After more than thirty-five years of real-life experience as a senior executive for some of the best-known and most successful retail companies in the U. S. and globally, I like to think I have a handle on today’s retail environment. At the start of this new year, I’ve pulled out my crystal ball and have some predictions to make about what will happen for retail in 2018.
1. Business will be good. The retail apocalypse is over, and brick-and-mortar stores did not perish in the disaster. There are a lot of reasons for this, but remember that underneath them all is the basic fact that the retail industry is exceedingly adaptable and resilient. Stores have closed. Markdowns have been taken, and many companies will continue to figure out the right mix of channels, stores, on-line, mobile, and catalogues for their brands. But add it all up and sales will be good for both ecommerce and physical stores.
Also, holiday business has been strong. Although the figures have not been reported yet, I’m fairly certain that when they are they will exceed expectations. And when business has been good, inventories are low, and retailers are all smiles and plan optimistically for the year ahead. More inventory, more innovation, more just general excitement in the marketplace.
In the macro environment, unemployment is at (and has been at) an historic low. Wages are going up, and we know from bank reporting that people are writing more checks. Spending more money. None of this is remotely connected to the current tax law or future tax changes.
2. Amazon will stumble. That’s right. You heard it here first. Amazon will suffer a setback. I do not know exactly when or how big it will be, but it is very likely to happen within the next twelve months or so. Extraordinary growth like Amazon has achieved is not sustainable indefinitely. The company has deep structural issues that will catch up with them. Principally, the company culture violates the First Law of Retail: People First. By all accounts, it is a toxic environment in which to work. That is not good for long-term growth.
The Five Laws of Retail
The First Law: People First
The Second Law: Turn Is Magic
The Third Law: It’s Always the Product
The Fourth Law: It’s About the Retail Price, Not the Cost
The Fifth Law: Protect Your Downside
Second, they’ve entered into channels and businesses for which they have no experience or deep understanding. It is true that certain business principals apply to any and all businesses … like The Five Laws of Retail apply to all retail businesses. But even with a bushel of MBAs, you cannot run a bakery if you don’t know how to bake a cake.
And last, Amazon has never returned any meaningful profit on their sales revenue. So when they do suffer a setback in revenue, they won’t have the underlying strength to weather it well. It’s like keeping yourself fit and healthy so that if you do break a leg or catch the flu, you recover quickly. But if you are weak underneath, the result can be bad.
3. Shopping malls will make a comeback. While it is true that there are too many shopping malls and some will shutter for good, in general developers and retailers will constantly find ways to succeed. Many malls will be repurposed, and the mix of tenants will change. It’s already happening in many places. Malls will become more of a mix of offices and even housing. Where there was once a dress or swimwear store, there may be an optometrist, dentist, or yoga studio.
I recently met with an executive at Westfield, one of the largest and one of the best mall developers in the world (and recently sold). This guy is developing and testing a way to create and manage multiple temporary, small stores within their properties. Sometimes called “pop-ups, ” this option is an ingenious way for smaller companies or brands to enter the physical retail channel for the first time and test their concepts while reducing risk. Brilliant. They are enabling a whole new generation of retailers.
Shopping malls generally occupy great real estate. After an investment in market research, the locations were selected with a lot of intelligence. Often at the intersections of major freeways or city centers, they are not going away. Those that were in bad locations were always problematic anyway.
So overall, there has been a lot of shakeout and retrenchment that will lead to overall success and repurposing of existing assets. 2018 will be a good year for the retailers who understand and follow The Five Laws of Retail and continue to adapt.