The need for a Retail Renaissance

Memorial Day is over, marking the unofficial start of summer in the US. Outdoor grills are fired up, summer clothes have come out to play, and Americans are getting ready for beach weather, long drives and summer days.

Like any American holiday, there was, of course, shopping involved. So, what was the spend prediction for this Memorial Day? 57% of US consumers were planning to gather with friends and family to celebrate by grilling/barbecuing (52%), cooking or baking at home (29%), hosting others at their home (17%), and attending a public celebration (13%). It was also predicted that the holiday could see slightly higher spending this year. 68% of Memorial Day shoppers had planned to spend under $100 on their holiday supplies, though nearly a quarter (23%) expected to spend more this year than they did last year. Americans often find themselves reaching for their wallets in moments ranging from celebration to stress. Malls are more than shopping places for us. They have become places to discover moments of joy and ways to quench our boredom.

Yet, retail continues its heartbreaking, downward trend. To date, there are already close to 3000 closures this year. Stores that are shuttering their locations include Express, Outfox Hospitality, Shop 'n Save, Urban Outfitters and, even, Walmart. Physical stores in shopping malls, strip malls, downtown centers and on main street in towns have been under threat from online retail and changing tastes for a while. In 2024, major US retailers have announced 7.4% fewer openings and 12.3% more closures compared to the same time last year,' according to Coresight Research. Fashion retailer Express?filed for Chapter 11 bankruptcy?and said it intended to close more than 100 stores. As part of the bankruptcy process, the company?said it would close approximately 95 Express retail stores and all of its 12 UpWest stores.

The gradual demise of the great American department store can be blamed on many factors. Sure, some of it can be linked to the rise of online shopping but having recently gone through the experience of buying online from brands such as Calvin Klein, Zara and Outdoor Research, I can vouch that companies are far from perfecting the online shopping experience. So, what exactly is causing us to go to stores and often, come back empty handed? Where are malls and stores letting us down?

Department stores once defined the American consumer landscape. Macy’s,?Sears, and?JC Penney?offered a selection that reshaped how and where Americans bought everything they needed for their homes, from clothing to appliances, and toys to electronics. Along came the box store and the department store sector was overtaken by competitors such as Walmart and Target. They offered everything the department stores did - and more, including groceries, often at lower prices. Department stores have fallen from 14.1% of US retail sales in 1993 to just 9.8% ten years later, to 5.7% in 2013, and to only 2.6% last year. Total sales by US department stores are expected to fall from $103 billion in 2018 to only $81 billion by 2026, according to projections from Coresight Research, an analytics firm that tracks the sector.

It got me thinking: does Retail need a new model for its renaissance and how can tech help? I asked this question to Bala Parameshwaran, Partner at Bain. Bain & Company has been at the forefront of defining the Future of Retail for many decades. Bala spoke about Retail Convergence, in which one sees traditional incumbent retailers and digital natives battling for the same customers, talent, profit pools, and shareholders.?This convergence, coupled with new?waves of technology, proliferating consumer touchpoints, and table stakes sustainability agendas, accelerates the urgency for all players to transform their core retail and digital capabilities. Bala also spoke about how retail is being redefined by evolving consumer behavior and digital led, industry disruption with an emphasis on heightened demands, changing mindsets, channel expansion, New Tech & Biz models, and Pressured economics.

So, if retailers know all this, why are we as consumers still so dissatisfied with our retail brands? “They are falling short in 3 key areas”, Bala explained. “First is poor execution - retailers do not fully deliver on great strategies, often due to organizational silos. Second is continuing limited pace - retailers fail to move with the speed needed to adapt and capture new opportunities. Three is incrementalism - retailers implement piecemeal organizational changes without a holistic view, creating unnecessary complexity.”

The renaissance of Retail, according to Bala and Bain, will need an operating model that, at its core, adopts an integrated system unleashing the star power of the organization teams to translate strategy into results.” Bain states and I quote, “to create the distinctive products, seamless service levels and meaningful brands needed to sustain a winning streak these days, retailers also have to excel at rapid innovation. Furthermore, it is clear they must master data analytics to understand and delight customers who have become more demanding and harder to pigeonhole. Analytics will also be core to their attempts to win and retain traffic, both online and in-store.”

Luc Magniez, Global Client Partner and AVP at LTIMindtree, came to my class at New York University’s Stern School of Business and spoke about how L’Oréal is a testament to this kind of thinking. L’Oréal continues to outperform its competitors in the beauty business. "The future of retail is going to be at the convergence of technology, data and retail. L’Oréal, for instance, defines itself as a tech company, that delivers beauty through personalization.”

Technology is mandatory, not discretionary ?

?The world’s 10 largest traditional retailers, today, are spending much less on tech than Amazon, which views digital tools, data analytics and other technology as core to its mission to get even closer to customers.The cumulative impact of this underspending - Bain calls it their “IT investment debt” - is likely to be striking. Research shows that each of the top 10 retailers will be putting an estimated $100 billion less into IT than Amazon over the next five years at current spending rates. So, what will it take to survive?

