2017 The Year in Review: Retail’s Biggest Hits and Misses

December 4, 2017

2017 WAS ANOTHER HEADLINE-MAKING YEAR FOR RETAIL.

Between mergers and acquisitions, technology launches, store closings and openings, and marketing campaigns that set social media feeds on fire—the list of major retail news stories is long. But not all of them highlight success. As the year comes to a close, we asked retail experts to share what they view as the most notable hits and misses of 2017 in retail—and what lessons retailers and brands can take away from them for the future.

 

HEADLINE-MAKING HITS

1. Amazon-Whole Foods… and Other Smart Partnerships

With little surprise, the Amazon-Whole Foods merger tops the list of retail hits in 2017. But many experts we spoke to pointed out that it’s actually just one of several examples of smart partnerships between major e-commerce and traditional retailers that developed this year.

“We see the Amazon-Whole Foods merger as part of a larger trend of digital and physical partnerships,” says Nicole Peranick, Senior Director of Thought Leadership for Daymon. “Their partnership, along with those of players like Albertsons and Plated, Walmart and Modcloth, and PetSmart and Chewy.com, are the blending of the best of both worlds. Brick-and-mortar doesn’t now know to do online well and online doesn’t know how to do brick-and-mortar well. By combining forces, they can use their respective expertise to have a greater impact.”

Kenji Gjovig, Vice President of Partnerships and Business Development for Content Analytics, an e-commerce management platform, similarly sees the Amazon-Whole Foods deal is an example of a larger trend—namely the strengthening of omnichannel retail via consolidation. “Overnight, Amazon went from two channels of shopping (online + mobile) to three (online + mobile + store). Coincidentally on the same day, Walmart… acquired Bonobos for their strong web presence. The trend progressed throughout the year: CVS acquired Aetna; Office Depot acquired CompuCom; Ace Hardware acquired The Grommet [and so on].”

Like Peranick, Gjovig says this strategy can be an effective way for retailers to remain competitive. “The [retail] space is changing very quickly and many legacy companies cannot adapt as quickly as customers want them to…. Those who are fighting for their survival can make quick progress by acquiring a strategic partner who fills a niche that they can’t.”

2. Nordstrom Local

For Tom Stockham, CEO of marketing solutions firm Experticity, the biggest retail story of 2017 was the launch of Nordstrom Local. “The new store is only 3,000 square feet and while you can return or pick up online orders at the store, there’s no actual inventory. Instead the location offers customers personal stylists, tailoring services and manicure appointments,” he explains. “The whole purpose of the physical store is to deliver expertise and help customers have better buying experiences. The trend of increasing the customer experience will be increasingly important as the buying landscape continues to evolve.”

“Consumers are craving experiences, and as a result, physical retail is becoming much more about getting to interact with products,” agrees Ryan Dee, Creative Director for Daymon’s consumer experience marketing team. “[Stores like Nordstrom Local are] the portent of what is to come—not just in apparel and electronics, but also grocery and other areas of retail.”

3. Walmart’s Focus on Digital

Walmart’s intensive focus on digital strategy was a top retail hit this year for Ed Kennedy, Senior Director of Commerce for omnichannel software company Episerver. “In recent quarters, Walmart has double downed on its e-commerce and in-store digital strategy. The retail giant has deep roots in brick-and-mortar, but has adapted to the growing need for digital commerce capabilities such as mobile payment options, click-and-collect and same-day pick-up perks and added inventory for online shoppers,” he explains.

Peranick agrees Walmart’s focus on digital innovation has been a success story this year. “Walmart has shifted its focus from ‘Target is my competitor’ to ‘Amazon is my competitor. And in acknowledging that online is a real threat, they’ve been able to combine their data and infrastructure with the expertise of recently acquired Jet.com to drive initiatives like the Scan & Go app, endless aisle kiosks and self-serve click-and-collect stations,” she says.

These digital innovations are helping to cement Walmart’s competitive position for the future, says Kennedy—who adds that “traditional grocery stores… would be wise to look to Walmart as an example of how to stay relevant.”

4. Aldi’s Radical Reinvention

While much of the grocery industry’s focus in early 2017 was on Lidl’s launch in the U.S., Peranick says its main competitor Aldi has actually come out as the winner this year.

In 2017, the discount retailer embarked on $1.6 billion plan to update and remodel 1,300 stores in the U.S., expanded its Fresh offerings, integrated with Apple Pay, partnered with Instacart to offer home delivery, and announced an expansion investment of $3.4 billion to open 900 additional stores in the U.S. over the next five years.

“Aldi has been in the U.S. for 35 years and was already starting to make changes, but Lidl’s launch provided the additional impetus to radically reinvent,” says Peranick. “In turn, Aldi has made a very aggressive investment and they’re capitalizing on the momentum they already have by elevating the shopping experience.”

 

FAILURES AND FLOPS

1. Brick-and-Mortar Bankruptcies and Failures

Some called it the “retail apocalypse” while others pointed to specific retail failures, but nearly across the board, the experts we interviewed pointed to the rash of high-profile bankruptcies and store closures as one of the biggest retail failures of 2017.

