10 surprising retail predictions for 2018

The industry is hitting a tipping point, writes consultant Christopher Walton, and retailers should brace themselves.

It's been an exciting year. Amazon acquired Whole Foods, Walmart’s CEO Doug McMillon and head of e-commerce Marc Lore "bromanced" hotter and heavier than William Hurt and Kathleen Turner in Body Heat, and still no one knows what to make of Sears.

We may be at a tipping point in retail’s history: 2018 could be momentous. With the "retail apocalypse" upon us, it is time we run for our fallout shelters, bar the doors and prepare for what is to come. Brace yourself — here are 10 predictions for retail in 2018.

1. The Doug McMillon/Marc Lore 'bromance' will cool off

Walmart’s acqui-hire of Jet.com founder Marc Lore was brilliant. McMillon admirably put his ego aside to get help, and Lore brought with him an ethos of fast experimentation, alongside an irrefutable digital strategy.

But Walmart still carries a ton of debt — technological, architectural, operational, cultural and even brand debt — and it has possibly become addicted to the flattery of its own PR. This debt will be hard to rewire without disrupting operations or alienating Walmart’s core customers, and, the PR checks it has written voraciously will need to be cashed sometime soon — I mean, seriously, VR galas in Beverly Hills?

By the end of 2018, digital growth will become hard to anniversary organically, and Walmart’s Board of Directors and its old guard leaders will start to ask tough questions about how Lore’s Store No. 8 bets will pay off.

It’s like the scene in Seinfeld, where George realizes he is in a relationship because he finds Tampax in his medicine cabinet. It is only a matter of time before McMillon starts questioning the Tampax (i.e. the R&D) he finds on the books.

2. Kohl’s CEO will wake up sweating from a horrible dream

Michelle Gass, who is slated to become the head of Kohl's in May 2018 when Kevin Mansell retires, will awake frightened as hell from the nocturnal nightmare of being caught in the crossfire of a Grumpy Old Men snowball fight between Walter Matthau and Jack Lemmon, while she walks to her car in the morning and as Ann-Margret stares blankly at her out of a window.

Gass will then immediately pick up the phone and call her head of business development and say the following words, "Sell! Sell! Sell!"

Kohl’s is between a rock and a demographic hard place. It is hard to see a way out for Kohl’s, Sears, J.C. Penney and possibly even Macy’s. Next year will be the mad "lipstick on a pig" rush to see who can best stage the house for Amazon. Kohl’s may have already set its sights on the buyer (see Kohl’s Amazon Shop-in-Shops).

3. Amazon will announce H2Q location, and America will be happy

Amazon will do what it always does — make a smart move that the public loves. CEO Jeff Bezos will not to pick a location that does not play well publicly. He may even shun all the ridiculous tax breaks that suitor cities have offered up and focus his choice on long-term criteria, like social impact and competitive advantage. Since when has he ever cared about turning a profit?

Specifically, Bezos will pick a location with the following characteristics:

Bet on Bezos locating HQ2 somewhere between Raleigh-Durham, North Carolina and Atlanta (both are less than a day’s drive from Bentonville, AR) or within the Midwestern Triangle of Milwaukee, Minneapolis and Chicago.

4. Blue Apron will be a Hail Mary acquisition

Blue Apron’s market capitalization is currently just north of $500M, and its stock price has fallen precipitously since it first went public. Walmart acquired Bonobos for $310M, so an inflexion point may be close.

With respect to Bonobos, what Blue Apron does is much more complicated. Bonobos makes slacks, while Blue Apron specializes in fresh food — the logistics of which are far more complicated and difficult to replicate.

In 2019, a desperate grocer or mass-merchandiser CEO will mistakenly see value in the stock price and leverage an acquisition as a way to appear "innovative," even though such an acquisition will not solve the traffic problem that plagues their business.

The Hail Mary poker tell will be when the acquiring company releases a statement saying, "We are excited about the synergies of offering Blue Apron meal kits in our stores."

Yet, "meal kits in stores" indicates a retailer doesn't have a clue what omnichannel retailing really means.

5. Bed Bath and Beyond will realize its tremendous assets

My favorite physical retail innovation this year was not what you would think. It was something that garnered almost zero press — BEYOND at Liberty View in Brooklyn, New York.

While the store still needs work, the concept has a ton of potential. First of all, it houses four of the company's brands under one roof: Bed Bath & Beyond, Face Values, buybuy BABY and Cost Plus World Market. Secondly, it has a ton of interactive features like dining, cooking demonstrations and kid-friendly activities. 

Four key observations stand out:

  • The concept gives people a reason to go to a physical store
  • It is a formidable one-stop shop for Baby, Home Goods, Beauty and OTC
  • BBBY carries the cachet brands that Walmart and even Amazon crave, but cannot acquire
  • Real estate for this type of footprint will only get cheaper over time.

