The entire retail industry can relate to Mark Twain’s reply after reading his own obituary in a newspaper: “The reports of my death are greatly exaggerated." Forrester’s Online Retail Forecast, 2017 to 2022 has just been released and the results are surprisingly positive.
What has the press missed amid a slew of store-closing and bankruptcy announcements this year? Retail is actually growing steadily and is in the midst of a massive transformation. And many of the store closings are a result of brands finally making the tough decisions to right-size. Let’s face it, the retail industry has looked at store openings as a way to drive growth for years, but now we’re faced with an overabundance of underperforming assets. Recent research from commercial real estate firm Costar makes this clear:
- - US retailers added an average of 160 million square feet of store space every year between 2000 and 2008.
- - The US now has an average of 24 square feet of retail space per capita, compared with 16 square feet in Canada and 4.6 square feet in Great Britain.
- - In the US, sales per square foot have declined from $350 in 2000 to $330 today.
The Good News
Forrester forecasts that the US retail market in 2017 will total $3.56 trillion — that’s up 3.8% from last year. And US online sales are forecast to total $456 billion, up 14% from 2016.
These growth expectations are supported by some very encouraging economic statistics.
- Consumer confidence is strong. According to the Prosper Insights Consumer Snapshot 2017, 54% of the US population is confident or very confident in a strong economy, vs. 46% a year ago. And US national unemployment dropped to 4.3% in May, a 10-year low.
- Retail imports are up. According to NRF Global Ports Tracking Study, US imports are up 6.4% from a year ago. Growth is being driven by optimistic forecasts for very large back to school and holiday retail shopping seasons this year.
- Stores are opening. 2,861 stores opened in May according to IHL. Leading the way are Dollar General (1000 stores), Dollar Tree (650 stores), O’Reilly Auto Parts (190 stores), Autozone (150 stores) and Ulta Beauty (100 stores).
So consumer confidence is high, and spending on retail is expected to grow. Yet many brands will be closing stores, while others dramatically expand their footprint. And online shopping options continue to grow. It really is a crazy time in the retail industry. But as Sun-Tzu said over 2000 years ago, “In the midst of chaos, there is also opportunity”. So how do you capitalize during this state of change? Here are three tips from Brendan Witcher, one of Forrester’s leading retail analysts.
1. Maximize your assets rather than throwing them away.
Some retailers mistakenly believe they should close their stores and compete more online. Online sales still only make up 12.9% of US retail sales, so instead of focusing on online-only, find ways to use your stores to lift your entire business.
Truly embracing omnichannel options like “buy online and pickup in-store”, or “browse in-store, ship to home” can become major differentiators vs online pure plays. And positive store experiences have also been proven to drive online sales.
Connecting online and offline sales data at the customer level can provide powerful insights to guide your store optimization strategy.
2. Leverage your customer data.
Brendan likes to tell the story about meeting with retailers who say “we want to…” rather than “Our customers want us to…”.
Retailers, in general, aren’t used to having as much data as they have today – browsing data, geo-location data, social sentiment data, ad response data - and they are just now beginning to find powerful ways to use this data to drive actionable insights.
Look to the Insurance and Travel & Hospitality industries for guidance. They’ve been unlocking insights from massive amounts of customer data for years. Their use of predictive modeling to optimize messaging and offers have transformed their relationships with their customers.
Capture data at every step in the purchase journey and use those insights to delight your customers. Sephora is one of the retailers leading the charge with their virtual reality stations and apps, all of which feed data into their loyalty marketing program, making them one of the bright spots on the retail landscape.
3. Differentiate with smart, not flashy, digital tools that save customers time.
Two-thirds of US online consumers say valuing their time is the most important thing companies can do to provide good service. Put yourself in the shoes of your customer – what can you do to save them time and make the experience more efficient? Starbucks realized that waiting in line was hurting their customer experience and rolled out an app to speed up the process for loyal customers.
Your most important asset – your customers – are feeling good and going to spend more money than ever over the next year. Will you be ready to capture more than your fair share?