RetailPredictions:Coming of age in the 2020s2RETAIL PREDICTIONS: COMING OF AGE IN THE 2020sRetail prediction: A granular understanding of economic change will be critical in 2019.Part of the fun of predicting the future as part of your job, and doing it for a long time, is that you get to look at landmark years like 2020 from a variety of perspectives. The f_i rst time I did a 2020 retail prediction was in the 1990s, and as time has marched on, the view of that year has become less foggy and more “20/20” in nature. In this years predictions, we bring into clear relief what the world of 2020 will look like. To me, the trends we highlight ref_l ect the profound consistency of retail change.Many of the changes we detail in our 2019 predictions (the rise of omnichannel retail, the use of data to know shoppers better, retail expanding into services) have been visible for some time. These trends are not necessarilychanging direction, or even getting faster. But since they have been unfolding for some time, they have moved from small- to medium-scale changes in how retailers and manufacturers need to operate. This notion of “adolescence” is one we will return to a lot in 2019. Changes that are adult-sized, but not fully formed, require a dif_f erent type of management than emerging or mature trends. We do think that the biggest change in the retailer/supplier demand creation and conversion ecosystem will be that as these adolescents grow up, they will change how we plan for and def_i ne success. These changes are not as sexy as drones or robots, but they are far more fundamental and important to understanding the 2020s.Winter Is Coming Maybe?The dynamic driving the 2010s cultural touchpoint “Game of Thrones” is one of an approaching winter, where darkness and demons rule. The consumer landscape isnt that. But all these trends will unfold against a macroeconomic backdrop less certain than it was in 2018, an uncertainty that our economic forecasts ref_l ect. We do not see a full-scale 2009-style downturn that makes everyones life economically worse, but rather a selective economic slowdown that will impact dif_f erent geographies and consumer segments dif_f erently. 2018 was often described as retails resurgence,and one nice prediction for 2019 is that wehave (hopefully) retired the silly term “retail-pocalypse” from the lexicon. That resurgence, buoyed by improving consumer spending sentiment and the consolidation of retail into fewer, stronger players, will run headlong into a much less certain macroeconomic environment. As we cycle out of spending increases funded by tax cuts and into whereverthe U.S. political leadership takes us, the most helpful prediction we can of_f er for the economy in 2019 is that granular understandingof economic change will be critical. Stay tuned in Q1 as we give you a way to frame up that economic change in terms of consumerspending segments by looking at shopper f_i nancial statements:Income statement shoppersThey def_i ne their sense of well-being by the relationship between their wages and their major expenses. These shoppers manage the day to day without enormous stress provided the world stays within their budgeting assumptions, but they can struggle with severe f_i nancial problems. Cash f_l ow statement shoppersThese shoppers def_i ne their sense of well-being by how much money they have in their wallets. They live from pay event to pay event, managing revenue and total expense uncertainty in a way that causes signif_i cant f_l uctuation in their monthly shopping behavior.BalancesheetshoppersThey def_i ne their sense of well-being by the value of their assets relative to their liabilities. These shoppers manage everyday shopping more for convenience or energy than for price. If they need to for economic reasons, they will defer or downgrade major discretionary purchases.3RETAIL PREDICTIONS: COMING OF AGE IN THE 2020sSame As It Ever Was: Our Retail Growth ForecastsIf the economy is a current pop culture reference, retail is a 1980s-era reference. Anyone my age or older remembers the Talking Heads “Once in a Lifetime” video (younger folks can Google it). The retailers that will grow faster than the market are, by and large, the same ones that have been doing so since the turn of the century Costco, value discounters, the good regional supermarket operators, specialty beauty retail and selectcategory specialists, Amazon, and Apple. The DIY retailers are also expected to grow (particularly Home Depot as Lowes goes through a period of investing in stores and capabilities); however, these expectations come with a small caveat for economic conditions since the U.S. DIY channel is highly sensitive to changes in GDP growth rates. The formats holding market share are the large mass and club operators. In addition, after outperforming the market for more than a decade organically, we have Kroger slowing to a market-rate growth player, though opportunistic acquisition opportunities should keep it slightly ahead of the market overall. The formats losing market share are many of the large-scale U.S. supermarket chains and department stores. Brick-and-mortar retail continues to lose market share to the online world, though by 2025, we wont think about retail in terms of online versus of_f_l ine anymore. For brick-and-mortar players, the distinction between those two platforms will not be as important.The Energy Crisis: Reframing Value Around Energy and StressThe 1970s oil shortages give us another lens through which to view shopper behavior. Shoppers main concerns about their shopping trips are shifting from time and money to a third element: energy. Many analysts have spent an enormous amount of energy on the idea that retail needs to become more experiential. A 2019 prediction is that a great retail experience will be as much about not disappointing, confusing, or interrupting shoppers as it is about delighting them. Operational discipline, intelligent assortments, more responsive supply chains, and modern and more real-time execution management will all be part of giving shoppers the friction-free shopping experience in store that they get from the best online retailers.A 2019 prediction is that a great retail experience will be as much about not disappointing, confusing, or interrupting shoppers as it is about delighting them.4RETAIL PREDICTIONS: COMING OF AGE IN THE 2020sAutomated shopping tools like the Internet of Things and voice will play a role here, but the simplest way to reduce shopper stress may be automating core replenishment shopping on a wide scale. In 2019, auto-reorder shopping lists will be a major battleground for grocery retailers in particular. Understanding and inf_l uencing shopping list creation will be an investment that pays signif_i cant dividends now and in the future. The 50s: Life in PrimericaThe number 50 comes up a lot with Amazon in 2019: About 50% of American households (49.7%) ended 2018 as Prime members. The rate of Prime membership growth has slowed signif_i cantly and ref_l ects a critical point: The pace of change isnt accelerating as much as the size of change is increasing. Amazon is about 50% of U.S. eCommerce. Amazon will represent about 50% of U.S. eCommerce growth to 2023. About 50% of all U.S. retail growth will come from online.