Rumors of retail’s demise are much exaggerated. Overall retail sales increased 3.5 percent in 2017; by comparison, the GDP grew by just 2.3 percent, a study from Deloitte reports. But, the same study cautions, there is a big change afoot that retailers need to adapt to. Here’s what you need to know and four ways your store can adapt.
Good News, Bad News
First, the good news: The vast majority (91 percent) of retail sales still take place in brick-and-mortar stores. And although online retail is projected to grow 11.7 percent, in-store sales are also projected to grow by 1.7 percent.
Now, the bad news: Traditional retail may indeed be facing an apocalypse — or at least, a massive transformation that Deloitte dubs The Great Retail Bifurcation.
Why? Shoppers are increasingly splitting into two different groups: high-income consumers (20 percent of Americans) who are better off financially now than they were in 2017, and everybody else. While 80 percent of Americans’ incomes have stagnated since 2007, the cost of essentials such as housing, food, education and health care have risen (by 12 percent, 17 percent, 41 percent and 62 percent respectively) over the same period, according to Deloitte’s analysis of data from the Bureau of Labor Statistics. In addition, new “essentials” such as smartphones and data plans are eating up a higher proportion of consumers’ budgets.
The result: A whopping 80 percent of consumers have less to spend on discretionary retail expenses such as apparel and accessories than they did pre-recession.
How to Adapt to a Changing Retail Landscape
How can your store survive the Great Bifurcation? Follow these tips.
1. Don’t Try to be All Things to All People.
Deloitte’s study identified three types of retailers:
- Premier retailers that deliver value via premier product and experience offerings;
- Price-based retailers that deliver value by selling at the lowest possible prices and clearly communicating that proposition to customers
- Balanced retailers that deliver value via a balance of price and/or promotion.
Balanced retailers (think mid-market department stores) account for the majority of recent store closures and bankruptcies and their demise is driving the perception of a retail apocalypse. Premium and price-based retailers, in contrast, are on the rise. In the last five years, premier retailers’ revenues soared 81 percent and price-based retailers’ revenues rose by 37 percent, compared to a measly 2 percent increase for balanced retailers in the same time frame.
2. Do Prepare to Go Premium.
Unless you hope to compete with Walmart, the opportunity for small retailers lies in the premium category. High-income shoppers not only spend more, they also patronize a greater number of retailers. Deloitte reports that “in-store spending fragmentation” (the number of brick-and-mortar retailers a consumer regularly shops) is 17 percent higher among high-income consumers. Upscale consumers’ online spending fragmentation is even more pronounced — 40 percent higher than low-income consumers’.
3. Worry Less about Generations and More about Psychology.
It’s easy to get obsessed with millennials vs. baby boomers or the differences between Gen X and Gen Z. However, Deloitte found that shopper behavior is based much more on income level than on generational demographic. Consumers’ perception of their economic status is critical to their shopping habits and willingness to spend. The stereotypical millennial spending habits are really those of high-income millennials, but not the whole age group.
4. Do have a Digital Strategy.
The majority of retail sales may still take place in brick-and-mortar stores — but that could be because there are more low-income than high-income shoppers. Fifty-eight percent of low-income consumers would rather shop in store; however, 52 percent of high-income consumers would rather shop online. If you don’t already have an e-commerce presence, this could be the time to start building one. If you’re not ready to sell online, fine-tuning your online marketing and advertising strategy can help you attract the attention of online shoppers—and hopefully get them into your store.
Photo via Shutterstock
An overlooked opportunity is making the checkout process a positive experience instead of a negative one. I can’t count how many times I’ve spent more time in a checkout line than I did shopping. And when it’s the last impression you have of a retail experience it has outsized influence on their memory of the entire experience (recency bias).
I totally agree with you, Robert. Years ago, after being in line for 45 minutes and still having half a dozen people ahead of me at Sam’s Club, I actually pulled the sign off the post (I knew it was attached by Velcro) that said, “If there are more than 3 people in line, we will open another register”. I walked over to the service counter, handed them their sign, and said, “I don’t know whether the problem is inability to count or inability to read, but here’s your card and your sign. If you’re not going to do it, please don’t put a huge sign in front of us.” And then I left, never to return.
Their loyalty department phoned me asking me to renew and I told them that time is valuable. It doesn’t matter how much you save on prices if it costs you more in time standing in line.
I don’t think it will be dissolved into oblivion. There will always be a need for retail and some people would rather see the item before buying it than just view it online.
Then, you should be ready on what’s coming up next. Always prepare with a website or a social media presence.
Retail will not die… at least not completely. But the closing of stalls such as Toys R Us means a lot.
Something else retailers can do is focus on what people really want. For example, some people are willing to spend a larger percentage of their stagnant income on quality clothing or organic food or even organic meals in restaurants.
Consider changing your mix of products to attract a new customer base or grow a particular segment of it. And focus on amazing customer service. People shop where they like how they’re treated. They fade away if they don’t think you care.
Tell your customers how much you appreciate them and ask them how you can do even better. Provide an anonymous tip box. Make it easy for them to recommend you. And most of all, do something so wonderful that they have a reason to send others your way.