Top 10 Retail Predictions for 2018
It’s February again, and we all know what that means. It’s time to bundle up and check out our Top 10 retail predictions for the year ahead.
1. Even more stores will close. We think just as many — and probably more — will shut their doors this year. But we also think retailers will head into those tough decisions with eyes wide open. In 2018, retailers will continue to trim the fat and run store closure programs that squeeze the most value possible.
2. Rising costs threaten to crush margins. Rising inflation, labor costs, omnichannel investments, and price pressure from Amazon and off-price stores are chipping away at already razor-thin margins. But there’s hope. The boldest retailers will turn to automation and outsourcing to cut costs aggressively and boost profits.
3. Speedy retailers get even speedier. What was considered fast 10 years ago is now glacial. Retailers used to take a full year to bring a product to market. Now, some retailers — not just fast fashion — are doing it in 10 weeks. We expect many retailers (including established ones) to cut down product development time by as much as 75% this year.
4. … making inventory levels drop. A faster product development cycle means retailers won’t be hoarding inventory and then selling it at deep discounts. Instead, they will shift from buying in bulk each season to buying more often in small quantifies, and eventually move away from a seasonal calendar. That approach makes it easier to buy products closer to the in-store date, which leads to better predictions of what is going to sell and fewer markdowns at the end of a season. This means we’ll be less likely to see Eagles Super Bowl merchandise marked down in stores in March — so good news all around!
5. Renting on the rise. The rental market is heating up — and we don’t mean apartments. Businesses that give consumers the option to rent or share products instead of buying them will get even more popular this year (especially among Instagram-hungry, cash-poor millennials). But consumers won’t be the only renters on the market. Retailers have always outsourced some processes, like distribution, but we think they’ll “rent’ more outside resources to work on core processes like product design and development. This could help move from a fixed to variable cost structure.
6. Supply chain investments pay off. Everyone knows Amazon set a high bar for logistics, which they are anticipated to raise again with their Shipping With Amazon service. While some retailers are crumbling under the pressure, others are being clever and creative with their supply chains, using vacant retail real estate to handle e-commerce delivery, making big CAPEX investments in warehouse automation, thinking about acquiring transportation companies, and investing heavily in 3PLs to manage returns. We think those who invest will see their own happy returns this year.
7. If you can’t beat ‘em, join them. Retailers are under enormous pressure to compete online. But e-commerce doesn’t come cheap or easy. This year, more retailers could get around antiquated systems and old ways of thinking by acquiring or partnering with born digital start-ups that already have those critical skills and processes. We expect brands to join the Amazon marketplace after playing hard-to-get for years (cough, Nike) and predict other traditional retailers will get cozy with digital natives (like Target and Shipt).
8. Adding a human touch — without humans. Retailers have been getting better at using technology to offer a personalized customer experience online. But this year, they’re going to take it to the next level by relying more on chatboxes interacting with customers in text messaging apps like WhatsApp and Facebook Messenger.
9. Amazing in-store experiences. “No one wants to shop in stores anymore,” people say. Well, we disagree. We think savvy retailers will come up with new reasons for people to stop by. In-store entertainment and special services should become big priorities. In fact, more stores won’t hold inventory at all and will simply become “guide shops,” where consumers can touch the products and sales associates can educate customers.
10. Elephants (finally) learn how to dance. Competition from start-ups and digital natives poses an existential threat to established retailers. For traditional retailers to survive they need to embrace a new attitude to risk, innovate, and break old rules. We see retailers saying goodbye to their “gut” and hello to data to drive decisions — like the data-led Stitchfix.
Joel Bines and David Bassuk are the global co-heads of retail at AlixPartners, the global, multi-industry consulting firm.
No comments found
Regulatory Wrap-Up: Insider’s guide to retail-related legislative developments
Arizona: On a party line vote, a senate committee advanced legislation that would alter a 2016 voter-approved initiative which increased the state’s minimum wage to $12/hr and mandated employers provide paid leave. Should the new legislation pass, which is an uphill climb, it would then be placed on the Nov. ballot. If approved by the voters, it would cap the scheduled minimum wage increases at $10/hr and repeal the paid leave mandate.
Delaware: After failing to advance legislation over the past few sessions, minimum wage proponents revised their legislation this year to a more modest increase, $9.25/hr (up from the current $8.25/hr) with no cost-of-living adjustments. The bill may have a decent chance of passage in the senate but may face resistance in the house.
New Hampshire: Legislation to increase the minimum wage to $12/hr was defeated in the state senate.
Vermont: By a veto-proof majority, the full senate passed legislation that would increase the minimum wage to $15/hr by 2024. The bill now moves to the house. However, Governor Scott has publicly stated his opposition to the bill, citing the negative impact on small businesses. As a result, the legislation likely needs to pass the house by a similar veto-proof majority to become law.
Virginia: A bill allowing localities to set minimum wages higher than the state level, currently $7.25/hr, was defeated in the house and is dead for the year. The state constitution has an implied preemption, but it has yet to be tested.
