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Retail Stores to Have Their Day in 2019—Just in a New Way

After the onslaught of bad news last year, retail received a respite of sorts in 2018 with fewer doors closed and only a handful of bankruptcies in the apparel and footwear space. Whether it was evidence that some of the initiatives the C-suite put into place just might be working or the result of good fortune in the form of a robust economy, remains to be seen.

Either way, it was a welcome change—one that has all but rewritten the retail apocalypse narrative.

Now the story is retail’s reinvention, according to William Wilson, managing director at investment bank Imperial Capital.

“What people were saying a year ago that the Internet killed the retail star, is too simplistic a point of view right now,” he said, adding that the idea that one big, bad wolf will devour the retail landscape is also passing. “What you’ve started to see in some categories is people saying that yes Amazon is an incredibly important part of retail life, but it’s not totally the end of traditional retail.”

Rather than doors shuttering, he said, you’ll see new concepts that capitalize on the best properties of both online and offline commerce.

Just look at the latest outpost for the Swedish furniture retailer, Ikea. Forget the massive store with the equally cavernous warehouse and expansive parking lot designed for grab and go home furnishings. The company is now rolling out a slimmed down Planning Studio designed for cities where shoppers can experience the product and place orders for anything that catches their eye.

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Wilson said expect to see more formats like this as chains transform to match the times.

“It’s a rethink of what it means to have a retail door. Maybe it gives consumers a retail experience that is consummated on the Internet but that kind of example shows people need to have some kind of physical retail location,” he said.

Ikea’s city format also illustrates IBISWorld’s prediction for 2019, which is for more stores with little to no stock.

Claire O’Connor, lead industry analyst for the market research firm, said she’s impressed with the ways in which some retailers have been able to bring the convenience found online into their offline counterparts. “I think a lot of retailers have done a good job of adapting to this new shopping age,” she said, pointing to product free stores like Bonobos’ Guideshops and Nordstrom Local as examples of the new direction retail is taking.

She reiterated Wilson’s point that we’re not facing the end of retail, just the end of the traditional model.

“We see that consumers still have demand for traditional retailers because they want a seamless shopping experience in store and online and even through social,” she said. “The retailers that have been able to adapt and pivot have been proven to be really successful.”

O’Connor also expects to see more stores capitalizing on differentiating themselves from the online experience in ways only a physical presence can. She points to Nordstrom’s recent collaboration with Something Navy’s Arielle Charnas as an example. While the clothes in the blogger’s new line are available on Nordstrom’s site, the retailer is luring her fans into stores with shop-in-shop style displays and exclusive meet and greets for that personal touch.

Additionally, FAO Schwarz, which is back on the scene, has brought its interactive in-store displays back with it, giving parents reason to stop in rather than simply clicking to stock up.

While the fear of an Amazon-only future has subsided, O’Connor said you can’t deny the impact the e-commerce giant has had on retail—especially when it comes to making near-instant gratification the expectation.

The company’s free two-day shipping through Prime is now industry standard. And services like Prime Now, which promises package delivery within hours, are forcing other stores to follow suit as well. But it all comes at a cost. With every new free or fast shipping offer, stores have to find a way to foot the bill—and they will O’Connor said because it pays off.

“It adds a lot to customer satisfaction, which increases the chances they’ll shop there again,” she said. “Stores will make it sustainable by cutting other costs.”

Expect more doors to close as retailers weigh the cost of running an unprofitable store against funding a better customer experience across the rest of the fleet and online, she said.

Even with all of the attempts to reinvent itself, the true test for retail will come once the economy slows down. Without the economic tailwind, retailers’ efforts will be left to stand on their own merits. The question is, when will the correction occur?

This year benefited from strong consumer sentiment, a low unemployment rate and strong wage growth, resulting in fewer bankruptcies than many had predicted for 2018. And many of those that did occur in the apparel and footwear space were from retailers like Sears, Nine West and Claire’s that had already been heading in that direction due to debt and waning foot traffic at malls.

As Wilson put it, “The rising economic tide carried a few more ships than we expected.”

Looking ahead to the coming year, he said, things will likely continue in the same vein. “You’ll see a continuation of the trend where people who have a non-compelling business model will find it challenging. Offsetting that will be the generally strong economic conditions.”

The economy, though, could be ripe for a correction.

“The question that everybody has to ask themselves is what innings of the economic cycle are we in because since 2009 we’ve arguably been in a recovery,” Wilson said, adding that there are signs that it could be coming to an end.

IBISWorld doesn’t see a slowdown in the short term, though. “We see the economy and disposable income continuing to grow and people are going to continue to spend more money,” O’Connor said.

Whether the economy cooperates or not, the rules of retail don’t change, according to Wilson. “At the end of the day those that are successful will be those who resonate with the consumer whether she’s shopping online, on Amazon or driving to the mall,” he said. “Consumer engagement that makes people say ‘wow,’ that’s what it’s all about. I would argue it’s always been about that, it’s just much much more obvious now.”