"It was the best of times, it was the worst of times…”
There are many great ways to begin a book – but it’s hard to argue that anyone did it better than Charles Dickens. Whether one has read A Tale Of Two Cities or not, everyone knows that opening phrase.
And it works as well for a story about the French Revolution as any period of upheaval or reinvention.
Hence, an appropriate frame for the year in retail 2017.
There have been 21 major retail bankruptcies this year. Making the in memoriam (or soon to be) list were Toys"R"Us, The Limited, Gymboree, RadioShack (again), rue21 and Payless, to name a few of the more notable brick-and-mortar retail stores that bit the dust (or are getting very close to it). And those are just the major players – all told, there have been 662 retail sector bankruptcies in 2017.
The stores that weren’t biting the dust were drastically scaling back their physical footprints. Store closing announcements more than tripled year-on-year to about 7,000 – a record, according to Fung Global Retail and Technology. Stores on the struggling and scaling back list, incidentally, are a lot of household and, in some cases, iconic brands: Macy’s, Sears, Nordstrom, Hudson Bay and Neiman Marcus have all felt the chill of changing retail trends – and have seen their bottom lines suffer as a result.
And store closures have taken shopping malls – once described as America's new Main Street – down with them. Today, there are only about 1,100 malls left in the U.S., and analysts estimate that by 2022, the number will likely have fallen by another 25 percent.
In many ways, 2017 was the year the commerce ecosystem got to see the coming retail death spiral, first described by Karen Webster in 2014, arrive at full force.
And while it may not be easy to be a retailer these days, it is an incredible time to be a consumer, as the rise of mobile payments and eCommerce has essentially brought inflation to a standstill in the consumer economy.
According to Goldman Sachs’ chief economist Jan Hatzius, the “Amazon effect” prevents brick-and-mortar retailers from raising prices, and instead forces them to “cut prices in a desperate bid to stay alive” to compete with online retailers (primarily Amazon). Hatzius claims this effect has pushed a decline of 0.25 percent to core U.S. inflation, while also reducing overall core personal consumption expenditure (PCE) inflation by 0.1 percent.
And while near-omniscient consumers may be a bit problematic for retailers, merchants everywhere nonetheless have some reason to rejoice in the fact that those incredibly well-educated customers are ready to do some serious shopping.
That enthusiasm can be seen by the numbers: Wages are going up, unemployment is going down and hovers at 4.1 percent, consumer confidence hit a 17-year high in November and customers are opening and using revolving credit accounts again after a nearly 10-year hiatus. The holiday retail season saw record-setting results as consumers spent more than they had at any point in the season in the last five years. And that big Christmas season was preceded by a fall shopping season where consumer spending beat analyst estimates three months in a row.
The net result is retailers using 2017 to move away from the never-ending race to the bottom on pricing in order to sell goods for a profit to stay in business.
Instead of asking how they can charge less, retailers are asking how they can do more.
Specifically, they are seeking ways to redefine, re-evaluate and begin to re-invent the retail experience for those suddenly spending-enthused customers.
That leads to what we at PYMNTS have been talking about all year – with some of the biggest (and smallest) names in retail.
So, what did we talk about?
Amazon: Rewriting The Rules In Real Time
In some sense, it might actually be more concise to list the things Amazon did not accomplish — or at least attempt to take on — in the 2017 retail space. To our knowledge, they have not yet set up an outpost on Mars — but Mr. Bezos does have space ambitions.
The biggest headline of the year was the eCommerce giant's $14 billion acquisition of Whole Foods, its immediate move to lower prices and the terror ripples the announcement sent through the segment as a war for grocery dominance was triggered.
“The acquisition of supermarket Whole Foods did what Tzu said the element of surprise always does: destabilizes the competition as rival grocery stocks tanked," Karen Webster noted in a commentary shortly after the news was released. "It also gives Amazon the opening it needs to leverage the assets they’ve assembled to reshape how – and how much – consumers spend on food, while the rest of the grocery sector is back on its heels figuring out what to do next.”