West Virginia: A bill preempting local governments from enacting a variety of ordinances including those related to wages, leave benefits, and scheduling passed the senate and moves to the house. A similar bill passed the senate last year but died in the house due to a singular focus on a medical marijuana bill. Proponents are optimistic that without a similar distraction this cycle, the bill will be passed on to the Governor for signature.
Flagstaff, Ariz.: The city’s chamber of commerce was successful in getting an initiative approved for the Nov. ballot that would bring the city’s scheduled wage increase in line with the statewide level. The state’s minimum wage is currently $10/hr and scheduled to increase to $12/hr in 2020, with further increases linked to cost of living adjustments. The local initiative would reverse a city law passed last year which set the city increases fifty cents ahead of the state’s.
Federal: For the second year in a row, President Trump’s budget included a call for six weeks of paid family leave funded through state unemployment insurance programs. The funding mechanism is different from a recent proposal by First Daughter Ivanka Trump and Senator Marco Rubio calling for early withdrawals from social security funds. While that concept has gained some traction in Republican circles, it along with the budget proposal are not likely to be implemented in the near future.
Maryland: Legislative efforts to delay implementation of the state’s new paid leave law have failed. The law went into effect Feb. 11. While the state’s labor department stated that enforcement is unlikely until the spring, employers should comply with the new law now.
Vermont: House leaders are pressuring the senate to take up a paid leave bill that passed the lower chamber last year. The bill would create an insurance program funded by a payroll tax paid by participating employees. It would provide up to six weeks off to care for a newborn or ill family members and would apply to businesses with more than ten employees. Last year Governor Scott vowed to veto any paid leave bill that required a tax increase.
Austin, Texas: The city council passed an ordinance mandating employers provide up to eight days of paid leave to their employees. The ordinance is effective Oct. 2018 and applies to all businesses with operations in the city. Smaller businesses with 15 or fewer employees will be required to provide only six days of paid leave. State Representative Paul Workman (R-Austin) has vowed to file a statewide preemption bill when the state assembly convenes in 2019 setting up a potential overturn of the city law, but not before it goes into effect this October.
Hawaii: Scheduling legislation that would mandate employers provide ten days advance notice to employees of work schedules passed a senate committee. For context, the legislature has taken action on other progressive issues such as salary history and equal pay leading most to believe that the scheduling legislation has a strong chance of passage.
Philadelphia, Pa.: Labor advocates, led by the organization OnePA, held a rally in front of city hall and announced a campaign in support of a Fair Work Week law for city employees. Councilwoman Helen Gym has called for hearings on the issue but has not yet introduced legislation.
California: The attorney general’s office released a guidance document advising how employers should handle privacy issues that result from the new state law preventing employers from voluntarily allowing federal immigration officials access to employment records. The guidance document specifies the meaning of “voluntary consent,” and outlines what specific records they are able to share with law enforcement in the absence of a warrant.
U.S. House: Legislation passed the full House to protect businesses from excessive litigation for alleged violations of the Americans with Disabilities Act. The bill has advanced further than in previous sessions but has a long path to enactment.
McDonald’s: The company faces a class action Americans with Disabilities Act claim in Illinois Federal Court stemming from allegations that visually-impaired customers are prevented access to the restaurant when only its drive thru is open late at night.
Federal: The Commerce Department released a report recommending that the President take action to protect domestic steel and aluminum producers in the form of high import taxes on foreign-made material. The President has 90 days to act, and while the administration has taken similar action on washing machines and solar panels, tariffs on steel and aluminum imports would have a vastly wider effect on the general economy and global supply chain. Trading partners including Canada have noted the need for robust exemptions to be considered, while countries such as China have threatened trade retaliation if steep tariffs are implemented.
• Recent ICE raids in California included audits of nearly 200 employers that were located in “sanctuary cities” and demonstrate that brands may continue to be collateral damage in immigration-related feuds between federal and state lawmakers. ICE announced that “uncooperative jurisdictions” will continue to be target areas for the agency and employers can expect to be caught up in enforcement actions. Companies with operations in large “blue” metropolitan areas in “blue” states should be particularly vigilant.
• Many states are continuing to react to the recently-passed federal tax law to recoup expected losses in revenue. This week, New York Governor Cuomo released a plan that as expected, called for some potential adjustments to the payroll tax and employment-related tax credits. Companies need to be vigilant as many large states will be looking for additional monies.
Legislature Status for Week of 2/20/18
• The United States Senate is on recess this week
• The United States House is on recess this week
• Forty-four state legislatures are meeting actively this week: AL, AK, AR, AZ, CA, CO, CT, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, MA, MD, ME, MI, MO, MS, NC, NE, NH, NJ, NM, NY, OH, OK, OR, PA, RI, SC, SD, TN, UT, VA, VT, WA, WI, WV, WY
Check out our Working Lunch podcast each week that includes further analysis into these legislative issues, policy, politics and much more. You can find Working Lunch on the Nation’s Restaurant News website, or by clicking here, and when you download the podcast and subscribe on iTunes here.
The Regulatory Wrap-Up is presented by Align Public Strategies. Click here to learn how Align can provide your brand with the counsel and insight you need to navigate the policy and political issues impacting retail.
No comments found