In their annual retail predictions report, Alix Partners managing directors David Bassuk and Joel Bines said amid a decline in core retail sales for January 2018 — the biggest in 14 months — is likely to experience more store closings as well as the negative impact on margins due to inflation and higher labor costs.
But the pair of analysts also see retailers and brands getting better at speed to market as well as inventory management.
“Last year, retailers shuttered a record-breaking 7,000 stores,” the authors of the report said. “We think just as many — and probably more — will shut their doors this year. But we also think retailers will head into those tough decisions with eyes wide open. In 2018, retailers will continue to trim the fat and run store closure programs that squeeze the most value possible.”
The Alix Partners directors also see higher inflation and labor costs as well as ongoing omnichannel investments hurting margins this year. There’s also price pressure from off-price retailers and Amazon, which is “chipping away at already razor-thin margins. But there’s hope. The boldest retailers will turn to automation and outsourcing to cut costs aggressively and boost profits,” they said.
With lead times, the analysts expect it to continue getting shorter. “Retailers used to take a full year to bring a product to market. Now, some retailers — not just fast fashion — are doing it in 10 weeks. We expect many retailers — including established ones — to cut down product development time by as much as 75 percent this year.”
Simultaneously, Alix Partners expects that a faster product development cycle will also result in better inventory positions. And it will also force companies to drop a seasonal calendar. “That approach makes it easier to buy products closer to the in-store date, which leads to better predictions of what is going to sell and fewer markdowns at the end of a season,” they noted. “This means we’ll be less likely to see Eagles Super Bowl merchandise marked down in stores in March — so good news all around.”
Other notable trends predicted this year include retailers “being clever and creative with their supply chains, using vacant retail real estate to handle e-commerce delivery, making big [capital expenditures] investments in warehouse automation” and “thinking about acquiring transportation companies.”
They also expect brands to join the “Amazon marketplace after playing hard-to-get for years — cough, Nike — and predict other traditional retailers will get cozy with digital natives [like Target and Shipt].”
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