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A.T. Kearney: Brick-and-Mortar, DTC and Resale Won 2019

As 2019 comes to a close, a look in the rearview reveals that it was a landmark year for retail.

New, digitally native businesses found their footing with a growing young consumer base, omnichannel became the holy grail of business strategy, and the industry’s startups and stalwarts found new ways to compete with the massive marketplace that has for so long dominated the online space.

Michael Brown, a partner in the consumer and retail practice of global strategy and management consultancy A.T. Kearney, weighed in about how this year’s retail trends stand to impact business in the year to come.

Brick-and-mortar

Despite the popularity of online shopping—as well as the dominance of the space’s undisputed kingpin, Amazon—2019 was a win for the stores, Brown said.

An important lesson was learned by two of big box retail’s key players.

“In 2019, we actually saw the culmination of Target and Walmart’s realization that they didn’t need to compete with Amazon on Amazon’s terms,” Brown said.

The two stores have powerful assets that differentiate them from the online giant: proximity, popular private-label products, and in-store improvements that have “made it fun for consumers to come back out to shop again.”

This year, both have leveraged their massive store bases to prove that if convenience is what consumers crave, they won’t have to go far out of their way.

A BOPIS option has been yielded great success for Target this year, encouraging consumers to engage with the retailer across multiple channels.

“They’ve been able to leverage their positioning to prove that they can be faster than Amazon, in some ways,” Brown said.

While Amazon’s one-to-two-day Prime shipping is undoubtedly quick, “Walmart can get the same product to you quicker if you’re passing by the store,” Brown said. Ninety percent of Americans live within 10 miles of a Walmart store, the company revealed in a report last February.

Smaller stores that follow the lead of their mass retail counterparts stand to win in their respective niches.

“We know from our research that consumers are out in the stores,” Brown explained. “We see almost 90 percent of retail transactions have some kind of a touchpoint in the store. Whether the consumer learned about the product, tried the product, bought or returned the product—something happened in store.”

Consumers are shopping differently than they used to, he said. Now, instead of discovering products in stores through casual browsing, it’s likely that consumers are doing their research online and using that info to build their shopping lists at home before venturing out.

Direct-to-consumer

Digitally native startups were the proverbial It Girls of 2019. These Instagram-savvy newcomers didn’t just generate buzz—they stole market share from established retailers.

In order to grow, though, the iconoclasts need to go back to retail’s roots, Brown said.

“The internet is a great place for new brands to incubate, but to eventually scale, they need to move to physical stores,” he explained. “They can begin to capture that initial following of consumers through social media and their websites, but eventually they need to move to an omnichannel environment that encompasses both in-store and online.”

The rise of DTC has undoubtedly had an disruptive impact on the industry at large. The popularity of cult-favorite brands like AllBirds, Glossier, Everlane and others has cost large-scale retailers “a percentage point here and there,” Brown said.

“If there was just one competitor, it wouldn’t hurt so much,” he added. “But when there are 10, 20, or hundreds of new businesses being incubated online, one or two percent at that scale starts to really take away from the market share of mainstream retailers.”

What’s more, these brands have the potential to replace those retailers with Gen Z consumers, whose spending power is increasing at a rapid pace.

In addition to omnichannel strategy, DTCs can win in 2020 by shifting from points of purchase to “platforms or destinations where consumers come for content, community, and engagement with like-minded people,” Brown said. Shopping will become a secondary objective, or a result of those functions, he added.

DTCS will also continue to build upon their masterful ability to personalize consumer experiences by leveraging big data and advanced analytics.

“Today, we all enter a website at one static page to shop for products, and sometimes have to scroll through a number of them before we find what we’re looking for,” he said.

Brands will start to leverage their ability to customize consumer experience from the homepage, serving consumers instantly targeted results based on items they’ve browsed before, he said.

“That will give retailers the opportunity to hone in on what a consumer is looking for, making shopping more efficient,” he said.

Resale

The growth—and more importantly, the potential—of resale has been well-documented this year. According to ThredUp’s 2019 Resale Report, the category has grown 21 times faster than the retail apparel market over the past three years.

“I think as the resale market continues to grow, it will become a dominant force in the retail industry,” Brown agreed, pointing to the recent rash of mainstream retailers looking to cash in on the craze.

Department stores J.C. Penney and Macy’s have both partnered with ThredUp to offer curated resale experiences in their stores, while Patagonia’s Worn Wear platform sells refurbished garments on its retail site.

Brown believes that the space is ripe not just for marketplaces like ThredUp, Poshmark and The RealReal, but brands looking to build out their own secondhand channels as Patagonia has done.

The practice would allow them to verify the merchandise themselves and preserve relationships with their customers instead of ceding to third-party platforms.

“I think we’re going to see the transformation of more and more retailers offering subscription services as well as playing in a reseller market to protect their brands and their margins,” Brown added.

2020 outlook

When asked about an impending recession and protracted trade war with China could impact shoppers in 2020, Brown said that retailers should enter the new year with confidence, because consumers are still poised to buy.

“Consumer spending is still going to be tremendously strong,” he said. “We’re seeing all the signs of wage growth, low unemployment, and we’re going to continue to drive sales.”

Given the recent phase one trade deal with China, brands are bound to “see some relief on the tariffs,” he said.

“I don’t think the consumer ever really felt them,” he said, adding, “It was a lot of noise in the background for them.”

As consumers head into 2020 with high hopes, so, too, should retailers.

“We’re going to see continued spending for at least another year, fueled by all the elements that made this year so successful,” Brown said.

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