E-commerce & Internet Retail

5 Predictions for 2018 in the Face of the Retail Apocalypse

  • January 9, 2018
  • Amy Branstetter
  • 8 minutes

2017 was a tumultuous year for brick-and-mortar retail, with a record number of store closings and bankruptcies. In total, more than 9,000 stores closed their doors, up from 2,000 in 2016, and 50 chains filed for bankruptcy.

Unfortunately, these trends don’t show any signs of stopping. By the end of this year, the number of store closings in the U.S. is expected to increase at least 33% to more than 12,000, and another 25 major retailers could file for bankruptcy. This is according to estimates by commercial real estate firm Cushman & Wakefield.

“Landlords are panicking,” said Larry Perkins, the CEO and founder of the advisory firm SierraConstellation Partners. “The last year was pretty apocalyptic from a retail standpoint, and the macro issues haven’t changed. There will continue to be a high degree of bankruptcies and store closures.”

How can traditional retailers and the consumer brands that depend on them survive in this ominous retail environment? Simply put, marketing philosophies must evolve for the digitally-centric world. The days of relying on brand recognition and customer loyalty to ensure success are over.

As the retail apocalypse nears it peak, we’re making the following predictions for 2018.

Connected commerce will reign supreme.

If 2017 was the year of omnichannel, 2018 will be the year of connected commerce.

Gartner predicts that the total number of connected devices worldwide will top 11 billion this year, compared to 8 billion in 2017 – and that’s not including computers and phones. That figure is expected to reach an astonishing 20 billion by the year 2020.

The Internet of Things is here to stay, and it’s no longer enough for retailers and brands to focus their digital initiatives on websites and mobile apps. Considering the fact that 90% of retail sales still happen in brick-and-mortar stores, today’s merchants must “get phygital,” as Zebra calls it, by “improving the customer journey via the digitization of the in-store experience.”

This includes investing in technologies that help customize store visits, such as sensors for tracking customer footpaths and beacons that trigger special offers. It also includes implementing solutions that provide real-time insight into store inventory, such as sensors on shelves, automated inventory verification, and cameras and video analytics.

Voice will be the next frontier of search.

SEO as we know it is dead. Experts agree that voice is the next (but hardly the final) frontier of search, meaning today’s retailers and brands will need to think outside the screen in 2018 if they want to be successful.

According to Walker Sands’ 2017 Future of Retail study, one in five consumers (19%) have made a voice purchase through a digital home assistant such as Amazon Echo or Google Home, and another third (33%) plan to do so in the next year. For Millennials, these numbers are even higher; 43% report having made a voice-controlled purchase in the past 12 months.

While voice search is an unfamiliar and intimidating territory for many retailers and brands, it also stands to provide a major value-add. Smart speakers like Amazon Echo, Google Home, and the upcoming Apple HomePod give brands a direct line into consumers’ homes, reducing the friction and the time required to make a purchase. Gone are the days of endlessly browsing store aisles or scrolling through search results pages to find what you need; today, buying the perfect product is as easy as saying, “Alexa, order me the most delicious chocolate cake mix you can find.”

AI will decide the winners and losers.

The new Millennial consumer values their time, lifestyle and buying power more than their predecessors; they value experiences over simply owning things. This new “experience economy” has buyers expecting instant access to more relevant products, information and services.

As such, resources formerly spent on mass marketing via eye-catching ads, expensive commercials, and gimmicky slogans will be better spent on AI technologies that create richer, more personalized shopping experiences, both online and in stores. These technologies include recommendation engines, virtual assistants, conversational search engines, customer beacons, shelf sensors, and more.

Those that leverage AI technologies to personalize the customer journey are seeing tangible results from their investments. According to a 2017 study by BCG, “brands that create personalized experiences by integrating advanced digital technologies and proprietary data for customers are seeing revenue increase by 6% to 10% – two to three times faster than those who don’t.”

"Brands that create personalized experiences by integrating advanced digital technologies and proprietary data for customers are seeing revenue increase by 6% to 10% – two to three times faster than those who don’t."

More consumer brands will embrace D2C.

The rise of open marketplaces like Amazon has paved the way for smaller, lesser-known brands to quietly enter the market and steal away revenue from their traditional counterparts. These small but agile digital natives, who are able to quickly adopt the latest technologies, are slaying the giants of old.

In the CPG industry, for example, small players (those with annual sales of less than $1 billion) are outperforming the competition in 18 of the top 25 categories, according to PwC. Small players grew revenue about three times as fast as the overall category from 2009 to 2012 in packaged foods and from 2008 to 2011 in beverages.

To stay competitive with these new and innovative players, more and more established brands will be forced to bypass retailers and expand their direct-to-consumer channels. This is typically done one of four ways:

Bonus: Three Retail Mergers & Acquisitions That Will Shake Up the Industry in 2017 & Beyond

Amazon will continue to be a powerhouse. Ignore it at your peril.

In order to reach buyers, brands must be where their customers are. And for most brands, that place is Amazon.

According to a survey by the financial services firm Raymond James, 52% of people now start their online product search on Amazon, while only 26% start on search engines like Google. It’s no wonder why. The Amazon platform gives today’s consumers everything they’re craving – from personalized product recommendations and honest consumer reviews to promotional pricing, easy returns and more.

In order to regain market share, retailers and consumer brands need to stop seeing Amazon as the enemy and learn how to harness its power to propel their businesses forward.

“If you are a retail CMO now,” says Tim MacKinnon, Managing Director & VP, eBay Australia & NZ, “it is a no-brainer decision to have a marketplace as one of your channels. It is not an ‘either/or.’ It is not that you stop investing in driving people back to your own destination, but you have to also be where they are.”

"If you are a retail CMO now, it is a no-brainer decision to have a marketplace as one of your channels. It is not an ‘either/or.’ It is not that you stop investing in driving people back to your own destination, but you have to also be where they are."

Bonus: Target Sets Sights on Amazon, Walmart; Buys Shipt for $550 Million

While the “retail apocalypse” has dominated headlines in recent months, many experts believe that the changes we’re seeing are merely a transformation, not a death sentence. In fact, an August 2017 research report from IHL Group found that retailers were set to open 4,080 more stores in 2017 than they closed — and they planned to open over 5,500 more in 2018.

“The negative narrative that has been out there about the death of retail is patently false,” said Greg Buzek, president of IHL Group. “The so-called ‘retail apocalypse’ makes for a great headline, but it’s simply not true.”

If retailers and brands are failing in this new retail environment, it’s not because of some universal truth that’s outside of their control — it’s because of their unwillingness or inability to adapt to these changes.

To remain successful, established brands and retailers must find a way to evolve their strategies for today’s digitally-connected world. And 2018 will see them making big strides toward that goal.

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