The traditional way of doing business for retailers has been on the decline for several years now. Recently, it seems to be going downhill faster as momentum of new shopping experiences increases. What that means for many retailers is they need to adjust and adopt new ideas, moving away from the old model and toward a technologically enhanced one.
Consumers have begun to demand more from retailers, from an enhanced experience to same-day delivery, and many of them prefer to shop online. Figuring out how to get customers to your store or to shop online with you instead of the industry giant, Amazon, is the key to going beyond survival in retail to thriving in the industry.
The state of the retail industry looks bleak or promising, depending on how you choose to view it. We break down in our guide exactly what's happened, the expected trends for the coming year and suggestions on how to navigate this new retail landscape.
A political shake-up
When business mogul Donald Trump took office as the 45th president of the United States, he did so on vows to change policies and politics. Within the first few weeks, he was busy making those changes, and many more are likely to come. Set aside your political view either way and look at how this affects the retail industry in the next four years – it's varied and complicated.
Traditional retailers pay extremely high taxes – they're at the top compared to most industries. You're already paying 35 percent federal tax, plus state and other taxes, so tax reform would likely benefit you if you're running a brick-and-mortar store.
A corporate tax break could help those retailers who aren't doing as well with sales to increase cash flow, which satisfies shareholders for a while. It can also serve as a boost to fund restructuring efforts so you come out on top next year. A reduction of the federal corporate tax rate to 15 percent from the current 35 percent, which is what Trump is suggesting, would be a relief for retailers, but other tax reform proposals have been made.
One such proposal is a border adjustment tax, which could have serious consequences for retailers. If it passes, then retailers would not be able to deduct the cost of imports from their tax liability – plus, there would be a 20 percent tax on anything imported. The result? Higher prices to offset those costs, which could drive consumers to another option – an online retailer.
The president has made it clear that he wants to deport undocumented immigrants, and if he is successful in keeping that promise, that means 5 million to 10 million people in America gone from the workforce and economy. The chances of that happening on such a large scale are slim at best, but it's a concern nonetheless. The impact of deportation would directly affect the retail industry in terms of consumer demand and labor.
Recently, Trump signed an executive order to make it much more difficult for companies to hire workers through the H-1B visa program. The "Buy American, Hire American" order is meant to protect born-and-bred American workers and the jobs here, and this has a direct impact on the tech industry, which often hires thousands of foreign workers a year.
Although the order doesn't seem to target the retail industry, many companies hire foreign workers because they're looking for the talent needed to create apps, code and other dev work. America simply doesn't have enough of the workers for these positions, many companies argue. This could slow many retailers' efforts to move forward into technologically enhanced shopping experiences.
As soon as Trump was sworn in, one of his first orders of business was to repeal the Affordable Health Care Act (often referred to as Obamacare) and replace it with a Republican-approved plan. It could affect many industries, including retailers – both in good ways and bad ways.
Although Trump's efforts to repeal and replace have halted, what he plans to do could mean reducing the cost of health insurance for employers. However, that could put more pressure on employees to make up the difference and stay insured, which reduces their spending with retailers.
For many years, the retail industry has relied heavily on imported goods, so Trump's stance on the Trans-Pacific Partnership and the North American Free Trade Agreement could mean more trouble for retail. Trump wants to keep jobs such as those in oil, coal, manufacturing and development in the United States. In other words, he wants to prevent companies from outsourcing work or importing goods – and high tariffs could be a deterrence.
Putting more money back in the pockets of consumers is a good thing, obviously, but it could end up costing retailers more. Cutting off the retail industry's access to the global supply chain is going to hurt retailers' ability to sell goods at competitive prices.
As it stands now, Trump wants to sink $200 billion of taxpayers' money into improving U.S. infrastructure. More could come from private sources. In the end, upward of $1 trillion may go toward rebuilding tunnels, bridges, airports and highways.
These infrastructure improvements may pave the way for retail supply chains, and they also put more people to work getting the roads built – in turn putting a healthy injection of money into the economy. However, it's not the saving that the retail industry needs.
The technology demand
Consumers have higher expectations than before. The instant-gratification era has ushered in a crop of customers who want their products now – like, same-day delivery now. Many online retailers are making that happen, or at least within 24 hours. Delivery services like Amazon Fresh, Uber, UberEATS and Postmates are making it possible for consumers to never step foot inside a retail store, grocery store or restaurant if they'd rather stay at home to binge-watch something on Netflix.
Technology is affecting not only how consumers get their goods, but also how they choose to get their goods. The numbers for e-commerce have been increasing exponentially since they were first tracked by the U.S. Department of Commerce in 1998. Even comparing the statistics from only a few years ago is telling. In 2011, e-commerce retail sales were just shy of $200 million, and in 2015, they reached more than $340 million.
