Retail, Wholesale, and Distribution Industry Outlook 2017
An analysis of industry trends
Is disruption the new normal? By enabling technology, reinventing brands, and exploring new business models, companies in the retail, wholesale, and distribution industry can prepare themselves for a range of probabilities.
- Retail, wholesale, and distribution industry overview
- Introducing disruption as the new normal
- The economy
- Consumer mindset
- Enabling technology
Retail, wholesale, and distribution industry overview
The retail, wholesale, and distribution industry has entered a period of transformation. With broader retail market growth at a pace of three percent annually, many companies are searching for ways to increase profit while expanding growth and market share.
While retail spending continues to appear robust, companies must also anticipate uncertainty by evaluating potential risks and rewards should be part of an overall strategy as business model disruption is part of the new normal.
The backbone of any good business model for the retail, wholesale, and distribution industry should address four catalysts that drive disruption: The economy, enabling technologies, platforms, and consumer mindset. In this latest retail, wholesale, and distribution industry analysis, we will focus on the four disruptors that most directly affect our industry.
Introducing disruption as the new normal
Spotting disruption before it occurs is difficult. Few companies even know what to look for. Companies must be vigilant; certain risks can attack the basis of competitive advantage, and undermine performance. Moreover, retail threats in 2017 are expected to be immune to traditional risk management methods.
Retailers will be expected to quickly assess their tolerance for risk versus rewards that may surface such as:
- Opportunities and threats posed by third-party vendor and partner relationships
- Impact of the Internet of Things (IoT), cloud computing, and distributed intelligence combined with ever-changing privacy or security concerns
- Use of robotics to inform enterprise-level decision making, maximize opportunity, and reduce potential risk that might occur from:
- Social robots
- Virtual service robots
- Cloud robotics
- Industrial automation and IoT
- Distributed intelligence and robotics
In the race to deliver customer value, 90-day assessment programs have given way to an accelerated pace of “fail fast, learn quickly, move forward” and succeed early by delivering minimum viable products. Established players may be at greater risk of losing market share to retail disruptors who are held to different standards and better able to exploit organizational and operational agility.
The economy: Retailers can anticipate confident spending throughout 2017, but expect unprecedented competition
Economic fundamentals for consumer spending appear to be solid going into 2017. The labor market continues to strengthen, adding an average 181,000 jobs per month in 2016. Disposable personal income was up 3.4 percent in the year ending October, and average hourly earnings are starting to accelerate. As the labor market tightens further, income growth is expected to edge up in the short to medium term. Income growth for consumers has come at a time of rising asset prices. House prices have crossed their pre-2008 peaks and key equity indices hit all-time highs in November. This has boosted household wealth, thereby aiding consumer spending. And consumer confidence remains elevated.
The election cycle, however, has created some level of uncertainty about the economy and consumer spending in 2017. Some of the policies suggested by the new administration, such as tax cuts and infrastructure spending, could support consumer spending, but others might create potential challenges. In particular, the proposed restrictions on trade could raise prices for imported goods, reducing consumer spending power, and lead to job cuts in export sectors. Proposed policies in other areas, such as health care and housing, could also have significant impacts on consumer spending. The potential for economic policy that leads to a fall in consumer spending power, added to global economy risk from China’s financial situation and Europe’s political challenges, suggest some potential downside risk for consumer spending in 2017.
Consumer mindset: Can product uniqueness can beat price, promotion, and placement?
Retailers should continue to remain laser-focused on getting the basics right by providing distinctive, high-quality, and trusted products to consumers at the right price. No technology strategy, including sophisticated customer engagement (CRM) or digital marketing software, cutting-edge in-store gadgets or well-designed apps, and websites can act as a substitute for inaccurate merchandising decisions or poor product offerings. While providing customers with great digital and in-store experiences is important, ultimately, retailers should strive to have customers more excited about owning a specific product rather than the channel it was purchased from. In short, retailers should strive to produce, market, and deliver on their brand promise by:
- Supplying distinctive and superior products, product extensions and services
- Creating excitement, desire, and demand via digital assets and distribution channels
- Remembering that nearly everyone discounts, so price, trade promotions, and placement is secondary to producing exceptional products
Enabling technology: Consumers expected to adopt AI
While it may take a few years for technologies such as augmented reality, cognitive intelligence or machine learning to disrupt retail, a significant impact from AI may be a lot closer than some might expect.
AI is at an evolutionary tipping point and already much more embedded in our daily lives than most people think. Consumers currently encounter elements of purposely designed AI in their daily lives by using voice-activated virtual assistants such as Amazon Alexa®, Microsoft Cortana®, or Siri® voice recognition software to find restaurants, provide directions, play music or make suggestions for lifestyle changes. Tech-giants Amazon, Apple Inc., Google, IBM, and Microsoft are engaged in an AI arms race, which is expected to push the technology into the market at ground-breaking speed.
For retailers in 2017 and beyond, AI also holds great promise for streamlining business processes and improving customer service—all while reducing operating costs.
1 April 7, 2016: Facebook announcement https://www.facebook.com/zuck/posts/10102767482275131
In today’s rapidly evolving marketplace environment, key business issues are converging with impacts felt across multiple industry sectors. What are the key trends, challenges, and opportunities that may affect your business and influence your strategy? Look for more perspectives and insights from some of Deloitte’s forward thinkers.