January 10, 2020 by Sujay Seetharaman

(originally posted in Pipecandy Newsletter #100)
The 2010s as a decade was one of great turmoil for retail. The Retail Apocalypse hit the industry hard, and even to this day we are recovering from the wounds it inflicted. Of course there is no such thing as a boring year in retail, and 2019 was particularly eventful. In this post, we take a look at some of the selective retail trends that have made headlines in 2019 and will continue into 2020.

Store closures = 3x Store openings

Nearly 10,000 store closures have been recorded in 2019; the highest by far and 55% higher than total closures recorded in 2018. The record year for closings was 2017, with an estimated 8,100 shuttered stores. Payless ShoeSource, which closed its remaining U.S. stores in late June, accounts for the largest number of closings with more than 2,500. All Charlotte Russe stores closed in April but the company’s new owner has started to open new stores. Forever 21 said it would close most of its stores in Asia and Europe and up to 178 stores in the U.S. Here is a list of all the store closures predicted for 2019, some of which may spill over into 2020. On the other side of the table, an estimated 3,000 stores have opened, which is a 56% increase from 2018. Dollar General, TJ Maxx, and Aldi are some of the heroes defying the retail apocalypse.

Resale continues to grow

Resale today is fostering an inventory that is growing faster than fast fashion! A report by online thrift retail store ThredUP estimates that the resale market was worth approximately $24 billion in 2018, and is expected to cross $40 billion in the next 4 years. Of all major industries that constitute the resale market, Fashion (Clothes, Shoes, Accessories) leads with a share of ~50% or $10 billion. With textile production set to account for 25% of all global carbon emissions in the next 20 years, any trend toward a circular economy could be beneficial. As far as resale goes, buying one used item reportedly reduces its carbon footprint by 80% and extends its life by another 2 years. Wonder why Marie Kondo didn’t think of resale as an extension to what she does best – discarding!

Private labels became the norm

If you’ve been to a Target store in the past year, one thing you’ll notice is that they carry more than 40 private label brands, or what they call “owned brands.” According to the company, curating a selection of owned brands is core to the company’s strategy and it’s “what guests expect from Target.” Then there’s Amazon, which now has more than 560 of its own exclusive and private-label lines. Retailers remain relevant by being brand and customer-focused. They’ve figured that analyzing and understanding what your brand means to your customers, and the relationship they have with each other is what will drive sales, footfalls, and loyalty.

The rise of DTC holding companies

DTC companies like Warby Parker, Glossier and Casper experienced early success. However, they and other DTC brands are in danger of being stuck in venture purgatory. For one thing, these companies have learned that they have to build their own loyal followings – CAC is as high as 3x or 10x depending on the category they’re in – and this is a process that takes significant resources, capital and time. Additionally, these companies have raised so much venture capital that they have to be hyper-focused on generating top-line revenue growth to validate valuations that satisfy their investors. These factors, combined with a lack of product differentiation makes it difficult to achieve disciplined operational habits, innovation, and sustainable growth. One approach that is working well is a holding company model, where young companies with a DTC approach can take the lessons learned that the P&Gs and Unilevers of the past created and reimagine it for today’s market. You probably heard about the story of Pattern (formerly Gin Lane)

Exciting partnerships in the offing!

Being where your consumers are now requires taking the retail off of ‘omnichannel retail’ and going “omnichannel” in the truest sense. (Think coworking spaces, public restrooms, football stadiums, convention centers, cinema halls just any about any place where your potential customers could be). The most common and perhaps one of the earliest examples of these kinds of partnerships – one that you and I have witnessed – has been between skincare products and Airlines. Recall those tiny bottles of moisturizer in the flight restrooms? What better way to get your products millions of eyeballs, every day!
According to PipeCany’s research, there are some 1000 Airline companies, 55,000 hotel/lodging facilities, 600K restaurants, 100 Cruise companies, 5,000 coworking spaces, 6,000 movie theater sites spread across the US. These avenues would make for great brand partner channels since they see consumers arriving and leaving en masse. Rent the Runway partnering with W hotels, is not just going to change the way people travel but is only one example of how brands are going to get in front of people outside the confines of retail!

More retailers explore subscriptions

The subscription box industry gained prominence in early 2010 due to the likes of Dollar Shave Club and Birchbox and grew rapidly until 2015. Between 2015 and 2018, the rate of new subscription companies launching tapered from over 150 to below 50. Further, the average deal volume dropped by over 90%, and deal value by 84%. However, the average capital invested per deal increased by 73%. (Source: Pitchbook)
All of the above points to an industry that is past its “hype phase” and is now maturing with few companies that have weathered the storm and are raising growth capital. Early-stage investors, however, are becoming cautious because successful exits/IPOs have only been isolated incidents.
We don’t expect the universe of new subscription companies to substantially spike anytime soon but large retailers (like Urban Outfitters, JC Penney, Macy’s) are already embracing this model (probably out of desperation) to drive customer retention through loyalty. Existing players will probably shift towards an ‘access’ model with elements of ‘curation’. However, very few might actually be able to raise money and make it big.

Looking Ahead

The above trends aren’t just it.
Instagram launched self-checkout. Mega-brands like Target, Lowes, and Amazon have launched AR features that allow shoppers to picture furniture in their homes. Shopify announced its entry into Fulfillment. Square announced its entry into Lending. Pet products are growing 3x faster than children’s toys! The jury on CBD is still out there. D2C lost its charm as a surprising business model.
Above all, in 2019, the lines between online and offline blurred. The retail mall had to be an entertainment destination.
In 2020, every destination where shoppers spent money will begin to be seen as a place for brands. The era of offline brand placements at point of spend will be upon us.
Let’s revisit in 12 months.

Sujay Seetharaman

Market Analyst @ PipeCandy

Currently donning the Researcher's hat. Talks to himself.