My Retail Predictions for 2019. How Did I Do?

On January 3, 2019, I wrote an article called, "The Retail Apocalypse is Old News. Now What?" I made quite a few predictions regarding the "future" of retailing for 2019.

The predictions appear below, un-edited.

I'm looking for your feedback, a year-end performance review. How did I do?

Predictions for 2020 are forthcoming. Stay tuned.

Happy Holidays. DJK

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In 2019, regardless of size, tenure or segment of business retailers, brands and suppliers must recognize that they can no longer navigate the new landscape with old maps.

Tomorrow’s retail winners will be nimble, data-driven, fast-to-market and cost efficient. They will have the foresight, fortitude and fearlessness to disrupt their own identity and legacy models.

Do or do not. There is no try. 

The rate of change will escalate. There is no time for deep contemplation. Winners will leap, measure and then optimize.

Failing fast will be a requirement, not an option. Succeeding fast will be a requirement, too.

The Alchemist's Retail Prophecies for 2019:

1)    After a strong 2018, the retail industry will slow down in 2019. 

• Labor markets and basic economic indicators will remain strong. However, geopolitical factors, consumer confidence, inflation, and demographic shifts will influence spending patterns and slow retail spending.

2)    “The Retail Apocalypse” will be exposed as “fake news” for math-challenged, headline-grabbing media.

• While closed stores and lost retail jobs are painful and disruptive, they are not apocalyptic.
• Online sales get the buzz. Mortar-and-brick gets the dollars.
• Ecommerce will remain a minority of total retail sales, somewhere between 10 and 15 percent of total. The vast majority of sales, over 85 percent, will continue to take place in brick-and-mortar stores.
• Both channels will continue to grow in real dollars. In 2019, physical stores will contribute 50 percent of all retail growth.
• We can expect mortar-and-brick retail to respond to the surge in 2018 retail revenues with hefty investments in existing and new flagship stores. Examples in New York City alone include Tiffany, the Nike House of Innovation, RH, Nordstrom, Starbucks Roastery, and the soon-to-open Neiman Marcus.

3)    "Network Effects" will yield a “winner takes all” retail playing field.

• 2019 will see a clear bifurcation of winners and losers. Growth will accrue to a small number of big winners: companies that control access to consumers and can leverage network effects to increase both scale and efficiency.
• However, niche players can win with “go small, or go home” strategies.

4)    Consumers will continue to expect more… and they'll find someone to provide it to them. 

• Delivering ever-increasing consumer satisfaction will require innovation and massive spending which in turn will compress margins and driving all but the strongest players out of business.
• In 2019, delivery models will build, or destroy, retailers. Promising, and then delivering, virtually immediate delivery – often at no cost to consumers – has been an expensive, polarizing game changer. It’s a game most companies cannot afford to play, or to lose, or to win… 

5)    The Three C’s of Retail will be critical differentiators: “Choice,” “Cost,” and “Convenience.”

• Successful retailers will have one, or more, of the best assortment, the best prices, or the best service. Case in point; loser Sears.
•  “Convenience and service” versus “assortment and price” illustrate consumer’s evolving “Money Value of Time” (MVT).

6)    Off-Mall will outperform In-Mall. 

• This shift represents a fundamental change in preference, demographics and convenience.
• This will be good for Kohl’s and not so good for JCPenney.

7)    In 2019, we will still have too many stores, too much retail space, and too much inventory.

• Store closures and bankruptcies will continue as retailers continue to right-size their door count and selling space.
• Too many stores and too much product results in an over-supply of mass market goods, driving down prices and favoring off-price stores, branded outlets, and web sites competing for that can sell this over-supply for the lowest price. It becomes a race to the bottom.
• Off-price retail will continue to gain market share.

8)    Surplus selling space turns retailers into landlords. Will these new tenants add value beyond lowering real estate costs? 

• Kohl’s has Amazon and Aldi as tenants; a play for foot traffic.
• Macy’s has added Samsung and B8ta and Marketplace with Facebook as tenants, some of whom sub-let their space to other third-party brands; a play for new consumers and data.
• JCPenney has Sephora as a tenant; a play for relevance. 

9)    The battle for tomorrow’s consumer will make enemies of friends… and friends of enemies.

• Competitors will emerge from sectors previously perceived as irrelevant.

10) Online commerce will be costlier than ever to execute.

• The cost of customer acquisition will grow significantly. 
• The cost of customer acquisition will shrink significantly, for a handful of industry leaders. For gateway players, those companies that can leverage network effects, the cost of customer acquisition will actually decrease with growing scale. Examples include Amazon, Google and Facebook.
• Online fulfillment costs, both outbound and inbound, along with the associated labor, materials, freight, warehouse space, inspection, refurbishing, I.T. and “reverse logistics” will be an essential retail performance indicator, separating winners from losers.
• Online shipping will also create a truly outstanding amount of corrugated waste.
• Nearly one third of all online shipments will be returned. This deluge will escalate as shoppers increasingly demand fast, simple and free returns.
• In 2019, the speed, efficiency and customer service-level retailers provide regarding shipping and returns will be a critical factor in determining which companies make money, and which will fail.

11) In 2019, “Brand Relevance” will beat “Brand Authenticity.”

