Predictions of 2016 Retailing Trends

In looking ahead to 2016, experts were asked to predict whether 2016 would be a “sweet” year for retailers. Would a handful of winning ideas drive industry objectives for 2016? Or was the idea of trying to predict what was just ahead for the industry our version of December insanity?

Economists seemed to agree that indicators pointed to a fairly solid 2016. Confidence data were encouraging, unem­ployment continued to dip, and there didn’t appear to be any significant recession risks on the horizon. Presidential elections affect consumer sentiment, but historically they tend to have little impact on spending, which boded well for retailers.

Still, uncertainties remained. Goldman Sachs’ sobering assessment of what was in store for 2016 boiled down to the phrase “flat is the new up.” The investment bank forecast 2 to 4 percent growth and described economic recovery as “running in place.”

With a nod to the NCAA basketball tournament’s “Sweet 16,” we came up with 16 predictions for the retail industry in 2016. No doubt some would deliver ‘nothing but net’; others may have spun around the rim before dropping in, and a few may have turned out to be air balls. Still, there’s something to be said for making it to the final 16.

Planning for this feature began in mid-July 2015. Every conference session, exhibit hall meeting, and phone briefing became fodder for determining what may have been on the hori­zon. A big “thank you” goes to all who shared their insight, took the time to teach us about new technology, or set aside a few minutes to share their retail vision. We simply couldn’t have done it without you.

1. Convenience, Expedience the Fast Track to Shoppers’ Hearts

With consumers able to summon a car ride with a few taps on a smartphone, the expectation that everything should be simple and frictionless is growing. Companies that save shoppers time, simplify routine tasks, and remove friction are capitalizing: Think Uber, Apple Pay, lnstacart, and Ama­zon Prime.

Although some debate the popularity of subscription ser­vices, they continue to pop up—promising to simplify every­thing from the delivery of dinner to razors.

Same-day delivery was expected to move closer to critical mass in 2016 as more companies emerged to serve an increas­ing number of markets. For omnichannel retailers such as Macy’s, same-day delivery was considered an important part of the value proposition.

Drones and 3D printing are topics du jour in retail circles, but were expected to continue to garner more talk than traction in 2016. Neither should be overlooked for the simple reason that both play to the desire for speed and convenience—two things that many consumers consider essential.

2. Personalization Is Mission-Critical

We live in the Age of the Consumer. Retailers need to explore every opportunity to raise the level and quality of contextual, personalized experiences. Investments in customer analytics are imperative, as is an understanding of where to apply personal­ization to deliver the biggest bang for the buck.

Shoppers expect tailored offerings, including their savings, merchandise, and service transactions. And personalization needs to be a consistent omnichannel effort. If retailers can’t identify a shopper across various points of interaction, they’re on thin ice.

Meanwhile, look for new “disruptors” to play the person­alization card with aplomb. Stitch Fix is a prime example: By blending art, science, and a human touch, the personal stylist company projected $200 million in revenue for 2016.

3. A Digital Core Is Essential

Today’s consumers are firmly in control; they choose how they will interact with the various retailers. And although we’d like to believe that shoppers can be forgiving, they’re not. Responding to these instant gratification customers requires a digital pulse to sense and respond to their changing needs, and a digital pulse requires a digital core.

A digital core gives companies real-time visibility into all mission-critical business practices and processes around customers, suppliers, work force, big data, and the Internet of Things (IoT). It allows retail businesses to react in an agile and hyperaware fashion and enables them to predict, simulate, plan, and even anticipate future outcomes.

Experts report that only 37 percent of retailers currently have a strategy to create a 360-degree customer view. By 2020 (if not sooner), all retail store sales will be influenced by digital data. Retailers need a digital core to understand all the data that move in and out of the company.

4. Music versus Noise

Big data represent a $33 billion industry; and this is growing rapidly. Nine out of 10 retailers believe that big data are essen­tial to their business operations. Still, it’s how companies distill the data into meaningful insights that defines the value of the outcomes.

As the physical and virtual retail worlds more fully mesh, the challenge for retail companies will be to derive meaning from the intersection of multiple sources of data: stores, E-commerce, mobile, social, in-store sensors, and/or wearables. Connect­ing these data to deliver better customer service, improve the in-store experience, or design a more-engaging mobile app has become just basic table stakes.

Retailers that are truly obsessed with their customers, and their behavior and characteristics, will more aggressively invest in analytics efforts (and software), recognizing that both rev­enue growth and enhanced customer experiences depend on such actions.

5. Voice Technology to Be Worth Talking About

Have you spoken to Siri lately? How about Alexa, Google Now, or Cortana? Voice recognition software is dramatically chang­ing shopper behavior; and this will be even more true in the future. If you’re not listening, you risk being left out of the conversation.

