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Top trends and issues for retail in 2019

From labor to brand, here are the issues to watch in retail

INSIGHT ARTICLE  | 

After a solid retail holiday season, it’s projected that consumer spending may weaken slightly, but will remain strong in 2019. But retail will continue to transform as it has for the past decade. Retailers will face challenges and opportunities while they address a highly competitive market as labor continues to tighten, and consumer buying behaviors and expectations continue to evolve. Successful retailers will need to focus on a variety of tensions pressuring the industry and their businesses.

Labor

Labor will continue to be a major challenge for retailers, as historically low unemployment and competition from a more flexible gig economy make it difficult to staff both brick-and-mortar locations and fulfillment centers. Many will experiment with technologies to streamline processes and augment the labor pool.  Self-checkout and mobile-checkout will 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. More progressive 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 and build brand loyalty.             

Real estate

As the retail model continues to evolve, site selection will become increasingly important. Brick-and-mortar locations will continue to shrink in units and in footprint, as retailers cater to changing buying behaviors. Data analytics and demographic data will drive site selection, as retailers endeavor to go where their customers want them to be. Dark space left vacant by big-box closings could create opportunities for retailers who choose to develop more creative models that shrink retail selling space, reduce in-store inventory levels and use local fulfillment centers to get products to customers quickly and better manage the last mile. Prime retail real estate will continue to command high rates because there will be less of it, as areas once perceived as prime retail selling space are redefined by the consumer.  Efforts to revive regional malls will continue, but success will be inconsistent depending on geography and demographics.              

Regulatory environment

The regulatory environment will continue to challenge retailers in 2019 and beyond. As online sales growth continues to outpace on-premise sales, the implications of the Wayfair court case will felt by more and more retail organizations. Tariffs and trade wars will drive up the landed cost of many products creating hyper-price-sensitive consumer markets for those products. Retailers who can manage their supply chain and operations to minimize the impact of the tariffs on their customers will be most successful. New and creative sourcing strategies will emerge and resilience will ultimately prevail over time. Meanwhile, increased cost will significantly affect unit sales of affected products and will also have an indirect impact on other products as consumers are forced to make decisions about how to spend their limited funds.

Traceability, labeling and overall ethical standards will continue to be a focus for food retailers and across the food supply. Expanded use of blockchain technology will enhance traceability and shorten response times when issues arise in the food supply. To be effective, however, retailers and their suppliers need to participate.  While this will likely take time to permeate the entire industry, those on the forefront will be rewarded by consumers concerned with our food supply and the number of recalls announced each week.     

Buying behaviors and brand

Buying behaviors will continue to evolve as Generation Z (Gen Z) becomes a larger part of the consumer base. As the first truly digital generation, Gen Z will push retailers to new digital platforms to connect with them. YouTube, Instagram and Snapchat accessed by mobile are platforms of choice for Gen Z and they are the most likely group of consumers to purchase on social media, making these platforms very important and introducing a new dimension of omnichannel for many retailers. That said, brick-and-mortar locations will continue to be an important channel for retail. Despite the growth in online purchasing, recent studies suggest that millennials and Gen Z consumers also enjoy the physical shopping experience. Enhancing that physical shopping experience will be critically important. Creative and interactive technologies will continue to play an important role in developing unique in-store experiences and knowledgeable staff who embrace and promote the brand will help build connectivity and promote brand loyalty.                   

Access to capital

2019 is likely to be a year of very selective capital investment by retailers. Margin pressures brought by trade wars, rising interest rates and the apparent disinterest of the private equity community will limit access to capital for investment. 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.


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