The Top 10 Retail Trends in 2020 (Report)
By Tricia McKinnon, Ben Rudolph and Emily McCullough
The retail apocalypse. Oh wait. It never happened. But retail is in a state of flux. Retailers like Barneys New York are going out of business but retailers like lululemon are thriving. What’s going on? eMarketer estimates that the retail sector will grow by 3% in 2019 in the United States. Not bad given that is a $5.5 trillion sector in the United States. Consumer confidence is also high but a shakedown is underway. Retailers with poor value propositions or ones that haven’t kept up with the times like Victoria’s Secret are struggling and while everyone is worried that Amazon is taking over, online sales only represent 11.2% of total retail sales in the United States.
What is happening is that the best retailers are innovating and quickly. Scared by the ascent of Amazon and the demise of many retailers they are innovating in ways we haven’t seen before. You know change is coming when Starbucks forgoes its long standing format to introduce Starbucks Now a smaller store format in Beijing, China that is focused on mobile customers that like to grab and go.
If you want to stay ahead of the top retail trends in 2020 then we have you covered. Here are the top 10 retail rends in 2020 you should pay attention to.
1. Retailers will try to cash in on the health care sector
Healthcare is a $3.5 trillion industry in the US and retailers are lining up to get a piece of it. From Best Buy to Walmart to Amazon retailers do not want to miss out on this lucrative segment of the economy.
Best Buy who you may have always associated with as the place to buy the latest TV model or gaming console recently hired its first Chief Health Officer. Surprised? Well Best Buy is getting into health in a big way. It is focusing not just on fitness devices but on health services with a keen interest in serving senior citizens. There are more than 50 million people over the age of 65 in the United States and that number is expected to increase by 50% over the next 20 years. With those numbers it is now easy to see why Best Buy is leaning into the healthcare trend.
Over the past year Best Buy has spent over $1 billion on healthcare related acquisitions. This includes its acquisition of GreatCall in 2018 for $758 million. GreatCall sells mobile phones with large buttons that are senior citizen friendly. GreatCall also services senior citizens by providing an emergency response service that seniors can use if they, for example, have an accident and need help. Hubert Joly, Best Buy’s Executive Chairman and former CEO has labelled the seniors’ market as “white space waiting to be captured.” It looks like Best Buy isn’t waiting around.
Best Buy is also tackling the healthcare sector by selling connected fitness equipment. The retailer plans to have connected-home gym equipment in 100 stores by the end of this year. Best Buy says its connected home collection is: “part of the company's commitment to helping customers use technology to live better, healthier lives."
Even mall operators are getting in on the health care trend. A number of mall operators are leasing space to health clinics. Operators hope that when people make a trip to the mall to access health related services they will stay a while and shop at retailers. For example, the Dana-Farber Cancer Institute is planning to open a 34,000 sq.ft oncology and hematology outpatient facility in Patriot Place shopping center in Foxborough, Massachusetts.
2. Convenience rules
Time. If only we could have more of it. With more dual income families as well as more time spent commuting (globally we spend an average of two hours each day commuting) people are strapped for time. Sensing this trend retailers from Amazon to Starbucks to McDonald’s are focusing on store formats that emphasize convenience. The high-tech Amazon Go stores that Amazon spent hundreds of millions of dollars developing are essentially convenience stores. Is this a coincidence? No it is not. Amazon is trying to cash in on this trend too.
In July Starbucks launched a new store format called Starbucks Now in Beijing, China. This store format has very little seating and is tailored made for customers that want to grab a coffee and go.
The next retailer that is poised to capitalize on the convenience trend is McDonald’s. In July of this year McDonald’s launched its biggest restaurant format change since the drive thru was launched in the 1970s. McDonald’s new restaurant format which opened on Fleet Street in London is called McDonald’s to Go and is takeout only. The décor is minimal, there is no seating and customers use touch screens on a wall to place orders (see photo below). To keep lines short and focus on speed of service the restaurant only sells a few of McDonald’s signature items.
The trend towards convenience is also seen in the growing availability of self-checkout terminals in retail stores as well as retailer apps that enable customers to scan and pay for items using their mobile phones.