“With more than 300 retailers filing bankruptcy in the first part of 2017 and as many as 8,600 retail store closures, the bell is tolling for the retail mall model,” says Krista Fabregas, Retail Analyst for FitSmallBusiness.com. She points to several factors driving these failures, including a lack of focus on omnichannel, inability to flex with a changing market and in some cases, overleveraging. “Many of these retailers stuck with the model of ‘if we’re here, [the shoppers] will come.’ But then as people started to look online and on mobile to get an idea of what they wanted to before they even went out shopping—these guys were left behind.”

This sentiment is echoed by Chaitanya Chandrasekar co-founder and CEO of advertising management platform QuanticMind. “As a relatively new parent, the Toys R Us bankruptcy hit close to home for me. [The retailer] had been an incredible category killer—a specialist in one line of products—for decades. However, it wasn’t able to adapt quickly enough to a market that had increasingly been migrating to online business.”

Dee adds that many retailers who have failed or are failing appear not to be listening to what consumers want. “I don’t know if they’re paralyzed by fear or if it’s taking too long to right the ship, but the signs have been there for some time now that consumers are driving the conversation and the retailers who aren’t listening are failing.”

2. Lidl’s Rush to the U.S.

Grocery discounter Lidl’s launch in the U.S. was highly anticipated thanks to its reputation in Europe for delivering high-quality products at a low cost. But when its first U.S. stores opened and Daymon’s quality experts began testing select products, they were less than impressed in several categories.

According to John Reilly, Senior Director – Global Quality Assurance for Daymon, five out of the 14 products tested were not a national brand match, even though the packaging sent subtle cues indicating they were intended to be a national brand equivalent.

Between these branding clues and Lidl’s reputation in Europe, “we don’t believe Lidl put their best foot forward, likely due to their rush to enter the market and inability to meet minimums,” says Carl Jorgensen, Director of Thought Leadership for Daymon.

“But that doesn’t mean they won’t succeed over the long haul,” he warns. “One of our predictions about Lidl is that because they are privately held and have resources, they have the luxury to work on this and to learn from their mistakes.”

3. Underestimating Amazon in Grocery

Another failing in the grocery arena was traditional grocers’ continued underestimation of the Amazon threat, as evidenced by their slow adoption of digital and lack of disruption in the in-store space, says Dave Harvey, Vice President of Thought Leadership for Daymon.

“Based on our From Shopper to Advocate study, we know that the most engaged shoppers—who are also the most valuable shoppers—are looking for integration between digital and physical. For example, they’re 83 percent more likely to use a mobile device to decide what to buy while shopping in-store, and 90 percent more likely to prefer stores with apps for shopping and paying,” he explains. “They also value services, multi-sensory experiences and the ability to customize products. These are all areas where traditional grocery retailers could be innovating and disrupting, but largely are not.”

“Amazon also gets a lot of kudos around conversational commerce,” adds Peranick. “They are widely praised for their responsiveness by shoppers surveyed in our global study. But in follow-up research we’re conducting now, we’ve found there’s not a lot of that happening with traditional grocery.”

4. Neglecting Data in Digital Advertising and Marketing

While social media advertising has been widely adopted as a mainstream retail tactic, not every retailer and brand is getting it right, says Jason Nesbitt, Vice President of Media and Agency Operations at Strike Social, a social media advertising firm.

Nesbitt points to a recent case study from Strike Social that revealed while parents have a 309 percent higher click-through rate on YouTube campaigns across key retail holidays such as Thanksgiving, Black Friday and Cyber Monday, YouTube advertisers budgeted more in advertising to non-parents during the holiday shopping season. Another study showed that while advertisers spend 156 percent more to target Millennials through YouTube campaigns than any other generation, Baby Boomers actually have both higher advertising view rates and click-through rates—not to mention the fact that they spend more.

“Brands will only be able to see results in social media advertising if they listen to the data. This statement may sound obvious, but I find it surprising how tough this is for some brands to embrace. Oftentimes, brands are stuck in a rut of assuming who their customers are,” says Nesbitt.

According to Rekha Ramesh, Senior Vice President of Global IT & Digital for Daymon, retailers are making similar mistakes in their attempts to use proximity marketing. “[Most attempts] haven’t been successful because they didn’t hit the right consumer,” she explains. “Proximity marketing can go terribly wrong when it’s seen as spamming. To be effective in turning the decision moment into conversion, you have to send the right offer, at the right time so that it’s relevant for the consumer.” All that requires—you guessed it—better integration of data.

 

LOOKING TO THE FUTURE

It’s interesting to note that three out of the four top flops chosen by our experts resulted, at least in part, from retailers making assumptions based on past successes or prior notions. If it wasn’t clear before, it certainly is now—the past is no longer the predictor of the future in retail. In 2018 and beyond, retailers must keep their eyes on the horizon and be ready to heed the experts and flex with the trends, lest they be left to wither on the vine.

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