Retail

Here’s What IBM Thinks Retail Will Look Like In 2020

With a shorter shopping time requiring just about five clicks, top-selling apparel merchants are seemingly closer to perfecting the art of eCommerce sales.
What will retail look like in 2020?

The rise of eCommerce, the push toward omnichannel shopping platforms, the increasing relevancy of social media on shopping habits and the development of the Internet of Things to plumb every last morsel of data on customers and what they spend money on are all rapidly and drastically altering the face of retail.

Who isn’t curious to know what retail will look like come 2020?

And that’s exactly what a joint study by IBM and New York University’s Stern School of Business, entitled “Retail 2020: Reinventing retailing — once again” set out to try and find out.

“As retailing evolves, it impacts everyone,” according to the study’s introduction. “We have seen this in the past as retailers moved from large emporiums in cities to specialized shops in suburban malls and then to big-box formats offering large selections of goods at discounted prices. Today, we are in the midst of the most profound change that the retail industry has ever gone through.”

First and foremost, according to the study, millennials will be firmly in the driver’s seat by 2020 and making most of the retail decisions.

“Baby Boomers will mostly be in their 60s and 70s in 2020 and still financially hampered by the Great Recession. Focused mostly on health care, caring for aging family members and unemployed children and attempting to rebuild savings for their retirement, they will no longer be spending as much on discretionary retail purchases,” according to the study.

In contrast, about 80 million millennials will be in their mid-to-late 30s by 2020 and still in the prime of their retail buying years. What retailers need to remember about millennials, however, is that “they value quality over quantity, have a real passion for social causes and have grown up using the Internet for everything.”

Retailers who can recognize and appeal to these habits and offer millennials products and experiences they value will thrive under this environment.

The high-end luxury spectrum of brands and the value-price spectrum of brands will continue to grow, leaving all those in the middle to feel the pinch.

“Those positioned to serve the middle market have seen their share shrink,” according to the study. “This trend will continue into 2020, resulting in a further squeezing of the middle market, particularly in the U.S. but also in other mature markets, creating what some analysts have labeled an ‘hourglass’ effect.”

IBM and the Stern School of Business advises retailers to rethink value propositions in the coming years to avoid getting caught in the middle.

Emerging markets, like China, Brazil and India, will also continue to heavily reshape the retail industry, as China alone is expected to become the largest market for luxury goods by 2020.

“We are already seeing many examples of retailers with strong brands move into foreign markets. We will see this trend accelerate as retailers who have the resources go after consumers who fit with their brands, wherever they are,” according to the study.

They’ll be a lot more vacancies at brick-and-mortar retail locations, too. Retail shopping space in the U.S. more than doubled from 3.3 billion square feet in 1980 to 7.2 billion square feet in 2010, meaning there is still more space than is needed or wanted by most retailers at the moment as more and more sales move online.

“When considering that most retail sales forecasts over the decade are for sluggish growth, around 2–3 percent per year, most of which is coming from faster growth in online sales, we will only see the space problem get worse by 2020,” according to the study.

And the continued rise of eCommerce in retailing will only serve to further exacerbate this problem, as online sales are forecasted to rise to 20 percent of all non-food-related retail sales by 2020.

“Traditional retailers will continue to see eroding sales productivity in their brick-and-mortar stores, as they struggle to redefine the role of the store in a multichannel, millennial-led world,” according to the study. “Being locked into long-term leases with less retail demand for the space will make it difficult to downsize quickly, which will lead to many more poorer-performing store locations spanning retail enterprises.”

The best way to avoid further shrinking of brick-and-mortar retail locations? Retailers should find ways to make the in-store experience for customers unique and enticing enough to draw them in.

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