U.S. retail to see big changes by 2020

The retail landscape is in the midst of a massive transformation from sprawling big box stores that could become distribution warehouses for nimble omnichannel operations by 2020.

A recent report by Kantar Retail paints that picture and puts savvy shoppers in the driver’s seat conducting a large percentage of their retail buying online via mobile applications.

The retail landscape has been recovering from the worst economic downturn in memory for most shoppers. But at nearly the same time the U.S. retail market is evolving in the midst of hypercompetition for multiple channels.

The report concludes that retailers and suppliers willing to up their game will be the most viable in a rapidly changing, shopper-driven retail landscape.

Kantar research sees a polarized world for retailers by 2020. The report calls attention to several areas of polarization among shoppers in the next seven years.

CHANNEL FRAGMENTATION
Major retailers will operate a multitude of physical footprints, all aimed at pleasing their target customer in a variety of shopping modes, including virtual stores.

This is already happening at Wal-Mart and other big box retailers scaling down the size of their mega stores into smaller formats for some markets. Wal-Mart tested its Express model over the past two years in both rural markets like Gentry and Prairie Grove to densely populated urban areas like Wrigglyville on the northside of Chicago.

Bill Simon, the CEO of US operations for Wal-Mart Stores Inc., talked about the success of the Express format at an investor conference in May. Walmart Express are 12,000-15,000 square foot stores that Simon describes as a “hybrid between a food, pharmacy and convenience. Some of the stores have gas, most have a pharmacy, but some don’t, he said.

Simon emphasized that the top line is driving the stores profitability.

Analysts said the smaller stores offer “convenience” and in some areas that allows for higher margins. Express was not Wal-Mart’s first attempt at a smaller footprint.

In 2008 Wal-Mart opened four Marketside stores in the Phoenix area. These were upscale stores for a niche market that included a large selection of organic foods, freshly prepared hot entrees, sides and soups, produce sections with a focus on local suppliers, full-service deli, butcher shop, bakery and fresh cut flowers.

Just three years later Marketside was shelved as the retailer began its experiment with the Express format.

Analysts say while the first Express stores were built in Wal-Mart’s backyard in Northwest Arkansas to compete with Dollar General, the major goal was to get them in urban areas like Chicago and one-day New York City.

Wal-Mart has said it is committed to expanding its smaller format stores this year and next. Aside from smaller-format, Walmart.com is also a high priority for the mega-retailer who’s made major investments into its e-commerce unit in the past 18 months.

Best Buy also said it plans to downsize its big box footprint and open smaller stores in the future.

NON-STORE RETAIL
Kantar says its global database shows by 2020 non-store retail is expected to account for 12% of the overall U.S. retail marketplace. The “wall-less” omnichannel concept is at the center of where retail is going in the next few years.

Non-store retail, driven by online now and likely mobile and tablet commerce in 2020, is projected to be the fastest growing retail channel in the future. The other physical brick and mortar channels both small and large format are expected to shrink, according to the report.

“E-commerce is clearly still in its infancy as a volume-driving ‘channel,’ but the establishment of digital flagships, often in lieu of physical ones, is driving a host of additional benefits for retailers. The ‘bricks-to-clicks’ model of the past is beginning to be turned on its head, and a new wave of retail competition is transforming the landscape without laying a single brick,” notes Carol Speickerman, CEO of newmarketbuilders.com.

Speickerman recently noted that some major retailers while trying to tap into more online sales were not quite ready abandon their physical flagships.

She notes Toys “R” Us CEO, Jerry Storch took pains to defend the relevance of brick-and-mortar retail at a media conference last month saying, “The Internet changes everything, but it doesn’t replace everything."