Although solid data calculating the benefits of voice-acti­vated search remain elusive by virtue of the so-far small sample size, the fact is that most consumers speak faster than they type. As advanced voice technology becomes more accepted by con­sumers, retailers will need to embrace its greater popularity as a search and information tool. Voice-recognition applications are simpler and require less effort for the shopper—a winning formula for those consumers who have shown time and again that they’re willing to adopt technologies that help them sift through information or aid in a purchasing decision.

6. Generation Z to Disrupt Retail

While everyone was paying attention to Millennials, Generation Z has been honing their shopping chops. Fitch recently reported that by the year 2020 the people born in the late 1990s will be the largest group of shoppers worldwide, accounting for 40 percent of the United States, Europe, and Brazil, Russia, India, China (known as the BRIC countries) consumer base.

This group will disrupt retailers with a new set of atti­tudes, motivations, and behaviors. The Generation Z group is the most culturally diverse cohort, considered to be more self­reliant, solution-oriented, and ambitious than Millennials. It’s also made up of impatient shoppers quick to dismiss companies that can’t immediately and easily cater to their whims.

Which retailers have the upper hand with Gen Z? None of them do at the moment. It’s all about who best meets their needs and who delivers something that is perceived to be unique—and how quickly the consumers can have what they want.

7. The Pursuit of “Frictionless” Payments

Consumers typically want payment processes to be simple, but delivering a seamless experience from aspiration to purchase requires heavy lifting by the supply chain (including retailers). Payment option iterations from Apple, Samsung, and Android have begun gaining traction, although usage has not been grow­ing at anticipated rates. The key arbiter of what could be: 60 percent of consumers pay with smartphones because of loyalty benefits (e.g., nearly 15 percent of Starbucks customers pay with their phones).

Although not every payment innovation was expected to catch on, 2016 would find those consumers and retailers willing to wade through a sea of change. Biometrics such as finger­print systems, facial recognition, and iris scanning are being introduced. Technology consulting firm Frost & Sullivan fore­cast that nearly half a billion people will be using smartphones equipped with biometric technology by 2017. MasterCard announced a program in October 2015 that would enable com­panies to add credit-card credentials to personal devices such as key fobs and smart rings.

Don’t discount the possibilities of RFID (Radio Fre­quency Identification). The reality of paying by walking under an RFID-enabled archway is closer than ever. And resist the temptation to dismiss Bitcoin and other cryptocurrencies: They continue to drive home the message that the next generation thinks rather differently about money.

Say “Hi” to “Buy” Buttons on Social Sites

Social networks have moved way beyond their origins. Face- book, Pinterest, and others have all introduced Buy Buttons, but that’s just the tip of the iceberg. Expect fringe platforms such as Snapchat, Instagram, and Medium—maybe even Periscope—to be nipping at their heels. [Authors’note: In mid-2016, Twitter decided to pull the plug on its Buy Button efforts. This was less than a year after Twitter had announced its program with great fanfare.]

Having Buy Buttons on some of the fastest-growing social networks means shoppers who are interested in Buy Buttons will no longer have to ask where to buy. And when retailers take away the friction of shopping, customers click to buy.

Even if you’re not ready to leap into social shopping, don’t overlook the power of these networks for marketing; lns- tagram’s advertising revenue from direct viewer shopping was expected to exceed $1 billion in 2016.

8. Partnerships Will Thrive

Gone are the days when retailers kept all their cards close to their vest. Partnerships are now the new secret weapon for those committed to delivering on the promise of today’s on-demand economy.

Walgreens, Target, Walmart, Costco, and 7-Eleven have been working with such delivery startups as lnstacart, Door- dash, and Postmates. Deliv, which billed itself as the bridge to the last-mile gap between retailers and their customers, secured a retailer roster that already includes Macy’s, Neiman Marcus, and Williams-Sonoma.

On the other hand, some experts looked for retailer/ designer collaborations to cool in year 2016 as more shoppers grew tired of this once-loved differentiation strategy, and more weary of the prevailing inventory management issues. In 2015, there was H&M with Balmain, Kohl’s with Thakoon, and Tar­get introducing Adam Lippes. All are top designers best known by just the 1 percent of shoppers who can actually afford their collections, not the masses who crave a designer label their friends will covet.

9. Year of the Mobile-Equipped Associate

Providing better customer service and generating more inter­action with their shoppers can lead to greater retail sales. No longer an industry talking point, the concept of arming front-line associates with mobile technology has reached a critical mass.

Tech-empowered associates often have considerable insight into the available inventory across all stores and distribu­tion centers; this can save a customer sale in just seconds. With their devices in hand, associates have the potential to better understand customer preferences based on actual past purchases or wish lists.

With great power comes great responsibility: Thus, retail­ers must better train their associates to be able to use and under­stand the technology tools, and realize that different people shop differently. Not every customer is tech savvy; many visit stores for the experience.

10. loT Coming on PDQ

The Internet of Things (IoT) became “a thing” in 2014 and it’s going to be much bigger as time goes on. The McKinsey Global Institute recently forecast that IoT could have a total economic impact of $11 trillion annually by 2025—less than a decade from now!