Starbucks Now store format in Beijing, China
McDonald’s to Go location in London, England
3. The thrifty consumer wins
Although consumer confidence in the US is high the great rescission hangover continues. Many people who became thriftier during the great recession still have those habits today. Additionally, despite the economic recovery wages have not increased by the same amount. 42% of Americans surveyed decided not to go on vacation during the past year because of the cost.
While millennials are often a source of great focus by marketers and brands in general there is less discussion about the fact that the millennial generation has been particularly hit hard by the great recession. For example, since the mid 1990s, the average net worth of consumers under 35 declined by 35%. 48% of millennials report that they are living paycheck to paycheck and 41% of millennials say they can’t buy a home. Student debt is another key factor that has impacted discretionary income within this cohort. Millennials’ student debt increased by 160% between 2004 and 2017. All of this means that millennials do not have a lot of money to spend on discretionary items.
So who is benefiting from a thriftier consumer? Discount stores. There are nearly 30,000 dollar stores in the US today versus 20,000 of these stores which existed back in 2011. That is more stores than McDonald’s and Starbucks have combined. Todd Vasos, the CEO of Dollar General has said: “while the economy is doing very well, our core customer continues to struggle because, normally, her expenses outstripped her wage growth.” “Even in a good economy, she is still looking for value and convenience.”
With prices at dollar stores 20% to 40% lower than prices of similar items in grocery and drug stores, dollar stores have capitalized on a new class of budget shoppers.
4. The sharing economy - why buy when you can rent?
Why buy anything when you don’t have to? From clothing to home décor to furniture more and more rental services are sprouting up to give consumers access to merchandise without having to own it. Analysts estimate that the global clothing rental market is growing at a rate of 20% per year and will grow from $1 billion in 2018 to $2.5 billion by 2023. Perhaps that only represents a small slice of the overall clothing industry but these estimates are likely very conservative. Who would have predicted in 2009 the year before Uber launched that by 2018 ridesharing services like Uber and Lyft would capture 87.5% of the market? No one except, well maybe Uber.
A report by Bloomberg provides insight into what type of merchandise consumers in the United States are most likely to rent. Coming in first place is exercise equipment followed by electronics (#2), furniture (#3) bicycles (#4), cars (#4), clothing (#6) and fashion accessories (#6). If you are wondering if services like these are here to stay take a look at some of the underlying trends driving the growth of these services and you will see why renting merchandise is not a fad.
A big part of the shift to less ownership has to do with access. Rental businesses give consumers access to merchandise they may have always wanted to buy but could never afford. The other human need that this type of service taps into is the need for novelty. We all love to have something new and can get bored with what we have pretty quickly.
Environmental causes are growing in importance for many especially millennials and Gen Z. They are concerned with climate change and are starting to show their commitment to these causes with their pocket books. Renting goods is a way to be kinder to the environment. Instead of buying a product, using it, then throwing it away you can rent products for as long as you need them. When you don’t need them there is someone else waiting in line instead of the merchandise ending up in a landfill.
And the rental economy lends itself to cash strapped consumers like millennials.
Earlier this year IKEA announced plans to allow customers in 30 markets to rent furniture. Other companies that allow customers to rent items include Urban Outfitters, Rent the Runway, West Elm and REI.
5. The resale market heats up
With the estimated size of the resale clothing market at $24 billion and an expectation that it will double by 2024, resale sites are disrupting the way consumers shop for clothing. “The last few years of growth in resale have been driven by early adopters, but now skeptics are coming around in droves,” says James Reinhart, founder and CEO of thredUP a resale platform. “The ‘resale customer’ is no longer a niche group–it’s everyone.”
One of the reasons for the growth in second hand clothing sales is that growth in smart phones has made it easier to market resale items online either on Facebook or Instagram. Many consider reselling clothing or sneakers a lucrative side hustle with some turning this part time gig into a full-time job. Smart phone proliferation has also prompted the grow of resale apps like Poshmark. With the popularity of #ootd (outfit of the day) millennials and teens want to make sure that they have a constant rotation of outfits for the gram, you know…Instagram.
