Retail apocalypse — The aftermath
The democratization of the internet access through mobile phones has led to the disintermediation of retail chains, in the last 10 years…
The democratization of the internet access through mobile phones has led to the disintermediation of retail chains, in the last 10 years through an increase in e-commerce. E-commerce sales in all sectors of traditional retail — apparel, furniture, household items, health and beauty has dramatically grown in the last decade. The apparel market has bi-furcated further, with the vast majority of the business dominated by Amazon. An important trend to note is that while consumers become more conscientious, lazy and fickle, there is more reliance on recommendation channels — Instagram largely dominating the this with youtube videos, Pinterest, and blogs serving the rest. Consumers are still entering stores for large ticket items, or for experience based shopping.
In the apparel business, fit and returns which were deemed huge problems in the 90s have been primarily solved with business model innovation through the likes of StitchFix (try-before-you-buy), making easy returns possible through the use of a return bag, rent before you buy (renttherunway.com).
However, what that means is that retail is not going away, people have not stopped purchasing items, it merely means that retail has just shifted its focus from offline to online.
So, what’s next:
Big winners in the price war games — The disintermediation of the middle man and the saving in operating expenses by not having to lease large 200000 sft showrooms should drop the costs of online e-commerce based merchants. The rise of these online businesses and the reduced cost of business should offer this benefit back to the end customer. I suspect the bottom of the marketplaces will end up being retailers that may focus on passing this benefit back to the end customer and those who win the price wars will win. This is particularly true for products such as your basics — undershirts etc.
More curated marketplaces — The rise of the ethical and more conscientious customer should give rise to more curated marketplaces. I can imagine a future where there is a minimalist marketplace, an organic marketplace, an all-cotton marketplace etc. Renttherunway, has launched a rental business which connects brands with its rental customers. Poshmark and Therealreal sell curated used clothing or accessories.
Machine learning based innovation — Fashion AI is not new. From re-inventing the supply chain and having faster runway to department store like models will be on the rise. The rise of AI assistants will help through drawing customers into the retail channel, from “what should I wear for my date tonite” to “Who has the cheapest pair of ColeHaan shoes” are all markets that we will see an evolution into. Startups such as Lily AI are cracking the problem of understanding the emotional profiles of buyers in fashion. Using AI to better understand and forecast demand and reduce wastage is will start shortening the production cycles and improving margins on businesses.
Better personalization — From custom everything in clothing to beauty and wellness, the new trend is to use your information for your benefit. With the rise of the Instagram generation, every customer is the star of their own life and startups that focus on bringing out their best will thrive.
The rise of Instagram based shopping — Instagram will act as the biggest channel of customer acquisition in the future, a journey that I see that will cause large amounts of e-commerce transactions to happen on its network. With millennials better attending to their own self-care needs and budgeting large amounts of capital to looking good, Instagram will become the biggest cost driver for customer acquisition costs.
The rise of the “deal” shopper — Deals have always existed. Macys’s whole one-day only sales have always been popular. Lately, however, we see the rise of the millennial deal shopper whose brand favorites H&M, Zara and now Amazon Fashion are beginning to see upward trends.
The rise of direct-to-consumer brands — If there was an ever a time to create a D2C brand, it is now. Already we see large valuations for companies like Hims, Away, Glossier, Kylie, KKW etc have all shown us how a great brand story can be told and amass a loyal brand of followers with both storytelling and good product. D2C brands are going the reverse order, with each of them now wanting to set up showrooming sites. Warby Parker, Casper, Away, Kylie have all started opening their store fronts. Brands driving their “stories” through the use of retailing stores and online presence are able to build an emotional connection with their end customers.
The rise of influencer shopping — Influencers have a huge say in the shopping purchase cycle for millennials. I am a big fan of LiketoKnow.It, an instagram influencer enabled affiliate-based marketplace. Kim Kardashian, Kylie Jenner have shown us the impact of influencer shopping. I see a world where clickable videos of products will be the new interactive shopping experiences.
The rise of the conscientious shopper — As more and more of us care about the environment, I think there will be new businesses that will be built with the conscientious shopper — reducing wastage, chemical-free, sustainable materials, and even bulk-shopping for health and beauty items. The new shopper wants to have her cake and eat it too.
Some last thoughts — consumers are fickle, but new novel ideas that connect consumers with mission-driven brands emotionally while not draining their purse strings will continue to thrive. As always, please leave me with your thoughts and if you are interested in chatting about retail tech, please reach out to me. @yrdeepika