The Polarization of Retail

From bankruptcies to store closures, it seems like every story you read about retail these days involves some kind of negative spin. While the future may appear to be doom and gloom for long-standing brick and mortars like Macy’s, Sears, and JCPenney, the retail industry is anything but dead. As we discussed in our last blog post, the consumer has changed. The market is now driven by Millennials, and those who have been able to adapt to the polarization of their shopping preferences have come out on top.

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Retail stores have fallen into three distinct categories: discount, middle, and luxury. Two of these segments are thriving, projecting to follow continuous growth right through 2020. The other is barely hanging on by a thread. Any guesses as to which one?

If you said the middle sector, you were right. Anchor stores that catered to the middle class, like Sears, Mexx, and Esprit, have either completely shut down or are slowly on the way out. As the audience has shifted, the opposites ends of the retail spectrum are taking the lead. Dollar stores have become some of the biggest retailers in Canada, and even discounted versions of luxury department stores are outperforming their premium parent company. In fact, Nordstrom Rack is growing almost four times higher than Nordstrom, at 23%.

Fast fashion retailers like Uniqlo and Zara continue to open more stores across the globe every year. On the opposite end of the spectrum, luxury retailers are also growing, at 7.1% compared to the middle-retail sector, which is currently 4.5%. High-end brands like Louis Vuitton and Gucci are expected to outperform all retail to 2020. 

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“Price and experience are what brings people into these stores,” said Joel Turner, Senior Manager in Deloitte’s Retail Industry Consulting practice. Turner assists retailers to transform their business in this rapidly changing, polarized landscape. “Brands are going to have to do omnichannel integration well in order to stay in business and appeal to future consumers, but at this point, no one is.”

So why is Dollarama thriving, and department stores going out of business? According to Price Waterhouse Cooper, consumers want a new shopping experience. This means smaller store formats, adaptation of social media to sell the lifestyle of the brand, and an easy online purchasing experience. From an economic standpoint, Canadians have the highest level of debt compared to their income. This has increased to 160% from 140%, which means they have less discretionary income to spend than before.

According to Nielsen’s latest global retail report, 68% of North Americans say they enjoy taking the time to find bargains, while 55% say low overall prices are highly influential in their decision to shop at a particular retailer. That means omnichannel, where retail integrates with different methods of shopping like online or through mobile, will play a vital role if retail companies want to stay afloat.

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