4 Retail Trends to Watch in 2021

This article was originally published on Women in Retail Leadership Circle, sister brand of Total Retail.

COVID-19 has undoubtedly caused significant changes to daily life around the globe, some of which will likely stick. And one of the industries most impacted by COVID-related trends is retail.

If the 2020 holiday season is any indication, consumers will make purchases in new and different ways. Holiday retail sales in the U.S., excluding automotive and gasoline, were up 3 percent, and online sales grew 49 percent compared to 2019, according to Mastercard SpendingPulse, which measures overall retail spending trends across all payment types, including cash and check.

Digital channels will likely continue to grow and expand in 2021. It’s estimated that 20 percent to 30 percent of the global peak in the COVID-related shift to e-commerce will be a permanent bump in the e-commerce share of overall retail spending, according to the Mastercard Economics Institute 2021 economic outlook.

There are several other trends to watch as 2021 gets underway, conceivably bringing good health and stronger economies.

Physical Evolution

Most retail had to turn to digital channels throughout 2020, and while much of retail sales will continue to look to digital channels, physical stores will also evolve.

COVID has forced many retailers to take a hard look at their store networks, with many realizing they were over-stored before the pandemic, especially as more business is moving to digital storefronts. According to the Mastercard Economics Institute 2021 economic outlook, 74 percent of the new retail businesses registered since April 2020 were nonstore retailers.

As 2021 evolves, retailers will look at each store’s location, size and purpose, as well as how each location can complement the retailer’s digital strategy. This will shrink or change the physical footprint of many brands. For example, some store locations will serve as fulfillment centers for online orders or as hubs for buy online, pick up in-store (BOPIS) transactions.

Physical stores oriented toward actual shopping will not go away, but they will continue to evolve, with a continued focus on safety and convenience. With the original mission of a physical store being product discovery and browsing, retailers will need to develop strategies to allow consumers to do this safely and comfortably while reducing friction. It could be more emphasis on immersive experiences online and increased adoption of contactless purchases. Stores may serve as destinations for consumers to touch and feel products, but then order them online. Therefore, they would be less densely packed with products and people, and serve more as small showrooms.

Digital Channels Expand

Channel expansion was vital for retailers in 2020, especially those that didn’t have a refined digital experience before the pandemic. Virtually every sector made the shift to digital, from interior furnishings to sporting goods, toys and hardware.

Companies that quickly adapted their product inventory to match the new digital demand in 2020 settled into the reality of less face time and more screen time. Consumers are developing a baseline expectation for an omnichannel shopping experience.

Now in 2021, online marketplaces could be the next growing digital channel.  Retailers, especially smaller ones that continue to struggle with digital or want to expand quickly, could start exploring the reach of an online marketplace where consumers may want to support small businesses. Amazon.com and Etsy both reported significant growth in the third quarter of 2020, according to their earnings releases. It wouldn't be surprising if other large retailers start exploring opportunities to launch marketplaces and bring in smaller players to expand and diversify their offerings.

Consolidation Creates Opportunities

COVID forced retailers of all sizes to shut down entirely or restructure their operations. Businesses in sectors or locations that rely on a consistent flow of commuters and tourists have been negatively impacted.

This contraction in the industry has the potential to open market share opportunities for small to midsized players to enhance their offerings, increase their customer base, as well as their digital footprint. However, they’ll likely compete with large organizations also looking for their own market share opportunities. With fewer players in the market, however, many companies will have greater opportunities that were, perhaps, harder to come by before COVID.

Personalization for the Socially Distanced

Before COVID, personalization ranged from using data analytics to understand consumers and recommend highly specific products to actual handwritten notes inviting them to special sales days or thanking them for a recent purchase. As with many trends, COVID could upend how retailers approach personalization in 2021.

Concierge services in retail were previously considered fairly high end, but with the rise of social distancing, concierge turned into curbside pickup for businesses big and small across sectors. In 2021, expect to see retailers take that a step further with personalized in-store appointments, as well as personalized messages around loyalty. Email communications will revolve around “we’ve missed you” type of messaging.

2020 was no doubt one of the most challenging for retail. But 2021 should begin a path to recovery with improvements in health and in the economy. The retail industry has the opportunity to continue to innovate products and consumer experiences, expand business, and reconnect with consumers in new and different ways.

Michelle Carter is senior vice president of business development at Mastercard. She's a leader within Mastercard’s Data & Services business unit, overseeing renewal and cross-sell sales, as well as global sales of the Test & Learn solution.