Will 2020 be the year that changed retail forever?
2020 was a year of contrasts. A year that exposed the growing divide of haves and have-nots in the United States. A year of stock market euphoria, record earnings, long unemployment lines, and disappearing working class jobs. 2020 began with Amazon, sustainability goals, experiential retail, “no brand” brands, Gen Z, and immersive product experiences. 2020 ended with Amazon on steroids, a flurry of tech IPOs, bankruptcies, an accelerated shift to personalized e-commerce, and the rise of emerging business models: resale resonated with consumers and SaaS platforms helped companies navigate treacherous waters during the onset of the pandemic and beyond. Building resilient supply chains was front page news. Omnichannel solutions coupled with brick and mortar store locations turned into a strategic advantage overnight. The fragility of frontline workers was exposed, and then slowly faded away into an afterthought.
We saw the plight of frontline workers who grappled with the decision to either forgo income stability or risk the wrath of COVID-19 infection. One Amazon warehouse worker sums it up poignantly, “It’s like I’m risking my life for a dollar.” On the other end of the spectrum, we have seen Americans in white-collar jobs transition to remote work seamlessly and increase their savings. Spending on every day occurrences like transportation, eating out, and travel has been greatly pared back.
In 2020, consumers became a captive audience to digital channels overnight. In one fell swoop, the fragmented, serendipitous ways we interacted with the world moved online and became intentional. This extends into 2021 as we wait to feel comfortable transitioning back to a world with close physical interactions. And it is possible that we will become accustomed to aspects of our digital lives and never return to a world with the fortuitous physical interactions we experienced pre-coronavirus.
Amazon achieved tremendous growth and unprecedented financial success during the COVID-19 pandemic. It was not without scrutiny though as the retailer struggled to balance its massive scale, enforce COVID-19 safety precautions, and meet surging consumer demand. It reached a market cap of $1.63T, making it one of the largest companies in the world, and its stock is now trading at over $3,000 per share.
Between March and April 2020, Amazon said it hired 175,000 workers — at a time when the retail industry at large was experiencing furloughs, layoffs, and hiring freezes. The retailer then faced backlash in the US and Europe, saying it was not doing enough to control COVID-19 outbreaks in its warehouses. In December, the Wall Street Journal reported that Amazon faced a unionization push in one of its Alabama warehouse locations. The retailer also found itself at something of a disadvantage without physical retail locations as COVID-19 compelled consumers to rely on flexible omnichannel solutions from Wal Mart, buoyed by its massive store footprint. Amazon enters 2021 strategically positioned to continue soaring but is facing scrutiny from regulators who say its competitive tactics are unfair and potentially illegal.
In August 2019, the Business Roundtable redefined the purpose of a corporation to promote an economy that “serves all Americans”. The beginning of 2020 was a time of increased enthusiasm and excitement around the topic of sustainability. In reality, sustainability is a complex topic which has proven challenging to operationalize even with the best of intentions.
COVID-19 tested corporate attitudes on sustainability but also thrust sustainability on a global stage. We heard about the plight of Bangladeshi garment workers as brands and retailers cancelled orders and re-negotiated payment terms in response to a sharp downturn in demand at the onset of the pandemic. Business models promoting plant-based alternatives, reuse, and circularity have gained traction and resonated with consumers. Planted-based meat alternatives have become mainstream — Beyond Meat and Impossible Burgers can be found at Costco, Wal Mart, and fast food restaurants. In December, H&M launched Singular Society, a subscription-based retail model offering products as a service, rather than a source of income driving conspicuous consumption. Planet FWD, a climate-friendly food startup, launched its first product and raised an additional $2.5M in funding. Eon, an internet of things platform enabling connectivity and circularity, launched the fashion industry’s first global partner network to build connected systems for the circular economy. As we enter 2021, startups and large corporations alike are rethinking business as usual and redefining their footprints.
