7 Factors That Will Shape Retailing in 2015

So many factors are pushing retail to change at an ever-increasing pace. The economy, The changing consumer base. The preponderance of data. The rise of mobile and digital. The local and DIY movements. The widening social divide. All these things have been building for years and will significantly reshape how retailing is done in the coming year. Our Yaffe retail team put our heads together to give you our thoughts on the 7 factors we think will be key change elements in 2015.

1. The changing face of the consumer. Not only are the demographics of the consumer base changing, but the way they feel about shopping has changed. The baby boomers are reaching retirement age with a whole different set of values and beliefs on aging than any generation before them. They will once again shape their world around them. The Millennials are coming into their prime earning years and are trying to emulate the type of lifestyles their boomer parents have provided them. Yet, the American consumer is more diverse than ever. Lay on top of that, a change in attitudes towards personalization and you'll find old mass marketing techniques may not be as effective as they've been in the past.

Yaffe Group CEO, Fred Yaffe cites a recent study by PricewaterhouseCoopers and TNS Retail Forward, which says, "Retailing will become an industry that realizes, more and more, that it must tailor its offerings to select customers, as opposed to the mass appeal approach of the 1980s, in order to win over customers and foster greater customer loyalty." This doesn't mean mass media marketing won't work any more, but you may need to supplement it more with data-driven direct channels, including digital, social, email and direct mail. It also affects what products you offer and how you go to market.

2. The Social Divide hurts middle retailers, enhances others. As the middle class continues to shrink, the retailers who depend on it are losing business."The social divide will positively impact retailers on either end of the economic scale," says Michael Morin, Yaffe Group's EVP. "Upscale and down scale focused retailers will prosper and those in the middle will be challenged. Walmart and Costco/Nordstrom's will thrive. Sears and Kmart will get smaller, maybe even file for chapter 11 because their reduction in scale comes faster than their cost reductions.

A New York Times article on "dead malls" says, "With income inequality continuing to widen, high-end malls are thriving, even as stolid retail chains like Sears, Kmart and J. C. Penney falter, taking the middle- and working-class malls they anchored with them."

How can you deal with this? Edward S. Lampert, Sears Holdings' Chairman and CEO talks about transforming “into an integrated membership-focused company" but we find it hard to believe the middle market would pay to become a member to buy Craftsman. Their game plan seems to be focused on building online while they eliminate under performing stores. Rob Schriesheim, Sears Holdings' Chief Financial Officer, said, "We have proven that we are an asset-rich enterprise” who has “generated $2.2 billion in liquidity in fiscal 2014” and they will continue to “redeploy capital in support of the transformation." They manage two of the top brands in the county. They have nearly 2,500 stores, but they’ve lost $1.5 billion in the last three quarters. That hardly seems sustainable.

3. The growing economy bolsters retail growth. Despite the bad news for middle retailers listed above, the economy has seen upwards growth for years. Add to that, the unforeseen drop in gas prices and consumer confidence is growing. James Russo, Nielsen’s SVP global consumer insight in a recent interview with Marketing Daily said, "We just surveyed 500 consumers online, and 40% say they have additional money to spend because of falling gas prices. And with gas prices at their lowest levels in close to five years, there is a real benefit in their wallets. What’s interesting is that of those people, 50% say they are going to pay bills and 40% are using it for holiday spending and gift giving."

Michael Morin looks at it this way, "I expect home sales to continue to improve. That should help with major ticket retail like furniture, electronics and appliances. And a recent WSJ article talks about how the U.S. economy is rounding out 2014 in a sweet spot of robust growth, sustained hiring and falling unemployment, stirring optimism that a post-recession breakout has arrived."

4. Consumer Data will be the key to dealing with factors 1 & 2. As consumers become more fragmented and demand more personalized products and services, using the abundance of data available to retailers will be the key to connecting with them, building strong ties and ultimately, selling them the products they want. Retail agencies like the Yaffe Group have developed entire divisions to work with retailers' transactional, digital and social data to make sure the right customer is seeing the right offer for the right product at the right time.

According to Yaffe Account Executive Heather Pence, "Retailers are continuing to incorporate data into their marketing efforts in a more seamless and targeted way. I think this year, we will also begin to see more effective use of CRM data in mobile marketing for retailers."

5. Mobile will become an increasingly valuable tool for retailers. Speaking of mobile, there's no denying its impact on retail. We've already talked about its role in "showrooming" and "webrooming" in this blog space. And there is endless experimentation with beaconing that will allow retailers to serve up relevant ads to customers either in or near their stores. Companies like Walmart have apps that will geo-locate you in their store and help you find exactly where the item you're looking for is in their store.

But one of the key ways almost any retailer can use mobile this year, according to Digital Strategist Billy Strawter, is "to use location-based mobile ads to reach customers with a call to action – all within a few yards of your store location." The tools and knowledge are there and have reached a point where the barrier to use is much smaller than in years past.

6. Digital, Digital, Digital. We've touched on how digital is affecting retailers in some of the other factors. From online shopping to mobile to researching products and stores, it's permeated the consumer shopping experience and changed it forever. As we noted in an earlier post, digital ad spending is expected to overtake TV buying in two years. But it will make great strides this year. More and more of our clients are moving their marketing into the digital arena. It's an area where you can control exactly who sees what. And you can customize for the consumers we talked about in factor 1. With the right strategies, retailers can accomplish a lot – with both general digital marketing and social marketing. We seen the results and it's only going to grow exponentially larger.

7. The DIYand Buy Local cultures explode. There are so many movements affecting today's consumers. The movements towards buying locally and for DIY type products are interlinked and pose some interesting challenges and opportunities for retailers. Consumers want to feel like they're supporting the local economy and local craftsmen. If you're a regional retailer this will be to your advantage and you can play off your local ties. If you're a national chain, it might be more about having products that feel local or crafted.

As far as DIY (Do it Yourself), it may be more about the feeling than actually doing the work yourself. "The DIY culture is continuing to grow. I think people like personalized things or homemade type things to buy. Not everyone is crafty or has the time to be, so those kind of items are more in demand," says The Yaffe Group's Laurel Masaid. "I have even noticed that if you go into a Michael’s store, where you would find the materials to make things, they have items made by employees that they sell already made. Over Christmas, they had wreaths made out of mesh material for sale at Michael’s for $100. You can buy the materials in the store for 4 times less than that, but some people don’t want to actually make it, but they want that look."

Those are just some of the factors we see shaping 2015. There are certainly others and new ones will pop up nobody saw coming. if you'd like to learn more about what to do in one of these areas, give us a shout at 248.262.1700 or info@yaffe.com. If you have some other factors you'd like to add to this list, please add them into the comment section. And Happy New Year!

Mike McClure, with help from Yaffe retail experts: Fred Yaffe, Michael Morin, Heather Pence, Billy Strawter, Laurel Masaid and others.