2019 retail predictions: “The reports of my death have been greatly exaggerated…”

The death evolution of the department store

During 2018, there was no shortage of media headlines descanting on the shift in the retail landscape from “bricks” to “clicks.” Only this time, another retail staple fell victim to our ever-changing shopping behavior – the department store. We saw the likes of House of Fraser, Debenhams, and John Lewis struggle to keep afloat, with announcements of store closures, profit warnings, and CVAs. But, is this the end of the department as we know it or merely a part of the industry that needs to evolve?

The evolution of department stores is upon us and during 2019 we’re going to see many changes in this space as they work through a few key areas to remain relevant:

• Brand identity – Successful retailers are clear on their brand identity and service offering with top-end retailers (e.g., Fortnum and Mason) winning through quality products, services, and experiences and bottom-end retailers (e.g. Primark) winning on product price and value. Department stores that are stuck in the middle need to be clear on where they want to play and what differentiates them in the market through either range or service.
• Diversification – Building on brand identity, department stores will experiment with new products and services in 2019 to offer their customer base something different to come in for. Could we, for example, start to see our department stores becoming more of a destination to get your hair cut, go to the gym, meet friends for dinner, and shop for groceries all in the same place?
• Operating model – 2019 could be the year we see operating models transform as no longer is it possible to have capital tied up in unwanted stock. Department stores will look to reduce risk and increase flexibly by pushing the stock burden back up the supply chain by partnering with leading brands for in-store concessions – moving to a more shopping mall-based concept.
• Store estate – Department stores will need to get smart in 2019 by harnessing data and insights to reassess their store estates. Online retail has taken a proportion of consumer spend, but there is still the desire to visit a physical store. The challenge for department stores will be to use the right data and insight to determine where reductions in their store estate are required.

Delivered when and where I want it

Some retailers are still battling with next-day delivery, while others have moved onto same-day delivery. But, I’m sorry to say, neither is good enough for 2019. Customers want convenience, they want their orders delivered to them now (i.e. the next 30 mins), or they want them precisely delivered at a time and place that is convenient (e.g. 5:15 pm on Tuesday at the train station).

A recent Capgemini global study has found that three out of four customers would increase spend and shopping frequency in return for timely online grocery deliveries. This provides evidence that retailers will need to rethink their supply chains in 2019 in order to accelerate the speed at which they can deliver. However, they will also have to become more agile in order to meet customer expectations. We all know the frustration of ordering something for tomorrow for it only to be delivered at a time you’re not in.

In 2019 we therefore expect retailers to partner with more third parties (transport providers, restaurants, gas stations, etc.) to introduce a new wave of convenience to get your order when and where you want it. After all, wouldn’t it be great if you could have your order handed to you as you enjoy your daily 8:00 am coffee at your local coffee shop?

More ways to pay

Advances in digital innovation over the last decade have allowed retailers to test different payment methods with their customers and we have now entered an age where it would almost be considered a crime if you didn’t have contactless card payments in your store.

2019 will be no exception to the trials of new payment methods, and more specifically, we expect two key areas to grow:

• Buy now, pay later – The introduction of Klarna by ASOS in 2018 has appealed widely to their customer base, allowing multiple sizes to be tried on at home without having to pay up front. This type of credit payment method is attractive for both parties, giving the consumer flexibility of purchase and the retailer the assurance of a sale they wouldn’t normally receive (providing it doesn’t all get returned, that is). Through 2019, the “buy now, pay later” model will be set to grow with retailers introducing their own schemes or partnering with providers.
• Subscription models – Grocery retailers will make a move into subscription model services for the purchases people know they will make and don’t want to think about. Amazon is already ahead of the game with its “Subscribe & Save” service, using the guarantee of payments to pass savings onto their customers. To meet growing consumer demand for convenience and ease of purchase, subscription model offerings will increase in 2019, unleashing the potential for retailers to gain customer loyalty (always hard to get these days) and unlocking a whole new wealth of customer data with which to personalize their experience.

Cashless stores

Building on the theme of paying, 2019 will see retailers continue to focus on giving us a more seamless shopping experience in store. A few years ago, Amazon Go shocked brick-and-mortar retailers (and us customers) when it launched and can no longer be ignored as a gimmick. Consumers are eager to see this type of experience by other retailers and we expect to see this increase in 2019 as retailers introduce technology to allow their customers to scan and pay via mobile apps which will automatically debit the customer as they leave the store and credit them with loyalty rewards.

Staffless stores

Technology innovation has been making great advances in AI and robotic process automation (RPA). These types of technologies are already widely used in distribution centers which have removed the need for a large human workforce (e.g. Ocado). We expect 2019 will see some of this technology begin to trickle down to stores, particularly in the smaller formats where there are fewer complexities to manage and it is possible to automate the full shopping experience using RPA. We are already working with one client on their “gas stations of the future” which is looking to make this possible.

Conscious consumers

Sustainability was a big part of 2018 as we turned our attention to the ongoing challenge of plastic and its impact on our oceans. This has made consumers more aware of the impact they have on the environment and makes them consider whether a brand/retailer is ethical and the product they are buying is from sustainable sources before making a purchase.

This will become more apparent in 2019, as consumers increasingly want to know where products are coming from. To maintain market share, retailers will not be able to ignore this. Initiatives such as product labelling (e.g. 100% British) and making information about product ingredients/materials and source locations available online will be essential to ensuring a retailer’s reputation in this space.

Hyper-personalization begins

Mass offers and promotions are dying, people want products and services that are specific to them, not for the masses. They want to see their personal data put to good use, to enhance their shopping experience so that it feels like a one-on-one interaction where the retailer knows the products and services the customer wants based on their past and present shopping behavior.

We expect retailers will start to get here in 2019 as they begin to link all customer data points into a 360-degree view which will allow them to understand their customer buying behavior from repeat purchases to abandoned online searches. With this information, it will be possible to use AI technology to act as a personal advisor to the customer, recommending product and service ideas as they browse the product range on their mobile or using facial recognition as they walk into a store to equip the closest Sales Assistant with key customer information. Could 2019 be the year we see true omni-channel shopping experiences come to life?

So, there you have it, an exciting year for retail ahead – one which I’m sure will be full of surprises along the way! We’ll certainly be keeping a close eye on the retail pulse throughout 2019 and look forward to reviewing how our predictions got on before the year is out.