For many retailers, the writing has been on the wall for a while. Now they're starting to do something about it. The trends earmarked to become the norm are already popping up online and in stores around the country.
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Unmanned aircraft are everywhere right now, but most of the buzz around them is consumer interest. People are flying them at parks and at home to get an aerial view of an area they may not have been able to see otherwise. Drones are more than high-tech toys, though.
Although drones haven't been approved yet to make home deliveries in America, it's a technology that many retail leaders are considering for the future. After all, delivery giant DHL is doing it in Germany, and Amazon has been testing a system in Australia.
For now, drones have been helpful for retailers who have closed their B&M stores and opened bigger warehouses to store more inventory. Drones can help workers in many ways. You can use a drone to perform inventory checks quickly, easily and safely. It's also an efficient way to retrieve goods to prepare for shipping. Drones could be used as well to track shopping patterns and traffic patterns at B&M stores, which could provide helpful data that leads to more effective marketing and advertising.
The consumer experience
Customer service is important to shoppers today, and retailers are starting to realize the need for talent on the floors and online. Consumers today will pledge allegiance to a company that offers a fun experience and customer support that goes above and beyond to please them.
To meet the demands of consumers, retailers are looking beyond supplying just the goods customers want. They're also increasing personalized shopping experiences and technology-based experiences and making shopping more fun. After all, you need to get the consumers in your store, right?
Take a look at how movie theaters have adjusted to the technological advances. Consumers have access to so much digital entertainment at home and on their mobile devices that they're not flocking to the theater as often as they once were. In 2014, movie theater attendance was much lower – only 1,267,279,234 tickets were sold, which is the lowest it's been since 1995.
Theaters can't quite control the box-office offerings, but they can change ticket prices, the experience and concession offerings. Many theaters have incorporated technology so customers can use touchscreen kiosks to buy tickets and choose seats, so they no longer have to wait in long lines. Gourmet foods and cocktails are now a part of some theater experiences, expanding the dinner-and-a-movie concept.
Retailers need to think the same way. Best Buy was an early adopter of digitally enhanced user experiences with interactive displays and demonstrations. Consumers go online to watch and read reviews and see others interact with new products, but if they can do it themselves, they may be inspired to get in their cars and go do it.
The next issue retailers have to contend with is those shoppers who go to a physical store to find the right item and then purchase it online. This frustrating part of the puzzle is being met with incentives. Retailers that offer value-based apps can often keep a consumer from going to Amazon.
Consider the Target Cartwheel app. Consumers who download the app are automatically shown deals and bargains on everyday products, and flash or weekend sales on items they may want. Using the app can save them 5 to 30 percent on those items that they may have paid more for at Amazon – or may not have, but many times a consumer simply wants to feel as though they're getting a better bargain.
Some retailers are considering going extremely high-tech with gadgets like digital mirrors. Neiman Marcus tried out digital mirrors and digital dressing rooms that remember what you've tried on at the store. They can show you how a garment looks from different angles, and what it might look like in a different color. If you find something you like but it's not on a rack, you can purchase it online. And if it's out of stock, the store can email you when it is back in stock – along with an image of you in that dress, shirt or pants to remind you how much you liked it.
Beyond the technology that's emerging to make a consumer's experience more enjoyable, there are traditional routes that are still enticing to shoppers. For example, a consumer can't taste the coffee made from an espresso machine online, but if they walk into a Williams Sonoma or Crate and Barrel that has one on display that they can use and taste a shot of espresso from, they may be more likely to buy in-store. If they say they're going to buy online, a salesperson can offer a percentage off, plus free shipping if the consumer signs up for emails or downloads the retailer's mobile app – which, of course, ties it back to technology.
Mobile payment solutions
Consumers are driving the trends in retail, which hasn't traditionally been the case. They're demanding conveniences, such as mobile payment options. One of the first adopters of the mobile payment solution is the gas station – at some, you can just scan your phone and go.
Tech media leader TechCrunch predicts that 70 percent of mobile users in the United States will make a mobile payment in 2017. Others expect mobile sales to reach $60 billion in 2017, and a whopping $503 billion by 2020.
In addition to mobile payment solutions, many retailers are starting to make the move to omnichannel shopping. This allows consumers to purchase goods through social media or a mobile app. Say a customer is browsing your Instagram feed and sees a pair of shoes on a model they like. A few clicks later, the order is made. A consumer's mobile phone is their personal shopping assistant, and you can leverage that to your advantage.
Offer surveys and track a customer's preferences online for better recommendations. Not only does this increase satisfaction and user experience, it also allows your company to prepare for demand – and thus supply. The data that you collect on consumers helps you with projections and determining trends so you can better serve your customers.
Sustainability and transparency
Sustainability and transparency are huge selling points for shoppers today, especially millennials. Consumers want to know all of the ins and outs of a retailer's business – how many employees it has, where they are employed, its conditions, etc.
