Transcript
Reva: You’re listening to Next in Retail from Publicis Sapient. The podcast that shares insights on unlocking what’s next in digital transformation.
Reva: To say that 2020 was a wild ride for retailers would be an understatement. Various outlets have covered the tidal waves that retailers have been reckoning with since the onset of the pandemic. All roads lead to one truth: the consumer shift to digital has been massively accelerated. In today’s episode, we were going to take a brief look back at 2020 and the key trends that emerged. We will then zero in on what we can expect for ‘21 – sure to be another wild ride as well.
Joining me today is Hilding Anderson, Retail Strategy Lead in North America, and Andy Halliwell, Retail Strategy Lead in EMEA and APAC. I’m your host for the session, Reva Bhatia. Now let’s dive in.
So I know it might be a pain for us to look back on what was a really rough year back in 2020 for so many reasons, but my first question for you both: what are some key trends that emerged in retail in 2020? I’m going to start with you, Andy.
Andy: Yeah, 2020 was a year. It was a ride. The shift to align online was was obviously huge. It’s been well discussed. I mean we’ve talked about it previously as well. You know, we saw three to five years of kind of digital growth land in three to five months. Well, it’s been really interesting for us, and I I think this is reflected in the US as well is that that’s actually been a sustained shift. You know, we’ve seen this dramatic uplift in specifically online grocery, and people are not just adopting online grocery delivery, which has been, I think, significantly more prevalent in Europe than potentially in North America, but there’s been a, a big scramble to add delivery slots and an actually click and collect capacity. And most of the grocery companies have really had to go to click and click capacity to really bolster their online proposition and sales.
That has obviously then led to, you know, a bunch of struggles with supply chain, and, you know, it’s been interesting for us to witness what used to be considered a cost center or a part of the business that really wasn’t exciting or interesting is the thing that nobody cared about has suddenly become headline news on the BBC and on terrestrial news stations across Europe and and actually the Middle East. It’s been, it’s been massive. We, we saw the, I think somebody coined the phrase ‘shipageddon’ in the run up to Christmas last year, which is a phrase I love, not just because people were struggling to get their parcels delivered to their homes in time, but also, we were seeing a massive increase in the cost of container space coming out of places like China, Taiwan and the Far East, where the majority of manufacturing was happening. So even if you had manufactured the product, you couldn’t even get it into the country before you could start to think about selling it through to consumers in the first place. So, you know, supply chain, big news huge. Suddenly everybody is focusing on how do we make our supply chains more robust? How do we invest in that? And kind of what’s happening there.
So it’s really a story of the haves and the have nots.
Reva: Thanks, Andy. I’m going to kick it over to you, Hilding, to provide some context on what’s been going on in the States and cover anything Andy may have missed.
Hilding: Yeah, absolutely and thanks everybody for joining the podcast today, excited to share some of this. So I think I’m going to be a little bit controversial and that, you know, I think a lot of people are saying, wow 2020 was really, really difficult year. Really, really hard year. And I think, I think economically and, and from a retail perspective though, you know, we’re closing out a holiday season that the latest numbers I saw were really the best holiday season we’ve had for a number of years, up 8%. A lot of our clients and a lot of retailers generally that have been investing in digital actually over performed for this period.
If you look at the, the profits in the latest quarter that’s available at this time, which is mostly Q3 2020, pretty strong profit story largely, so I think, you know, while most people say wow this is a really tough year, but we’re actually seeing in retail in North America is actually a pretty strong year. In part because of the drastic moves that were made to cut cost, to reduce the inventories and other things of reduced promotional investments and other aspects in this holiday season, and I think the US consumer because of the shutdowns had spent more of their share on discretionary spend. And the home improvement categories been, been very strong, so I think that’s one aspect.
I think the second is, you think about the consumer. You know, we saw of course, you know, seven weeks of the holiday’s foot traffic down by almost a third, about 30% compared to last year, but ecommerce sales overall, you know, some of our clients’ daily commerce sales up 800%. The overall average is about 50%, and that’s true in grocery as well increase in ecommerce groceries shopping is up about 50%. And I think one of the really interesting things is when you talk to some of the younger consumers, you know, overall about 3/4 of all Americans tried new behavior in the last three quarters digitally, so they’re trying and experimenting in new areas. And about that same 73% intend to continue these new behaviors into the new year and beyond.
And that really speaks to us the opportunity that a lot of retailers have, but also the challenge, which is, you know, if these new behaviors are the new norm as we think they are, we think this is a real and sustained shift, what does that mean for your technology road map, which you used to be a five-year road map, and now it needs to be a 12-month road map, and how do you quickly pivot to respond to those, those new consumer needs and expectations?
Reva: OK, thank you both. So after that look back, now let’s talk about some of the key trends that we think will emerge for retailers in 2021 I’m going to start with you, Hilding.
