A Revolutionary Shift

Surprisingly, 2016 actually looks a lot like 1776. And many of us never saw it coming. Consumers are seeking out unique and small scale businesses that make their own pickles, brew their own beer, and use local ingredients. How about rocking mutton chops and suspenders, and riding inconvenient, fixed-gear bikes? Or the thrill of finding a small boutique in a cool corner of the city that will take your measurements and create a suit or frock just for you?

The striking commonality among these new retail models is that they all represent a “back to the future” concept. Much like the commercial transactions that took place more than two centuries ago, one person creates something of value and sells it to another. This simple control over creation, presentation, and distribution—essentially control over the entire value chain that directly connects with consumers—will be a hallmark of many winning retail models in the next decade.

A key difference between 2016 and 1776, of course, is technology, which both enables and vastly empowers today’s consumers to find their own personal niches in life. Growing consumer power has been created by ever-growing competition between retailers and brands, compelling the industry to bend over backwards to cater to an infinite variety of unique consumer whims. Technology is also enabling new start-ups to rapidly develop and grow in meeting these whims.

This is a revolutionary shift. For the past 250 years, retail has been rocketing toward centralization. The familiar model is now being flipped on its head. Looking ahead to 2026, retail will be all about personalization, undoing decades of efforts to lure consumers to store chains and malls. Retailers and brands are now fighting to serve consumers wherever they are, whenever they want to be engaged, with whatever they might desire. This strongly suggests that small, local shops and new entrepreneurial websites serving personalized niches will drive retail’s future growth. They may even end up dominating Retail@250.

Twin Forces

Let’s take a closer look at the twin forces shaping this new retail landscape, with a focus on how each feeds off the other.

The Rise of Consumer Power

The unstoppable and accelerated rise of consumer power in our economy is driven by:

• Broader and cheaper access to goods and services due to market saturation, globalization and increased productivity (all enhanced by technology and the Internet)
• Faster, easier access via more responsive multiple distribution platforms, including the Internet and mobile devices
• Smarter access through increased information and communication

Small wonder consumers increasingly expect access to whatever they want, wherever they are, 24/7.

The Rise of Technology Power

Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, observed in Davos that our world is being reshaped “by a much more ubiquitous and mobile Internet, by smaller and more powerful sensors that have become cheaper, and by artificial intelligence and machine learning.”

This trend is certain to continue. Over the last 30 years, the total revenue of technology companies has grown from $600 billion to over $6 trillion. While there will undoubtedly be a shakeout, the $360 billion that private investors have put into start-ups over the last five years is certain to yield ongoing technology breakthroughs that will further disrupt traditional retailers.

The marriage of Consumer Power and Technology Power is being consummated through the maturation of millennial consumers, who grew up surrounded by this new technology and are leading the push to take it to astronomical new levels. Millennials armed with total accessibility can pursue uniquely fulfilling experiences, demand brands personalized “just for me,” embrace life-enhancing technology, and expect more newness, more often. Significantly, millennials often prefer to share, rent or swap things, rather than own. Many say they will consciously pursue “a style of life” over “the stuff of life.”

The Internet of Threats

The transformational combination of Consumer Power and Technology Power decimated the 3 Bs—Blockbuster, Best Buy and Borders. All had dismissed the threats of Amazon and Netflix as distant, unprofitable business models. Travel agents also proved highly vulnerable to innovative Internet sites such as Expedia and Travelocity. Now Airbnb is taking power from hotels. New delivery models based on crowdsourcing, such as Uber or Deliv, are further eroding or radically changing the role of stores and services.

The freewheeling nature of the Internet continues to open the way for a new and vastly different generation of retail players, including entrepreneurial online and offline retailers who benefit from access to global e-commerce platforms such as Amazon or Alibaba. The opportunity to leverage global supply chains and digital platforms on a massive scale (think Warby Parker) makes it possible to rapidly create new business models that offer exceptional value and great customer experience. Traditional retailers simply cannot afford to ignore this dynamic range of emerging possibilities.

The New/Old Paradigm

Looking ahead to America@250, we believe the new retail landscape will consist of four major models:

1. Old-world winners who will have successfully transitioned into the new world. The key to continued winning is embracing and leveraging technology to serve consumers in the increasingly diverse ways they demand to be served. We’re seeing iconic brands like Burberry, Macy’s, Nordstrom, Walmart, Kroger and Target aggressively evolving their current models to achieve this.
2. Dominant E-retailers that finally start to make money. This group may include Amazon, Warby Parker, RealReal, RentTheRunway, and any number of other retail concepts based on sharing, auctioning, swapping and renting.
3. Game changers transforming entire industries. There will be more disruptors along the lines of Uber and Airbnb. One possibility is the food delivery space being transformed by an Instacart or Deliv or OLO.
4. The fourth model, which really defines a structural shift, consists of finite brands and retailers. In fact, the combination of consumer power and technology power is driving such enormous change that it will reverse the 20th century paradigm of centralization and consolidation to kind of a long tail move to decentralization and personalization. This new transactional landscape will be comprised of an infinite number of finite market niches being served by an infinite number of finite brands and retailers. Essentially, small, entrepreneurial, unique, experiential, personalized boutique-like models will flourish and spread across all retail sectors, both as online e-commerce sites and as brick-and mortar-stores.

Any of the above may prove a winning formula for Retail@250, as the 20th century pursuit of centralization and consolidation pivots decisively toward decentralization, and retail transforms itself to serve vastly more numerous personal market niches.

Are You Ready for Retail@250?

Upcoming articles in our Retail@250 series will take a deeper dive into many of the key challenges highlighted or implied in the overview offered above.

• New Leadership: What personal and professional characteristics and skills are required to effect such a profound transformation of the industry? How might the best leaders of Retail@250 engage and manage the dynamics of technology, globalization, and an omnipotent consumer?
• Technology: What are some of the more probable and potent tech convergence scenarios? How might each scenario impact retail business models?
• Social Responsibility: How might retail’s role in and responsibilities to global society evolve over the next decade? What are some sound strategies for addressing important social issues such as employment, wages, training, supply chain innovation, and the environment (e.g. impact of fast fashion)?
• The Future of the Store: How must stores evolve and what will happen to all the dollars currently tied up in malls? What investment and what changes will be required to ensure that traditional stores remain relevant in Retail@250?
• Manufacturers and Retailers: How might these two sectors work together to thrive in the new era?
• New Business Models: Which retailer business models will be winners in 2026? How must large, historically successful corporations evolve in concept and structure? What is the future for brands, including their meaning, relevance and likely scale?
• The Role of Private Equity: What role should PE play in ensuring the industry is ready for Retail@250? Will PE ownership in retail grow or decline by 2026? How might each scenario strengthen or weaken the industry?
• Supply Chain of the Future: How might production and distribution paradigms change by 2026? Will America again become a mainstream manufacturer? How about other regions: South America, Caribbean, Africa? What impact will this have on Asia? Given China’s population curve, will it lose its dominance in production? What will be the impact on Retail@250?
• The New Consumer: How are the values, attitudes and lifestyles of consumers changing? What do demographics and income growth teach us about the future markets and potential demand scenarios? How does the new consumer look from a global and local perspective?

We invite you to join us in our ongoing exploration of Retail@250!