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Deloitte: Frictionless Shopping Will be the Only Way Forward for Retail in 2020

It’s time for retailers to batten down the hatches and review their playbooks to ride out a possible downturn, and one way they can distinguish themselves and grab some market share is by turning physical stores into a model of convenience for consumers.

“As their role changes, whether by coincidence or by design, physical stores are going to be at the forefront of turning the retail industry into an avenue for convenience,” Deloitte noted in its new study on “2020 Retail Industry Outlook.”

For one, retailers should be rethinking their unused store space, with the possibility of redeploying certain areas into micro-fulfillment centers, which could help physical stores play a key supply chain role as far as improving last-mile delivery.

While a recession isn’t guaranteed to happen in 2020, there are signs of an economic slowdown, and retailers that have made adequate preparations will be in better shape should they find themselves in the midst of a downturn.

The outlook for retail

Real GDP growth slowed to 1.9 percent in the third quarter from 3.1 percent in the first quarter, while business investment contracted in the second and third quarters of 2019. Per Deloitte’s projections, real GDP growth for the U.S. is set to slow to 1.6 percent for 2020, after a 2.3 percent uptick in 2019.

While a strong labor market has provided strength to consumer spending, gains on the jobs front “have not translated to strong wage growth,” the report noted. What’s more, disposable income is expected to dwindle as the impact from the 2017 tax cuts fizzle out.

“We forecast real disposable personal income growth to slow to 2.3 percent in 2020 from 3.24 percent in 2019,” Deloitte said.

Where convenience comes in

This year, as retailers navigate what could shape up to be another challenging year for business, it will be removing friction that sets stores apart. Consumers want friction-free buying in store and online, plus hassle-free returns, Deloitte noted. They want ease from their experience and without, they might just shop elsewhere.

Of course there’s a caveat, which Deloitte was quick to note. “Convenience is also a moving target; what was convenient yesterday is no longer convenient today, and what’s convenient today is not going to be convenient tomorrow.”

For now, product and price are not enough of a “convenience” for shoppers. While quality of product still matters, what’s key for retailers is how they market the service, delivery and overall convenience they provide.

“Things like same-day delivery, curbside pickup, and buy online/pick up in-store have become table stakes. The competitive advantage is derived from presenting these components more effectively than the competition does,” Deloitte said.

And touting product availability won’t be the right way highlight convenience. Retailers positioning themselves as flag-bearers of convenience because of the availability of product range has created “masses of unsold inventory in their warehouses and distribution centers,” Deloitte said. “This can lead to severe cost implications, such as write-offs and promotional expenses to sell off the inventory.”

“To address the consumers’ desire for convenience, retailers should own the narrative around product availability by opting for ‘smart’ merchandising strategies to remain cost-effective,” according to the report. “New approaches are likely needed to influence shopper demand and make that demand more predictable and manageable.”

Another way to offer the convenience consumers are seeking will be to home in on local trends. In light of a supermarket study in which 76 percent of 1,000 U.S. adults polled said they are more likely to order household items locally if they could get same-day delivery, the implication is that a hyper-emphasis on local delivery could be one way to win the convenience game, Deloitte said. And in a different focus on local, Amazon is piloting stores stocked with products that have the greatest appeal at each particular location.

Retailers can also work with manufacturers to create micro-brands that are more aligned to a specific lifestyle or shopper. Offshoots of major brands can give retailers “more freedom to experiment and have influence over shopper demand volume,” Deloitte said.

Augmenting product availability with resale may work, too.

“The abundance of resale stocks could help retailers address inventory availability without having to order fresh products,” Deloitte said, adding that as consumer demand becomes increasingly volatile, retailers can turn to partnerships with resale retailers and thrift stores.

Whichever the path, retailers will need to balance consumer convenience offerings to both manage profit and ensure shoppers are actually satisfied with their experience.

“Convenience is not just free or fast shipping,” Deloitte noted. “Convenience is related to an overall consumer experience that eases the shopper journey while providing additional services. It is very important to think about how you are defining convenience and, more importantly, what you are leaving out.”

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