1.???? Ecosystem players will thrive: As way back as 2016, I had mentioned that the holy grail of social media will be to offer buying along with browsing. Instagram got it right and it’s no surprise that the number one social media company, by far, is Meta. The same will be true for retail. Retail companies that are building one-stop shops for consumer - places to browse, buy, read, chat, play and more, will thrive and not just survive. Amazon is almost there. Combined with its “consumer-delight obsessiveness”, it gets almost all my business, even though I know it might be a tad cheaper at my next-door target. It’s also because my target is not open at midnight - which means, I can neither browse nor buy because target.com is not set up as an alternate for browsing delight! There are a lot of people thinking like me, as the numbers show. The annual gross value of merchandise passing through Amazon’s ecosystem is estimated to exceed $400 billion. But this pales in comparison with the more than $800 billion for Alibaba’s ecosystem, making Asia the leader to follow and testament to the headroom available for growth.

2.???? Find your purpose: Brutal as the question is, it’s important to ask yourself as a retailer: why are you here? Why are you still here? I have been asking this of JC Penny and Kohl’s for years. I also asked this of Toys R Us for over a decade. Nobody will miss these companies as others offer the same convenience in their own stores. The void of Toys R Us was fulfilled within months by retailers such as Amazon and Target. Right in time for the holidays too, if I might add. Similarly, there was a time when the $5 off coupon was enough to get shoppers to Bed, Bath and Beyond. Not anymore and hence no more BBB. Retailers need to take a hard look and ask themselves, ‘why are they still here?’ Because, often, nostalgia is just not enough for a reason to exist.

3.???? Data is key to survival: I expect my brands to know me. I also expect them to understand that they will have to share me with other brands. I love Method but I also like Meyers. I am a core L’Oréal consumer, but I am also a Ranavat loyalist and if you have read any of my articles, you know that my perfume of choice is Chanel’s Coco Noir. Knowing which parts of your core consumer, you are sharing with other brands, will be key to survival. The key is in the ‘knowing.’ Sure, spending on data and analytics is hard. But losing relevance and not surviving is even harder. Success will come from ‘sticky and frictionfree’ customer experiences. To offer that, one must first know the customer – this will need large amounts of good quality data. Yes, LLMs and AI can help, but first, it needs investment and belief that data is the key differentiator. Amazon understood this long time ago. So did Meta, and they continue to reap the benefits of those investments.

4.???? Technology and AI will be key: With over a year of experimentation and use cases, retailers now know that generative AI will rapidly improve productivity, easing the pressure on margins through cost savings. We all know, it already takes a lot to please the ‘always-on, highly demanding, constantly changing’ consumer. AI can help. Accelerated scaling is vital because shoppers are starting to adopt and get used to AI tools at scale in their daily lives, thanks to products such as ChatGPT and Microsoft’s Copilot. If retailers don’t expand generative AI beyond a few test-and-learn corners of their website or a scattering of internal use cases, they won’t be able to keep up with the large-scale benefits of this transformative technology. Shopper expectations are already rising and those expectations are not going to plateau anytime soon.

Think of retail like Vegas. Every day is a new opportunity to have a winning hand and the house always wins. Except, in this case, the house is the consumer. Every retailer, today, including Walmart, Alibaba and Amazon, is at the risk of being irrelevant. They will need to constantly work on their value propositions. The good news is many are getting it right. Companies such as L’Oréal, Amazon, Target, Trader Joes, T-Mobile and Nike show us how to continue remain relevant. My aha moment this weekend, was walking into Forever 21 and realizing they have a partnership with Shein to accept returns. The added perk? Shoppers receive a same-day discount on their next Forever 21 purchase. A real win-win for, both, the retailers and the consumers.

It is no surprise that the companies getting it right, also see themselves as ‘technology-first’. The key, however, is going to be in understanding and strengthening the differentiation, being absolutely obsessed with customer experience, constantly innovating by making innovation part of the company’s core culture (instead of a single department somewhere), being data informed and data obsessed and finally, understanding that investments in technology are mandatory to survival. And yes, it will mean, that retailers will need to constantly pivot. Generative AI, for example, is not a shiny object like metaverse or NFITs; It’s impact will create a fresh cohort of winners around the world, at a rate faster than the web. The opportunity is huge for retailers to invest strategically and be in the vanguard of tomorrow’s AI-assisted pacesetters and survivors. After all, there is only that much one can grow with shutting down stores and laying off workers. Right, Express?

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Anika Sharma is an accomplished technology consultant and global digital expert, recognized as No. 17 on the Top 50 Global Digital Thought Leaders & Influencers. With 20 years of experience in the CPG, retail, beauty, luxury and T&H space, with a focus on eCommerce and Data, she continues to lead, large-scale technology and digital transformation initiatives for both, brick and mortar and digital-first brands. Assistant Professor of Technology at New York University’s Stern School of Business and the trustee of the NYU union, Anika takes her passion for technology and digital to the classroom, teaching Digital Marketing, Digital Strategy, Mobile, Search, CRM and Social Media Strategy to students.

When she is not helping clients navigate the world of end-to-end technology and digital transformations, you will find her planting herbs in her garden, writing columns, meditating with her friends, swimming long laps, training for triathlons, hiking mountains and filling rooms with her resounding laughter.

Find her on LinkedIn @digitalanikasharma, X @TheAnikaSharma and ig @theanikasharma

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