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The Year Ahead: Retail Turmoil to Continue in 2016

The good news? A tough 2015 is over. The bad news? Most retailers entered 2016 worse off than they were throughout 2015.

That’s at least according to Robin Lewis, retail expert behind The Robin Report.

Building on the bad news, overcapacity is presently at nearly 50 square feet per capita in the U.S., including smaller, independent retailers, while that estimate is a much lower 2.5 square feet per capita in Europe.

And when it comes to businesses that may fare even worse this year, Lewis said in short, “RIP: Sears, Kmart.”

In 2016, there will be five key factors retailers must understand and embrace to stay ahead of the curve, according to Lewis: Widening the income gap; urban migration; population shift from Boomers to Millennials; racial and ethnic diversification; and consumers as the new point of sale.

“The winners are technology and data analytics, and…the human imagination and intuitive capacity for putting a finger on the heartbeat button of the market,” Lewis said.

Speaking of technology, Sam Cinquegrani, CEO of digital marketing strategy company ObjectWave, said it will still be the star of the show.

For one, the trend toward personalization will continue as consumers demand more ease of use and the ability to create a unique product tailored to their taste, Cinquegrani explained. Retailers will have to enable consumers to leverage digital devices to get more out of their e-commerce experiences.

“Be prepared to go deeper than ever before to understand your customer. Who they are and what they want,” Cinquegrani said. “Retailers will be doing everything they can to enhance the online shopping experience. This year, I think that will include a much broader use of virtual dressing rooms, an online service currently offered only by a few high-end retailers such as Neiman Marcus.”

In that vein, digital fitting technology will also take hold in a bigger way and Cinquegrani sees it as another trend multichannel retailers will want to follow. The technology lets users do things like see 360-degree views of specific pieces and feel like they’re getting one-on-one interaction.

“This year, I believe it’s a given that mainstream fashion and apparel stores and small boutiques will ramp up their use of social media more than ever before, to create both stronger brand relationships and a greater emotional response from the customer,” Cinquegrani said.

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Adheer Bahulkar, a partner in the retail practice of global strategy and management consultant A.T. Kearney, added, “Established brick-and-mortar retailers will finally begin to see stores as an extension of their e-commerce business—and not the other way around. Retailers will begin shifting their heavily invested capability in what they know about ‘retail store operations’ to ‘digital store operations.'”

Technology is now in the hands of the most powerful consumer group in U.S. history—Millennials, Lewis added. And their use of technology is creating new business models.

“The old world of retail is evolving slowly; the new world tech revolution in retail is moving at warp speed,” Lewis said. “New Millennial entrepreneurs are being funded by investors who know 80-90 percent of them will fail.”

In this new world of retail in 2016, as Bahulkar put it, free shipping will continue to decline as more retailers realize they don’t need it, incorrect inventory and out-of-stocks will still cripple top line growth for retailers, and brand collaborations will spike both online and offline.

And, Bahulkar added, “Watch out for the arrival of adaptive pricing—this is the term given to mass customization of pricing by unique demand segments.”

Those that will do well in 2016 have three models for success as Lewis puts it:

  1. Old world winners further embracing technology—e.g., Macy’s, Nordstrom, Burberry’s, Walmart, Target, Kohl’s and J.C. Penney
  2. Tech retailers that got big fast—e.g., Amazon, Warby Parker, Rent the Runway, The RealReal (luxury consignment)
  3. True disruptors who are changing the world—e.g., Uber, airbnb, Instacart

According to Lewis, “This all adds up to de-centralization, disintermediation, de-massification, and personalization.”