Clothing retailer Everlane and eyewear seller Warby Parker are just a couple of companies that answered these questions early on and are enjoying loyalty from lots of customers. Warby Parker offers a low-priced, high-valued product along with a unique shopping experience for consumers. Plus, the company partners with nonprofits that get eyewear to those in need.
In Everlane's case, the consumer gets to know how the clothing is made, how the workers are treated, where the factories are located and much more. Plus, it offers products at reasonable prices. The company has also partnered with the ACLU, which appeals to many consumers' ethics. On top of that, NYC shoppers can get one-hour delivery service.
Consumers love a bargain, and in 2015 and 2016, they flocked to stores like T.J. Maxx, Saks Off 5th, Nordstrom Rack and Ross. In 2015, those off-price store openings increased by 12 percent. The merchants under the TJX name have thrived, while Macy's and Kohl's reported weak sales over the past two years – even during the holiday season.
Millennials are not quick to part with their cash, for fear of another recession or lost employment. So they do a lot of comparison shopping, whether they're at B&M stores or online.
The only type of product they're sure to plunk down a stack of cash for is new technology. Apple's must-have item of the year always flies off shelves. The same goes for gaming systems – look at Nintendo's Switch, which sold out quickly after it debuted. With more than 906,000 units sold in the launch month, it outperformed any other gaming system in Nintendo's history.
Reviews are a big part of a consumer's experience. They go online to read not only about a product, but also how other consumers feel about it. It's important to include a rating system and reviews from your consumers to inspire other buyers.
This is really a redirect to the technology section of this guide because, once again, it goes back to finding innovative ways to either keep a consumer in store and buying at the physical location, or ensuring they buy online at your website.
Often the best indicator of how the economy is faring is how retail is doing, but that could permanently change in the coming years. Consumer confidence is at its highest in recent memory, according to a U.S. survey that showed it higher than it has been since 2001.
However, there were multiple retail store closings across the nation in 2016. Big names in retail such as JCPenney, Nordstrom, Barnes & Noble, Starbucks, The Gap and Macy's all closed stores. Sports Authority went out of business.
Although these physical store closings can help a company's bottom line, they come with a negative connotation – and traditionally, the state of the retail industry is determined by store closings and openings. Given consumers' preference for online shopping and more retail being available online, the state of the economy should be judged with a different approach.
Closings continue, and they're likely to continue throughout the year in higher numbers even than during the recession of 2008. The global economy seems to be doing well – in 2014, total retail sales worldwide reached more than $22 trillion, and in 2015, the numbers were expected to exceed $24 trillion.
If you look at the numbers from the U.S. Census Bureau for 2015 and where money is going in the retail sector, you'll see that non-store retailers are inching ever upward.
- 20% – Motor vehicle and parts dealers
- 13% – Food and beverage stores
- 12.5% – General merchandise stores (hypermarkets, department stores, discount stores, warehouse clubs)
- 11% – Food services and drinking places
- 10% – Gasoline stations and convenience stores
- 9.2% – Non-store retailers (internet shopping, catalog, direct sales, etc.)
- 6% – Building material and garden dealers (home improvement)
- 6% – Health and personal care stores (pharmacies, drug stores)
- 5% – Clothing and accessories stores
- 2.3% – Miscellaneous specialty store retailers
- 2% – Furniture stores
- 2% – Electronics and appliance stores
- 1.7% – Sporting goods, hobby, book and music stores
Brick-and-mortar stores are still doing well, but not as well as they have in the past. One of the biggest shopping days for retailers is Black Friday, and about a quarter to a third of all annual sales in retail come from the holiday shopping season, which officially kicks off after the Thanksgiving holiday.
While 2016's Black Friday shopping event saw more shoppers than the past, consumers spent a bit less. The average amount an American consumer spent on the biggest shopping day of the season was about $289, while on the same day in 2015, it was $299. The number of shoppers out and about, or online, was about 154 million, which is 3 million more than in 2015, according to a National Retail Federation survey.
Online retailers saw a huge increase in sales, though. According to Adobe, consumers spent 17.7 percent more over the last year for a total of $5.27 billion on Black Friday.
Access to capital
To adjust and adapt to the ever-changing world of retail, you may need a boost in cash flow. Store closings are one way giant retailers are doing it, but having access to capital in other ways is also necessary. If finding investors isn't a plausible solution for your company, you can look into alternative loans, which can get you the cash you need for omnichannel marketing, development of an app or securing a larger warehouse to store more inventory.
The bottom line
Whatever your solution, it's important to keep your fingers on the pulse of the retail industry. By 2020, total retail sales worldwide are expected to grow to $27 trillion, and more than $4 trillion of that will be retail e-commerce sales, according to a report from eMarketer. If you aren't already restructuring your retail business, it's time to start.
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