And Whole Foods, notably, was just the topline. Alexa was an entirely different dimension of extending retail’s reach, which we wrote about extensively elsewhere.
“We’re at the beginning of change, where commerce will be driven by connected devices that are not always using a browser – or a screen. And, while those commerce contexts may be different, those consumers won’t want to learn a different way to transact in their car, and on their TV, on their mobile phone, with Alexa, or their PC,” Patrick Gauthier, Amazon’s VP of external payments, told Karen Webster way back in February of last year, when Amazon Pay was crossing the 33 million consumers worldwide mark.
Amazon's penchant for pushing seamless, fast, secure and reliable checkout processes, Gautier noted in his first chat with PYMNTS last year, was among the company's major contributions to pushing the reinvention of retail.
“Pay with Amazon is a problem solver. There’s a lot of friction out there today, and will be as we move into a connected commerce world. Our attitude is ‘let’s just fix it,’” Gauthier said in parting to Webster.
They would be a problem solver, he noted when he and Karen Webster spoke again later in 2017, in a rapidly changing mobile commerce world.
“The dirty little secret about apps in 2017 is that people don’t download them," Gauthier told Webster, as the two were discussing the rollout of Amazon Pay Places earlier this year.
Pay Places is intended to help merchants overcome that, by essentially giving them real estate in Amazon’s app.
“This is another example of how we are connecting the Amazon customer base to a third-party merchant and making it easier for them to transact by creating a framework that allows third-party data and contacts to be passed into our app via an extension," Gauthier noted. "It does not require merchants to build an app – it instead allows them to leverage the functionality they’ve built in a new way. One of the things we’ve been doing the last couple of years is thinking about how to connect merchants with the Amazon customer base, knowing they are very active, connected shoppers. We are enabling merchants to instantly reach people who are highly mobile and very desirable as customers, without having to worry about app distribution.”
And, Gautier noted in his final interview with Webster as 2017 closed out, providing those connection points means building to the next opportunity – and treating every opportunity uniquely.
“If we try to reproduce with voice what has been working with mobile, it will be a lost opportunity,” Gauthier said. “I am absolutely positive that the introduction of voice as an interface and the frictionless embedding of Amazon Pay will open up new commerce use cases.”
Walmart: The Retail Power Of Relevant Innovation
Amazon had a big year in retail, but Walmart’s year was arguably just as big and busy. The buying spree it kicked off in 2016 with the acquisition of Jet.com picked up steam with its acquisition of millennial-favored eCommerce brands like ModCloth, Moosejaw and Bonobos – and its CEO ended the year strongly intimating that more is yet to come.
And by the numbers, the investment is paying dividends. Walmart’s eCommerce growth has been north of 50 percent throughout all of 2017, and was above 60 percent in both Q2 and Q3. Walmart Pay, with less than a year in the market, has an adoption rate that rivals Apple Pay’s.
“There is something very powerful about the ease and simplicity of Walmart Pay,” remarked SVP of Walmart services, Daniel Eckert, to Karen Webster in early 2017. “What’s even more powerful, though, is what this means for our customers. We want to make every day easier for busy families. We’re connecting all the parts of Walmart into one seamless shopping experience with great stores, easy pickup, fast delivery, frictionless checkout and apps and websites that are simple to use.”
Eckert also noted that 82 percent of app customers (Walmart didn’t specify which type of customers) recommend the service, and 75 percent of customers have given Walmart Pay a five-star rating in the Walmart app. He also noted that Walmart is currently testing a Scan & Go technology that will allow customers to scan items from their mobile devices as they add them to their cart, as part of their ongoing effort to provide a customer experience that gives them back their most precious commodity: time.
“Our customers continue to tell us that the need to save time has become just as important as the need to save money," Eckert said.
It was a theme that he elaborated on more fully within Innovation Project during his fireside chat with Hillbilly Elegy author J.D. Vance.
