Retail Industry Overview and Holiday Outlook 2018

In the Northeast, the first dusting of snow usually means that Thanksgiving and the holiday season are right around the corner. For retailers, it means that the season they have been gearing up for all year is also right around the corner. While the retail sector tends to get a spotlight during the holiday season, as economic developers, we think about the retail industry on a daily basis (No? Just me?). The retail sector, while an important economic driver in many communities, also supports workforce development training, entrepreneurial growth and retail locations can even be community gathering spots. Here, we define retail widely, to include services and food and beverage locations as well. Read on to see how the latest retail trends will impact this year’s holidays shopping season.

Retail Overview

The retail industry as a whole is growing. Yes, growing.

The U.S. Census reports that U.S. retail sales grew by 5.7% between second quarter 2017 and second quarter 20181 and was up 1.6% from the first quarter of 2018. Broken down by retail categories, Clothing and Clothing Accessories as well as Health and Personal Care Stores both saw the greatest year-over year increase, compared to other categories like Food and Beverage, General Merchandise or Electronics. Pricewaterhouse-Coopers’ annual consumer survey noted positive consumer confidence, fueled by low unemployment and relatively high earnings, which have supported substantial retail figures.

While consumers demonstrate their willingness to shop more than in previous years, some department store stalwarts have continued to decline and face additional closures. The demise of some big box stores, shopping malls, and strip malls have had ramifications throughout the country, shaking up local economies. Yet, IHL reports that just 16 retailers account for 66% of all store closures. Many of these stores including, Toys ‘R’ Us, Bon Ton, and Sears, have been mainstays in the typical suburban shopping center.

Retail stores

Sears could not adjust course to differentiate itself against its competitors, as it had done so innovatively at the turn of the 19th century, and recently announced it would close another 200 stores. As hundreds of Sears stores exit the market, landlords are faced with how to fill these massive vacancies. The image to the right shows the kinds of stores that are replacing closed departments stores. Stores that attract health conscious consumers through gyms and health food markets are driving foot traffic, which home furnishing and discount stores can capitalize on.

While suburban markets have perhaps been hardest hit by retail closures, one retailer that has remained strong in rural areas is Tractor Supply Co. The chain has 1,900 stores across the county with products ranging from chickens (which are in high demand, apparently), llama kibble, and yes, tractors. Driven partially by the specialty of their products, rural America’s unpredictable broadband availability, and committed consumer base, the store has been able to pick up customers from stores like Sears, who used to be the local supplier of tools and equipment. Not totally immune to the e-commerce explosion, the store does offer in-store pick up after ordering online and produces online videos to showcase some of their products.

While it may go without saying, the internet and related technologies continue to drive change on both sides of the retail industry. On the consumer side, people rely on online platforms that enhance the ease of buying items, discovering new products, trying products through virtual reality applications and promoting items they recently purchased. On the operator side, the internet has fostered the growth of direct-to-consumer brands through social media posts and intense targeted marketing efforts. Even while companies like Allbirds, Casper and Warby Parker were born on the internet, they are also emerging more in the brick and mortar sector – looking to increase their market share by learning more about consumers in-store to specialize their product offerings.

Holiday Season Trends

With the retail market still in upheaval, what can consumers expect during this holiday season? The NRF reports that the average consumer will spend about $1,007.20 this holiday season, which is a 4.1% increase from the average spending anticipated during last year’s holiday season. Gifts will account for a majority of spending, while food and decorations will be second.  Shoppers are expected to evenly split their holiday shopping between online and in-store, with a high degree of overlap, since purchasing online and picking-up in store or at a designed drop point continues to be a growing trend. Even if only in-store to pick up purchases, stores are hoping they can attract consumers inside for additional purchases with promotional events and discounts.

In the holiday season marketing blitz, Walmart will be relying on star power to fuel sales in multiple categories. The store has already worked with Ellen DeGeneres on a clothing line that was meant to step up the store’s fashion appeal. Hoping to reach another demographic, Walmart is also partnering with Kendall and Kylie Jenner, reality-show mega stars, to launch a line of handbags and accessories.  In the food department, the superstore is turning to recognizable names from the Food Network, like Ree Drummond and Patti LaBelle to endorse products like instant pots and bedding.

Pop-Ups: Coming to a Mall Near You

Pop-up events and markets are also a strategy to introduce new products to the market, generate buzz and engage the community. The term “pop-up shop” can span a wide range of iterations but essentially refers to the temporary nature of the store. The store could be housed in an empty store front on a Main Street, an empty store in a mall, set up in a pocket park or the street, or be housed within a larger retailer. Even Facebook is getting in on the pop-up action.

Pop-ups are not just a seasonal phenomenon. Property landlords are more willing to lease out spaces on a temporary basis in order to facilitate a short-term win in the market. This is true even in some malls, including in Washington D.C., where a major mall owner is unveiling a program called “BrandBox.” Essentially, the mall will provide storefront space, everything down to the fixtures, while the retailer just has to be prepared to pay rent for six to twelve months and showcase their goods. The brands entering BrandBox may already have an online store and some brand recognition but are not ready to invest to a full-time store front.

And while consumers may be more inclined to purchase things online now, this is likely truer for products that they already know and love. For products and companies that are just entering the market, enticing consumers to buy online for the first time can be a harder barrier to overcome. Pop-ups create a transition space where customers can have a touch point with the product itself, as well as the producer when it comes to small, hand-crafted items.

Pop-Ups 101

  • They exploit an underused asset (like an extra bedroom in AirBnB, or cars in Uber). In small communities this could be downtown storefront vacancies, or other underutilized space. They can also be within an existing store, a stand-alone kiosk, or vehicles (taking after the food truck trend).
  • They go where their market is. Pop-up retailers go where the demand is, versus let the demand come to them.
  • The emphasis is on marketing versus selling a good or service. They advertise another upcoming event, a class, a coupon code for their Etsy shop, etc. This is just another channel to engage their customers.
  • The experience is key. What can you do, eat, drink, see when you attend the event? Think “Instagram -worthy,” high quality, visually appealing experiences.

 

Know Your Market: Demographics Matter

During the holidays or throughout the rest of the year, understanding demographic preferences and understanding how they shift over time is critical to providing in-demand products in the right geographical markets. While disposable income is often a usual metric for retailers to gauge market potential, there are more nuanced factors that can play into a retailer’s success. Assessing the market should happen in two parts. First, a retailer must understand the make-up of a community. What is the age distribution? Who is moving in and out of the community? What age cohort is increasing? Once demographics are mapped out, a retailer can then match consumer preferences across demographics. For example, as Millennials delay getting married or starting families, retailers that would typically market baby goods to communities with a high population of females aged 25-35 may find that the cohort is instead searching for deals on travel excursions, gym memberships, and doggie daycares.

Editor’s Note: Camoin Associates is currently working with several clients to re-position how communities think about their downtowns, main streets, and commercial corridors as well as think about how to engage consumers in the evolving retail industry. Our ongoing research into the retail industry contributed to this article.

To find out how Camoin Associates can help your community create a demographic profile to attract the right retail mix or discuss changing retail trends in your town, reach out to alexandra@camoinassociates.com.


1. Year-over-year growth, Quarterly Retail E-commerce Sales, 2nd Quarter 2018. 

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