Retail USA: What’s In Store for 2016?

Retail USA: What’s In Store for 2016?

Todd Hale, Senior Vice President, Consumer & Shopper Insights, Nielsen

Overview What’s in store, in-store for U.S. retail in 2016? By integrating research across its proprietary products, Nielsen developed a forward-looking view of the retail environment encompassing trends in channels and formats, media and communication methods, as well as the impact of consumer trends such as an increasingly aging and ethnic population, the changing definition of convenience, and the continuing focus on health and wellness.

Methodology Forecasts are based on historic annual dollar sales trends in the Nielsen Trade Dimensions database. Estimates include selected relevant factors such as channel square footage and population growth trends. Share calculations use a bottom-up summation of channel forecasts. Brick-and-mortar channel numbers do not account for potential shifts in consumer channel preference due to future changes in channel or retailer price, promotion or product assortment strategies. The e-commerce forecast assumes a moderate growth scenario.

Highlights Traditional mass merchants and supermarkets have yielded share to value channels (club, dollar, and supercenter) and drug stores, prompting a series of changes running the gamut from format blurring to new marketing outreach techniques to shoppertainment. • Go micro or macro. Store footprints either get supersized for one-stop-shop convenience or downsized into smaller stores for quick grab-and-go trips. • That’s shopper-tainment! For people who view shopping as entertainment that engages all the senses, lifestyle outlets blur the line of demarcation between traditional formats, merging restaurants with food markets, serving up food and wine tastings, providing live music and movies, and creating places for friends and co-workers to gather and socialize. • Technology brings consumers into the shopping experience via options such as touch screen ordering, QR code advertising, mobile coupons and shopping lists.

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• What’s in a [brand] name? Enough to see store brands mushroom to include super premium offerings joined by an increasing number of restaurant and celebrity-chef brands, while a few consumer packaged goods brands transitioned onto restaurant menus. • Expect the Big 4 technology companies [Amazon, Apple, Facebook, Google] to establish beachheads outside the tech world, challenging conventional players to re-think their business models and forge new alliances or chance seeing themselves become less relevant. • Deep discounters continue to keep the cap on operating costs in order to maintain their price edge, but low prices alone have not been enough to guarantee sales success.

Discussion Retailers will be challenged as never before in the next five years to differentiate from an ever-expanding competitive set that brings novel ideas and fresh perspective to the marketplace. Using historical trends in retail channel sales and store counts, along with a select number of macroeconomic variables, Nielsen predicts above average compounded annual dollar sales growth (CAGR) for the e-commerce, club, dollar, pet store, supercenter and drug channels ranging from 8.5 to 2.7 percent.

It should come as no surprise that e-commerce tops the list of growth channels. During the 2011 holiday season, retailers across different channels touted free shipping and big discounts, attracting consumers eager to save time and gas money by shopping at their fixed and mobile keyboards. Responding to sales gains made by online competitors, brickand-mortar retailers are evolving their business models to add more choices for online and offline ordering as well as delivery and pick-up options. Black Monday (the big day for online holiday shopping) appears to be garnering media coverage equal to the historical coverage of Black Friday (the day after Thanksgiving).



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Throughout the recession and economic recovery, the club chains appealed to shoppers seeking value and addicted to the seasonal treasure hunt merchandise that distinguishes club retailers. Club store growth reflected a unique connection with affluent consumers, the 21 percent of households that exited the recession early, as evidenced by their increased all-outlet shopping trips and overall spending. A major impetus behind dollar store growth was a brilliant recession-fighting strategy featuring an expanded offering of consumables to attract price-conscious shoppers across all income strata. Additionally, dollars stores kept their foot on the gas with respect to store expansion in existing and new geographic areas. As a result, the 21,500 site store count for the three leading dollar store chains [Dollar General, Dollar Tree and Family Dollar] now exceeds that of the three largest national drug store chains [Walgreens, CVS and Rite Aid].i Over the past decade, supercenter format expansion had the greatest overall impact on U.S. retail sales. While industry pundits discuss the future of these and other big box formats, future supercenter expansion from the big players in the channel will continue to foster sales growth over the next five years.

Supercenter store count more than doubled to 3,468 stores and these mega one-stop-shop behemoths captured nine share points within consumer packaged retail formats between 2001 and 2010.