“There are many conversation[s] I have that are very focused on the next whiz-bang thing, or look what this deep learning model can do to improve the speed of you-name-it. And I’m sitting there going, ‘My customer just wants to save five minutes by not waiting in line and filling out a form in triplicate. Can you help me with that?’”
Because, Eckert noted, when Walmart thinks retail reinvention, its first question is always, "is it something the customer actually needs and can use?" – and then they answer that question for a customer base roughly the size of a small nation.
When the retail history of 2017 is written, it will likely go down as the year that Americans officially just said no to waiting in line. Big and small, quick service, fast casual and even fine dining establishments all decided to switch on the ability to let customers get their orders in the door long before they even arrived.
It was a strategy that clearly had legs: Starbucks now counts a whopping 20 percent of its orders through mobile order ahead. There were learning curve issues – as it turns out, it’s not enough to just build the technical ability to take orders ahead; one also has to provide a physical space to pick them up from. It’s a lesson that Starbucks, and a lot of other players, learned the hard way when they first flipped on mobile order ahead.
But, as Jordan Grossman, head of brand partnerships at Google (who owns Waze) told Karen Webster in a conversation about Waze’s integration with Dunkin Donut order ahead, the broader goal is to make it possible for those orders to not only be prepared, but to coincide with the buyers' arrival.
“So, knowing point A being the origin, and Point B being the destination, and knowing everything that is going to be in the path in between, such as a drive-through, is where the magic happens," Grossman explained. "[Commuting and getting a cup of coffee] are things [consumers] would be doing anyway. We are just making it easier for them to do it.”
The team at Shake Shack, with whom we spoke in August, was also acutely aware of the need to not just roll out order ahead, but to roll out the version that is set to delight consumers. Which, Abbey Reider, Shake Shack’s director of digital marketing and guest experience, told Karen Webster, meant pacing their rollout of the mobile order-ahead experience, even though they knew it was hotly in demand from their millennial customer base.
“We recognized, particularly for the biggest demographics we wanted to reach, we had a very technologically savvy group of customers," Reider said. “So, for us, the app was really a no-brainer. We surveyed and listened to our guests to find out their core needs and started building out our app from there."
Collecting and applying customer feedback, Reider said, was crucial to building a refined mobile ordering system. The company solicited feedback from customers both before and during the initial rollout through a partnership with Applause, a mobile product testing agency, and put the app in the hands of consumers to gauge what they did and didn’t like about it.
Shake Shack also partnered with mobile ordering platform Olo to build the final app, which was eventually rolled out to all 136 of the company’s locations.
And PYMNTS talked to Olo about that experience – and their wealth of other experiences – in building mobile order ahead platforms for scores of brands nationwide.
“I believe food is for eCommerce 2.0 what books were for eCommerce 1.0,” Olo CEO and founder Noah Glass told Karen Webster. "The restaurant has been a very stagnant market over the last few quarters, and mobile order ahead and delivery has become a real game-changer.”
And the most important thing to keep in mind about that game, he noted, is that it is still changing.
“We are living on the cusp of a very new era,” Glass said. “Restaurants are changing their physical layouts and rethinking both the interior and exterior. In the future, we aren’t really picking up our food; autonomous vehicles are doing it. So, your Tesla is going to the restaurant — or Uber is sending cars to deliver from point A to point B. We are now living in the Jetsons [age], and I’m not joking.”
While the people who study retail tend to study channels very intently – focusing on whether consumers are shopping online, on mobile or in store – customers are increasingly thinking very differently. They don’t perceive themselves as shopping online and instore: Instead, they perceive themselves as shopping – and increasingly expect that they will have the same quality of experience no matter where they happen to be shopping, even with the ability to switch between channels without noticing much difference.
