Though much of the retail news of 2018 was focused on struggling sales and major bankruptcies, the real story is not all that bleak. In this story, we take a look at some of the biggest industry news stories and trends of 2018 — and explore how they will continue to effect the retail world come 2019.
I. The Amazon Conundrum
There’s no question that Amazon had a banner year in 2018. With the continued success of Prime Day and Alexa along with its integration with Whole Foods, the e-commerce giant has definitely solidified its positioning in the retail stratosphere. Chris Walton, Forbes contributor and CEO of Red Archer Retail, named Amazon his “Retailer Of The Year,” saying the company accumulated “a list of stellar accomplishments that I was able to rattle off from the top of my head without even thinking about it for more than two seconds. No other retailer’s accomplishments come close.”
It’s clear that Amazon has shaken up the bedding industry as well. While many of the digitally native bed-in-a-box brands have been seen as the major disrupters of the mattress industry, Amazon has been steadily influencing the category for a while now. With a new private label mattress line of its own, that play is even more prominent than before. Because Amazon is thriving in so many different places, it is able to cover the costs of offering velocity pricing and quick shipping unlike any traditional mattress retailer. And since brands like Casper, Tuft & Needle and Purple have successfully made buying a bed sight-unseen more palatable—Amazon has been able to easily swoop in with cheaper, more convenient options.
But the ongoing sales successes do not necessarily mean that Amazon is winning on the consumer perception front. After a year of publicly courting cities for its new HQ2 location, Amazon announced that it would, in fact, be splitting the headquarters between New York and Virginia—much to the chagrin of, well, pretty much everyone. According to consumer insights company Crimson Hexagon, “negative sentiments about the decision far outweigh positive reviews online.”
Can Amazon’s reign continue amidst these bad feelings? And how will potential mattress anti-dumping laws affect its impact in the bedding sphere? While the e-retailer clearly thrived in 2018, we will be on the look-out for answers to these questions in 2019.
II. Global Trade Shake-Up
The looming threat and subsequent uncertainty surrounding tariffs on Chinese goods has already begun to impact American retail—and this is expected to continue into the new year. Due to the rising cost of doing business in China, many manufacturers and retailers are starting to move their production to neighboring countries like Malaysia, India and Vietnam. The process of rebuilding a supply chain can be costly and time-consuming for some companies—and it may have a longer-term impact on pricing as manufacturing moves to more expensive countries. For the mattress industry, these trade deals and tariffs had a clear effect on certain components like steel, lumber and foam—driving many manufacturers to augment their supply chain and renegotiate their rates. While end-consumer pricing may not spike in the coming year, the changing cost of components and shifting supply chains may ultimately lead to lower margins for the retailer.
III. The Return Of Kohl’s
Kohl’s has struggled with declining sales for much of the first half of the decade--with profit declines continuing into early 2017. But 2018 marked a major turning point for the retailer and saw it outpace analyst expectations. In August, Kohl’s posted a 4% increase in sales. According to Corinne Ruff at RetailDive, “Kohl's is one of few department stores innovating to reduce its footprint in a way that gives shoppers new reasons to come into its stores without resorting to promotions.”
So how did the retailer do it? First, it streamlined its product offerings. The store’s inventory has decreased by more than 6% each quarter since the end of last year. Additionally, it ramped up the development process for its private label products and is investing more heavily in “ship-to-store” options for consumers.
It also teamed up with new retail bigwigs. In March, Kohl’s announced a new partnership with Aldi - a discount grocery store. Aiming to boost store traffic, the retailer rolled out a test program selling groceries at five to 10 stores. Kohl's also strengthened its partnership with Amazon, accepting returns for the e-retailer and creating dedicated sections for Amazon products. Now available in 100 Kohl's stores since, the success of this program has even led some analysts (like Brian Sozzi at Yahoo Finance) to predict a potential acquisition in the future—though this is strictly a rumor for now.
The resurgence of Kohl’s represents valuable take-aways for mattress and bedding retailers. This includes the oft-cited tip that it’s necessary for traditional retail stores to reinvent in order to stay relevant in today’s market. It also showcases the power of partnering with other types of retailers: teaming up with a different product category or retail platform gives customers new reasons to come in more regularly. Ultimately, the biggest take-away from Kohl’s comeback is just how valuable it can be to streamline your inventory and shopping experience. Bells and whistles are not always important if you can offer consumers seamless convenience.
IV. Taxes, Ad Buys and Shipping Costs : How Online Retail Is Getting More Expensive
In addition to shipping convenience and more inventory variability, one of the major draws of e-commerce has been lower prices. While the major e-retailers will undoubtedly continue to offer discount-level pricing, the past year ushered in a number of new policies and trends that just might make it more expensive for other retailers to sell online in the future.
In June of this year, the Supreme Court overturned a previous precedent that mandated that only companies with “a physical presence in a state must collect and remit sales tax.” While e-commerce retailers have been exempt from sales tax in most states, this ruling concluded that South Dakota could require tax collection from an online seller making more than $100,000 in sales or processes more than 200 transactions within the state. Though some trade organizations are fighting to exempt small businesses from these new rules, this new ruling is likely to have an effect throughout the country, as states adopt similar requirements and sales thresholds.