While there is still much to fix in the concept (e.g. literal walls separating the store fronts, no universal point-of-sale system and mediocre dining experiences), it will be hard for BBBY’s mass-market competition to duplicate its efforts with as much product cachet.

6. Amazon will regret moving Whole Foods to centralized buying

In September, Amazon informed manufacturers that it planned to centralize product buying and to ban brand marketing representatives from Whole Foods stores.

Centralized buying is a bad move. It is a classic MBA consulting move, not a customer-focused one. Localized products and brand reps who entice customers to try new things are key to Whole Foods’ vibe.

Removing them makes Whole Foods less special. Accidentally take the gluten-free coconut nibs out of the local Whole Foods, and there will be hell to pay.

Stepping back, centralization could be a great move, but Amazon should not take the standard approach to the problem. Instead Amazon should use its synergies from the merger, in this case its "everything store," and act like an online distributor for Whole Foods.

Localized Whole Foods buyers could still differentiate assortments at the store level via a web interface, and Amazon could still reap the benefit of large scale cost purchase discounts that service both Whole Foods and Amazon’s own direct-to-consumer businesses.

7. Pop-up retail will be hot, but it won't solve everything

"Pop-up" is one of the sexiest words in retail right now, right alongside voice and VR. Large malls, small malls and the retailers within these malls are struggling. Concurrently, e-commerce players are desperate to expand the reach of their brands.

Ergo, pop-up retail seems like an answer — mall operators can bring in new tenants on quick leases, existing retailers can keep their salesfloors fresh through space rental and e-commerce players can get into the physical game without getting locked into high rents.

It will all make sense until the underlying business economics of retail change (i.e. until technology fuels more productivity gains and utilizes working capita differently). The same problem that plagues retail — namely traffic — will plague pop-up shops too.

Bonobos was the first penguin in the water with their guideshop concept, and they had to bail out and sell to Walmart. The pop-up concept is not different enough. It is just another side of the same coin.

8. Wayfair will hit its sophomore slump

I have always been a huge fan of Wayfair, but now they are moving from Act I to Act II, so my expectations have risen.

While Wayfair understands the intersection of product management and retail well, their execution hasn’t been there recently. As L2 founder Scott Galloway points out, almost 2/3 of Wayfair’s customers do not buy from the company again within the same 12-months.

This statistic likely comes down to three key factors:

  • Customers are likely unhappy with Wayfair’s delivery and customer service
  • Shoppers are simply poaching Wayfair on price via Google searches
  • Wayfair’s brand doesn’t make people "feel”

If a customer is going to come back to a brand again and again, he or she needs to feel something. Wayfair’s brand does not create a right-brained connection with its consumers. Left-brained analytics Wayfair has down pat, but its marketing feels like Anthony Michael Hall leading dorks in Sixteen Candles to try to get a date — It has no soul.

Fortunately, these problems are 100% correctable over time, but a $6 billion market cap for a brand without a soul, still struggling to reach profitability, is a pricey bet in the interim.

9. The narrative will move from apocalypse to reformation

Apocalypse is a silly word. It means complete destruction. People will always need to buy stuff.

Therefore, retail and physical stores will never go away. They will just look different.

The retail stores of the future are in front of us already. They will be one-part Amazon, one-part Starbucks, one-part Bonobos and one-part Ikea, shrouded in the customer-focused ethos of a casino.

Mix it up, shake it up, drink this futuristic cocktail however you want. It is a cocktail of possibility that portends a future of revitalization and reformation, much in the same way Martin Luther sought to reform the Catholic Church in the 16th century.

In 2018, we will begin to see the rise of a new generation of retail inventors who, like Martin Luther, will fight to nail their own modern-day theses on the doors of retail’s establishment.

10. Amazon will destroy Black Friday as we know it

Ponder this timeline — Amazon announces, to altruistic fanfare, its H2Q location in the first part of the year, and then Jeff Bezos sits back and says to his minions, "It is time to destroy everyone.”

He can too, in one fell swoop, by secretly planning to hold another Prime Day just days before Thanksgiving. This move would be the Death Star blow to retail. Physical retail could not adjust in time:

  • Black Friday customer traffic would be far less than retailers planned
  • Store payroll planning would be too rigid to adjust on such short notice
  • Inventories would back up and lead to even more aggressive discounting during the holiday season
  • More retailers would be pushed toward the brink of bankruptcy

The days on which Black Friday and Cyber Monday fall are arbitrary. While legacy retailers are creatures of habit, Bezos is the master of finding arbitrage opportunities like this, going all in, and leaving no prisoners.

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