9 predictions for 2019: retail over the next 12 months
It’s that time of the year again. Seemingly reasonable people lose their bearings, overwhelmed by a surge of positivity and the promise of new beginnings. They then proceed to make a series of grand pronouncements about what the year holds. Stock analysts call a somewhat similar phenomenon the “January effect”. This year we at Litmus7 decided to partake in some Q1 optimism and crystal ball gazing. The wrong way to make such predictions is to follow the weekly horoscope style of writing. The trick with the genre is to make the text so generic it could apply to anybody, and to flatter the reader. We, the good folks at Litmus7, will try to base our predictions for 2019 on what we actually hear from our clients. So here goes:
#1 The tide turns on antitrust
Antitrust, as it is currently interpreted, focuses on short term consumer welfare. If an alleged monopolist is reducing prices, it’s all right by regulators today. But that line of thinking is historically anomalous. Throughout the bulk of the 20th century antitrust was cognizant of, perhaps a little paranoid of, the market structure changing. Those with long memories will recall regulators’ pursuit of the 800-pound gorilla of its time – The Great Atlantic and Pacific Tea Company. Some scholars attribute A&P long decline and eventual bankruptcy on the relentless machinations of US antitrust of the 1940 and ‘50s.
What changed in 2017 and ‘18 is the idea of a more belligerent antitrust gaining mainstream support among people who matter, namely as legislators, regulators, and the fourth estate. It began perhaps with a Yale graduate student’s case for regulating Amazon going viral. Virality is not a concept typically associated with dense legal scholarship that cites arcane judgements of decades past. But this particular line of argument rode a groundswell of support, and reached just about every observer of the retail industry. The Yale scholar, Lina Khan, was hired by the Federal Trade Commission (FTC) recently. What’s more, the idea of regulating Amazon appears to enjoy bipartisan support. Individuals across the political spectrum, from President Trump to Democrat Senator Elizabeth Warren, have spoken of the need to keep the Seattle behemoth in check.
#2 Sustainability crosses the tipping point – influencing a large percentage of buying decisions
The millennial demographic cares a lot about the environment. According to a Nielsen report, 73% of millennials are willing to pay a premium for sustainable products. With headlines such as melting icebergs, emaciated polar bears, sea levels rising, CO2 levels inching inevitably towards the 500-ppm mark, and the sixth extinction, sustainability is always in the news. What makes climate change an immediate concern is the rising frequency and severity of extreme weather events. 2019 will be the year when at least one major retailer, spurred possibly by a devastating forest fire that reaches the backyard of the CEO class, will make sustainability a key plank of its value proposition. Ecommerce buyers will know exactly how her buying choices impact the environment. Just as a countdown today informs the buyer how far they are from free shipping, a countdown will inform the future ecommerce customer what size of basket, what time of delivery, and what mode of delivery is environmentally optimum. Also, the customer would look up reports which assess retailers on sustainability, in terms of sourcing power from alternative sources, recyclable packaging material, and much more.
#3 Community and cause-based retail flourishes
After 50 years of EDLP and a quarter century of Amazon, cost and convenience have been equilibrated. There will be few more years of bringing greater and greater swathes of America under the ambit of two-day delivery, and same-day delivery (the number of metropolitan and suburban regions covered by Instacart is already well over 500). And every year the number of SKUs available increases some. However, the fundamentals of retail – the trifecta of cost, convenience, and choice – are close to plateauing. The growth now must come from products that double up as statements, the purchase and consumption of which becomes a vehicle of self-expression. That has been true for many product categories for a long time. But as millennials account for an ever-increasing percent of the consumption pie, the community-and-cause dynamic will extend to all but the most commoditized categories. The evidence on millennials preferring brands that profess a social purpose is substantial. One corporate social responsibility (CSR) study found that nine out of ten millennials will switch brands if a brand were to support a cause.