Even though much of the talk today is about the use of IoT in home appliances and smartphones, the technology really sets the stage for major big-data developments—specifically in the form of the improved levels of supply chain efficiency and inventory management. With IoT, products can communi­cate how they are actually being used, providing considerable insight into customer behavior and preferences.

Although this game-changing technology offers both potential cost savings and productivity enhancements, hurdles remain. Standards are imperative; the industry must work with technology vendors to provide connected, interoperable com­ponents and systems. Another significant obstacle involves security and privacy concerns—protecting both company and customer data.

11. Seeking the Mobile Toothbrush

Forrester Research reported that mobile technology would influence about $1 trillion in U.S. spending in the year 2016 as mobile search, shopping, and social interaction becomes the centerpiece of customers’ “always-on” way of life. Meanwhile, eMarketer reported that 25 percent of all U.S. E-commerce sales would take place via mobile devices by the end of 2016.

According to Forrester, 4.8 billion people globally would be using smartphones by the end of 2016. The biggest challenge with this occurrence for retailers will be finding a way to effec­tively carve out a bit of real estate on those devices. Experts see mobile optimization eventually rivaling the importance of desktop optimization.

In 2016, “deep links” to apps were projected to become much more prevalent. Still, the success of mobile apps comes down to their ease of use and the speed of purchase. If an app is to have real value, it will need to pass the “toothbrush test”: It has to prompt the consumer to use it every day.

12. That Shrinking Feeling

Macy’s planned to shut as many as 40 of its stores in early 2016, after closing several dozen over the last few years. [Authors’ note: In mid-2016, Macy’s announced plans to close an addi­tional 100 stores.] Forty stores were on the chopping block at C. Penney, and Target was going to close 13 units at the end of January 2016. Along with these planned store closings, the industry will endure shrinking store counts as the office supply segment consolidates and Walgreens Boots Alliance swallows Rite Aid.

Experts point out that a leaner organization can often grow more profitably. Macy’s Backstage locations have begun to debut, Walmart’s Neighborhood Markets seem like com­pact supercenters, and Target is expanding its small-format stores, rebranding CityTarget and TargetExpress stores as Tar­get. Kohl’s plans to open between 5 and 10 smaller stores, as well.

One-size rarely fits all in apparel retailing. More retailers are realizing the same can be said of their real-estate strategy.

13. Soon We’ll Have AI Make the Predictions

Retailers envision using the software algorithms that define artificial intelligence (AI)—including pattern recognition, deep-learning neural networks, and computer vision—to help generate the major decisions that help shape consumers’ user experience. It can be used for product recommendations, dynamic pricing, and promotions, and it gets smarter over time, learning from the data.

While AI will become more rooted in the retail industry, virtual reality (VR) is also knocking on the door. The goal is to use VR to create more immersive, contextual experiences, cus­tomized to highlight every brand’s assets and strengthen their customer relationships.

Regardless, it’s time to test and explore. Even though the over-40 set may look askance at virtual reality, younger shop­pers who have been immersed in videogaming since they were knee-high will be more inclined to embrace this new shopping experience, being dubbed V-commerce.

14. New Cybersecurity Threats Looming

The cat-and-mouse game between retailers and cybercriminals shows no signs of abating. Hackers will continue to find new ways to attack retailers’ networks, and retailers will continue to do everything in their power to thwart these attempts.

Europay MasterCard and Visa chip-based credit cards will provide an additional line of defense against counterfeit card fraud, but expect a chorus of voices (including the NRF’s) to continue to argue that not requiring a PIN to complete a transac­tion makes this a half-step forward at best.

Meanwhile, retailer and consumer concerns are shifting to other potentially unprotected opportunities for hackers. Merchant data warehouses, unencrypted data transmissions, and card-not-present transactions will be under greater scrutiny.

As the Internet of Things becomes more established, inno­vators need to keep an eye on protecting the growing number of smart devices. Wider adoption translates into stronger interest on the part of criminals looking to steal personal data captured by these devices.

15. The Rise of the Data Scientist

Success in 2016 was expected to boil down to smarter, more data-driven decision making. Intuition-based decisions will always play a role in retail, but true insight comes from combining different data sets—points of sale, weather reports, web traffic, competitors’ pricing data, and even sensors.

Every merchant and marketer needs to be in sync with the ever-connected customer, and they’re challenged to go above and beyond brand promises. That requires a continued emphasis on breaking down organizational silos and connect­ing data across and within the retail organization. Consider that the entire Uber experience is predicated on data science and algorithms—a high bar, indeed.

It’s been said that understanding data science helps mer­chants speak a language that contributes to the bottom line from day 1. Although it’s a huge opportunity, a considerable conundrum remains: There is a dearth of data scientists today and those retailers looking to tap into this expertise are finding that moving from aspiration to action is a longer process than anticipated.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.