The Stranger Things of Retail in 2017

Stranger_Things_logo.pngI think we can all agree it’s been a crazy year for retail, filled with disruption, e-commerce pressures and record store closings. Not to mention strange partnerships, major acquisitions, and numerous bankruptcies. 

As the year comes to an end, the ups AND downs in the retail industry over the past 365 days are clearly up for review. Let’s take a deeper look at what happened in 2017, along with the implications for 2018 and beyond.

The BIG Buy

The biggest, most disruptive deal of the year was Amazon’s $13.7 billion acquisition of Whole Foods, hands down.

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No question about it. 

This buy alone triggered a series of ripples waves across the retail industry, wreaking havoc in a number of areas like grocery and delivery.  

Retailers were already struggling to adapt to market pressures, combined with stagnant store sales and growing e-commerce demands. This Amazon deal changed the game completely.

Most in the retail biz were resistant (or unable to quickly adapt) to new tech, however, Amazon’s entrance into the physical retail space prompted a monumental shift; retailers quickly realized the need to adapt was do or die.

Sleeping with the Enemy

The results of the BIG BUY?

Very unexpected partnerships.

Some retailers took the “if you can’t fight them, join them” approach by partnering with Amazon. For example, Kohl’s announced they would begin accepting Amazon merchandise returns at a select number of stores, and also agreed to debut the first Amazon smart home experience boutiques. 

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The move initially sounded completely suicidal, however, the reasoning provided by Kohl’s was to increase foot-traffic and give Amazon customers an opportunity to visit their stores: 

“We’re going through one of, if not the, most transformational times in retail, and we have to really think differently […] The retail market is big so there is plenty of room for Amazon and Kohl’s to co-exist.”- Kohl’s Chief Merchandising and Customer Officer, Michelle Gass

Kohl’s isn’t the only one working this angle.

Earlier this year, Best Buy announced they were offering space in their stores to showcase Amazon and Google Home tech. Even struggling department store Sears decided to begin selling its popular Kenmore appliances on Amazon.

It’s too soon to tell how “dancing with the devil” will fare for retailers in the long-run, but it will be interesting to follow into the new year.

Thinking outside the box seems to be the new norm. (: 

Retail M&A Surge

TONS of mergers and acquisitions in retail were announced throughout the year. SO many. 

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The ones that stood out the most fall into two categories: the last-mile fulfillment challenge and the luxury arms race. 

While not new, the last mile issue is another major hurdle for retailers, especially following the Amazon-Whole Foods acquisition. As delivery lead times continue to decrease, consumer expectations continue to increase.

No need to worry. Traditional retailers are pushing back with interesting acquisitions and new fulfillment strategies.

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For example, only days after Amazon purchased Whole Foods, Costco rolled out same-day and two-day delivery options for its members via CostcoGrocery.

Additional acquisitions were revealed this year as many retailers begin to leverage their physical stores to offer quick, convenient and inexpensive delivery options.

Walmart announced their acquisition of Parcel, a last mile delivery company, to offer same-day delivery for general merchandise and groceries from Walmart and Jet.

Target buys transportation technology company Grand Junction AND, most recently, delivery platform Shipt to take their online fulfillment capabilities to a whole new level. 

An emphasis on last mile delivery is becoming a more and more dominant theme in retail. Rightfully so, considering the impact delivery windows (i.e., two-day shipping) have on making a purchase and the exponential growth of online sales.

Outside of fulfillment, other acquisitions this past year were a clear sign of the “luxury arms race” going on in the industry right now. For example, Coach acquired Kate Spade and Michael Khors bought Jimmy Choo—each signaling a move towards becoming the first American Fashion Group, similar to European luxury brand conglomerates LVMH Moët Hennessy Louis Vuitton (Vuitton, Dior, Givenchy and Fendi, et.al) and Kering (Gucci, Saint Laurent, et.al).

“The luxury landscape is in flux — mall and department store traffic has plummeted, consumer shopping habits are changing, and online retailers, notably Amazon, loom as threats. Other brands, like Ralph Lauren and Marc Jacobs, have opted to cut costs, close stores and fold multiple lines into a single offering. Coach and Kors, however, are going in a more expansive direction. The strategy has advantages: With acquisitions, they can gain new revenue streams, achieve distribution efficiencies and diversify their offering.” New York Times 

The multi-brand format growth strategy seems to be the way things are going for a handful of luxury brands. 

Bankruptcies, Store Closures and Store Openings in 2017

We cannot deny the dominating headlines in the industry over the past year.

2017 was filled with record store closings: 8,053 store closures were announced. That’s more than the 6,162 store closures during the 2008 financial crisis. 

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It’s apparent the retailers who have not been in touch with what their consumers want are suffering the most.

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The inevitable was only accelerated by technology and increasing competition in the retail space over the past year:

“It's more fair to say that technology accelerated the decline of retailers who have not been in touch with what their consumers wanted as much as their competitors. Technology helps consumers see more of what's available and that makes the comparison between brands so much more stark and apparent.” - Forbes

This is the last thing you want to hear as a retailer, but it’s not all gloom and doom. In fact, we also saw a number of store openings in 2017.

According to a report we covered from IHL Group earlier this year, over 4,850 more stores opened among big chains. If you bring smaller retailers into the picture, the net gain is well over 10,000 new stores.

Why?

Retailers are moving away from traditional store formats. Online only players are realizing the importance of having a brick-and-mortar presence. Lastly, consumers still like shopping in physical stores:

“The reason why you see so many vacancies even though more stores are opening than closing is that the footprint and locations of the stores being closed aren't suitable for the stores being opened. The old stores' formats can't be transformed and their locations don't work for the new stores that are opening. Hence, more vacancies for you to see on major shopping streets.” - Forbes

It may not seem like it now, but the future is promising for brick-and-mortar retailers adapting to the changing environment.

Looking Forward – Innovative Retail Strategies and Concepts

A few things come to mind when we start listing off the different strategies retailers experimented with over the past year, such as: 

All of these strategies really boil down to helping create the unified shopper experience we constantly talk about. I'm going to single out one of the most noteworthy (and subject to the most recent hype)—artificial intelligence. 

If you're tired of hearing all the buzz about how AI is the future of retail, you better get used to it. A number of publications covering retail predictions for 2018 call out AI as a dominant theme for the new year. 

"All the talk is about to end.  The dots between data intelligence and real action will finally be connected in meaningful ways...[For example] The supply chain industry has been talking about using disruptive data-driven technology, including machine learning, artificial intelligence and IoT for years. In 2018, we expect to see that talk turn more concretely to action," - Forbes

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If you haven't had a chance to listen to our most recent webcast with Fung Global Retail and Technology, I urge you to do so. One of the biggest takeaways from Deborah Weinswig, Managing Director at Fung Global Retail and Technology, was a simple fact: AI has reached a tipping point. 

New and existing retailers will more readily adopt AI into their business models because they're realizing the value this technology brings when it comes analyzing large volumes of data in very efficient ways. Whether it's for personalization, customization, localization—the benefits are huge for retailers struggling to adapt into the new year.

WATCH THE REPLAY - 2017 in Review: The Retail Turning Point Featuring Deborah Weinswig from Fung Global Retail & Tech 

Topics: fulfillment, artificial intelligence, ecommerce, brick-and-mortar retail, consumer insights

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