Both 2020 and 2021 were unmistakably impacted by the pandemic, albeit in different ways.
During 2020, especially as the COVID-19 crisis was just beginning, mass closures and stay-at-home orders created chaos for retailers as the world tried to understand what precautions to take. Much of the year was purely survival mode, as some retailers drew down cash to stay afloat and others teetering on the edge were tipped into bankruptcy by the sudden blow to sales and liquidity.
After a wave of bankruptcies in 2020, but 2021 was calmer in that regard. Instead of bankruptcies, the year was marked by acquisitions, IPOs and other transactions as the industry stabilized slightly. The set of challenges retailers faced as a result of the pandemic was different: Instead of mass temporary closures, retailers spent the year battling supply chain bottlenecks as demand came surging back from 2020, and introducing new perks to try and entice workers during a shortage.
As we look to the year ahead, we’ll be keeping our eyes on how the pandemic continues to impact retailers, along with these 10 trends.
Retailers (if they’re smart) invest heavily in their supply chains
The world’s supply chain underwent massive stress in 2021, unlike anything in modern commerce in its breadth, depth and pervasiveness. COVID-19 outbreaks, demand surges, capacity shortfalls, labor shortages and other confounding factors scrambled the ability of many to fully stock their shelves. Freight congestion could ease in 2022, but various pressures and high costs could persist beyond the year.
After a year of emergency measures like air shipping and ship chartering (for those that could afford it), 2022 could be a year for evaluating, rethinking and investing in supply chains in the long term. But will that happen?
As a recent paper by FTI’s Christa Hart, Ron Scalzo and Matt Garfield put it, “Retailers had designed their supply chains to address predictable and specific challenges but had not adequately invested and undergone the end-to-end structural transformation necessary to become truly agile.” Taking the largest risks out of their supply chains, the authors note, likely means diverting capital from other key projects to upgrade the technology and capabilities.
Until recent years, supply chain has often been an unsexy, underfunded part of the retail organization. Nothing has illuminated the supply chain’s importance quite like the pandemic. With other risks in addition to the pandemic, as well as significant social and environmental imperatives, there is no better moment than right now to reinvent supply chains in the industry.
Retailers must rethink their relationship with workers
Rare was the retail earnings call that didn’t mention labor in 2021. Retailers struggled not only to staff their stores but also their warehouses and logistics functions, adding to the industry’s supply chain woes for the year.
Some have responded with higher wages and other perks to draw in candidates. But retailers still came up short. Holiday staffing was down 7.5% from 2020. Among the unemployed, health issues were the top reason for those staying out of the labor force, as well as mental health concerns and family responsibilities.
Unions and labor activist groups have pushed for stronger pandemic protections for retail workers as well as better compensation for the risks to frontline and essential workers. At the same time, the National Retail Federation has worked to block the Biden Administration’s vaccine mandate aimed at reducing the spread of COVID-19.
If labor remains tight in the U.S. in 2022, retailers may need more than creative perks to win recruits. The industry’s long-standing relationship with those that staff its stores and distribution centers may be up for renegotiation.
How last year’s flood of IPOs will shake out
Last year, a wave of IPOs swept the industry as retailers tried to get in on the hot stock market. The majority of the 18 retail public listings Retail Dive tracked in 2021 came from e-commerce companies.
As these brands entered the public markets, their financials became public as well. For some brands, these filings made clear just how hard it is to turn a profit while operating mostly online. While Warby Parker helped pave the way for other DTC brands, it’s struggled with profitability. Since fiscal 2018, the brand has either reported losses or broken even every year. Similarly, in Rent the Runway’s S-1, it said it has a "history of losses,” reporting a net loss of $171.1 million last year.
There were signs of trouble in earlier IPOs as well. Casper, another e-commerce darling that made its public debut in early 2020 before the pandemic was fully realized in the U.S., announced in 2021 that it would be taken private again. The DTC mattress brand in November inked a deal to be acquired by private equity firm Durational Capital Management.
