#Retail2019 - Thoughts on Digital Transformation

As I start to document some predictions for 2019, it strikes me that at least a few of these weren’t even on my radar over the summer. 2018 is ending with a fever-pitch and the retail dynamic seems to be gaining momentum and embracing rapid change.

There are some things as well that don’t even seem like predictions, really just a new-normal. The most prevalent of these is a continued low unemployment rate and the adjustment retailers are making to attract and retain talent. Amazon’s move earlier in the year to increase pay for its employees along with rising minimum wages have put even more pressure on retailers who employ hundreds of thousands in the US. It will be interesting to see how seasonal employment was affected by this trend for the current holiday as we look back in 2019.

To start, however, there are some predictions we have seen coming in 2018 and which are about to have their day in the sun. The first is…

Critical Mass for Online Grocery

Amazon Go stores are spreading rapidly through US cities along with a recent announcement for their first global locations. These stores have been interesting to watch as some behaviors we see there are indicators for larger, more established grocers. For instance, the majority Go Stores' top-10 items are food (like their Bahn Mi) and prepared meals.

It’s no surprise then, to see Walmart embrace their role as the largest grocer and make bold moves in this area, like their meal kit partnership with Gobble over the summer.

Target’s acquisition and subsequent rollout of Shipt in 2018 means they also see online grocery, for curbside pickup or delivery as a big business driver for '19 and beyond.

Finally, investors are putting their money in this trend as we saw another record funding round ($600 million) in Instacart, as they become the ‘white label’ solution for grocers of all sizes.

Alongside of this prediction and a trend we saw come into focus during the Cyber Five weekend…

Real-time Inventory Transparency

A big trend in 2017 and 18 was individual brands becoming their own retailers. Different direct-to-consumer strategies seemed to be popping up all over the place, following Nike who drew a line in the sand with their assertion of a 40% DTC goal. 

What has been a bit lost in this DTC fanfare is that simultaneously these brands have been working hard to connect their shoppers to products right down the street. It is no surprise then that these same shoppers have become accustomed to understanding and utilizing real-time inventory transparency.

It is not enough for these consumes to know that a store sells a brand or product, they want to see their specific size, color and know how many are available for online purchase, curbside pickup or in the store. We saw this behavior hit a fever pitch during Cyber Five with different retailers struggling to keep it all straight.

It is no easy task for these stores, who often have to connect legacy technology systems for managing inventory and POS with front-end experiences, apps and commerce platforms. 2019 will see a very focused effort (and investment) in this area.

Moving on, something that has really gained momentum in the back half of 2018 and has gone from nascent to a pretty big-deal is…

Social Impact on Merchandising and Store Design

Social proof and data-driven merchandising have become the cornerstones of eCommerce and online recommendations. Their use over the past few years in physical retail has been hit-or-miss, like Pinterest signs near products in stores or star ratings printed on displays. Amazon’s bookstores started to combine what they did best, utilizing their app, in-store signage and data from the platform to fill local stores with products of the moment. It doesn’t hurt that they have the number of distribution centers and logistics network to support this type of retail concept.

Toward the end of 2018 and moving into 2019, indicators are that we will see huge movement forward in this area, from new retail concepts and established retailers alike. Just in time for holiday shopping, we saw Amazon hit the market out of nowhere with its 4-star concept, filling a store with products that are highly peer and expert rated. These stores continue to be a big success, mostly by providing the confidence of what shoppers love about online in a way that is core to the store instead of just an add on. We also see other examples, like Macy’s investment in and rollout of B8ta pop-up shops, providing flexibility to their traditional store approach.

Localization of merchandising was on full display in Nike’s Melrose store, promising the concept will see light in many more cities in 2019 along with plenty of fast-follower brands. This trend isn’t just for nimble brands either as Nordstrom gave a peek at their future strategies with the NYC Men’s store opening earlier in the year. 

Product Design for eCommerce (Finally) Gets its Day

For years there has been a push to design product exclusively for eCommerce. Amazon pioneered the SIOC (ship in own container) as a way to create efficiency and give opportunities to have more of a branded experience inside the box. Ultimately, the return and critical mass just hasn’t been there with 6,7 or even 8% of sales going through that channel, often at little or no margin. So, we have been stuck packing, shipping and buying product that was specifically designed to sit on store shelves.

Late this year, Tide took the plunge with an excellent example of a re-designed product that considers the channel and serves as a pioneer for the practice. However, what is really going to unlock design-for-the-channel is marketplace expansion. This rapid deployment of marketplaces by retailers (like Albertson’s), and expansion of existing marketplaces on Walmart and Amazon, who is bringing their Vendor platforms together, should push brands to finally pull the trigger.

The best part is that this should help consumers by rapidly expanding product offerings by count, size, variants and in some cases will open the door to custom package configuration by household.

Finally, something that could potentially slow things down in 2019 is…

Global and Regional Economic Indicators Slowing Retailer Investment

There has been an ebb and flow of which technologies get investment from major retailers. They know they need to update and connect legacy systems to power new experiences like BOPIS and self-checkout. However, there is also a need to update supply-chain and the stores themselves. So, an investment push-pull or how to spend the next dollar has consumed retailers for a few years now. Either way, 2018 saw major gains in overall spending in an effort to keep up, with some estimates showing 3% annual lift and 85% of retailers increasing budgets. (Zebra Technologies, 2018).

That 2018 trend may now experience a slow down for a couple of important reasons. First, the on-again and off-again tariff talks with China may have a larger impact than first recognized. This is because grocery and online shopping are sometimes operating at thin or negative margin where even a slight change in cost/ROI can have dramatic effects. Also, add in national and local indicators such as GM’s pro-active downsizing and other market adjustments by retailers like Starbucks, and you get some insecurity on big technology investments. I expect to see more conservative spending and more considered decisions for the retail vertical in 2019 .

I am sure other trends will be popping up through the year, but I will keep my eye on these major movers for shoppers and retailers alike. In addition, I look forward to 2019 not being the ‘year of anything’ and an early look at other predictions makes that seem likely, although someone is bound to ruin it for the rest of us...