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10 Predictions for Retail in 2016

Dec. 1, 2015
The challenge for companies will be to derive meaning from the intersection of multiple sources — stores, e-commerce, mobile, social, in-store sensors or wearables. Connecting this data to deliver better customer service, improve the in-store experience or design a more-engaging mobile app has become table stakes.

Retail will continue to be driven by technology: Science fiction is coming to life in the form of robotics and virtual reality, and the Internet will soon be embedded everywhere. So explains the National Retail Federation as it makes it predictions for the industry for 2016.

The associations says that while economists seem to agree that indicators point to a fairly solid 2016,  Goldman Sachs’ sobering assessment of what’s in store for 2016 boils down to the phrase “flat is the new up.” The investment bank has forecast 2.4% growth and describes economic recovery as “running in place.”

Some of the group’s prediction is as follows:

1) Convenience, expedience the fast track to shoppers’ hearts

With consumers able to summon a car ride with a few taps on a smartphone, the expectation that everything should be simple and frictionless is growing. While some debate the popularity of subscription services, they continue to pop up — promising to simplify everything from the delivery of dinner to razors. Expect same-day delivery to move closer to critical mass in 2016 as more companies emerge serving an increasing number of markets.

Drones and 3D printing  will continue to garner more talk than traction in the coming year. Neither should be overlooked for the simple reason that both play to the desire for speed and convenience — two things consumers can never get enough of.

2) A digital core is essential

Today’s consumer is firmly in control and chooses  how they interacts with retailers. Responding to this customer requires a digital pulse to sense and respond to changing needs, and a digital pulse requires a digital core. A digital core gives companies real-time visibility into all mission-critical business practices and processes around customers, suppliers, workforce, big data and the Internet of Things. Experts report that only 37% of retailers currently have a strategy to create a 360-degree customer view. By 2020 all store sales will be influenced by digital. Retailers need a digital core to understand all the data that moves in and out of the company.

3) IoT coming on PDQ

The Internet of Things is going to be much bigger in 2016. McKinsey Global Institute recently forecast that IoT could have a total economic impact of $11 trillion annually by 2025.

While much of the talk today is about the use of IoT in home appliances and smartphones, the technology sets the stage for major big data developments — specifically in the form of improved levels of supply chain efficiency and inventory management. With IoT, products can communicate how they are actually being used, providing insight into customer behavior and preferences.

While this game-changing technology offers potential cost savings and productivity enhancements, hurdles remain. Standards are imperative; the industry must work with technology vendors to provide connected, interoperable components and systems. Another significant obstacle is security and privacy concerns — protecting both company and customer data.

4) Big Data is essential to business operations

As physical and virtual retail worlds mesh, the challenge for companies will be to derive meaning from the intersection of multiple sources — stores, e-commerce, mobile, social, in-store sensors or wearables. Connecting this data to deliver better customer service, improve the in-store experience or design a more-engaging mobile app has become table stakes. Retailers who are truly obsessed with the customer will aggressively invest in analytics, recognizing that revenue growth and enhanced customer experiences depend on it.

5) Generation Z is about to disrupt retail

By 2020 people born in the late 1990s will be the largest group of shoppers worldwide. While everyone was paying attention to Millennials, Generation Z has been honing their shopping chops. Fitch recently reported that by 2020 people born in the late 1990s will be the largest group of shoppers worldwide, accounting for 40% of the U.S., Europe and Brazil/Russia/India/China consumer base.

The group will disrupt retailers with a new set of attitudes, motivations and behaviors. Generation Z is the most culturally diverse cohort, considered to be more self-reliant, solution-oriented and ambitious than Millennials. It’s also made up of impatient shoppers quick to dismiss companies that can’t cater to their whims.

6) "Frictionless Payments

Consumers want payment processes to be simple, but delivering a seamless experience from aspiration to purchase requires heavy lifting. Iterations from Apple, Samsung and Android have begun gaining traction, though usage is not growing at anticipated rates. The key arbiter of what could be: 60% of consumers pay with smartphones because of loyalty benefits; nearly 15% of Starbucks customers pay with their phones.

While not every payment innovation will catch on, 2016 will find consumers and retailers wading through a sea of change. Biometrics like fingerprint systems, facial recognition and iris scanning are being introduced. Technology consulting firm Frost & Sullivan forecast that nearly a half-billion people will be using a smartphone equipped with biometric technology by 2017. MasterCard announced a program in October that will enable companies to add credit card credentials to devices such as key fobs and smart rings.

Don’t discount RFID; the reality of paying by walking under an RFID-enabled archway is closer than ever. And resist the temptation to dismiss Bitcoin and other cryptocurrencies: They continue to drive home the message that the next generation thinks differently about money.

7) Partnerships will thrive

Gone are the days when retailers kept all their cards close to their vest. Partnerships are the new secret weapon for those committed to delivering on the promise of today’s on-demand economy. Walgreens, Target, Walmart, Costco and 7-Eleven are working with delivery startups like Instacart, Doordash and Postmates. Deliv, which bills itself as the bridge to the last-mile gap between retailers and customers, has a retailer roster that includes Macy’s, Neiman Marcus and Williams-Sonoma.

On the other hand, look for retailer/designer collaborations to cool in the coming year as shoppers grow tired of this once-loved differentiation strategy — and weary of the prevailing inventory management issues. In 2015 there was H&M with Balmain, Kohl’s with Thakoon and Target introducing Adam Lippes. All are top designers best known by the 1% of shoppers who can actually afford their collections, not the masses who crave a designer label their friends will covet.

8)Year of the mobile-equipped associate

Providing better customer service and generating more interaction with shoppers can lead to greater sales. No longer an industry talking point, the concept of arming front-line associates with mobile technology has reached critical mass.

Tech-empowered associates have insight into available inventory across stores and distribution centers and can save a sale in seconds. With devices in hand, associates have the potential to better understand customer preferences based on past purchases or wish lists.

9) Shrinking Real Estate

Macy’s plans to shut as many as 40 stores in early 2016, after closing several dozen over the last few years.  Forty stores are on the chopping block at J.C. Penney, and Target will close 13 units at the end of January. Along with planned store closings, the industry will endure shrinking store counts as the office supply segment consolidates and Walgreens Boots Alliance swallows Rite Aid.

Experts point out that a leaner organization can often grow more profitably. Macy’s Backstage locations have begun to debut, Walmart’s Neighborhood Markets seem like compact Supercenters and Target is expanding its small-format stores, rebranding CityTarget and TargetExpress stores as Target. Kohl’s plans to open between five and 10 smaller stores, too.

10) New cybersecurity threats loom

Hackers will continue to find new ways to attack retailers’ networks, and retailers will continue to do everything in their power to thwart attempts. Europay MasterCard Visa chip-based credit cards will provide an additional line of defense against counterfeit card fraud, but expect a chorus of voices (including NRF’s) to continue to argue that not requiring a PIN to complete a transaction makes this a half step forward at best.

Meanwhile, concerns are shifting to other potentially unprotected opportunities for hackers. Merchant data warehouses, unencrypted transmissions and card-not-present transactions will be under greater scrutiny. As Internet of Things becomes more established, innovators need to keep an eye on protecting smart devices. Wider adoption translates into stronger interest on the part of criminals looking to steal personal data captured by these devices.