The Retail Apocalypse: 5 Dangerous Competitive Trends Explained
While the U.S. economic outlook is looking healthy based on recent stock market gains, peering into the retail sector reveals fundamental cracks in its landscape that indicate a state of decline. This retail apocalypse has malls and stores disappearing at a disturbing rate. There have been over closings so far in 2019, a figure which already surpasses the whole of 2018. And the number is still rising.
It’s easy to blame the big giants ruling over retailers. Walmart now owns over market share of the $800 billion grocery market, and provides online grocery pickup to more than locations around the U.S. Moreover, in recent years Walmart has acquired companies like Jet.com, Bonobos, and ModCloth, and entered into powerful partnerships with Uber, Lyft, and Postmates.
Then there’s Amazon.com, the world’s second public company to pass the trillion dollar valuation threshold. Its Prime membership has over , and Whole Foods is being integrated into its grocery delivery service. This multinational tech giant now commands almost in the online U.S. retail market.
However, Amazon and Walmart are not the only culprits. Competitors on all fronts are fighting for the same share of wallet. Here are five dangerous trends contributing toward the extinction of traditional retail:
Trend No. 1: D-to-C Retailers Have Become Major Category Disruptors
We’re all familiar with the stories of Warby Parker, Harry's, and Casper as direct-to-consumer (D-to-C) players that completely disrupted their categories. Last year, dollars was invested into these niche categories just from venture capital funds alone. With the increasing shift from offline to online, successful D-to-C retailers continue to capitalize on this to scale and grow. Their secret? Rather than providing an innovative or novel product, these players focus on reinventing the user experience and injecting excitement into stale categories. To put it simply, Warby Parker didn’t reinvent eyeglasses; it just enhanced the customer journey.
Trend No. 2: Tech Firms Take Their Share
On top of these new players, tech giants like Google continue to capture share in the retail space. Google has already experimented with pop-up shops in cities like Chicago and New York, joining the latest trend to provide shoppers with an experience beyond “only” products. Through interactive portals, doodle walls, TV pods, and even educational classes, Google is exploring numerous innovative ways to teach consumers about its lineup of digital offerings. It's even building a portfolio of hardware products, such as Pixel, Chromebook, and Google Home. It can’t be denied that Google is taking serious steps toward entering the retail space.
Trend No. 3: New Players Aren't Only Domestic
Overseas players have conquered their home markets and are now eyeing opportunities in the U.S. A well-known example within the grocery space is Aldi. After successfully penetrating the U.S. market, the German supermarket chain now plans to expand to 2,500 stores by 2022, and recently entered a partnership with Instacart to provide home delivery service nationwide. Other entrants in apparel, including Primark and Superdry, are continuing to explore strategic ways to expand in the U.S. This is facilitated by the sheer amount of retail space becoming available thanks to the many store closures in malls.
Trend No. 4: Technology Shapes Expectations
Underlying the previous three trends is the fact that technology is changing the way consumers make purchasing decisions, providing them with more control over the purchasing journey than ever before. Everything can be compared (and reviewed) at the click of a button, and shopping is no longer restricted to stores as we know them. Millennials are shopping on Instagram, baby boomers buying on Facebook. Today’s consumer wants it all. For example, about five years ago, an acceptable shipping time frame was five days. Now consumers expect delivery within three days (or less), and it has to be free.
Trend No. 5: New Business Models Win Over Consumers
These retail evolutions are paving the way for innovative new business models. Subscriptions, pay-per-use, the sharing economy, personalization, and automatic replenishment are just a few of the ways that winners are catering to the needs of the modern consumer. Their powerful brand stories, particularly around price transparency, solved pain points, and corporate social responsibility also have a strong pull factor. Traditional retailers that rely on the standard everyday price and promotion model stand to rapidly lose the interest of their previously loyal customer base.
There Are Clear Winners and Losers
The market has clearly spoken. From mergers and acquisitions to bankruptcy and consolidation, market activity is showing a clear delineation between winners and losers. Household names such as Sears, Toys"R"Us, Nine West, Mattress Firm, and Brookstone have all declared bankruptcy in recent years, and there are many more retailers facing the same fate.
Those retailers too slow to keep up with evolving customer needs, especially in key sectors like department stores and groceries, will soon experience a clear changing of the guard, and a number of suitors are already lining up to take over. Stay tuned for a future article on retail pricing excellence, in which I will be discussing how retailers can remain competitive and secure a place on the right side of this dichotomy by looking at price through the lens of the consumer.
Hubert Paul is a director at Simon-Kucher & Partners, a global strategy consulting firm.
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Hubert Paul is a Director at Simon-Kucher & Partners, a global strategy consulting firm.
Hubert focuses on partnering and advising Consumer Goods and Retail clients of varying sizes on transformation pricing and go-to-market strategies as well as identifying and implementing omni-channel, pricing, and promotional excellence capabilities. He has led projects for clients in direct-to-consumer, mass merchant, grocery, apparel, FMCG, leisure tourism and travel, and other retail sectors.
He received his MBA from the University of North Carolina Kenan-Flagler Business School where he focused on Management Consulting and Corporate Finance. Prior to that, he received his B.A. in Economics and Psychology at Rutgers University.