand on in-store product discovery, has taken a similar approach. Their recent acquisition of Shipt, which offers same-day grocery delivery service supplied by their team of personal shoppers, paints a new picture of how the retailer plans to make their brick-and-mortar locations more accessible to digital consumers.

“We recognize that our guests love to shop at our stores…we also know they’re looking for another choice,” Target CEO Brian Cornell said. “When we think about our future, we think our stores will play a major role.”

And then, of course, there’s Amazon. The eCommerce giant began to penetrate the brick-and-mortar space with their Amazon bookstores. But Amazon Go, their first endeavor in the grocery market, showcases a future of physical retail that’s powered by artificial intelligence. At Amazon Go’s first (and only) location in Seattle, customers can simply walk into the store, place the items they need into their bag, and leave. Machine learning, coupled with advanced visual recognition, identifies which items were taken off the shelves, and who purchased them. Checkout as we know it is eliminated — all customers have to do is activate an app on their phone, and the technology does the rest.

“It was super important for us to make it feel natural,” Gianna Puerini, VP, Amazon Go, said, acknowledging how this new way of shopping may be a bit strange to shoppers who have been trained their whole lives to bring items up to a counter before leaving.

Although new technology was top-of-mind, all three brands also spoke of increased investments in their workforce, with better training focused on delivering more white-glove experiences in-store.

“We know in certain categories, we [shoppers] want an expert,” Cornell said. “We’re investing in that expertise.”

Puerini says that their in-store associates play a major role at Amazon Go, helping onboard new shoppers and answering and questions they may have along the way.

The goal is to create a seamless shopping experience, with humans and technology coming together to cater to the consumer.

“Start with the customer, and work backwards from there,” Puerini said.

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