Predictions for the retail industry in 2020

16 December 2019

Technology playing an integral part in the way we shop

It’s no secret that technology is becoming more prevalent in the way we shop, and this shift will only become greater over the next year. Technology is allowing retailers to mix digital with reality linking excellent consumer experience to greater brand loyalty. ModiFace, for example, has released a ‘reality’ mirror for in-store use allowing customers to ‘try’ different make-up looks in store, virtually facilitating the perfect ‘try before you buy’ scenario.

Digitalisation of the shopping experience is gaining momentum with innovations like virtual clothing and the digital design of tailored garments already available. Optimised wardrobes are also on the rise allowing consumers to visualise outfit options and pair garments. Accurate sizing is one way retailers can mitigate the ever-present returns issue, which is increasingly eroding margins. 

Technology has a key role to play for retailers reducing their overall environmental impact. Localised consumer data is already being used to predict spending habits allowing retailers to correctly stock shops, reducing expected wastage and transportation costs associated with redistributing stock. We expect this to be a key focus going into the next year with more and more retailers using technology to minimise the environmental impact of the retail industry as well as improve profitability.

A stage, a showroom or simply a store?

The success of a store portfolio is determined by how products are merchandised as well as how customers see themselves wearing or using them. Yet, stores need to provide more than great products and visual displays to attract and engage customers. Shopping is already experience led but consumers now expect more – transactional shopping habits are dead. For example, we have seen Virgin Holidays opening retail concept stores which put the customer in an environment to promote a relaxed ‘holiday mode’ and let them try out various elements of the Virgin Holiday experience. This ranges from simulators of holiday destinations and mock-ups of first-class cabins. We are even seeing the redesign of whole shopping malls to focus on the experience provided to the consumer. Rushden Lakes in Northamptonshire offers designated cycling, walking and even canoeing routes to allow consumers to explore the local area as part of their shopping trip. We expect a move away from stores full of garments and a transformation into something more relevant for today’s consumer as retailers look to tailor experiences to individuals.

Sustainability – the new fashion

The slow shift towards sustainability has become a stampede for both the consumer and businesses alike. Sustainability is the new norm and is key for all players in the sector to incorporate into their business model. Vegan and cruelty free products are also high up on the agenda, for example in the beauty sector the number of Google searches for “vegan beauty” has doubled every year since 2012.

There’s no doubt fashion can be damaging, contributing significant portions of micro plastic flows into the ocean and outweighing the carbon footprint of international flights and shopping combined– change is needed! New innovations and technology from leather alternatives made from pineapple leaves to buy-back schemes rewarded with gift vouchers are already in place. An emphasis on recycling and the rise of platforms to buy used products to lower carbon footprint are just some of the exciting movements in the fashion industry.

The importance of sustainability and environmentally friendly initiatives have never been more important and shifts in consumer attitudes and the market make it essential. The shift in spending power from Generation X down to Millennials means that discretional spend will soon accelerate the pace of change for retailers and sustainability will need to be at the centre of their offering.

Retail in crisis – what does life in a post CVA universe look like?

Cost headwinds faced by the sector have touched upon business rates, foreign currency rates and employments costs. This has led to several sector causalities in 2019 including Mothercare, Clintons and Links of London to name but a few. Over the last 10 years online sales have grown from just 4.5 per cent to over 20 per cent of market share. Yet the issues go deeper than this. Empty space on the high street has remained unoccupied around 25 per cent longer than compared to 2013 with high street vacancies peaking at 13 per cent in 2019.

So, what is the future of retail stores? The market has seen several new entrants including online players taking on physical space, blending retail, leisure and experiential in one place. According to Colliers, one in three retail units let in London are now less than 1,000 square feet. The evolution in traditional retail is in fact a separation into an experience led premium proposition or niche retail outlets and we predict a reduction in store size across the whole of retail.

So how are landlords responding and what is the lease of the future? Many tenants are now seeking turnover based rents, capital contributions and generally much more favourable terms from landlords. This is reflected in the current trend in overall lease lengths which have fallen between 2013 and 2018 from 9 to 7.5 years on average. Successful retailers will be the ones to identify key sites, negotiate with landlords and focus on mutually beneficial lease terms tailored to retailers specific requirements. Lease periods will get shorter and a return to favouring the occupier going forwards.

The failure of Regis goes to highlight that landlords will no longer simply accept a CVA. Likewise, banks are increasingly risk averse to lend to the sector and anecdotally borrowing rates are increasing. This has led to an increase in venture and private equity funding the market place, who are taking niche brands international due to internet enabled ease of access.

So, what does this all mean? In the longer term, we should see a more appealing retail proposition which is more suited to this web-based world.

The true cost of data – lost customers?

How many of us groan and abandon a search when presented with preference centre options from a retailer? Do consumers want to be followed from a search engine through to webpages and onto social media platforms? The momentum behind the ‘right to be forgotten’ and not feeling stalked by retailers will gather pace in 2020. As we approach the second anniversary of the most significant change to data protection laws in the General Data Protection Regulation (“GDPR”), 2019 has seen the largest fines to date issued by the Information Commissioner’s Office (“ICO”). Those falling foul included British Airways (fined £183m) and Marriot Hotels (fined £99m) - will 2020 see other big hits in the industry?

Data protection and ensuring procedures, policies and controls are in place are key to ensuring businesses do not fall foul and incur significant fines. And unfortunately, there’s more legislation to come! The new (albeit delayed) ePrivacy regulation and the impact this will have on a brands consumer understanding will be problematic – not to mention it may hamper the success of abandoned basket follow up. The best retailers will look to adapt quickly to changing consumer preferences. Those who really understand their return from online spend will be successful, those who don’t will be left behind. We predict eCommerce advertising and business models will start to look very different over the next year as digital marketing spend is refocused.