Retail in 2018: The Big Picture, Key Nuances and Why We’re 'Shoptimistic'

Retail has been putting up some truly impressive numbers so far in 2018. Due to the strength of the economy and smart management, retailers blew past expectations for the second quarter, with 73% beating earnings estimates and 63% beating estimates for revenue.

Yet these attention-grabbing numbers haven’t been dominating the headlines like those of the so-called “retail apocalypse” over the last year. Instead, reporters tend to focus on certain key sectors and individual companies, especially those that have an emotional connection with customers. This makes the news of their specific triumphs — and their struggles — especially significant in consumers’ minds.

This dynamic gets to a larger point: A person’s view of retail can vary dramatically based on where they live, how they shop and what they read. Even amid such strong performance, some people (incorrectly) think the industry is in decline, or enjoying some fleeting, short-term success despite itself. Many others see growth, evolution and opportunity. How do we reconcile these views?

At NRF, we think the key is developing a perspective that includes both the many parts of retail and the whole of retail. To achieve this, we constantly meet and talk with retailers of all types about the challenges, opportunities and dynamics they see, something we’ve been doing for over a century. This unique vantage point gives us many reasons to be optimistic. Everywhere we look, shopping is vibrant. You could even say we’re "shoptimistic."

Everywhere we look, shopping is vibrant. You could even say we’re “shoptimistic.”

Yes, retail is undergoing fundamental change, which will have negative impacts on some companies, stores and, unfortunately, some employees. The reasons for these struggles vary: from crushing private-equity debt loads to outdated locations to slow digital transitions.

However, when we consider the industry overall, shopping is robust and quite dynamic. Since 2016, retail sales have grown faster than GDP; growth has been so strong this year, we recently revised our annual forecast upward to a minimum of 4.5 percent growth over 2017, rather than the 3.8 to 4.4 percent forecast earlier this year. Retail has added more than 65,000 jobs in the last 12 months, with employment higher than before the recession. And for every company closing stores in 2018, two are opening stores.

Since 2016, retail sales have grown faster than GDP.

This broader context, and the success stories we see within each sector, show us that retailers are evolving to thrive for the long term. We’re seeing companies that started with just physical stores and companies that started online both moving toward a new, multichannel middle ground. Warby Parker, Amazon, Casper, Everlane and UNTUCKit — to name just a few — are opening physical stores, while Walmart acquired ecommerce site Jet.com to better compete online.

This is a significant change from 10 years ago, when retail was clearly delineated between ecommerce and bricks-and-mortar. Today the retail landscape has become a battle for the middle ground; the turf between the 40-yard lines, not the end zones. Every retailer now decides how to allocate both its physical and digital assets, based on factors like what sector they’re in and what their customers expect. 

Today the retail landscape has become a battle for the middle ground; the turf between the 40-yard lines, not the end zones.

As result, shopping is more diverse, dynamic and vibrant than ever before. To understand it, we think three changes — and nuances — are critically important:

• Differentiated stores: Retail stores are changing, but not all are changing in the same way. Some are becoming less relevant; others more so. Most importantly, stores are becoming more diverse: different formats, functions and services tailored for their local markets. Some retailers are even opening stores with no inventory, at all. These shifts may mean less stores in some areas; in particular, some malls are being outcompeted by other malls and repurposed. But ultimately, it’s all about meeting customers’ needs, improving experiences and staying competitive.
• Diversified platforms: Ecommerce continues to grow rapidly, but still only accounts for around 10% of total retail sales. No one is quite sure where the balance between online and in-store will settle. It will vary dramatically by sector, and lines will continue to blur between the two. For example, some stores are now handling online fulfillment. We do know that neither is going away, even with technological and generational changes. And we know that retailers see ecommerce as a challenge — but also a key opportunity. This is, after all, a way to reach new customers. 
• Shifting jobs: As these changes play out, some stores and malls will close, taking jobs with them. This can be incredibly painful for those affected, but there’s also a more positive story, with hundreds of thousands of retail jobs remaining open each month. The growth of ecommerce has also created new jobs in warehouses, fulfillment centers and HQs (though the government does not count these as retail jobs when they report the numbers each month). Looking ahead, the key will be equipping workers to succeed in these new jobs and more dynamic retail careers.

We’re excited to be on this journey to reimagine shopping with retailers, customers and everyone who touches our industry.

What do you think? How do we, as an industry, tell the entire story of retail’s transformation and its respective parts? And what success stories and challenges need to be better expressed to accurately reflect retail today?