•  Consumers crave quality, utility, uniqueness, value. They have new ways of validating these features and benefits: social media, reviews, peers, and transparency. Therefore, fewer brands will be meaningful at scale.
• New brands will proliferate in niches.
• Private Label will grow, and some will scale.

12) Retail will Pop-Up everywhere. 

• Pop-Ups inside malls and Macy’s will also pop-up inside WeWork buildings, hotel lobbies, and apartment complexes.
• Vending machines will become pop-ups in previously unexplored locations.
• Take note of the Uniqlo “Puffer Jacket” vending machines in airports.

13) Immersive, aka “experiential” retail gets real. 

• The Canada Goose see-through freezer dressing rooms, where customers can try on outerwear and step into a 12-degrees-below-zero locker. This is a selfie-magnet that elevates consumer experience, brand awareness and sell-thru. 
• The Casper Dreamery cost $25 for a 45-minute nap in a cool, quiet compartment with fresh sheets, pajamas, eye masks and a break from the daily grind. No hard sell, just relaxation reinforcing the value of quality sleep. Note: you can’t purchase a mattress at the Dreamery.
• The Nike “House of Innovation“ is fueled by digital commerce tools. Customers can text to have clothing delivered to dressing rooms in the size and color of their choice, schedule appointments with an in-house stylist or fitness expert, scan mannequins for product information, use the “scan and go” mobile checkout, or pick up reserved items at digital lockers, unlocked with their phone.
• Showfields was imagined and built around customer experience. Housed in a historic New York City four story building, the store is a cavalcade of ever-changing workshops, brands and classifications filled with online and offline engagement. Similar to B8ta and Macy's Market, brands can lease turn-key space within the store.
• Poorly conceived experiences, however, will continue to proliferate at retailers who just can't see the goal line. Compare the winning models above with feeble attempts at relevance via barber shops, espresso bars, pool tables, and photo ops.
• And then there's Amazon 4-star... the odd mix of brands, products and cashier-less shopping is designed around data collection rather than customer experience. I anticipate that Amazon's human and artificial intelligence will make these stores more consumer-centric over time.

14) Loyalty Programs will matter, and cost, more than ever before.

• The battle for consumer loyalty will intensify in cost and value.
• Amazon Prime is a highly effective loyalty program. Kohl’s and Macy’s loyalty programs have real potential.
• Never underestimate the consumer. Banks presumed that premium loyalty rewards would encourage credit card users to spend more, earning the banks more interest and boosting their returns. They were wrong. Consumers figured out how to game the system in their own favor.

But wait, there's more.

15) Sustainability will move from “buzz” to “ding,” the sound of cash registers ringing. 

16) Checkout-free technology will expand, quickly.

17) Artificial Intelligence will be widely used to influence and aid in purchasing, and shopping experiences.

18) Social and text messaging will become more important as data and trust become currency of great value.

19) Privacy issues will reach an inflection point.

20) Virtual Influencers, artificial digital beings, will grow in popularity and influence.

21) Augmented and virtual reality (AR & VR) will begin to show positive retail ROI.

22) Shopping via voice… will still not be ready for primetime. 

• Amazon stated, without providing sales data, that the "use of Alexa for shopping more than tripled" this (2018) holiday season compared with last year's. My read; growing, yet not statistically significant.

23) Image Recognition will become a meaningful, widely-used, tool for consumers and retailers.

24) Robots will be critical for supply chain efficiency. Yet they will remain behind the curtain… R2D2 is not ready for consumer interface.

25) Mobile Payments will become the de facto standard. 

26) Products will replenish themselves and subscription models will proliferate; some will even succeed.

27) Walmart will become more like Amazon: investments in online commerce and last-mile delivery.

28) Amazon will become more like Walmart: investments in food & drug and mortar-and-brick retail.

29) BOPIS (Buy Online Pick-Up In Store) will continue to grow, along with associated labor, inventory and technology costs.

30) 2019 may see the “Death of Free Trade.”

• Trade wars and geopolitical uncertainty will unsettle retailers, brands and consumers. 
• Shifting a supply chain takes time, money and commitment.
• Expect cost increases to consumers to feed into 2019 inflation.

(c) David J. Katz, 2019 - New York City

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David J. Katz is executive vice president, chief marketing officer and "alchemist-in-residence" at Randa Accessories, an industry-leading multinational consumer products company, and one of the world's leading apparel & accessories businesses. 

His specialty is collaborating with retailers, brands and suppliers to innovate successful outcomes in evolving markets. 

David is one of the "LinkedIn Top Voices - Retail." He has been named a fashion industry "Change Agent" by Women's Wear Daily, a "Menswear Mover" by MR Magazine, a "Retail Radical" by The Robin Report, a member of the RetailWire "BrainTrust," and a "Top Writer on Innovation and Fashion" at Medium.

He is a public speaker, best-selling author, and has been featured in The Wall Street Journal, The New York Times, CNN, The Business of Fashion, Business Insider, New York Magazine, The Huffington Post, MR Magazine, and WWD.

A graduate of Tufts University and the Harvard Business School, David is a student of neuroscience, business administration, consumer behavior and "stimulus and response." The name Pavlov rings a bell.

ALCHEMY: A science or philosophy that transforms something ordinary into something meaningful, often through mysterious means.