“According to the (BDO) 2018 Holiday Consumer Beat Survey, nearly one in five consumers shop online specifically to avoid paying sales taxes,” explained Natalie Kotlyar, head of retail and consumer products at BDO global accounting and advisory firm. “Roughly half of millennial shoppers would change their habits if all e-tailers began collecting sales taxes.” She predicts that many online retailers will begin to incorporate the taxes into the cost of their products in 2019, “to avoid sticker shock.”
In addition to increased taxes, online price-tags may also be impacted by higher shipping costs as well. Earlier this year, President Trump appointed a new task force to evaluate the U.S. Postal Service—recommending higher rates for the department, which may or may not come to pass. If they do, online sellers will likely have to incur higher shipping costs.
The third threat to online retail is a changing social media landscape. While companies like Facebook and Twitter have continued to grow their user base worldwide, their user-ship in the US and North America actually plateaued in 2018. With ongoing privacy concerns hitting the news media, today’s consumers are becoming wary of social media platforms. This is further compounding a reality many brands have been grappling with over the past year: social ad buys are becoming more expensive and less effective. Digitally native brands have relied almost exclusively on social media promotion, but the cost of doing so has increased over the years—with dwindling returns.
As we head into 2019, we may see the investment in digital-first strategies begin to wane—or at least evolve—given these new obstacles.
V. Reinvigorating The Brick-And-Mortar Experience
While online-only retail seemed to be the wave of the future just a few years ago, more and more digitally native brands turned to the brick-and-mortar approach in 2018. Not only is a physical retail presence necessary for online brands looking to break out of the consumer awareness and sales plateau, it also represents a new opportunity to reimagine the shopping experience.
In the past year, Casper has garnered serious accolades for its fresh approach to brick-and-mortar mattress retail. Rather than follow the standard mattress store layout—an open floor plan, filled with rows of mattresses—Casper has built its stores around a more modular design. Customers can try out each mattress in a “home” nook that is equipped with a privacy curtain. These simple layout shifts communicate a new level of understanding of how a customer wants to shop for mattresses these days. Casper is betting on this unique approach too: the company has a bold plan for physical retail growth in the coming years.
It’s not just online-only brands either; many established chain stores are rethinking their big box layout. Retailers like IKEA and Target have been introducing smaller-format locations. This not only allows for greater inventory control, but makes it easier for the store to tell a clearer, more engaging story for consumers. While today’s consumers may be looking for shopping efficiency, that doesn’t mean the shopping experience should be devoid of any personality. Emotionally-driven storytelling was one of the keys to brick-and-mortar success in 2018 — and will be driving further sales wins in the year ahead.
“Retailers are investing in stores of the future and expensive digital technologies, yet the shelf, where 91% of purchase decisions for consumer-packaged goods are made, remains an emotional hinterland,” Wendy Liebmann, CEO of WSL Strategic Retail, was quoted as saying in a recent post on Forbes.com. “Those mazes of boxes and bottles will change into communication sources. They won’t just stand out, they’ll stand for something, capturing the shopper with messaging that correlates with the moment and knocks her out of purchasing autopilot.”
Rather than adopt technology just for the “wow-factor,” brands are building new retail spaces that tell a clear story. But in order to do so, they are relying on a seamless integration of digital research and technology.
According to Forrester research, more than half of all of today's purchases are digitally influenced. As such, many in-store shoppers are turning to their mobile devices to find more product information, read reviews and comparison shop. In this past year, a few retail stores were able to harness this trend and incorporate more mobile- and data-driven strategies into their physical spaces.
Nike led the charge with innovative brick-and-mortar retail spaces, including its flagship Nike House of Innovation 000 and Nike Live locations. Located in New York City, the flagship store is a six-floor, 68,000 square feet retail space—while the Nike Live stores are smaller locations that are exclusively available to members of the brand’s loyalty program. Both concepts are built around the Nike mobile app, where consumers can reserve products, access loyalty points and product information. For the brand itself, the app collects valuable data on what their customers are looking for. Each store is curated to its particular location—and the showroom is restocked regularly with the most sought-after models in the area.
The “Scan To Try” feature is another hit from the Nike concept. This allows consumers to use their phone to reserve shoe models and sizes, which they will then find waiting for them to try on in a designated store locker (which, of course, you open with your phone). Customers can then buy the shoes right away with their phone. The adoption of this kind of “scan-and-go” technology reflects larger retail trends. Namely, consumers want ease-of-use, simplicity, convenience, autonomy—efficiency. That sentiment trickles down into their expectations for RSAs and inventory; key product information needs to be immediately accessible.
The moral of 2018 is clear: brick-and-mortar retail is far from over. By blending data-driven and convenience-enhancing technology with more cohesive showroom spaces, retailers can reinvigorate the in-store experience for greater sales success.
This article originally appeared in Sleep Retailer eNews on December 27, 2018
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