My 2024 Retail Predictions: A Baker's Dozen.

In 2018 I started sharing my annual retail predictions. Looking back, let’s just say mistakes were made. But some—like “physical retail isn’t dead—boring retail is” and my dour outlook on many much hyped disruptor brands (aka “wobbly unicorns”)—have held up pretty darn well.

Either way, I’m back with a baker's dozen of provocative predictions for this year.

1.   The bifurcation of just about everything accelerates.

I’ve been talking about “retail’s great bifurcation” for quite some time, in articles, within my keynote talks, and in my first book. My original observation centered on how success (financial performance, store openings, relative market share) was increasingly being found at either end of the value spectrum, while brands in the unremarkable middle were experiencing every worsening fortunes and, in some cases, complete extinction.

Now I see this polarization expanding to other areas and picking up steam. “A” malls are doing well, while just about all others are limping along, being massively repurposed, or bull-dozed entirely. Both flagship and destination stores are being invested in, as are smaller, neighborhood oriented formats, while department stores and commodity-oriented category killers retrench.  Even in office real estate there is a strong flight to quality, while persistent work-from-home causes retailers in city centers to significantly under-perform relative to their suburban brethren.

2.   For many brands, flat is the new up.

The past nearly three years have been a boom time for most of retail as government stimulus and work-from-home impacts drove unusually high levels of spending. Once in a generation inflation also served to prop up many retailers same-store sales. But growing economic headwinds, macro-volatility, and consumers’ draw down of savings will make future top-line growth ever more challenging.

Most critically, perhaps, is what’s now happening with prices. A strong labor market is likely to keep service inflation high, crowding out discretionary income to buy products. At the same time we are seeing significant disinflation—and in some cases material deflation—in goods. Truly remarkable retailers will continue to grow relative market share and take advantage of their pricing power. Just about everyone else will struggle to grow unit sales. And without the air cover from rising average unit retail prices many will, in turn, be lucky to successfully anniversary last year’s numbers.

3.   AI: This time its personal.

Unlike the hype around the Metaverse, Generative AI is already starting to deliver real value. But amid fears of mass job reductions, the use cases that are most compelling in the near-term are likely to be in making experiences more powerfully differentiated and customer relevant. Since the 1990’s many of us have been awaiting the “one-to-one future.” While true hyper-personalization may still be a ways off, AI will help many retailers make great strides this year. Watch this space.

4.   The D continues to come out of DTC—except for top vendor brands.

While going direct-to-consumer is a many decades old strategy that helped create dozens of iconic brands (LL Bean, Lands’ End, et al), in recent years investors piled into a new wave of “disruptive” DTC models that initially shunned those pesky things called stores. Alas, challenging marginal unit economics and much smaller total addressable markets created a situation where most of these disruptors developed a core competency in incinerating cash and having their market values collapse (see Allbirds, Wayfair, TheRealReal, et al).

Many eventually pivoted to opening their own stores, but it’s becoming increasingly obvious that DTC is not a business model per se, but part of a sensible and robust hybrid go-to-market distribution strategy. As such, we can expect to see more of these brands increase their wholesale partnerships while scaling back their proprietary store expansion and hoping that e-commerce can become accretive to profits.

At the same time, remarkable legacy brands with origins in product design, brand management, and manufacturing (e.g. LVMH, Nike, Birkenstock, and more) will double down on both their digital and own store strategies. Indeed, manufacturer-to-customer (M2C) will have a far better year than the hype heavy newish D2C brands.

5.    There is a culling of the once and future unicorn herd.

As mentioned above, the vast majority of the new wave of retail disruptors are struggling. Even Warby Parker, arguably one of the very best of the breed, has lost 75% of its market value since going public. Moreover, once hot brands like Bonobo’s and Dollar Shave Club got sold at fire sale prices. Last year I predicted a disruptor reset. This year I see more of a reckoning, with an acceleration of bankruptcies, retrenchments, recapitalizations, and consolidation.

6.   Honey, I shrunk the store (again).

Several years back I predicted an escalation in the roll-out of small store formats. Once again I see brands like Ikea, Macy’s, and others in hot pursuit of a more hub-and-spoke store strategy, complementing their core format with concepts that get closer to the customer and better reflect the hybrid nature of shopping. We’ll also see more downsizing of existing stores (one example is Nordstrom going from three floors to two in one of its Dallas locations) and aggressive repurposing of space (to services, hotels and residential) devoted to retail in lower tier regional malls.

7.   Neiman Marcus and Saks merge.

Years ago, when I was still part of the C-suite at the Neiman Marcus Group, I started to wonder whether a merger of the two top North American luxury department stores was inevitable. Subsequent events—including an ill-advised, overly leveraged PE buyout of Neiman’s, shifting consumer preferences, and luxury vendors finally getting serious about digital commerce and investment in their own stores, have conspired to make multi-line luxury retail a low or no growth business.

The result: too much capacity chasing too little demand. And while the truly wealthy continue to spend, the younger, merely affluent customers that are essential to making the economics of the model work aren’t showing up nearly as much.