Generation Z was born between 1996–2010 into a completely digital world. They have been raised on the internet and social media. A recent Bank of America report predicts they will dominate the economy in the next decade as “the most disruptive generation ever”. The oldest graduated from college and entered the workforce in 2020, coming of age in a forever-changed and unsettled world. Gen Zers are highly individualistic — they compel other generations to adapt to them, and not vice versa. They have knowledge at their fingertips and they know how to use it. Retailers are taking note as they beef up their portfolios with brands that appeal to this demographic, such as VF Corp’s $2B acquisition of Supreme, the New York City skate and streetwear brand. Gen Z has also propelled the growth of social commerce and social media platforms like TikTok, which has grown from 55 million users worldwide in 2018 to 690 million this year.
Immersive Product Experiences
With many real world events temporarily on hold, 2020 was an inflection point for immersive digital consumer product experiences. Livestream shopping, augmented reality, and social commerce all gained traction to varying degrees in 2020. Talkshoplive, a livestreaming, social buying, and selling platform has seen sales grow seven fold during the pandemic. Lowe’s, the home improvement juggernaut, introduced an augmented reality navigation app to help consumers navigate through a store based on what they want to buy. In October, TikTok announced a new global partnership with Shopify to include in-app shopping features. Instagram launched shopping in Reels, giving both businesses and creators the ability to tag products. Popshop Live, a livestreaming app that enables individuals and businesses to sell products such as comic books and DIY crafts directly to consumers, closed a Series A round with Benchmark at a $100M valuation in November. Poshmark, the popular social commerce app for buying and selling used clothing, became one of the latest platforms to file for an IPO in December, reporting 28% revenue growth from 2019.
Consumer Tech IPOs
Ironically, 2020 was a year of abundant IPOs with three of the biggest tech IPOs for US companies in terms of capital raised taking place. Airbnb went public, despite the travel sector being battered due to COVID-19, at a valuation of approximately $47 billion. At the same time, frontline workers in the hospitality industry faced layoffs as the sector right sized to reduced demand, with 4 out of every 10 hospitality jobs lost to the pandemic. DoorDash’s shares surged in its early December market debut, ending its first trading day valued at $60B. The company had seen a coronavirus-induced surge in demand for its delivery services and even expanded beyond food to offer same day delivery for retailers such as Macy’s. Despite the exuberance of 2020’s IPO market, the reality of what it takes to survive as a worker in the gig economy today is disconcerting. This interview with a DoorDash delivery worker reveals that it would take two days of work for him to buy a single share of DoorDash.
Store fleets have been shrinking for years but COVID-19 accelerated this trend for some retailers. 2020 was the straw that broke the camel’s back for struggling specialty retailers as they saw stores closed for weeks and consumers pulled back on spending in the early days of the pandemic. J.C. Penney, Men’s Warehouse, Brooks Brothers, J Crew, Ascena Retail Group, Barney’s, Francesca’s, Century 21, and Neiman Marcus are some of the retailers that either filed for bankruptcy or shutdown operations for good in 2020. The wave of bankruptcies was particularly brutal for retailers selling non-essential goods. Michael Lasser, UBS market analyst, expects that online shopping penetration will reach 25% by 2025, up from 15% in 2019. Based on this forecast, up to 100,000 retail stores could disappear by 2025, with the apparel sector hit especially hard. With the growth of e-commerce and the pandemic forcing consumers to digital channels, the suburban strip mall could become a relic of the past.
Platforms & Personalized E-commerce
E-commerce is expected to total 25% of global retail by 2024, inspiring new strategies from innovators trying to capitalize on this trend. With the move to a digital world in 2020, this prediction seems to be on track through the growth of platforms —both selling personalized product offerings and making it easier for businesses to reach their customers online. Generic product recommendations based on your last Google search will become a thing of the past as users value true personalization and authentic connections with brands. If anything, expectations are higher as consumers understand the value of data and expect retailers to cater to their individuality.