Hilding: Yeah, a couple things, you know. I think I’ve talked about the consumer behavior shift we think this, you know, real and durable, I think the second aspect is around the digital enablement of the stores. So, you know, in an environment where the consumers are shopping digitally first, and to a greater degree than they ever have before, you’ve got to rethink a little bit about how the store fits within that. This has been, you know, something we as an industry have been trying to figure out for 10 years. I think North America has been historically over stored and over-malled.
So I do expect a contraction in the number of stores, the number of malls that we see, but I think the very nature of the store, and we’re already seeing with some of our most conservative clients, we’re already seeing a broad embrace of what used to be kind of oh we should do this, which is click and collect and bopis and kind of fulfillment delivery flexibility. You know, looking at partnering with local vendors to get, you know, the same-day delivery or two-hour delivery out of the store, so I think you’re going to see a lot more discussion and then execution of initially quick win type of, type of partnerships, and then I think very quickly you’re going to say OK, well what is the, what does the store look like to do this efficiently, and how do you maintain profitability in this environment?
The second thing I’d highlight is vision around retailers becoming platform companies, so this idea of assortment expansion whether it’s drop ship or marketplaces, you know, first-party marketplace, third-party market gotta different ways you can do that. But also an expansion into new models like subscription models into new digital products, even the role of community and content I think become greater in importance in this new landscape. And you know, when you think about a retailer, you’re no longer just selling a very narrow piece of product, you really have to engage more tightly into your consumers lives. So if your home improvement is thinking about in providing advice around the whole home set up, or if you’re targeting professional, you know, what their journey looks like and then understanding all the different aspects of that journey and the linking it to digital products like subscriptions and others.
If it’s a consumer product and you’re in, you know, the electronics or gaming space, how do you, how do you launch a subscription platform or launch a community or launch a digital product that someone wants to buy that makes sense for your category? Because if you don’t do that, then you’re not going to have the mindshare. You’re not going to have the kind of ongoing exchange of conversation with your customer. You’re not even going to what they want next, and you’re not be able to monetize the data and do some other things that that we’re seeing is really important.
Which brings me to kind of my final one in terms of looking forward in 2021. You know, data. I think retailers will finally start to really look at their data as an, as a financial asset on their books, so that means that you monetize that, you know, we’ve long as an industry looked at data as, as a marketing tool. Every holiday season I still get 500 catalogs. And you know, I think that what’s going to happen is that that’s going to move digitally and in a more aggressive way. And there are actually, the interesting stuff is not, OK how do I use data to have a more effective marketing engine that’s powerful, but I think that’s kind of the first move that are table stakes.
I think the second and third move on the chess board is around how do you use data to drive the fundamentals of your business? How do you use it to anticipate demand when you place orders for the 2021-2022 holiday season? How do you use it to decide what colors mix you order? How do you use it to design new products? How do you use it to use AI to manage your financials, or to run customer care and customer support? So you’re going to see increasingly retailers use data as an asset, and I feel like I’ve been, been banging this drum for a couple of years, but I, given this bigger shift, I think it’s going to be pretty critical.
Reva: Thanks, Hilding. And you mentioned briefly the killing of the catalog. The death of the catalog.
Hilding: Oh, we’re still gonna. It’s not dead. No, the catalog will not die.
Reva: I know that was a statement. I know that was a statement in passing, but I will say I am still mourning the loss of the IKEA catalogue. They recently announced they’re killing their catalog, and gosh that is one that I, that I love to get, though it was a very smart move for lots of reasons. Very brilliant, but yeah, end of an era so to speak. Alright, Andy, I’m going to pass it over to you now to add some additional color on 2021 trends that you think will emerge in retail.
Andy: Oh, I hate to say it, but here in Europe the catalog is still alive and kicking. Actually, three of the businesses…
Reva: I might need to move.
Andy: Three of the businesses that did really well over the last three months when we had some of our kind of our worst period during this pandemic have been sort of catalog businesses that have really done well. So Next and Argos as well as Littlewoods have actually had a really good quarter, so catalog businesses are still alive and kicking as far as I’m concerned.
Andy: I’m also going to spin off of the other thing that you said around platform businesses. I, so, one of the trends that I’m seeing, and I, I’m I’m keeping a really close eye on is this idea of retailers having to go more vertical. Right? So this idea of becoming more vertically integrated and needing to own much more of the kind of the end to end of both the customer experience, all the way through to the supply chain in the manufacturing and, and even in some situations, the, kind of, the, the raw resources.
There’s some really interesting examples of brands that are moving into being this kind of vertically integrated end to end retailer, you know. Not just Nike and Adidas are the kind of big calling cards everybody talks about, but we’re seeing this in jewelry, we were seeing this in in some of the athleisure wear brands, and those are the guys that have really have really done well over this. Because they focus on the customer experience across every customer touchpoint, they don’t just focus on trying to get as much product retail into wholesale or get product into stores as quickly as possible.