Casper’s 2020 IPO was widely considered underwhelming and its stock price tanked just months after going public. While that price has ticked up since the low of $3.18 a share in March 2020, it has yet to reach its initial price of $14.50 a share.
So far, many of the DTC brands that entered the public markets in 2021 appear to be mirroring the same struggles Casper faced when it comes to profitability. But 2022 could be the real indicator of whether the mattress brand's public market exit is a one off or a sign of what's to come for others.
Will apparel's comeback stick?
If 2020 seemed to be the year that finally finished off apparel sales, whose growth has been ebbing for decades, 2021 was the year that breathed new life into them.
In 2020, 1.8 million adult consumers didn’t buy a stitch of clothing, according to research from The NPD Group. In 2021, more than 60% of U.S. consumers said their wardrobes needed to be refreshed, the firm found. In the first eight months of 2021, apparel retailers rang up $13.3 million more revenue than they did in 2019, or 10% more, according to The NPD Group Consumer Tracking Service.
The momentum continued through the holidays, and researchers at e-commerce platform ChannelAdvisor, in an analysis of gross merchandise value, found GMV growth in apparel to be up 31%. That was partly due to higher prices. In December, Adobe found that online apparel prices were up 17.3% year over year and down just 0.4% month over month, a shift from previous years. Since 2014, online apparel prices rose by 9% or more during only three months (August 2016, January 2020, February 2020). For the eight months prior to December, they rose by over 9% every month, per Adobe’s report.
The question now is: what to expect in 2022? Moody’s expects growth to temper somewhat in retail and apparel next year. But the resurgence of the pandemic has reintroduced a new level of uncertainty that could affect how people dress – and spend.
And 2022 could be a year of reckoning for brands like Gap and Banana Republic that were among the few resorting to deep discounts at the holidays.
Inflation could come for consumers’ discretionary funds
Alongside a slew of other concerns consumers have, inflation has joined the list. In November, the consumer price index, a key measure of the cost of goods, rose at an annual rate of 6.8% before seasonal adjustment, according to data from the U.S. Bureau of Labor Statistics.
While other industries not covered by Retail Dive may feel the impact of inflation more -- such as grocery and fuel -- it could also cause consumers to spend less on discretionary items. Already, online prices rose 3.5% year over year in November -- the 18th consecutive month of year over year inflation, according to data from Adobe's Digital Price Index. Coupled with supply chain headaches, some retailers have been hiking prices out of both need and opportunity.
If the rising cost of goods persists and the Federal Reserve raises interest rates, consumers may lean into alternatives to credit cards such as buy now, pay later to purchase certain items, which could further impact retailers in 2022.
Retailers get money from other services
How do you define a retailer? The characterization continues to evolve, as companies move to diversify operations and cultivate diverse revenue streams. It also means not only offering products, but services. And, as is increasingly the case, business-to-business services.
Take Walmart, for example. The retailer offered its delivery platform to other companies via Walmart GoLocal. "In an era where customers have come to expect speed and reliability, it's more important than ever for businesses to work with a service provider that understands a merchant's needs," John Furner, president and CEO of Walmart U.S. said in a statement at the time of GoLocal’s unveiling. Companies like Chico’s and Home Depot are now clients.
Similarly, ThredUp’s back-end, “resale as a service” platform has helped partners like Madewell, Walmart, Everlane, eBay, Farfetch and Gap navigate resale. Analysts from Wells Fargo estimate that its third-party platform, which is forecast to earn up to $300 million by 2025, may be more lucrative than ThredUp’s secondhand clothing sales.
Amazon, which is known for its lucrative AWS cloud unit, has also moved into other service offerings. The company began selling its cashierless technology to other retailers, which enables consumers to pay for goods in physical stores without waiting in line to check out.
As the cost of running a store and e-commerce operations continues to increase, it is likely that these examples are only the start of retailers turning to other types of services to bring in sales in the coming year.
