High Stakes in the Retail Industry Outlook for 2018

December 21, 2017

As we head into 2018, the retail industry outlook features a mixture of optimism, caution, innovation — and a highly competitive environment. Retailers won’t be bored in the coming year.

One possible harbinger of good things to come in 2018? The National Retail Federation (NRF) projected a robust jump of up to 4 percent in 2017 retail sales during November and December over the prior year.

The number of people shopping Black Friday and Cyber Monday sales was up about 6 percent, according to the NRF. A low U.S. unemployment rate and high consumer confidence levels, likely to be maintained into 2018, also played a significant role.

Address micro and macro trends proactively to do well.

Superior Inventory Management

Inventory management has proved itself one of the retail sector’s greatest winners. There were fewer overstocked retailers slashing prices to reduce excess inventory, eating into per-unit revenue and profits.

“We’ve gotten our inventory in perfect alignment with our sales,” said Karen Katz, the CEO of Neiman Marcus Group, to The Wall Street Journal.

Another source of guarded optimism for the 2018 retail industry outlook: a projected increase in the gross domestic product (GDP) growth rate.

Most economists, including Kiplinger staff economist David Payne, expect a number closer to 3 percent than the 2-percent-and-change figure expected for 2017. Tax reform might be an engine for even stronger GDP growth in 2018, and retail sales growth rates often fall in lockstep with the GDP.

But the sharp divergence between e-commerce and brick-and-mortar retail growth rates will continue in 2018. In-store sales are expected to have risen around 2 percent in 2017, contrasted with around 14 percent for e-commerce sites, according to Kiplinger.

Capitalizing on Trends

E-commerce platforms and physical retailers alike will need to keep on top of several ongoing trends to enjoy a profitable 2018 and beyond:

  • A premium on distinctiveness: Online shopping makes it easy for consumers to compare merchandise and prices, so commodity goods are hard to price aggressively. Unique and high-quality products help retailers escape the commodity product trap.
  • Personalization: Big data, artificial intelligence, predictive analytics and complementary technology continue to enable e-commerce retailers to personalize customers’ buying experiences and use predictive “next best action” functionality to upsell (e.g. “If you like X, you might also want Y”). Don’t risk falling behind advances in this realm.
  • People: Employee turnover rates are notoriously high in retail. Now the economy is strengthening and the job market tightening. So retailers need to attract, retain and train team members who can make the consumer experience pleasant, efficient and directed toward buying goods best-suited to consumers’ needs. Seasoned, well-trained employees can make that happen.
  • Mobile-friendly: Around 25 percent of e-commerce sales are on mobile platforms today, according to comScore, up from about 10 percent four years ago. Consumers who know what they want increasingly expect to be able to buy it on their smartphones. Many shoppers check competitors’ mobile sites while physically in a brick-and-mortar store. This creates an opportunity to easily attract discriminating consumers who prefer shopping in physical store settings.
  • Social media as an access point: Social networks are streamlining online purchasing mechanisms with their paid posts, prompting more shoppers to purchase goods that way instead of using shopping sites alone.

Retailers must leverage the rapid evolution of how people buy goods, rather than simply running to catch up. Your CPA-lead financial advisory firm can help you stay ahead.