The U.S. retail industry is undergoing a sea of change – one that has some small brick-and-mortar retailers reaching for their life vests. How can a small retailer compete in increasingly choppy waters? McKinsey & Company recently identified some key trends reshaping retailing.
Below is a closer look at the ones I think are most relevant to small retail shop owners.
Key Trends Small Retailers Must Know
Retail Growth Will Be Slow
Although the economy is improving, unemployment is still relatively high, and the average consumer’s confidence is low. While many industry forecasts predict U.S. retail growth of 3 to 4 percent annually for the next 5 years (well below the average 5 to 7 percent annual growth pre-2008), McKinsey believes slow retail growth will extend beyond five years to become the “new normal.”
Consumers Have Higher Expectations
The growth of eCommerce and the introduction of mobile commerce (M-Commerce) have raised the stakes. Consumers expect purchasing and returning items to be quick, easy and seamless – no matter where they’re doing it.
Lines Are Blurring Between Retail Sectors
The way convenience and big-box stores are adding fresh food items is just one example of how retailers are eating each other’s lunch by selling products previously not found in their niches.
How Will Small Retailers Survive?
McKinsey identifies three key markets for retailers to target:
In the next 10 years, McKinsey says, the 47 million U.S. households headed by people over age 55 will account for the lion’s share of retail spending growth. For instance, they’ll drive 73 percent of housewares growth and 56 percent of apparel growth, thanks to their larger disposable incomes.
Hispanic consumers’ retail spending is projected to almost double in the next decade. They will be responsible for nearly one-fifth of all U.S. retail spending. Apparel, footwear and children’s products are hot categories for Hispanic shoppers.
Those ages 13 to 30 make up just 15 percent of U.S. consumers, but by 2020 McKinsey says they will account for nearly one-third of total retail spending. Despite tough economic times, in the last five years Millennials’ retail spending has increased by 3 percent annually.
How Can You Attract These Key Retail Shoppers?
Try three of the strategies McKinsey suggests:
Personalize Your Marketing
McKinsey’s research found that for the average consumer, peer recommendations carry 10 times more weight than a salesperson’s recommendation.
Marketing your retail business on social media is a good start, but make sure you’re also encouraging customers to review your store on review and ratings sites, and to share their purchases on Facebook or other social media channels.
Reach out to customers with personalized emails based on past purchasing behaviors, or target offers to social media followers who have liked or shared a product on social media. Despite McKinsey’s data, don’t ignore the power of well-informed and helpful salespeople. Older shoppers, in particular, like to get in-person help from real people. Salespeople who remember them, recall what they like and alert them when new merchandise comes in that they might be interested in.
This all builds customer loyalty.
McKinsey says the average retail store’s footprint will shrink in the coming decade as large retailers focus more on eCommerce. Small retailers can benefit from this, too.
A smaller, but more carefully edited and curated store is more likely to succeed than a midsized location with a hodge-podge of items. Make every square foot of space as profitable as you can. Consider retail kiosks or small “pop-up” (temporary) locations as ways to try out new product lines or concepts.
Create an Experience, Not Just a Store
McKinsey notes that the retail environment is becoming increasingly “experiential.” For all three of the demographic groups noted above, brick-and-mortar shopping is a social activity.
If you want your retail business to stand out from the big-box pack, offer unique products, deep knowledge of your products and an experience that is enjoyable and memorable. Whether by adding a refreshment bar to your store, offering in-store tailoring of clothes or holding classes to teach customers how to use the cameras you sell, going above and beyond just making the sale will be key to retail success in the coming years.
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