Brands strive for the right balance of wholesale and DTC
What percentage of sales should come from direct-to-consumer channels versus wholesale is still a large topic of discussion in retail. Traditional retailers are increasingly shifting their business models to account for a higher mix of DTC sales, including well-known athletics brands like Nike, Adidas and Under Armour. While the strategy can lead to higher margins, it doesn’t necessarily make sense for all retailers to pursue. In fact, analysts with BMO Capital Markets in September last year questioned whether the channel was truly more profitable than wholesale.
The result is, in some ways, a shift toward the middle. Some well-established brands are cutting wholesale partners and beefing up DTC channels to reap the rewards of both models, while digitally native brands are finding value in expanding through choice wholesale partners in addition to their own e-commerce and stand-alone stores. DTC activewear brand Vuori, which has been profitable since 2017, attributed its financial success in part to an early start with strategic wholesale accounts, including Nordstrom and REI.
That shift toward the middle is likely to continue, with more brands attempting to find the right balance between DTC and wholesale channels in the year ahead. In fact, Coresight Research predicted last summer that brands would rely on a hybrid model between the two for the next three years.
The purpose of a store continues to evolve
Two decades of e-commerce growth and even more years of declines of malls and the department stores that anchor them, have led retailers to drastically shrink their store fleets in recent years.
Around this time in 2019, retailers had forged plans to permanently close more than 9,000 stores, far surpassing openings. Last year, retailers like Nordstrom chose not to reopen some of the locations that had been locked down for weeks due to the pandemic.
Last year was different. The number of closure plans declined year over year, according to Coresight Research. But retailers, in an effort to make those stores really count, are also rethinking store formats – even abandoning flagships in some cases – and switching their locations.
It’s not just Nike, which has already made a name for itself with highly experiential and neighborhood-based stores. Even dollar stores are experimenting. After a successful debut, Dollar General recently announced an expansion of its PopShelf concept, a higher-end discount store with a treasure hunt appeal and higher price points, to 1,000 locations over the next four years. Macy’s and its more upscale business, Bloomingdale’s, are both trying out smaller format stores in strip centers that are more likely to have a Kohl’s or Target. And Shoe Carnival, after a concerted effort to close down underperforming stores, is now opening and remodeling stores, in an effort to upend the discount footwear market.
In a quest for greater market share, private labels continue to proliferate
Gone are the days when retailers attached their names to cheap, plain and low-quality private label brands. Now retailers treat private labels as profitable growth engines that allow them to nab more market share. Retail generalists, home retailers, athletics retailers and others have all launched their own private brands and they don’t appear to be slowing down anytime soon.
Target grew its roster of private brands to 48 last year -- 10 of which are worth at least a billion dollars. With eight brands already introduced last year, Bed Bath & Beyond previously said it plans to launch at least 10 private labels as part of its broader three-year turnaround plan. Players like Foot Locker, Dick’s Sporting Goods and Peloton have also implemented their own private label strategies.
With inflation taking hold, private labels may be positioned for growth as shoppers care more about getting the most for their buck. When the cost of goods outpaces the growth of wages, private labels may become more appealing to price-conscious consumers.
Apple’s iOS updates rattle retailers’ marketing strategies, especially for DTC brands
With Apple’s public release of the iOS 14.5 update earlier this year, the company required all apps to adopt the AppTrackingTransparency framework. Through the update, apps needed to ask for user’s permission to track them or access the device’s advertising identifier.
This created problems for marketers and retailers, especially for direct-to-consumer brands, which historically rely on third-party data for customer acquisition and retention.
“Something we're seeing that's very difficult on the DTC side is that the iOS 14 updates are making it very difficult to find successful return on investment like we once saw," Alex Song, CEO of growth acceleration platform DojoMojo, told Retail Dive in 2021. "What that means now is everyone actually has to scramble and search out new marketing channels that are going to yield more profitable return because unfortunately, in this moment in time … the good old Facebook, Instagram channel as a marketing arena is not as available or dependable as it once was."
Companies are having to turn to alternative marketing channels like email, SMS and even print advertising to try to get consumers to shop with their brands
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Liza Casabona, Khareem Sudlow
