Commentary

First Data: 2018 Was The Year Of The Store

First Data brick and mortar SMBs

Glenn Fodor, SVP and head of First Data Insights, contributed the following piece as part of PYMNTS’ 2018 year-end eBook.

Following a year characterized by the disruption of the retail landscape, the growth of digital payments, and significant mergers and acquisitions, 2018 began with many observers expecting to see the downfall of brick-and-mortar in favor of eCommerce, further technological enhancements to digital payments and additional market consolidation. Despite many of these trends taking place, brick-and-mortar retail outperformed expectations by embracing innovation, exemplifying inherent value for non-traditional retailers and improving the customer experience — which, in our view, helped crown 2018 “The Year of the Store.”

Brick-and-mortar’s performance to start the holiday season illustrated physical retail’s ability to encourage customers to spend more per visit. After a notable performance in 2017, and a modest start to the “pre-holiday” season leading up to Thanksgiving, small and medium-sized businesses (SMBs) outperformed total spending, 7.5 percent to 7.1 percent, which continued through Cyber Monday, with SMBs outperforming 5.5 percent vs. 5.0 percent. With respect to last year’s performance, where spending growth across Thanksgiving and Black Friday doubled versus the pre-holiday season, this year growth tripled to 7.1 percent.

One of the year’s highlights, which also garnered plenty of press), was Amazon’s push into physical retail. Recall that last year, Amazon made a splash with its $14 billion acquisition of Whole Foods – and while Whole Foods’ 465 locations still make up about 75 percent of Amazon’s brick-and-mortar presence, it’s the other 25 percent that was the focal point in 2018. Other Amazon-branded stores comprising the company’s physical footprint include Amazon Books, Amazon pop-ups and AmazonFresh Pickup.

In the past year, Amazon has added more than 150 physical locations to its footprint, bringing its total to nearly 630 stores. For reference, that makes its physical footprint already larger than that of some of the largest “big box” retailers. Furthermore, Amazon expects physical retail sales will likely be north of $15 billion in 2018. With the progress Amazon made during the year in physical retail, the stage is set to show the world its potential to be a force in physical retail, not just online.

Most notably in its offline push during 2018, Amazon launched a series of cashierless concept stores known as Amazon Go. The stores employ proprietary technology that tracks what shoppers pick up from shelves and automatically charges them when they walk out of the store. That said, while the cashierless trend is by no means solely unique to Amazon, its announcement seemingly revitalized the industry’s interest. This year, we saw countless retailers announce pilots of cashierless stores, or tests of these systems in existing stores. According to CB Insights, more than 150 companies are working on automated, human-free, brick-and-mortar retail locations. Familiar technologies such as mobile applications, QR codes, machine learning, artificial intelligence, Internet of Things, radio-frequency identification (RFID) and biometrics are making the cashierless experience possible as they are combined to create new solutions.

The increasing number of eCommerce native retailers entering the physical world also endorsed the importance of brick-and-mortar. As the U.S. Census Bureau estimates that eCommerce sales as a percentage of total retail sales will reach approximately 10 percent in 2018, it’s no wonder that more and more online-native retailers are looking to gain a foothold in brick-and-mortar, given its continued importance.

At the same time, those physical retailers that were able to create a more seamless harmony between online and digital were the most successful. Costco transformed its business model by implementing digital and omnichannel strategies. For example, it began offering two-day and same-day delivery options through a partnership with Instacart, and even began giving store employees tablets to help facilitate online orders. Target, which reported its highest same-store sales numbers in 13 years in August, invested in its physical locations, opening smaller-format stores in urban centers, and doubled down on eCommerce. These are but a few examples of 2018 successes in physical retail.

Thanks to the advent of new technologies and adjusted business models, it is evident that the physical store gained importance among traditional and non-traditional retailers alike in 2018. This renewed relevance is why 2018 is The Year of the Store.

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