It is a consumer's want that is increasingly becoming a consumer's demand, a fact that a quick glance at 2017’s PYMNTS/Vantiv Omni Usage Index makes clear. Retailers have to be OmniReadi – which doesn’t mean having an eCommerce and physical channel, but instead means being capable of selling in a wide range of channels, and offering cohesive and creative shopping experiences that span in-store, online and in-app.
It is not easy work – but, as Neiman Marcus’ Scott Emmons told Karen Webster, it’s necessary.
“This is how the world is. You have to give a customer a reason to get into the car and drive to the store. It’s not enough to have great product[s] – that is just the basic core. If you aren’t selling what they want, well, then it may be hopeless. But even having those great products isn’t enough – customers expect the whole experience to be entertaining, frictionless, personalized. Those all have to be part of the experience, and that is what we are thinking about when we think about new technology. It is a lot harder to do than to say. It takes a while to get acceptance, and if we only use immediate success as a measure, every program would be terminated early.”
And meeting the challenge – according to Lowe's’ Scott Ross, the company’s senior vice president for information and technology – means thinking outside the box in building their best-practice omnichannel platforms, and looking outside other DIY retailers, and even outside retail in general.
“So, we looked to our friends in banks and insurance (to see) what they’ve done in the digital channel. If you think back in those industries, five or seven years ago, the only leverage for the digital channel was sort of account maintenance and viewing, and there were not a lot of service offerings. That really contrasts with the services they have become known for offering today.”
And that services offering, Ross noted, is very much what Lowe's thinks of when designing the cross-channel experience they want for their customers.
“Customers can make the purchase online, identify the store closest to them, pick it up and do it all without ever getting out of the car," he said. "They ride through specially marked lanes, we notify associates that the customer is here and make it easy for associates to find the purchase, put it aside for the customer and bring it out to the car when they arrive to complete the purchase. We want to bring capabilities online that allow customers to handle these more complex journeys and projects entirely online. And our omnichannel journey to do that seamlessly and efficiently is never-ending."
And while Lowe's is embarking on a never-ending journey, Quero is just starting down its own omnicommerce path – taking its digital-only brand and putting its first toe into the physical world with pop-up shops.
“The pop-up shops give customers a chance to see what looks good on them, what’s comfortable to them and … the kind of product they can expect to get from us. There’s nothing more disappointing than ordering something online and it not being up to the quality you expect and that you paid for. These [pop-up shops] give customers a sense of security that they will get what they paid for,” said Randy Shuken, founder and CEO of Qüero, a high-fashion retailer of handmade footwear and clothing.
The future of footwear is digital, Shuken firmly believes – and the team is working on an upgrade to its app that will make custom sizing possible for customers, all with only three snapshots of their feet.
“That’s going to be a huge step forward for the footwear industry, because I don’t know of anyone who has done that successfully and on a commercial scale yet," he said. "So, it could be something that takes Qüero to the next level, because we really feel that it can solve some of the biggest problems with selling these kinds of products online successfully.”
But, he noted, their business is built on the pop-up, and the melding of the physical and digital experience – because that is how customers are best served with the efficiency of online shopping, with the reliability of physically encountering goods.
Coda: The More Things Change...
At Innovation Project 2017, Paul Galant offered what was possibly the retail insight of the year: Contrary to popular belief, retail didn’t suddenly become a hard business in 2017.
Retail has always been a highly competitive, extremely challenging race to capture the hearts and minds of the American consumer and then translate that affection into actual sales, Galant said. And for all the changes, innovations and upgrades, one fact remains the same.
“Those that understand consumers are doing well. They are doing well in malls, and they’re doing well online and on mobile and at sporting events, because winning now is being able to capture the information, understand it and ultimately use it to connect with consumers.”
Retail reinvented itself in 2017 – but, as Galant noted, the fundamental challenge has not.
So, best of times for retail, or worst?
Well, as we saw in 2017, it depends mostly on who you ask. It is undeniably hard out there — and the bankruptcy and store closure numbers attest to that. But there's also a lot of innovation working to overcome it.
Which means it will very much be worth watching in 2018.