Apocalypse Postponed: The State of Retail

As Thanksgiving, the holiday shopping season, Black Friday, Cyber Monday, and all the other retail milestones loom on the horizon, it’s worth taking our annual look at the state of retail. 

It’s of course far too early to accurately predict what 2018 retail sales will look like (as I always point out, Big Picture blogger and Bloomberg contributor Barry Ritholtz has an annual caveat about holiday retail sales forecasts), but a there are a few indicators that this year could be better than past years, thanks to what some have described as a “supercharged” economy and record low unemployment. However, positive macroeconomic trends may not necessarily translate to great times for retail; the economy has been growing steadily for almost eight years now and we still hear about retail’s hard times and its impending apocalypse. Like the printing industry, retail has become decoupled from general economic growth. Still, it’s not all doom and gloom on the retail front.

It’s always worth prefacing the conversation about retail with a link to a good Bloomberg story from around last year at this time, which portended a coming “retail apocalypse”—not due to the problems that are usually cited, such as millennials having an aversion to shopping malls, the growth of ecommerce, the dominance of Amazon, and the other usual suspects. Rather, say the article’s authors, “the root cause is that many of these long-standing [retail] chains are overloaded with debt—often from leveraged buyouts led by private equity firms. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder—even for healthy chains.” 

The whole piece is worth reading. 

Since then, there have been occasional stories and analyses bemoaning the fate of retail, but there have been just as many that have stressed that rumors of retail’s death have been greatly exaggerated (to coin a phrase). 

Last May, Moody’s looked at retail from an employment standpoint, noting that while retail’s share of the labor market has declined to 1970s levels, comparing it to other sectors—manufacturing and health care—puts retail employment in perspective:

it’s useful to place this into a broader context by comparing it to two other industries that illustrate what a major structural change in the economy actually looks like: the decline of manufacturing and the rise of healthcare. As a share of employment, retail looks relatively flat over the past 50 years compared with these industries, generally fluctuating between 10% and 12%. In contrast, automation and globalization have pushed the manufacturing share of employment from 25% in 1970 to less than 9% today. On the other side of the ledger, the growth of healthcare spending has pushed healthcare employment from 5% of jobs to 13%.

If there appears to be a common theme, it’s that retail isn’t necessarily dying, but rather it’s changing. In September, Forbes had an interesting look at how consumer behaviors are changing and how retailers that understand those changes are thriving, apocalypse be damned! The secret sauce? Data. 

Some retailers saw these signs and adapted their business models years ago. These retail chains understand the biggest advantage e-commerce retailers have is their ability to collect and leverage insights into consumer behaviors gained by technological innovations like big data. They are adopting technology and processes to achieve the same advantage and adapt to today’s retail landscape. Others are slower to adapt and now face an uphill battle to avoid extinction.

A couple of weeks ago, Big Picture blogger Barry Ritholtz conducted an interview with Barbara Kahn, Marketing Professor at the Wharton School of Business, who defined a word—which we have been seeing for a few years now—in the context of retail: “omnichannel.” She says: 

Omnichannel is thinking about not dividing up whether it’s online or offline, it’s all one big channel.  And that’s going to become not a real word anymore. We’re just going to think of this as retail. You know, when you buy retail, you can go online, you can go in the store, you can pick up there, you can buy there, whatever. 

It’s tempting to say that ecommerce is x percent of total retail—it usually comes in somewhere around 10% these days—but it’s becoming less and less easy to make a distinction between ecommerce and non-ecommerce. For example, I buy books almost exclusively through my local independent bookstore. But they have a website. When I am looking for a title, I check the website to see if it’s in stock, and if not I buy it online and have it shipped to the store for free. When it’s in, they email me, and I go pick it up. As is inevitably the case, while I am in the store, other titles catch my eye, and I walk out with books I bought both on premises and online. How much of that is ecommerce and how much of it is bricks-and-mortar? Is there even a distinction? Or is it all just “retail”? 

Other stores do the same thing. My local supermarket chain has a service called Hannaford To Go. You order your groceries online, select a time to come by and pick them up, and they’re ready and waiting for you. How much of that is ecommerce and how much bricks-and-mortar? 