They’ve really made a big point of focusing on the consumer and, and kind of their experience, and what they can do to support them. So I think that kind of, you know, you are going to see more companies move into trying to become a platform. That’s for sure, but, you know, the capitalizing on what they’ve seen, companies like Amazon do which is that, you know, it’s good to be vertically integrated as well. And if you build a platform and you are its biggest customer, that’s not necessarily a bad thing, you can just be using additional customers to help you pay for, for the investment in that infrastructure. I think, I think that is definitely how retailers are starting to think.
I mean the other thing is I think retailers really need to look at the leverage of their store estate, and you touched on this. I think we’re gonna see, you know, a lot of stores get shut down still. I don’t think we’ve seen the end of store closures. I think you’re going to see a lot of stores get reformatted and change completely. This move that we’re seeing already with retailers moving towards having a lot less inventory in their stores, having one of a product in a particular color, in a particular size, and then basically, you know, if you want what they don’t have instore, then they’ll endless isle them to you. But, you know, it will arrive tonight, tomorrow morning, you know, 48 hours depending on what you’re willing to pay for the speed.
But, you know, the idea of having too much inventory trapped in stores, and then those stores having to close for whatever reason I think is really have really hurt a lot of sort of non-essential retailers over the last 12 months. And so we’re going to see a complete change in then out of inventory that’s in stores that kind of digital tooling that’s going to go in stores. And I think people are going to be more inclined to accept the fact that they’re going to walk into a store and maybe not walk out with the product, but still having spent $200, $300, $400 or $500.
Hilding: Yeah, I think it would be interesting. I would expect that real estate in North America is a little bit cheaper probably on average, You might see a little bit larger store is a little bit less aggressive closures than you do in Europe, but it’ll be interesting to see how that how that plays out.
Reva: It’s been heartbreaking, I will say, to see what some of the shopping epicenters in the city of Chicago, where I live, have been going through with what was a very intense and chaotic year in 2020. More recently, they announced the closure of Macy’s, which was one of the marquee stores on Michigan Ave, which is a bummer, but understandable given the lack of foot traffic frankly. But it makes you wonder, right? What’s the future of these shopping corridors is going to look like?
The city of Chicago has said that they want to give tax relief to retailers who want to open stores on Michigan Ave to try to attract new shopping experiences. But it will be interesting to see what unfolds, and if retailers are going to bite, or if they’re going to say, no gone are the days where, you know, people come to these main districts or shopping malls and get all their shopping done at once. That’s just not the shopping experience anymore.
Andy: Very true. I mean, I was, I was, I was running through Oxford Street in London the Monday after everybody should have gone back to work. And at 9:00 o’clock in the morning when most people are going into the stores to do their returns or to do swaps or exchanges after Christmas, I was one of three people on Oxford street. I’ve never seen it before. It’s heartbreaking.
Reva: Yeah, so it’s that reckoning, right? It would be crazy to see like all of the stores on Michigan Ave convert to dark stores. Or, you know, convert to something completely different. Interestingly enough, there was a closure of Top Shop on Michigan Ave and Toys R Us came in with a temporary experience that they were reinvigorating after their bankruptcy so…
Andy: Wow.
Hilding: I’m going to take a little bit of a contrarian view. I actually think those kind of core corridors will come back strong post COVID. I think that the rates will be have to be adjusted, you know, in terms of I think 5th Ave had some of the lowest numbers in terms of price per square foot that they’ve had, but I actually think there is a place for centralized kind of dense shopping experiences, particularly in the large cities. I think what’s going to get killed are the, no surprise, Class B, Class C malls, and I think that the broader national distribution at some of the Tier 2 cities, you start to wonder OK what can, what can happen with that?
And then separately I think, you have to look at department stores, and there, you know, that whole model has to be reinvented. And I think ultimately it shifts to being a smaller footprint digital, not a department store as we know it, but just a great brand with great products that sell clothing and other things that are relevant to consumers. And I think they know that, and it’s just how do you manage that through that contraction and to that region in a relatively graceful way?
Reva: Yeah, it will be interesting to see how these stores do get repurposed to your point. Do they stay apparel, or do they convert to something completely different? Also Michigan Ave, Crate & Barrel closed, and the largest Starbucks in the world open to replace it in lieu of Crate & Barrel, who, you know, is a massive furniture seller for those who don’t know in our international audience. And, you know, to think a coffee shop opened in its place is, you know, tells a lot of what the future of shopping and recreation looks like.
Andy: It’s interesting you say that ‘cause I also think the other thing that’s going to replace stores is going to be video stores, so I mean dark stores that consumers…
Reva: Like Blockbuster?
