Retail Executive

SEP-OCT 2017

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The Great Retail Bifurcation Consumer confidence is high, but retail sales remain flat. J A C O B B R U U N - J E N S E N Principal, Monitor Deloitte Significant increases in spending on all things digital — such as connectivity, data, devices, subscriptions, live streaming content, and related services — have been documented. In 2016 alone, millennials were on track to spend an average of $750 annually on media, including video games and streaming services. Rising demand for cooking classes, health and wellness sessions, and makeup tutorials mean that retailers should consider changing what they offer and how. 3. Exponential growth in digital More than 60 percent of in-store sales are influenced by digital — curtailing the concept of e-commerce as a sep- arate kind of retail. Historically, we discern that when technolog y disrupts an industry and drives significant structural, business model, and process changes, these transformations are often misunderstood, misinter- preted, or underestimated. Retailers often overlook how the exponential advancement of technology not only serves to create an easier way for consumers to shop and businesses to automate or innovate on ex- isting processes, but how technology has also reduced competitive barriers to entry. This has unleashed an on- slaught of new competitors on the retail industry, many with intriguing business models at their core. THE COMPETITION BIFURCATION Meanwhile, the competitive battle in retail continues to accelerate. Deloitte's 2016 Retail Volatility Index report illustrates that technology continues to reduce barriers to entry, enabling a torrent of new competi- tion all fighting for market share. In this broadly vola- tile and globally competitive market, certain retailers continue to win on value and convenience by com- peting on low price, discounts, and delivery options, as well as experimenting with smaller store formats. At the other end of the spectrum, we find a group of retailers that have successfully combined highly dif- ferentiated products and experience offerings. These retailers have successfully integrated experiences into unique products or services that address, or even sur- pass, buyers' needs and expectations. eloitte looked at the structural changes that are occurring in the retail industry. Our re- cent research shows these transformations are so profound, we call it the Great Retail Bifurcation. This division within the retail market is tak- ing place along two dynamically shifting, yet interrelated, dimensions: Consumers and Competition. THE CONSUMER BIFURCATION We see several major shifts influencing consumer be- havior in ways that directly compel retailers to adapt and respond with greater agility in meeting their ex- pectations. While some segments have more sway than others, the sheer numbers and accompanying discre- tionary spend of the following are significant. 1. The rise of the Yemmie (young, educated millennial mother) Retail appears destined to rapidly trifurcate along household income, age, and education lines that are driven in part by the values of the Yemmie. Over the next decade, the baton will be passed from one me- ga-generation to the next. Millennials over the age of 25 will make up roughly 20 percent of the U.S. population by 2020, up from just over 5 percent in 2010. The ba- by-boom generation, on the other hand, will fall below 20 percent of the population in the next eight years. Millennials often shop differently from baby boom- ers. They are willing to search for the lowest price on an item or patiently wait for the right deal to pop up. They contemplate each purchase, rather than buying products easily available and in front of them. At the same time, these millennials tend to be less brand-loy- al, less aligned with traditional retailer store destina- tions, and are more willing to shop across online and physical store channels. 2. Products lose traction, experiences gain Consumers continue to shift how they spend disposable income by transitioning away from product ownership toward craving experiences and events. For example, leisure spending on air travel hit record levels in 2016. D ENGAGEMENT Operations By J. Bruun-Jensen THE GREAT RETAIL BIFURCATION RETAILEXECUTIVE.COM SEPTEMBER/OCTOBER 2017 26

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