What's Next?

The "Roaring Zeros" have drawn to a close with most retailers and customers muttering "Good Riddance".  It was a decade with extraordinary ups and downs that ended on a clearly down note.  So what happened and what's next?

There were several long-held retail strategies that ran completely out of steam during the decade.  A short list includes:

• Build it and they will come.  For decades, developers grew retail square footage far faster than population growth.  All this new space brought rapidly increasing costs- inventory, staffing, and occupancy.  This growing imbalance was masked by record growth in consumer debt.  With the birth and rapid growth of e-tail and the collapse of personal net worth in 2008, this imbalance began to move back into equilibrium as many 4-wall retailers disappeared and many stores went dark.   
• Pile it high and let it fly.  Coined by Macy's years ago and helped along with low interest rates, over the last decade this credo morphed into "Pile it high and mark it down".  Retailers worked hard to find the appropriate balance between too much and too little inventory. 
• Competing on price alone.  With promotional calendars now filled, retailers had an increasingly difficult time relying on price reductions to drive incremental sales.  To maintain earnings, this reduction in margins from these promotions forced reductions in service levels and ultimately the quality of the product.  This made it all but impossible to sell product at full price, creating a self-fulfilling, downward spiral. 
• One assortment fits all.  As the consolidations of the last decade produced giant, centrally managed chains, there was a reduction in the number of suppliers who could feed these giants.  Product offerings became homogenized, ignoring, with a couple of brilliant exceptions, local preferences.  When all retailers in a channel carry the same products, the only way to differentiate is on price (see point above).
• One-way marketing.  Retailers started the decade utilizing  "We talk, you listen" marketing through a relatively narrow set of newspaper, radio, and TV channels.  By the end of the decade these three channels were losing effectiveness at a record pace, replaced by explosive growth in new channels and forms of communication which most retailers were trying hard to understand and harness.

With these points in mind, here's are some fearless predictions on what's next:

• "Frugal is cool" becomes the new standard.  The Boomers are now approaching their retirement years and have watched in horror as their personal net worth dropped 40% or more in a matter of months.  The days of taking on more and more debt for conspicuous consumption will shift to demanding exceptional value in their purchases.  It should be noted that this doesn't necessarily mean low prices, but it does mean greater value for money spent.  This means fewer units, but more dollars.  Margins will be key to success.
• Footprints get smaller.  E-tail will continue to expand at the expense of 4-wall retail.  Expect more marginal players (in some cases very large players) to disappear.  For the survivors, there will be a dramatic reduction in new store openings and downsizing in existing locations.  Look for more and more store closings as retailers shift their focus from gross sales to sales productivity per square foot.  Landlords will struggle trying to fill empty stores. 
• More focus on the product.  With consumer demand shifting from price to value, successful retailers across all channels will take a cue from Amazon (Kindle) and Apple (iPhone) to bring out more innovative and exciting new products to differentiate themselves and achieve pricing power, particularly in apparel and home.  Expect more vertical players like H&M and Zara to appear.
• Local goes national.  Retail will come full circle back to the time when all retail was local.  Assortments will speak to local geographic, demographic, and cultural preferences.  Marketing will become a two-way conversation between local stores and local customers via Social Media and web sites that carry both national and local information.  E-Marketing and CRM will merge.  This will be enabled by increasingly sophisticated technology and an organizational shift that moves more decision-making out of a central office and into the field to be closer to the end customer.
• Independents make a comeback.  With a new customer focus on value and innovation, downsizing by the big retailers, terrific real estate deals, and assuming the banks settle down and credit becomes available, new concepts and formats should flourish.
• Gen Y emerges.  Gen Y (born 1985 to 2005) is a third larger than the Baby Boomers.  They are spending at a much higher rate than the Boomers did at their age.  They are already being felt in electronics (iPhone, iPod, Wii) and will have a profound impact on retailing.  That's the good news.  The not so good news is that their average age is 18 and there are still 5-10 years for their full impact to be felt on a broad basis.  By the end of the decade, however, they will define and determine the retail environment.

From a consumers point of view, you'd have to characterize the last decade as boring and irritating.  Who knows, the coming decade may make shopping interesting, if not fun again.  These are my thoughts.  What do you think?  Join the discussion.


 

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