In 2016, it’ll be more of the same.
That’s the general consensus among analysts and marketers, who say that retailers in the apparel and department-store sectors will have a hard time with sales in the coming year — while auto, travel and durable goods like furniture will thrive.
But retailers learned from the tough lessons of 2015, and have some tricks up their sleeves to leverage data and other tools, and ultimately succeed in the market.
Consumers are changing their behaviors and the ways they spend, and that will persist in the new year, according to MasterCard Advisors’ senior vice president and group head of market insights Sarah Quinlan. She said this was the first year that shoppers widely embraced e-commerce, allowing consumers access to information about the products they bought, while also giving them more time that they might have otherwise spent in stores. Quinlan added that the experiential economy “is and will continue to be the economy that is growing and strong.”
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“People want to spend more time with their family and friends again,” she said. “They want to create a memory that’s more permanent and meaningful to them than buying a blouse or buying another pair of boots.”
Integrating experience into buying will be the thing that sets one retailer apart from the next, agreed retail consultant and marketing strategist BJ Bueno, founder of The Cult Branding Company. Consumers, he said, are overwhelmed by choices and a slew of brands that are new and hot, offering attractive sales and must-have items. The key to bringing in customers — and keeping them — will be “mastering the recommendation engine.”
“That’s where there is a huge opportunity, in those algorithms,” he said. “The ones that have the ability to offer me the right things at the right moment within the right financial context. The computer not only has to give you an idea, but give you an idea that fits my budget, my lifestyle and which includes my financial boundaries.”
But it is also necessary to find the human aspects within the data, and use them to understand what the shopper wants to glean from his or her experience purchasing from the company. The combination of personable, human associates and supercomputers will lead brands to success, Bueno said.
“The magic trick on the back end is tons of data that’s being pumped in to make the experience feel a little bit more ‘me,’” he said. “The true ideal would be one-to-one, where my preferences are stored and understood by a computer so I don’t have to constantly be repeating the same tasks.”
The North Face recently rolled out its version of this strategy, called the Expert Personal Shopper platform. A computer mimics the shopper’s experience of consulting a salesperson by asking the customer a set of questions, and then suggesting items to purchase based on his or her answers.
For companies to differentiate themselves from the hordes of others, Bueno also suggests going back to a classic marketing tactic: events.
“Your consumer likes to go out,” he said. “So do something like a wine tasting — match it with something they were going to do in the first place, and then maybe your store is a stop on a girls’ night out.”
Bueno said Macy’s holiday windows in San Francisco hit the sweet spot of positive, experiential shopping; the department store teamed up with the SPCA and decked its displays out with puppies and kittens up for adoption.
“People loved it,” he said. “It had nothing to do with selling the consumer clothing or goods, but rather, it was something the consumer cares about. It was an example of humanization, picking something bigger than yourself.”
Regarding the fashion apparel and luxury markets, Giuliano Iannaccone, attorney at Tarter Krinsky & Drogin, said the high-end business is resilient. “Luxury is luxury,” Iannaccone said. “But this season there have been challenges to the apparel segment. Markdown activity began sooner than expected, and overstocks in apparel [heading into 2016] is a real concern.”
Iannaccone described the current consumer environment as difficult with unseasonably warm weather that began in early November and has continued through December. That makes the outlook for the apparel segment more of a concern — especially with outerwear.
“But luxury has been solid,” he added. “Margins — for the most part — are protected.”
One area of concern in the high end is with tourism dollars. Iannaccone said retailers — in particular, department stores — that have previously relied on tourism dollars may again be challenged in 2016 as a strong dollar maintains its velocity. “The large department stores in markets such as New York who are recognized as a destination for tourists will be more impacted.” Iannaccone added that retailers should offer brands that appeal to tourists that can’t be found at home where a strong dollar makes it cheaper.
Lisa Clyde, global head of consumer and retail investment banking at Bank of America Merrill Lynch, agreed on the tourism front, adding that luxury will be fairly subdued over the next few years. She projected midsingle-digit growth rates for luxury, compared to the high-single-digit growth seen in past years.
But Clyde is “bullish on off-price,” saying that discount retailers are doing incredibly well, and are properly set up for the trends the new year will surely bring.
“During the recession, it made sense that off-price was doing well,” she said. “But now, off-price has further proven itself as a model that can appeal to a broad demographic that starts at teens all the way up through the Boomers.
“Those customers are sticking with off-price because they like the brand assortment they’re provided and the compelling value.”
The home and DIY space, she said, should also continue to see the benefits of the dollar spend shifting to home improvement, while auto and major food retailers will be positively impacted, and remain some of the better-performing categories in 2016.