The end of wholesale. A retail refugee crisis. Stores morphing into media channels for brands.
Peering into the crystal ball of retail futurist Doug Stephens, an image of an industry undergoing profound change emerges. And depending on what role or job you have in the industry, there’s either a fabulously imaginative or very bleak future in store.
Stephens sees retailers selling ideas over products, removing racks of merchandise to create socially driven experiences, re-engineering traditional relationships with brands into something different and modern, and technology automating retailers to greater levels of efficiency and productiveness while triggering pink slips on a massive scale.
“People are talking about the end of retail coming, but consider wholesale. It’s part of the economic equation and it’s under severe stress,” said the 54-year-old Canadian native, author, speaker and founder of the advisory firm Retail Prophet, during an interview with WWD on the forces of industry change.
“Brands are waking up to the idea that they don’t need retail distribution and are no longer dependent on retailers to forge connections with consumers.”
Nike, he noted, last year announced it would partner closely with 40 retail partners, from 30,000 they work with. “They’ll reclaim the money and time spent with others and invest in their own stores and Web site. We’ll see more and more brands doing exactly the same thing — putting pressure on retailers.”
Brick-and-mortar stores he sees becoming “media channels” for brands. “The physical store is becoming much less efficient as a distribution vehicle for product.” In time, they’ll be recognized as “fantastic vehicles for brand experiences — places where consumers can really engage with the brand, while the retailer looks to online as a driver of product distribution.”
He believes the economic model for retail, based on wholesale distribution and markups, must be remade to be experiential and that’s where “the brand becomes the client of the retailer and the retailer charges the brand upfront for the execution of these experiences, and gives them verifiable data of how people engage.”
“The question is, ‘what are you are really selling? If you have a men’s wear department in the store, you don’t sell men’s wear. You (should) sell a sense of style. You sell fashion. You sell confidence. You sell all of these ideas. Brands and retailers need to do this. Let’s get at the essence of the idea, and the clothes come along for the ride.”
To gauge the future of retail, “I’m not just looking at the retail sector. I’m also looking at what’s happening in art, entertainment, politics, culture, foreign affairs,” said Stephens. “It’s this amalgam of all the changes taking place and tracking back to how is this going to impact us as consumers and the way we behave.”
According to Stephens’ crystal ball…
“Experiential retailers — this new class of retailer will emerge,” à la Story, the 2,000-square-foot store on 10th Avenue in Manhattan that like a gallery, changes its merchandise theme every four to eight weeks, or Neighborhood Goods, a small department store starting up in Plano, Tex. this fall to promote pop-ups and a communal, social atmosphere. “Bass Pro Shops recognized early on the need for a place where consumers can have a physical experience with outdoor products. They built these theme parks — where you can see a huge tank of game fish, sit in a boat, watch a fisherman or a marksman. They made the trip to the store an event. Kids get enthusiastic about the outdoors.”
A replenishment economy, driven by voice assistance and sensor-driven replenishment, will grow. “My refrigerator will include sensors that trigger reorders. A huge, significant portion of consumption will be managed by technology for us. Forty-five to 55 percent of things we buy in a grocery store, we buy routinely — the same brand, the same size package, the same frequency — groceries, toiletries, paper, cosmetics. We are already beginning to see the nascent stages of this replenishment economy.”
Online shopping will become experiential “taking you into a very immersive virtual world, and with artificial intelligence factoring into daily life…Each of us will subscribe to a virtual assistant that gets to know us, understands our patterns, likes, dislikes, and our finances and budgets — a virtual digital intelligence that will begin to make decisions for us, like booking hotels, hair appointments and buying products. Technologies are going to be really marvelous. As dependent as we are on the smart phone, we will be every bit as dependent on our virtual assistant.”
A “retail refugee crisis” looms. “When you combine the profound effect of robotics and A.I. on front-line retail employees, the fallout is going to be staggering. If you consider robotics in warehouses, management software that calculates inventory requirements, driverless vehicles, we are going to be dealing with potentially tens of millions of people just in the U.S. that will be out of work — cashiers, warehouse workers, store managers, inventory management specialists, loss prevention people.”
“Anyone who sells a commodity product to which they (don’t) attach some sort of meaningful experience is going to go out of business on the heap of victims that Amazon takes. The winners will be in two classes: brands that provide an experience to consumers that is easy, simple, frictionless and doesn’t require a lot of time or effort, and those brands that really treat the consumer to an experience that is literally delicious. Food for the most part is a commodity, but not with Eataly. It’s part-store, part-restaurant, filled with unique things to taste and experience.”
“Online sales, growing 15 to 16 percent a year, within six years represent 25 percent of U.S. retail sales. In 12 years, I expect a minimum of 40 percent of the U.S. retail economy will be online.”
“Consumers will be less materialistic. Millennials, based on data we have today, have a bias toward experience over product. The social currency for our generation was about what you owned, how much your sofa cost. For Millennials, social currency is where they are, who they are with and what they are doing. This is the first generation in the history of the planet that has literally documented every single meaningful experience of their lives publicly online.”
“Within 10 years, 50 percent of the brands in the Fortune 500 are going to be different. For all of these legacy brands, it’s going to be a very difficult ride. Some of them pull out the heritage card.”
“Department stores have a tremendous challenge and also a really remarkable opportunity in front of them. The whole way of thinking needs to be eradicated. If they said, let’s imagine all the products were gone and were left with an empty stage, what could they do in those spaces that was social, interactive, intriguing, interesting and gave people a reason to come? Maybe not even call the department store a department store anymore. Maybe those conversations also revolve around product categories, events around fashion, health, wellness, beauty — it’s about entertainment. Unfortunately, the culture of department stores is just mired in this merchant mentality that’s all about buys, promotions, seasonality, floor space and sales per square foot. We need to get back to the theater.”
Small entrepreneurs will become industry leaders due to “a return to smaller, craft retail where you have an extremely engaged entrepreneurial owner who really loves the things he sells, travels to find the right things and sells with passion, creating a welcoming environment. The barriers to entry now are lower than ever. Money is easier to come by. You don’t have to go through institutional financing. But we exist in this market of complete product proliferation. From Penney’s to Target to Macy’s, am I really seeing product that is so different? It’s pretty much interchangeable stuff.”
The near-term performance of retailers will be good through the remainder of 2018. “There is a sense of consumer optimism that we haven’t seen in awhile. The big question is will it continue into 2019, or is there potential for a recession? A lot of people feel the economy is too hot. Another tax credit could be what breaks the camel’s back. In a technical sense we are actually overdue for one. The indicators are there for a recession. In the real estate market, prices have started to soften, interest rates are indeed ticking up, borrowing is again very, very high. We’ve got a lot of conditions that start to look like 2005 or 2006.”