Many trade-areas (or malls) now find themselves with two nearly identical value propositions when, increasingly, the underlying economics make only one viable. Marry this with liquidity challenges at HBC (Saks’ owner) and you have a compelling reason to merge, to take costs out, and to rationalize the real estate. Whether egos will get out of the way, and thorny lease and shareholder issues can be wrestled to the ground, remain the big barriers to what needs to happen.

8.   Nordstrom goes private.

Nearly six years ago the Nordstrom family failed to take the eponymous company private at $50/share. With the stock at just over $18 today, one could argue that makes the company a screaming bargain. Looked at differently, they dodged that bullet.

A few things seem clear. Despite its stellar reputation, the brand has been on a road to nowhere in recent years with flat sales, anemic profits, and an embarrassing exit from Canada and San Francisco’s Westfield Mall after 35 years. Shaky execution and broader industry trends make at least the near-term outlook challenging.

Something beyond the timid transformation they’ve attempted thus far is urgently needed, and they are unlikely to be able to do what they must under the harsh light of the public markets. As long-term interest rates come down it’s a great opportunity to seize the moment and mount a bold reset. 

9.   Apple’s “Vision Pro” is a big nothing burger…for now.

Apple’s face computer went on sale today, and while its generating plenty of buzz, the combination of its hefty price and bulky form factor will prevent it from having anywhere near the impact of the iPhone or even the Apple Watch. At least with this version.

I’m not with Scott Galloway on his prediction of Vision Pro’s abject failure, but I do agree that something so isolating and so likely to make you repulsive to romantic partners is highly unlikely to attract anyone beyond well-heeled neophiles. But there has to be a pony in there, even if it risks getting close to the third rail of predictions—namely anything that suggests that the Metaverse might actually be a thing.

I believe Vision Pro 1.0 is a bold and important first step to the next version of a product that will ultimately possess the potential to bend the culture. That future iteration will have to be far cheaper and far less obtrusive. That’s probably two year away.

10. Sustainability schizophrenia hits news heights.

We’re told Gen Z is all about being purpose-driven, but facts are stubborn things. Consumers may say they care about the environment, treating workers fairly, and brands that are highly transparent, yet Shein and Temu have emerged as two of the fastest growing brands of any kind, ever. These hyper-growth retailers, along with a litany of other fast fashion brands that seem hell bent on winning both the race to the bottom and the race to the landfill, underscore an inconvenient truth. We often say one thing and do another.

And yet many legacy brands, from Patagonia to WalmartWMT to Ikea, are upping their purpose-driven game, focusing on ethical sourcing and putting into place and expanding strong sustainability programs. Various “circular economy” and resale platforms like ThredUp and Poshmark are gaining traction. This is a song of hope.

Clearly, two things can be true at the same time, even if they mean seem at odds. This year expect many new initiatives to be launched or piloted, as well as meaningful progress from retailers that make climate action and other good for society initiatives a priority. Also expect Shein and Temu to achieve (not so) great new heights.

11. Bailing still doesn’t fix the hole among those stuck in the mediocre middle.

There’s no nice way to say this; truly unremarkable retailers—I’m looking at you once again mid-priced department stores—are edging ever closer to a cliff. It turns out watching the last twenty years happen to you is a demonstrably terrible strategy. Macy’s, JC Penney, Kohl’s, and a litany of similar retailers around the globe, have launched various turn-around efforts that literally have not moved the dial. At. All.

Running to stand still is an under-rated U2 song, but it’s no way to run a business. And when a complete reboot is what is desperately needed, there is simply no way that cost take-outs, store closings, and various faster horse initiatives amount to anything more than an escalating commitment to a failing course of action.

I see dead brands.

12. Health-related services are ready for their close-up.

The notion of retailers offering health-related services is not new, but this year it will get taken to the next level by the growing popularity of obesity management drugs like Ozempic, the scaling of various test concepts (like Petco and Lowe’s collab), and the strong growth and expansion of innovative DTC models like Hims. Whether human or pet-focused, greater consumer interest in wellness is colliding with improved technology and exciting new brand offerings to create an explosive growth category.

13.  Commercial real estate becomes a slow-motion crisis (if we’re lucky).

While there is movement to force (or strongly encourage) folks to return to the office, in most cities daily office occupancy seems to be settling in at just over 50%. This is already leading to vacancy rates of 20% or more in several major markets, as rates climbed 180 basis points year-over-year. As more leases come to term vacancies seem destined to go much higher. The growing inability for property owners to meet their debt obligations or refinance is already sending (so far) minor ripples through the financial markets. Additional uncertainly occasioned by WeWork’s bankruptcy is not helping.

It’s hard to see how the brewing crisis won’t lead to some level of contagion—which will definitely have impact on the retail sector. The big question is to what degree and how quickly. The prospect of lower interest rates reducing debt costs—as well as making more office conversions to residential uses more attractive—may be the thing that keeps this from becoming a much bigger deal. Fingers crossed.

A two-part version of this article appeared at Forbes, where I am a senior retail contributor.

To hear a discussion of all thirteen predictions check out last week’s episode of the award-winning Remarkable Retail podcast.