Secondhand clothing sites serve dual purposes of allowing people to not only buy clothing cheaply but to receive money by selling clothing. That then helps them to finance a constant rotation of new outfits.
Poshmark which launched in 2011 is a platform where people can buy and sell fashion as well as home décor items. The site is growing in popularity and in 2018 it made $1 billion in payouts to sellers. 50 million people use the site and 5 million of those are sellers.
Poshmark has made the list of Forbes’ Next Billion Dollar Startups.
6. Subscriptions - the new way to get you to spend more
Subscription as a service (SAAS) is the new “it” business model in both B2C and B2B environments. SAAS primarily results from consumers increasingly accepting subscriptions versus making one-time payments. Whether it be streaming, software, health apps, clothing, or even groceries, recurring revenue subscriptions are an increasingly popular business model due to their ability to generate predictable revenue streams as they lock in consumers.
At the same time subscription services are beneficial for businesses since they can increase the average order value and allow brands to move less popular or newer products by including them in the bundled subscription service. Uber is currently trialling a $24.99/month service that will offer discounted ride-hailing, free Uber Eats delivery, and unlimited bike/scooter access in an effort to lock customers into its offerings. Attracting new customers is much more difficult and expensive than retaining existing ones. Subscription services allow brands to effectively capitalize on their existing customer base.
Nike is one of the latest brands to join the subscription services trend. Dubbed “Nike Adventure Club”, Nike’s subscription model allows parents to order shoes for their children aged 2-10 on a monthly, bimonthly, or quarterly basis. These subscriptions cost $50/month, $30/month, or $20/month, respectively.
Other businesses with a subscription mindset include Rent the Runway, Walmart, Under Armour and Frank and Oak.
7. Retailers become service providers
It is not a surprise to anyone that retailers are struggling with foot traffic and many are also struggling to maintain and grow revenues. So what’s a retailer to do? Several believe that services are the secret sauce to either get customers back in stores or to spend more money in general.
Retailers like Nordstrom are experimenting with different types of services to see exactly what will resonate with customers. For example Nordstrom Local, Nordstrom's smaller store format has started accepting returns of online orders from competitors such as Kohl’s and Macy’s. In addition to accepting returns Nordstrom Local stores offer services such as shoe repair, charity drop-offs for used items, and stroller cleanings.
If your traffic is down you may want to try opening a nail salon. Footwear retailer DSW began testing locating nail salons in two of its stores located in Ohio in 2017. One of the goals of offering this service in-store was to attract a millennial shopper. At one of the DSW stores where a nail salon is located, total store revenue is $10 million while salon services represent 6% - 7% of total revenue. DSW hopes that salon services will eventually contribute to 15% of total revenue. The hope is to eventually have nail salons in more than 250 DSW shoe stores.
W Nail Bar Inside of a DSW
Did you know that IKEA is the world’s sixth largest food chain? With the popularity of its food offering IKEA is testing food delivery in Paris. Some of the options for home delivery are beets, cabbage, salads, and salmon. Its famous Swedish meatballs are not offered under the delivery service at this time but perhaps they will be in the future. The food delivery market is expected to grow to $161 billion by 2023. Companies like DoorDash, Postmates and Uber are already trying to get in on the growth. If IKEA’s food delivery service proves to be a success the retailer may expand the service to Spain before offering it in the rest of Europe.
8. Inclusivity tries to reach the mainstream
The increasing diversity within the United States population will have an impact on the retail sector for generations to come. For example, 48% of Generation Z is nonwhite making this cohort the most racially and ethnically diverse generation in American history. 25% of Gen Zs in the US are Hispanic, 14% are African American and 6% are Asian.
This is the generation that embraces same sex marriage, broader definitions of gender as well as interracial marriage. Gen Zs were there to see the United States elect its first black President and to see gay marriage become legal.
Having grown up with social media this generation knows how to use social media to advocate for themselves and won’t stand by and watch as companies refuse to cater to their diverse needs.
