PHILADELPHIA — With digital marketing and e-commerce creating a tsunami of change across the retail industry, accentuated by Amazon’s seemingly unstoppable growth and the emergence of Alibaba, China’s giant e-commerce company, it was fitting that “Adaptability” was the theme of Emerson Group’s annual Industry Day event, held here Wednesday at the Ritz-Carlton. Or, as Ed Morgan, Emerson Group partner and president, who moderated the event, put it: “Adapt or become extinct.” Morgan also noted that the pace of change the industry is currently experiencing has “never been faster,” making the need to adapt all the more pressing.
Scott Galloway, New York University professor of marketing and best-selling author, who was one of the featured speakers at the event, pointed to what he called a “retail apocalypse” with the number of new retail stores opening on the decline, from 2,395 net new stores in 2012 to a negative 4,691 in 2019.
“We’re in the seventh inning of the demise of department stores,” Galloway said, citing the recent bankruptcy of New York retail icon Barneys and the sale of Lord & Taylor to clothing rental startup Le Tote.
Scott Emerson, founder and chief executive officer of the Emerson Group, said if he were a brand owner today he’d be looking to the future to see how to operate in what is likely to be an entirely different industry in the years to come. “I’d be thinking about five years from now,” Emerson said. “How to position my brand five years from now and where is my brand going to live?”
That might prove sage advice if one of Galloway’s predictions for department stores comes to pass. Department stores are dying a slow death, Galloway said, in part because these traditional outlets lack pricing power compared to other newer outlets and platforms. Millennials are also adding to the decline, as “Millennials don’t want to shop where they need to take an escalator.” Younger shoppers, Galloway noted, either want a quick shopping experience or one that is incredibly exciting. Also facing a turbulent future in Galloway’s view, though not as severe as department stores, is specialty retail, apparel especially. We’re currently in the “second inning of specialty’s demise,” in Galloway’s estimation.
In order to avoid disaster, Galloway believes retailers have to find ways to establish “monogamous, more long-term” relationships with consumers and move away from those that are purely transactional.
Restoration Hardware, with its restaurant and ambience, and Los Angeles-based e-commerce clothing brand Revolve are players who are succeeding at establishing these relationships with their consumers, Galloway noted.
While specialty apparel might be on the decline, Galloway sees second-hand apparel as a potential major disrupter on the horizon, because younger people do not mind wearing second-hand clothes, they pay less for these items, and the trade ties into sustainability, which is becoming increasingly important to younger consumers.
But for retailers to thrive, it’s not all about technology and shifting shopping channels. There are measures businesses can take that are more about leadership and old-fashioned priorities than adapting to changing platforms.
“The best investment retailers can make is hiring better people,” Galloway said, citing Starbucks, which provides its employees with health insurance, as an example. “Starbucks just has better employees than other coffee bars.”
On leadership, Galloway pointed to Walmart’s recent action on guns, notably the retail giant’s decision to stop selling certain types of ammunition, discouraging open carry in its stores and calling on Congress to enhance background checks. “With mass shooting on the rise, and no leadership from D.C., retailers have stepped up,” Galloway said. “Walmart has taken action, despite its bottom line. Walmart has implemented a set of regulations that the majority of Americans agree upon. In many ways, Walmart has more effect on America than the government does.” To buoy that argument, Galloway pointed out that Walmart’s total revenue, $514 billion, is greater than the GDP of Hong Kong, $387 billion, and that of Ukraine, $127 billion.
But Galloway didn’t ignore the impact of Amazon, noting that 78% of American households have Amazon Prime, which is more than the number who go to church or voted in the 2016 presidential election.
“The brand era is over,” Galloway said. “It’s the era of monopoly and big tech.” But while Galloway believes Amazon will be the biggest company in the world in the next decade, Nicholas Hall, executive chairman at the Nicholas Hall Group of Companies, believes it will be Alibaba, a company with cutting-edge innovation and the backing of the Chinese government.
“E-commerce is just getting started in the United States,” Hall said. “Alibaba will eventually come to the U.S. and pick up those companies unable to compete with Amazon.” With innovation such as being able to consult with a dermatologist online before buying a skin care product, Alibaba provides brick-and-mortar engagement for its consumers online.
For Dan O’Connor, executive in residence at Harvard Business School, retail has changed so much that the very word is no longer part of his vocabulary. “To me, it’s commerce, not retail,” O’Connor said. “I believe we are moving to more purpose-built businesses and products.”
Hall also sees a shift, but one of the landscape of consumer health care changing with “prevention” leading the way, such as with probiotics, which has been one of the fastest-growing categories in CHC over the last five years. Probiotics, Hall noted, have become more popular for those opting for a more holistic approach to wellness, as probiotic products address not just digestive health but “health through digestion,” as a plethora of conditions originate in the gut. Another huge opportunity for retailers, in Hall’s view, relative to digestion, is “food intolerance,” another ailment linked to an array of problems, such as sinus blockages, intestinal problems and migraines. Retailers that can address food intolerance — be it with foods that consumers with this issue can tolerate, or with medicines to mitigate the effects — “will be the next Google.”
Natural and herbal products will also play an increasingly important role in the retail industry, according to Hall, with big growth not only in the U.S. but in China as well.
Retailers should also focus on sleep, another category Hall believes is a major category offering enormous upside for those who can meet the demand for products that can help consumers fall asleep and stay asleep, naturally and safely. According to the World Health Organization, seven to eight hours of regular sleep can ward off a host of medical troubles, such as cold and flu, heart attacks and strokes, cancer, and dementia, and adequate sleep improves not only mood but digestion and creativity.
But the most significant disrupter, according to Hall, is cannabis, whether CBD products or medical cannabis, as this is the category that consumers want more than any other. “There’s no other category with such high demand,” he said.
Addressing prevention ties directly to what Wendy Liebmann, founder, CEO and chief shopper of WSL/Strategic Retail, calls the “Well Movement,” which started five years ago with a “wellness uprising.” This movement, according to Liebmann, is not just about getting better, it’s about not getting sick in the first place and living a lifestyle that centers around being well. Wellness involves meditation, nutrition, yoga, and alternative medications and treatments, such as acupuncture and herbal remedies.
Consumers are looking for new ways to take care of their health, according to Liebmann. Shoppers are increasingly asking of retailers and brands today: “Do you care about my health, my family’s health, my community?” In Liebmann’s view, most U.S. retailers are mediocre when it comes to answering these questions and delivering this type of service and satisfaction to consumers. This means there’s a huge opportunity for retailers and brands who get this right and address this growing concern among shoppers.
But however the retail industry looks in five years, no matter how drastically technology and emerging players in Asia shake things up, O’Connor believes this disruption will only breed opportunity if retailers and brands are smart and savvy enough to seize it.
Alibaba, for instance, has some 617 million monthly mobile users and 552 million active users on Tmall and Taobao — its China retail marketplaces. “Companies in Asia, China in particular, such as Alibaba, are five years ahead in terms of digital than any in the U.S.,” he said. “The future is Shanghai, not Bentonville.”