Hilding: Blockbuster. Blockbuster. I like that call, Andy. I like the call, my friend.
Andy: Oh, yeah. No. Not a chance. Didn’t the last Blockbuster close down recently? There was one left…
Reva: No, there’s one left in Oregon, I think.
Andy: Oh, OK, Fair enough I had I thought I heard that it was closing down or something.
Hilding: As long as I can get my Betamax format, that’s all I insist upon.
Andy: Now I so, I think, technologies like go instore and like you’ve seen this huge investment in sort of KOLs in in the Far East, and we’re starting to see retailers use similar concepts and similar technologies here in Europe. Especially with brands where you’re talking about high consideration purchases, may be more expensive purchases as well, so this is something that is going to be I think hugely important in the luxury goods market over the course of the next 12 months. I think we’re going to see big investment in that. And that requires sort of potentially dark stores where people can sort of wander around uninterrupted, not interfering with, with other consumers and can show off the product that’s very, very best. So you need pretty good lighting, and you need pretty good Wi-Fi reception and those kinds of things, so I think, you know, you might start to see dark stores open up for specifically that kind of video selling, which I think will be really interesting for some retailers to adapt to.
And then the final trend I am going to go hard on is sustainability. Right up until now, I don’t know about you guys in in the US, but here in Europe a lot of grocery products, a lot of bakery goods, have all been basically sold in plastic wrap or kind of the single use plastic has come back with a vengeance over the last 12 months, which has been heartbreaking to see. But I think younger consumers are now getting to that point where they are spending, you know, more and more in stores. And I think they are pushing this consideration of sustainability, and, you know, making sure that, you know, they are buying, they’re buying in a more considered way. I mean maybe it’s the fact that they’ve seen the, you know, with people not flying so much or not driving so much, they’ve seen the, you know, the environment bounce back, and it’s making people consider more broadly their considerations. So yeah, I, I think sustainability is, is definitely going to come back with a vengeance next year.
Reva: Well, you guys are painting a very rosy picture with catalogs coming back, the shopping corridor is coming back, and sustainable, sustainable ecosystems.
Andy: And the return of Blockbuster.
Reva: And the return of Blockbuster. I mean, this is all stuff I’m really looking forward to. So we’ve talked a lot over the course of our dialogue here about the need to haves for retailers to survive in 21, right? They need to revamp their shopping experience to survive. They need to figure out how to monetize data. They need to get their supply chains in order. But I’d love for us to maybe take a step back and think about the nice to haves. So what are some of the cool trends that you think we might expect to see some retailers embracing more of in ‘21 that may be a little bit more unexpected?
Hilding: Yeah, I can, I can share a couple ideas. One I think is around this investment in content, and this collapse of the customer experience with additional video associated with products and having a much richer browse experience. In some ways, it’s, it’s a blast of the past, a little bit, but I think execution digitally when it’s 50% of your traffic will start to give even more rewards. And so I see more video. I see more content. More of a guided shopping experience starts to emerge as a key one.
The second is around site search. I think we’re going to see more and new technology around site search that performs to a higher level. There’s been a bunch of kind of startups and other, other companies little kit this kind of search business particularly as some of the traditional players have exited, so there’s some interesting things going on there. And then finally I think shoppable commerce is another one that’s been talked about for a while, but I think next year is the year, I guess this year, 2021, is the year that that starts to really accelerate.
Reva: Cool. Andy, any hot takes?
Andy: Nice to haves for 21. So I think it’s not a nice to have, but I think they sort of employee enablement and looking after employees. I think it is going to be really important in 21. I think it’s kind of a, it may not necessarily be the number one priority for some retailers, but it’s definitely up there as kind of close to the top of the list as sort of something they have to think about.
You know, not just people whose mental and emotional health, but, you know, how do you make their lives easier? How do you just help them cope in the day-to-day? How do you provide them with more tools and technologies that you know me maybe 8 what Uber or Deliveroo have, have been delivering for, for kind of the gig economy workers? How do you adopt some of those kinds of mindsets and some of those models to streamline your employees lives when, you know, maybe they’ll have weeks where they can work, and maybe have weeks where they, you know, they’re going to find it harder to work? So I think you’re going to see a lot more flexibility in a lot more employee enablement coming through in the next 12 months.
Reva: Excellent. Well, that is it for lookback and look forward. Thank you both for joining. Appreciate you taking the time today.
Hilding: Thanks, Reva.
Reva: We’re going to hold you to these predictions.
Andy: Thanks, guys.
Reva: Stay tuned.
Hilding: Yeah, let’s do it.
Reva: Excellent.
Reva: Thanks for tuning in to Next in Retail. Be sure to subscribe, so you don’t miss a beat on the future of digital and retail.