Companies that focus on inclusivity will continue to win. Take Fenty Beauty. Fenty Beauty launched with 40 shades of foundation. It focused on providing foundation for women of all races. Not just dark-skinned women but light skinned women too. The brand was a runaway success generating sales of 500 million euros in its first year. A large part of that success was Rihanna’s focus on inclusivity.
Retailers that refuse to target a more diverse consumer risk being left behind like Victoria Secret. Expect more retailers to add size inclusive lines like Fashion Nova which offers clothing in sizes up to 3X. Marketing messages and images will also continue to reflect more of the population. For example, in its 30th anniversary Dream Crazy ad campaign Nike featured wheelchair athlete Megan Blunk, who took gold in Rio in 2016 and Isaiah Bird, who was born without legs.
9. Popup stores will keep on popping up
Popup stores refuse to go away. They can add much needed excitement, discovery, novelty and for many consumers, an Instagramable experience. With approximately 90% of retail sales still taking place in bricks and mortar stores in the US, direct to consumer brands are one of the key segments in retail leveraging pop up stores. Popular direct to consumer brands from Casper to Glossier to even Amazon have used popup stores. Yes, even Amazon.
Amazon’s first foray into physical retail in the UK involved a popup store in central London featuring Amazon fashion. The weeklong popup, was the first of its kind in London for Amazon. Each day the popup which focused on men’s and women’s apparel had a different theme. The first two days focused on autumn and winter fashion trends, the next two days focused on fitness and the remaining days focused on street and party wear. The popup also featured stylists to help customers find the perfect look. Speaking about the event a spokesperson for Amazon said: “this is a big learning experience for us to understand how Amazon fashion translates in physical retail.”
Customers still want to touch and feel products before purchasing them and popups allow customers to do this.
The use of popup stores has not been limited to direct to consumer brands. For the launch of Virgil Abloh’s first collection for Louis Vuitton, Louis Vuitton opened a popup store in London last October. The 2,000 sq. ft pop up had a Wizard of Oz theme, one of Abloh’s key inspirations for the collection. Featuring a yellow brick road staircase the popup felt more like an exhibition than a store. To gain entry into the popup which sold hoodies, tailored clothing as well as must have accessories from the spring/summer 2019 menswear collection, visitors had to purchase tickets.
Louis Vuitton is the world’s largest luxury retailer and popups are a key element of its strategy. In 2018 it had 80 popups but it is increasing that number to 100 this year. Speaking about Louis Vuitton’s focus on popups, Louis Vuitton’s CFO, Jean-Jacques Guiony told analysts: “this trend in popup stores is extremely important, and we will continue to develop that because it enables us to be talking in a different way to our clients ... and it adds flexibility with our network.”
10. Experiences are here to stay
Aren’t you tired of hearing about the experience economy? I am. Perhaps I should stop complaining since more and more people are favouring experiences over material positions. So much so that the experience economy is expected to reach $8 trillion by 2030. Dr. Thomas Gilovich, a professor at Cornell University who has studied the link between money and happiness says that there is a fairly simple reason for why people favour experiences: “our experiences are a bigger part of ourselves than our material goods.” “You can really like your material stuff. You can even think that part of your identity is connected to those things, but nonetheless they remain separate from you. In contrast, your experiences really are part of you. We are the sum total of our experiences.”
To provide customers with the experience of what it is like to wear its products in the environments they were created for, Canada Goose began installing cold rooms in some of its stores. These small rooms are set to -25 degrees Celsius (-13 Fahrenheit). The rooms are even equipped with a windchill button. Customers pick out a coat and then a sales associate accompanies the customer into the cold room to test out the jacket.
Speaking about its cold rooms, Dani Reiss, Canada Goose’s President and CEO said: “we’ve found that the Cold Room is very exciting to customers right now, but we think it will continue to have value long after the novelty factor has worn off.”
One of Canada Goose’s cold rooms
While not every retailer can implement this concept it demonstrates how a little creativity can translate into an in-store experience that is not only memorable but functional as well. Canada Goose’s cold room experience is so good that Fast Company named it the best retail experience of the year in 2018.
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