#4 Rising wages expedite automation adoption, which improves the store experience
The “inciting incident”, as screenplay writers call the happenstance that sets in motion the mainline of drama, was Amazon hiking the minimum wage to US$15 an hour, nearly twice that of the federal government mandated number – US$7.25. This follows hourly rate hikes by other major retailers such as Walmart and Target, though none hit Amazon’s level. Retailers would have to respond soon. Hiking wages in a way that is sustainable from a margin perspective, is to introduce greater automation both at the retail store and the distribution centre. In 2019 expect Amazon’s US$15 salvo to accelerate Amazon Go-like technologies, and apps that facilitate in-store navigation. With repetitive and transactional tasks out of the way, store staff will focus more on consumer education and service.
#5 Self-service checkout expands, and starts becoming an expectation
The top retailers are all, frankly, rattled by Amazon’s Go, and the order of magnitude improvement in buying convenience it enables. Major omnichannel incumbents are therefore working on variants of the “scan and go” technology. Pilots are underway. Expect cases of such technology going into production in a big way in 2019. Not many would match the sophistication of Amazon Go. Some of the experiments do not entirely eliminate a tete-a-tete with the cashier, but go a long way towards reducing face time. For example, one retailer is piloting a product barcode scanning based approach that – at the end of the shopper’s journey – yields a code on the smartphone, which the cashier than scans to generate the final bill.
#6 The biggest retailers move from a proprietary merchandise to a marketplace model
The facts are straightforward. Even the most gargantuan retailer can not summon enough SKUs to capture the long tail. Not even the ones with hundreds of billions in revenues. Not even with a store network in the neighbourhood of 5,000. The SKU count of the incumbents are still an order (or two) of magnitude lower than what Amazon manages with its marketplace that stocks items in the hundreds of millions. Omnichannel retailers are therefore stepping up the game on marketplaces. The international division of a general merchandise and grocery retailer is increasing SKU volume by 5X in the short term, and in the long term, by over a factor of 50. Retailers are rethinking digital commerce platforms to enable such multipliers. Oftentimes, the architecture of choice is microservices with Cassandra and Kafka thrown in to do the heavy lifting.
#7 Native commerce on social and search engines gathers momentum
Google’s Shopping Actions has been gaining, with a beauty products retailer reporting 35% increase in average-order-value over a two year period. In May 2018 Instagram piloted a native payment capabilities for a section of its users. Google Shopping Actions and native shopping on social media are significant developments. The entire thrust of digital commerce in circa 2019 appears to be making transactions ridiculously easy, to the extent of chipping away every microsecond off the purchase process, to preempt and remove any possibility of the buyer second guessing the purchase. The logical conclusion of this arms race is to eliminate all friction on the pathway to the checkout. And what better way to do that, than to enable transactions at the point of expressing intent (the search engine), or at the point of manufacturing desire (social media).
#8 One to one personalisation becomes an expectation as retailers compete on CX
We at Litmus7 serve a gamut of retailers, from niche beauty products brand to some of the largest general merchandise retailers anywhere. And it’s hard to come by a 2019 product roadmap that does not include personalization in some form. One single-brand retailer wishes to enable one-to-one personalized service through technology. A major specialty retailer wishes to personalize search. Increasingly, in 2019, ecommerce customers will expect a one-to-one, individualized experience – in terms of promotions, content, and search.
#9 Microservices continues its march towards becoming the dominant architectural pattern for digital commerce platforms.
Omnichannel retailers – almost universally – have the problem of limited agility. The pace seems particularly slow when seen against the backdrop of digital-native retailers. One of the impediments to speed for omnichannel retailers is the monolithic, proprietary ecommerce platforms that underpin their ecommerce business. Changes cannot be deployed piecemeal, and everything must wait for the big upgrade. And this is in a world where Amazon reportedly releases into production every 11.6 seconds. Retailers are responding to the challenge by migrating to a microservices architecture. Particularly, a very large section of the top 100 retailers that are on Oracle ATG Commerce are all considering, or actively implementing, an open source-based microservices architecture.