“Primerica” is how we often refer to the new shopping nation of Prime members who are, in aggregate, the largest consumer purchasing economy in the world. Understanding Prime members as a shopper segment will become as integral as understanding Millennials or Boomers. Understanding how Prime members adopt new categories into the Amazon ecosystem and how they use the other outlets they shop will be particularly critical.Under PRESSure: The Shift in StoreI recently saw “Bohemian Rhapsody,” the Queen biopic named for one of the bands most thrilling and experimental songs. Almost all our retail/channel predictions forecast signif_i cant experimentation and change in retail stores. The simple acronym PRESS is a useful frame for a number of these predicted changes, and highlights the relationship between f_i ve key attributes of a brick-and-mortar retailers physical footprint:1. Product: Roughly speaking, this is the space dedicated to product sales, the shelves and the 3 feet in front of those shelves that allow them to be shopped. If you think about an average supermarket, probably 85% of the non-backroom space is product space today. For almost every retailer, that percentage will decline as more volume migrates to the digital world. Product space will be replaced by the “RESS” elements in this framework.2. Redistribution: A major focus area in 2019 will be the “redistribution” experience what happens in store when shoppers pick up their eCommerce orders.3. Experience: As discussed earlier, retailers will dedicate more store space to meaningful experiences that close sales and ensure frictionless execution.4. Service: As shoppers value experiences more than products, retail space will ref_l ect this shift, with retailers experimenting with leasing and partnerships to increase their services.5. Space: A great way to let shoppers recharge and f_i nd energy is to give them decluttered space.About 50%of American households (49.7%) ended 2018 as Prime members.5RETAIL PREDICTIONS: COMING OF AGE IN THE 2020sThe New Vocabulary of Success: Four Words Foundational to Winning in the 2020sWith our predictions mapped through the ages, I want to wrap up with four key words that will be conversation changers in 2019 and beyond. These words will supplement and may replace the “4 Ps” conversation that has governed the category management conversation between retailers and suppliers for the last 50 years: Conversion: A key part of mall-based retail in recent years is the rise of direct-to-consumer(D2C) brands developing stores as another shopper touchpoint. This trend will continue, because these brands understand the role stores play in their consumer conversion funnel. D2C will force retailers that run their stores as business units to make store and marketing investments that optimize the digital marketing worlds success metrics related to conversion, measures like customer acquisition cost and customer lifetime value. This focus on conversion versus transactional prof_i t will democratize the f_l agship store experience in that more brands will have an economic model that supports higher-touch, higher-conversion retail models. Context: In many cases, personalization has been a frustrating journey for retailers and brands beyond simple things like more targeted item/price promotion. The challenge is that personalization is not scalable and that the ef_f ort involved rarely pays out. The challenge for the 2020s is to apply granular knowledge to scalable problems, so f_i nding commonality will be key. Increasingly, we wont use personalization to sell to who shoppers are, but to their context where, when, and why they are. Niches: Knowing people does not mean having to know what makes every individual unique. It can simply mean knowing what is genuinely important to them and reaching consumers in those spaces (where there may be many consumers). This can be as simple as selling energy drinks at an extreme sports competition, but the real benef_i t of personalization will be not how ef_f_i ciently we know shoppers, but how ef_f ectively and comprehensively shoppers know us. Baskets: As consumers execute more transactions outside the store, the primary lever retailers will use to think about prof_i tability will transition from category management to basket management, meaning segments of shoppers and their baskets will replace store shelves as the building blocks of prof_i tability.As they sort out how to serve a shopper whose priorities and spending power are changing, all the retailers we cover will f_i nd their own economics and competitive ecosystem pressuring their strategies. How they and their supplier partners win the war for conversion,context, niches, and baskets will be the critical drivers of their success in this “adolescent” world of changes changes that are sizable enough that they need to be managed well, but not fully mature.Enjoy the detailed retail predictions, and have a great 2019!Bryan GildenbergChief Knowledge Of_f_i cerRetail predictions: Coming of age in the 2020s Bryan Gildenberg, Chief Knowledge Of_f_i cer for Retail, Sales GrowthFinder; Global Monitor; RetaiI IQ; RichMix; XTEL; and Marketing, Insights, and Purpose 2020. We track 1,300 retailers globally; have purchase data on over 200 million shoppers; and forecast social, cultural, and consumer trends across the world.Information and follow-up:switchonkantarconsultingkantarconsulting© 2019 KANTAR CONSULTING. SOME RIGHTS RESERVED.