2020 retail industry outlook Convenience as a promise 2020 retail industry outlook | Convenience as a promise For consumers, shopping in today’s environment is the most convenient it has ever been. Forward-thinking retailers are setting the expectations bar high for the rest of the pack. In this year’s outlook, we explore convenience, what it means today, and how retailers can position themselves to take on the challenge. Contents Convenience matters 3 Sizing up the year ahead 3 Rising customer expectations and its cost 3 Economic outlook 4 Convenience must be enabled through the entire organization 4 Marketing as a differentiator 4 Connect: Digital enablement 6 Revisiting product strategy 6 Stores aren’t just stores anymore 7 Deliver on the promise through supply chain 8 Convenience is more than a state of mind 9 2 2020 retail industry outlook | Convenience as a promise Convenience matters Sizing up the year ahead Rising customer expectations and its cost Predictably, 2019 was a year in transition. Uncertainty is the name of the game when There was stability in the positioning of it comes to how the next 12 months will play Given the rapid pace of technological the top five retailers, uncertainty among the out. With a possible recession and potential advances and social transformation, majority, and a few notable bankruptcies. fallout from tariff tensions looming, retailers expectations for outstanding customer The emphasis on understanding what should have a game plan that can handle service and experience are now being set consumers really want continued to adjustments when and as needed. by those outside the business. Consumer expand the gap between the leaders expectations are going global, while age-old and everyone else who followed. For While the overall economy might be losing national and industrial divides are shrinking. retailers, understanding how consumer its shine in 2020, it presents retailers an To stay competitive, many retailers must expectations are evolving has never been opportunity to review their playbook for make a difficult choice on what to offer and more important. riding out a downturn. To strengthen their how to make sense of it, profitability-wise. preparedness, retailers should focus on The good news here is that there is some four factors critical to success:2 What this means is that there is a necessary predictability when it comes to what • Determine why they matter conversation around tough tradeoffs— consumers want. In our recent holiday study, what really matters to the consumers, over two-thirds of US adult shoppers said • Build a war chest to invest in growth and what must companies have internally they hold price, product, and convenience • Embrace technology and automation before going after the shiny new object? above all when it comes to what they want.1 to better leverage growth For instance, our holiday study revealed • Fair price. With drastically increased that more than 85 percent of the holiday • Look outside their four walls transparency and automated pricing shoppers picked free over fast shipping.3 to embrace partnerships making it difficult for a fair price to be the While some companies have publicly final differentiator, price alone does not reported spending close to a billion dollars Overall, retailers will likely have to be more drive consumer loyalty. in one quarter to make free or fast shipping judicious with investments and flexible with options available, these investments should • Quality and variety of products. their plans—ready to adapt, whether or be made with sustainability in mind and with Because personalized and commoditized not a recession comes or if tariff tensions cost transparency at the core.4 products are offered in so many formats continue. It seems that for 2020, those and channels, there is an overabundance retailers who prepare for the worst will likely Based on the shopping context, retailers of choice. fare the best. will likely have to play a balancing act, • Convenience. Whether in the store or with trade-offs between various themes online, consumers want a friction-free that influence convenience―speed of experience, from finding ideas and transaction, value to customer, and efforts inspiration to making purchases, managing for retailers (for example, breadth of returns, and advocating for the brand. assortment, cost of operations). With the convergence of supply chain, digital technologies, and other innovations, Figure 1. Trade-offs for meeting customer expectations around convenience convenience is becoming a much more important piece of the equation. Speed of transaction Value to customer Convenience Efforts for retailers 3 2020 retail industry outlook | Convenience as a promise At its very core, convenience is a to demographic growth. With the labor Marketing as a human-centered experience that provides market strong, consumer sentiment remains customers with a feeling of ease. There elevated despite a bit of volatility in recent differentiator are many ways that consumers can months. Relatively low headline inflation perceive convenience: is also likely to aid consumers, even as low In one sense, convenience is about elevating interest rates—the Federal Reserve cut the human experience. It is something • “Saves me time (same-day shipping)” rates three times in 2019—keep borrowing that goes beyond the four walls of the • “Easy access to more offerings” costs low. organization and includes both customers and the workforce. In a recent study, we • “Special access to services that meet Consumers, however, face three key found that five key pillars contribute to my needs” challenges. First, gains in the labor market elevating this experience:7 “Easily see the added value I’m receiving” have not translated to strong wage growth. • • Being obsessed with all things human Real average weekly earnings grew a mere • “Meet all my needs in one place” 0.8 percent in 2018 and, by the end of 2019, • Anticipating and proactively delivering were up by just 1.2 percent. Second, as on human needs What many people are looking for is the impact of the 2017 tax cuts fizzles out, something that simplifies life while • Executing with humanity disposable income is likely to slow—we delivering a positive experience. People forecast real disposable personal income • Being authentic want to “outsource” the work of getting growth to slow to 2.3 percent in 2020 from products. Instead of focusing on the act • Working to change the world 3.24 percent in 2019. Finally, consumers of purchasing products, they want to focus also face risks from any escalation of trade on the act of using them. That’s what Marketing in this age of constant disruption, tensions, which, in turn, could dent growth appears to really matter. with industry ecosystems evolving and and employment as businesses hold back fusing together, may seem like a Herculean on investment spending and hiring. This task. To be successful, organizations should Economic outlook will likely hurt equity markets too, thereby constantly define and redefine what matters negatively affecting consumer wealth to their customers—truly enhancing either The retail industry should be prepared and hence, spending. the human experience or the convenience for changing economic conditions in the factor. The reality is that it is no longer coming year. The economy slowed in Overall, we expect real consumer spending enough to market product and price 2019, with real GDP growth declining to growth to slow to 2.2 percent in 2020 from alone. While the quality of the product is 5 1.9 percent in Q3 from 3.1 percent in Q1. 2.5 percent in 2019. still important, the point of differentiation Personal consumption growth has been between brands is now often dependent on steady, on average, but investment growth Convenience should their ability to market the service, delivery, has weakened. Business investment, for and overall convenience that they provide. example, contracted in the second and be enabled through the Things like same-day delivery, curbside third quarters of 2019, while residential entire organization pickup, and buy online/pick up in-store investment has posted just one quarter of have become table stakes. The competitive growth since Q1 2018. With the outlook for Offering convenience is not an overnight advantage is derived from presenting these global growth dimming and the uncertainty undertaking. Because there are so components more effectively than the of trade tariffs unlikely to go away soon, many moving parts involved, enabling competition does. we expect real GDP growth to slow to 1.6 convenience touches almost every part percent this year from 2.3 percent in 2019.6 of a retail organization, creating challenges throughout. Convenience, then, should Consumer spending outlook be built into the fabric of the entire Consumer spending is the lifeblood of the organization; otherwise, it can become retail industry. A key source of strength to a follow-on marketing gimmick without consumer spending has been a healthy the wherewithal to make it profitable. labor market. Unemployment is low Convenience is also a moving target; (3.6 percent in October) and so far, the what was convenient yesterday is no economy has generated, on average, about longer convenient today, and what’s 167,000 jobs per month—lower than the convenient today is not going to be figure for 2018, but much higher than the convenient tomorrow. estimated 75,000–100,000 required due 4 2020 retail industry outlook | Convenience as a promise Transparent pricing strategies been building a strong following as more entrée from another. As consumers grow Clipping and carrying coupons has never and more consumers are weary of the fine to expect this level of ease and individually been convenient, but consumers did print, high-low pricing, and other traps they catered service from all providers, it is the so for lack of choice.