Examples of this trend were numerous and shone throughout 2020. Shopify offered an alternative to Amazon, helping small and medium businesses set up stores and sell products online and saw unprecedented growth during the pandemic. New stores created on the Shopify platform grew 71% in Q2 2020, with a record number of merchants added to the platform Q3. Esty, the handmade vintage and e-commerce platform for independent sellers, saw shares rise 250% in 2020 fueled by pandemic mask sales. Instacart, the platform powering grocery delivery, has partnered with supermarkets looking to break into e-commerce. The company has an IPO rumored to be coming in 2021 and could reach a $30B valuation emphasizing the growth of its business during the pandemic. Stitch Fix, the online personal styling service, achieved 10% year-over-year growth as they provided personalized fashion recommendations through a combination of algorithms and human stylists, and expect to gain market share as shopping shifts online. Farfetch, the luxury marketplace, announced a partnership with Alibaba, significantly expanding its reach outside of the US and China. Personalized platforms will be here to stay in 2021, giving Amazon a run for its money as they fill a gap with niche social, personalized offerings and provide a way for consumers to support small businesses.
Resale business models have been around for most of this century, but they became especially noteworthy in 2020 as this way of shopping resonated with consumers. Marketplaces such as Thredup, The RealReal, StockX, and Poshmark have legitimized the resale marketplace in a digital world. They provide a convenient, social, curated experience versus digging through the racks at Goodwill or Buffalo Exchange. Resale fundamentally alters the value chain for a fashion item — instead of being sold once and discarded, its value can continue to live on through numerous owners.
The RealReal, a marketplace for authenticated, consigned luxury goods, reported revenue growth of 16% during their Q3 earnings results. They emphasized momentum with virtual appointments and continued strength in their B2B program. StockX, a reseller of new or like-new sneakers and street wear, raised an additional $275M for a valuation of $2.8B. Resale clothing company Thredup announced a partnership to sell its products through Wal Mart’s website in May and submitted IPO paperwork in October 2020. Poshmark, the social commerce platform for used clothing, reported nearly $200M in revenue in its S-1 filing, with 70 million users on its platform and more than 130 million products sold.
Supply Chain Resiliency
In March 2020, the United States went through its first series of widespread non-essential business closures in an attempt to slow down the spread of the virus. This resulted in panic buying and soon it was difficult to find items like toilet paper. Some retailers dealt with a complete drop off of demand over night, with no certainty on when, if, or how it would return. Supply chains were suddenly newsworthy with headlines like “Coronavirus Shows That Supply Chains are Outdated and Unfit for Modern Manufacturing” and “The case of the missing toilet paper: How the coronavirus exposed U.S. supply chain flaws.” Resilience, contingency planning, and flexibility over efficiency at any cost are key focal points for 2021.
Before 2020 omnichannel was the foray of large, global brands like Nike, who had the means to be relentlessly focused on controlling their brand image and distribution in the consumer market place. For consumers with heightened expectations of convenience and personalization, omnichannel was seen as a nice to have, but not the necessity it became in 2020. Reducing friction in retail transactions in 2020 was not simply a way to increase conversion and average order value, it was a public health necessity. Despite all of the headlines from the past few years predicting a “retail apocalypse”, the omnichannel transaction inevitably requires physical locations. Brick and mortar retail is not dead, but it will look different than it has in the past. Back-end technology solutions and flexible labor forces will be in demand as retailers of all types navigate omnichannel as a strategic priority.
Retail is a competitive and fragmented space with low barriers to entry but high barriers to success. With the COVID-19 pandemic, we have seen the outsized success of companies like Wal Mart, Dick’s Sporting Goods, Costco, The Home Depot, and Target who leveraged their scale and invested heavily in operations and technology pre-pandemic, were able to stay open as essential businesses, and used their direct connections with customers through brand equity and brick and mortar fleets to their advantage.
Digital platforms across fulfillment, e-commerce, and supply chain enabled many businesses to pivot quickly in 2020. We have seen the rise of social commerce, as consumers seek engaging, personalized ways to shop safely and strive to be part of a larger movement. As bankruptcies loom across the retail landscape and consumers seek to avoid exposure, convenient shipping, return, and distribution options remain the true operational strength of a select few. Will we see market share consolidate to a handful of retailers offering an endless aisle of product categories and frictionless “one stop shop” solutions? Will social commerce continue its rise and how will brands position themselves strategically to navigate this new distribution channel? Will brands and retailers see the proliferation of platforms as a competitive threat, a new age type of middleman, opting instead to build in house?