2020 business trends for retailers

Jan 07, 2020

What are the top business issues and opportunities trending for retail companies in 2020? Our senior industry analyst shares his insights on several emerging topics in the industry.

Addressing the tight labor market

Low unemployment will continue to cause scarcity of qualified talent in many markets. At the same time, rising minimum wages in more than 20 states will put pressure on labor costs throughout organizations, not just for those making minimum wage. Retailers will need to be smarter about their employee scheduling by using store traffic data to make informed decisions about peak staffing needs. Many will experiment with technologies to streamline processes and augment the labor pool. Self-checkout and mobile-checkout may become more prevalent in brick-and-mortar locations as they provide the dual benefit of reducing cashier hours and providing flexibility to put more personnel on the sales floor to assist customers and provide a better shopping experience. Some retailers will experiment with facial recognition and other advanced technologies to streamline the purchasing process. In all cases, retailers will need to find the appropriate balance of technology and human interaction to connect with their customers to offer an enhanced experience and build brand loyalty.

Understanding and addressing consumer preferences

Retailers will continue to see a shift in consumer preferences and buying habits away from traditional retail spending and toward experiential retail. Consumers will still need and want “things,” but the volume and types of things will continue to evolve. Consumers demand more variety and customization, and they expect fast delivery via their preferred method, which might be pickup in a store or free delivery to their doorstep. To compete effectively in this environment, retailers need to optimize their operations across their entire supply chain. This includes smarter inventory management based on data analytics, organization of the supply chain to mitigate transportation and other operating costs, and the use of new technologies such as augmented reality, endless aisle and others to engage consumers in nontraditional ways to gain their business and brand loyalty.

Building that brand loyalty will become even more critical in 2020. With the ability to price shop becoming easier as more and more retailers are online, consumers have become more price conscious. In 2019, retailers responded with heavy discounts and promotions throughout the year and into the holiday season. In 2020, many retailers will look to capitalize on the price-conscious consumer through private label products. Not surprisingly, Amazon was the first to start this movement with over 100 private label brands offered in 2019 and likely many more coming in 2020. For products offered through many retailers, however, consumers are more likely to continue to purchase from retailers they identify with and that offer the customer experience they seek.

Middle market retailers will need to be more protective of their own brands, and mindful of pricing shifts, to compete in this growing market. One way to do so may be to take advantage of their existing brick-and-mortar locations. A physical location can still represent a competitive advantage for a middle market retailer over their digitally native competitors, many of whom have started to open physical locations as they recognize the importance of actual stores to the retail experience. That said, the traditional retail box store likely will not work. Store footprints will evolve and technologies such as augmented reality and frictionless checkout will be introduced to create the experience that millennials and Generation Zers are looking for.

Not surprisingly, social media will continue to expand as a preferred retail sales channel for consumers. With the entire retail ecosystem focused on health and wellness as well as responsible and sustainable practices, retailers will be very careful about how the brand interacts with customers and influencers through social media channels. Those who do so successfully will be able to attract new customers and build brand loyalty with existing customers.

Digital evolution

Technology is the common thread that weaves through all trends in the retail sector in 2020 and beyond.  The technology solutions behind omnichannel marketing and the big data generated across those channels enable retailers to understand their customers’ behavior wherever they shop while providing ideal and customized experiences. As a result, retailers can create strong, long-term relationships with consumers by building differentiated brands with value-beyond-price competition. At the same time, technologies create additional risk in the form of data security and privacy. Regulatory measures, such as the General Data Protection Regulation and the California Consumer Protection Act, must be addressed by retailers on an ongoing basis to prevent data breaches and to comply with regulations.

Longer term, 5G technology will be a factor for many retailers; 5G will provide areas of opportunity and innovation. With 5G, data processing will be faster and smarter. Immersive utilization and experiences like those provided via augmented reality will be sharper and more real, enhancing the consumer experience further through a variety of applications like product interactions, smart fitting rooms, virtual reality dressing rooms and more. While the impact of 5G will be significant and some networks are already offering 5G, full adoption of the faster networks and the associated technologies are probably still more than a year away. However, technology solutions that are enabled by 5G will begin to show up in digital roadmaps in 2020.

Selective investment

2020 is likely to be a year of selective capital investment by retailers. Margin pressures brought by trade wars, global economic uncertainty, and the increased use of discounting and promotions will force the investment community to begin to look at other intangible aspects of the business to help to determine value and opportunity. Less emphasis will be placed on traditional growth through expansion of brick and mortar. Access to data that allows for smarter and more targeted approaches to new customer acquisition and higher conversion rates will be an asset that can be properly deployed to enable value creation. That said, retailers will need to continue to invest in technologies that allow them to connect with customers and streamline their operations. Physical store locations will need to be right-sized to fit the new retail model, which in many cases will result in fewer and smaller store locations, reducing occupancy costs and providing cash to fund capital projects. Those retailers with a strong digital strategy that is well aligned with the business strategy will have more access to capital to help execute on that strategy. 

RSM contributors