It also works the other way. If you are in a physical retail location, and a particular item you’re looking for is not in stock, you can order it and they will ship it to your home. 

So the distinction between online and offline commerce is blurring. 

Kahn was also discussing her recent book, The Shopping Revolution: How Successful Retailers Win Customers in an Era of Endless Disruption, in which she identifies what she refers to as the “retail matrix.” 

She basis this matrix on the principle of competitive advantage. “If you’re in a very competitive market, you’ve got to be better than the competition. That means either increase pleasure or take away pain. So those two ideas form the underlying theory of the matrix,” she told Ritholtz.

The columns are the principle of customer value: product benefits or customer experience. The rows are the principle of differential advantage: do it better by increasing pleasure or do it better by removing pain. And that gives me the two by two matrix that I call my success matrix.

The traditional retail practices—“everyday low prices,” the idea that you need to keep customers in stores as long as possible to maximize impulse buying, etc.—are becoming less and less effective. Wal-Mart’s “curbside pickup” and the Hannaford To Go example are services that don’t even encourage the customer to come inside the store at all. It’s the idea of “making shopping easier” and more pleasant—or more like online shopping. After all, no one in their right mind wants to spend all day in a Wal-Mart! At the same time, “digitally native vertical brands” have become popular; Kahn identifies niche brands like Warby Parker, Casper, Allbirds, and other brands that create very different shopping experiences. 

Anyway, as they say, go read or listen to the whole interview. 

Last Friday, we ran a press release from Adobe that offered their forecast of the 2018 retail environment. I’m not usually sanguine about these kinds of forecasts, but some data points stood out. Such as:

• Adobe predicts one percent of SKUs will drive a record 70 percent of sales during the holiday season, 30 percent more than during the rest of the year. 4K TVs, as well as retro video consoles and games such as Tekken 3, Ridge Racer Type 4 and Final Fantasy VII, are expected to perform well for the second consecutive year.
• Smartphones continue to gain share as consumers’ preferred devices for online shopping, representing 48.3 percent of visits and 27.2 percent of revenue. Mobile revenue is up 11.6 percent YoY. Yet, completed cart orders happen over 20 percent less on smartphones than desktop, as a result of abandonment from sub-optimal checkout experiences.
• Voice-assisted shopping is on the rise, with 21 percent of consumers reporting they are planning to reorder frequently-purchased items and 17 percent placing one-time orders for in-store pickup using their voice activated devices.

The full report is here. 

The reason I bring up the subject of retail, especially in the context of wide-format printing, is that POP/POS and retail graphics have been such a big driver of the wide-format sector that anything that affects retail affects a lot of wide-format graphics shops. So what can we say about these retail trends that is of relevance to wide-format graphics producers?

Both brands and retailers need to change their graphics more and more frequently. This is nothing new, but graphics providers looking to serve the retail market need to be aware that turn times are getting even faster than they have been. 

Retail is also getting more and more localized and regionalized. Big national brands are becoming less and less interested in mass marketing and more attuned to have a local presence. A Target in an urban Northeast city will be different than the same store in a southern rural area. This opens up the door to more short-run digital work.   

Retail is becoming more about “experiences,” so retail graphics themselves should become more experiential. Experiential or environmental graphics are not just for offices; they can also play a large role in retail environments. Also don’t forget that integrating some kind of interactivity via QR or AR (Augmented Reality) can also be a way of making retail graphics truly experiential. 

The idea that customers don’t even have to enter a store doesn’t bode well for POP graphics, but that only places more of an emphasis on outdoor graphics and signage, as well as the smaller-format graphics—both print and non-print—that drive customers to certain websites. The need to be a total “marketing services provider” has never been more acute. 

We need to keep an eye on the challenges facing the retail sector, but not expect the “apocalypse” so many have been expecting. And, as always, to counteract any downward trends in retail, a good strategy is to diversify one’s application and customer base as much as possible—or at least be nimble enough to switch gears if the market changes. Because it will, one way or another, as it always has.