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The American love for pets triggered a 40 percent increase in chain pet store numbers between 2005 and 2010. With pet ownership reaching all time highs, the pet channel will deliver a strong CAGR through 2016. Thanks to an aging population with strong demand for prescription drugs, the drug channel will maintain fiscal health, outpacing the average channel growth rate. All other channels will lose ground, even if they continue to grow on a nominal dollar basis. Specialty retailers such as auto, sporting goods, electronics, books, toys and home/bed/bath stores will face the biggest challenge. Some specialty retailers (e.g. toy, book and electronics stores) have experienced significant erosion in store count as big retailers in each sector closed their doors for good. Either declining store counts or lower shopper demand has led to decay in shopper penetration for many specialty retail channels. Pressure from offline and online big box competitors and pure play online retailers will likely lead to further declines.

How Share Will Fare With the exception of an aggregate 6.1 share point gain for e-commerce, supercenters and club stores, the Nielsen forecast suggests that share shifts between 2010 and 2016 will be relatively minor for the other formats. Supermarket share will decline at a diminishing rate relative to the past decade or more. The convenience/gas channel share will decline just slightly, while the mass merchandiser channel will experience a share loss of 1.7 points.

The projected share decline for mass merchandisers reflects the historic Walmart effort to convert existing discount locations into supercenters and to a lesser extent from Kmart store closings. Specialty retailers are expected to suffer share declines across the board, ranging from a one percentage point fall for home improvement outlets to a marginal 0.2 percentage point drop for sporting goods stores. Surveying the smaller specialty retail channels, only pet stores will realize a share increase.



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Differentiating by Design Ferocious competition has delivered a knockout blow to a host of beloved and familiar banners. Some merely retired to their corners as a result of acquisition, such as Longs Drugs via CVS. Others hit the mat and stayed down for the count as they lost shopper relevance: Borders Group, Circuit City, Filene’s Basement, K B Toys, Linens ‘n Things and Mervyn’s. Expect the retail herd to thin even more as online juggernauts Amazon, Apple, Facebook and Google draw a bead on highly profitable enterprises outside their current purview, including retail. To quote an industry expert, “Amazon, Apple, Facebook, and Google don’t recognize any borders; they feel no qualms about marching beyond the walls of tech into retailing…and even finance.”iii How will these four companies enhance or disrupt the future of retail–either in how and where merchandise is sold or how organizations communicate with shoppers and consumers?

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Sizing for success worked for Walmart, which scaled down into Walmart Express, an urban solution roughly one-tenth the size of its typical store. The Fresh & Easy Express format from Tesco measures a slight 4,000 square feet merchandised exclusively to neighborhood tastes. S.A. Elite from Sports Authority selects only premium brand apparel, accessories and footwear showcased in a compact storefront. Wegman’s went big and bold, supersizing its standard layout with a store featuring 70,000 products, 300 cheeses, 700 varieties of fruits and vegetables, a 15,000 item liquor department and a 300 seat café. At the other extreme, micro pop-up stores with seasonal merchandise helped H-E-B Holiday Toyland and Walmart.com bag additional holiday sales and put a stake in the ground for future sales opportunities.

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Fearsome Foursome

In a considered move to remain competitive, stores have put everything on the table—size, assortment, in-store activities, customer communication, design and branding—in the hope of finding an optimal mix that maximizes profits and customer loyalty.

Each of the four [Amazon, Apple, Facebook and

Google] has shown competitive excellence,

strategic genius, and superb execution that have left the rest of the world in the dust.

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– Fast Company magazineii

Singular Solutions

Food as Theatre

Another retail option gaining momentum was “solution selling” across departments. Retailers opted for designated stores-within-a store, pulling together related items that fulfill a consumer need into a discrete space such as a cosmetics department complete with expert consultant, occasion-based home meal solution centers or dedicated pet care areas.

Shopper-tainment, the idea of delivering a unique in-store shopper experience, is catching hold in exciting ways that differentiate retail formats. Proven techniques for attracting shoppers include product sampling, live musical performances and how-to stations demonstrating everything from juicing to preparing sushi.

Store locations now take an unconventional bent as well to reach busy or isolated shoppers. Procter & Gamble set up virtual stores in four high-traffic subway stations in Prague, while Nestle took a different tack, setting sail via a floating supermarket on the Amazon River designed to reach 800,000 consumers in just three weeks.

Loblaws at Maple Leaf Gardens—an 85,000 square foot market with self-serve seafood, a grand wall of cheese and loads of prepared food stations—immerses shoppers in the sights, sounds and scents of what the company calls the “theatre of food.” H-E-B took the concept literally, cordoning off part of a Houston store’s parking lot to create an outdoor events plaza for weekend concerts, movies and artisan markets, with a food truck ready to serve gourmet food to the assembled crowds.



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The Coca-Cola Freestyle vending machine amuses consumers by allowing them to blend their own beverage, selecting from more than 100 different brands of soft drinks, fruit flavored beverages, sparkling beverages and waters, many of which have never been available before in the U.S. These vending machines do more than allow consumers to customize beverages to personal tastes; they also can record and report back on all the flavor combinations, a boon to brand managers seeking innovation.

QR codes have migrated from product packages to billboards to newspapers, magazines and point-of-purchase displays. Toyota developed a branded QR code dubbed ToyoTag as part of a promotion for the 2012 Toyota Corolla featuring a performance by computer-generated pop star Hatsune Miku. Viewable through the Toyota Shopping Tool app,iv the augmented reality campaign accelerated Corolla lead generation by 30 percent during the concert week, and Web traffic revved up by 165 percent.

Format Blurring

Social media, YouTube and digital circulars all joined the electronic media mix, introducing a fresh element to the retailer/ shopper dialogue. Celeb chef Curtis Stone taped “how to” videos for YouTube with corresponding recipe and shopping list coverage in the HyVee circular and on the store’s website. As part of its outdoor media campaign, Houlihan’s scrolls customer Tweets on digital billboards throughout the day.

The trickle down from channel blurring brings us format blurring, where grocers and restaurants invade each other’s kitchens, sometimes competing and sometimes collaborating to fulfill unmet shopper needs. Multi-station prepared food offerings now popular in a number of grocers compete directly with carry-out and home delivery restaurants. But retailers like Target, Meijer and Walmart also chose the cooperative route, striking deals with Starbucks, Quiznos and Subway, respectively, to staff instore restaurants. Restaurateurs and television chefs crossed over into the world of consumer packaged goods, lending their names to a wide range of products including White Castle sliders, Boston Market entrees, Dunkin’ Donuts coffee, Emeril LaGasse spices, Mario Batali spaghetti sauce, Giada DeLaurentiis balsamic vinegar, Wolfgang Puck soup and Paula Deen knives and mixing bowls.

Personal Touch It is ironic to note that completely impersonal customer interactions often yield the most personalized experiences. Mobile and online technologies enable true one-to-one marketing, customizing shopping lists, menu plans, coupons and other content to reflect user interests and consumption patterns.

In-store shelf talkers take on a new, interactive dimension with QR codes that connect directly to robust websites offering discounts and cross merchandising suggestions such as wine pairings. Online avatars and in-store service agents assist consumers with meal management, entertainment, health and wellness monitoring and fashion selections.

Conclusion Volatility in energy and commodity prices will become the norm, requiring retailers to hedge against commodity fluctuations and innovate to justify premium prices. A redefined competitive set will prompt former adversaries to forge marketing alliances in an attempt to fend off the relentless encroachment of wellfinanced, disruptive competitors with global reach. The yawning chasm between income and wealth strata will enable retailers at both the high and low ends of the price spectrum to prosper by merchandising to niche audiences. Technology, particularly mobile applications, will open the door to innovative marketing approaches that re-ignite consumer loyalty. Stores will emerge as the social centers of communities, where neighbors can feed their bodies with nourishing food, their souls with good conversation and their wallets with great deals.

Dollar Stores Now Outnumber National Drug Store Chains, Colliers International, December 5, 2011 http://www.colliers.com/NewsDetail.aspx?nid=eb66030d-5175-4ae3-85d3-

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794ebb4bdd22&nwslst=D:\\Inetpub\\wwwroot\\WEB\\Country\\UnitedStates\\xmldata\\listdata\\LocalNews.xml&title=Dollar%20Stores%20Outnumber%20Natl%20Drug%20 Stores&area=Country/UnitedStates The Great Tech War of 2012: Apple, Facebook, Google, and Amazon Battle for the Future of the Innovation Economy, Farhad Manjoo, Fast Company, October 29, 2011.

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http://www.fastcompany.com/magazine/160/tech-wars-2012-amazon-apple-google-facebook The Great Tech War of 2012: Apple, Facebook, Google, and Amazon Battle for the Future of the Innovation Economy, Farhad Manjoo, Fast Company, October 29, 2011.

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http://www.fastcompany.com/magazine/160/tech-wars-2012-amazon-apple-google-facebook Toyota Taps Into QR Codes and Augmented Reality, eMarketer, December 14, 2011. http://www.emarketer.com/Article.aspx?R=1008733&ecid=a6506033675d47f881651943c21c5ed4

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About Nielsen Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and related properties. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA and Diemen, the Netherlands. For more information, visit www.nielsen.com.

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