Retail Trends of 2017
January 15, 2018: The year 2017 was one of significant change at retail. Following is a look at six key retail trends of the past year, many of which promise to continue in the 12 months ahead.
Challenging times for key retailers. Researcher FGRT tracked 6,101 store closure announcements in 2017, up 183% over 2016. Chains with the most locations shuttered included RadioShack (with 1,000 stores closed), Payless, Rue 21, Ascena Retail (Ann Taylor, Lane Bryant, Dress Barn, etc.), and Sears/Kmart. All told, there were 78% more closing than opening announcements, per FGRT.
A survey early last year from the IHL Group, on the other hand, paints a different picture in terms of overall numbers. It estimated that retailers would open more than 10,000 stores in 2017, a net gain of 4,080. IHL’s figures include table-service and fast-food restaurants as well as retail chains; when examining core retail chains alone, the net gain was 1,326 stores.
Either way, it is clear that a significant number of major chains closed stores, entered bankruptcy, went out of business entirely, or otherwise struggled. Among the chains facing of one or more of these fortunes: Toys ‘R’ Us, Macy’s, JCPenney, Sears/Kmart, Walgreens, Gap, Banana Republic, Gymboree, Payless, Nordstrom, and Staples. And the trend continues, with Sears Holdings announcing it would close 103 Sears and Kmart stores this year, on top of 400 in 2017, Macy’s closing 11 locations as the year begins, Walmart shuttering 63 Sam’s Club stores, and TRU expected to shut down as many as 200 stores in the coming months.
These chains are key partners for many licensors and licensees. And when an important customer suffers financially or closes locations, the impact on licensed products is immediate. A case in point: Toys ‘R’ Us. Its September 2017 bankruptcy filing affected the third-quarter results of the toy companies that rely on it. Mattel, for example, saw its global gross and net sales fall by 13% each in the third quarter, with a decrease of 22% along both measures in North America. The company attributed the decline to TRU’s bankruptcy, along with tighter retail inventories and underperforming brands. It predicted significant declines for the fourth quarter as well.
Jakks Pacific also traced its declines in quarterly financial performance to Toys ‘R’ Us’ bankruptcy, while Hasbro and Spin Master, both of which saw strong sales during the quarter, similarly reported that the TRU situation had a negative impact on results. Hasbro revised its fourth-quarter and full-year projections downward, while Spin Master took a $5.4 million charge due to TRU’s filing.
Continued expansion of deep discounters. Bricks-and-mortar retailing on the discount end of the spectrum gained more strength in 2017. FGRT found that the top five chains as ranked by announced store openings were all in the deep discount/off-price tier. They included Dollar General (with 1,290 opening announcements), Dollar Tree, Aldi, TJX, and Five Below.
IHL’s ranking is somewhat different due to its different methodology, but its top-five chains confirm FGRT’s results in that they lean toward the lower-priced end of the spectrum. IHL’s top five chains in number of openings include two value chains, Dollar General and Dollar Tree; two convenience stores, 7-Eleven and Couche-Tard (Circle K and others), and one discount supermarket, Aldi.
Thanks to this ongoing trend, licensors and licensees have been increasingly selling to deep discounters over the past decade, including creating exclusive SKUs in many cases. While prices and margins in this tier are so low that the economics of broader exclusives may not work in many cases, some licensors are taking steps in this direction.
Heidi Klum launched an exclusive apparel line with Lidl in the U.S. and overseas in 2017, for example. Meanwhile, licensors such as singer Bret Michael have worked with Overstock.com on exclusive products, and a number of fashion designers have created unique assortments for TJX and its chains, including TJ Maxx, Marshall’s, and HomeGoods.
E-commerce seizes more share. For the full year 2017, Forrester predicts online sales will be up 13%, a growth rate five times that of offline sales. It estimates that e-commerce now commands a share of 12.7% of all retail sales, and forecasts that online will account for 17% of all U.S. retail sales by 2022.
The end of the year was particularly notable, with Salesforce estimating that global holiday e-commerce spending in 2017 was up 18% over the previous year, a finding that mirrored those of other researchers. And the National Retail Federation estimated that 108.5 million Americans shopped online over the Thanksgiving weekend, which includes Black Friday, versus 99.1 million who visited a bricks-and-mortar store.
Amazon remains the giant in the business, of course. It accounted for 44% of all U.S. e-commerce sales in 2017 and 4% of U.S. retail sales overall, according to One Click Retail.
As e-commerce becomes more and more significant to any licensing program, the number of licensors doing deals with e-tailers naturally continues to grow. Drew Barrymore debuted her Dear Drew lifestyle range of apparel, accessories, and beauty products exclusively with Amazon Fashion, while Iconix launched its latest Starter activewear collection exclusively for Amazon Prime members, for example.
Meanwhile, new e-commerce platforms for licensed merchandise continue to come on the scene. Movie ticket seller Fandango, for example, opened its Fandango FanShop to sell exclusive experiences and products based on the films for which it offers tickets, with each assortment available during the theatrical release period of the movie. Ultimately, the goal is to offer tickets and merchandise bundles within the same transaction.
Changing retail strategies. Target refocused its private labels, ending its long-time Mossimo and Merona programs (after previously ending its relationship with Cherokee) and debuting 12 new brands. Most of the new labels are proprietary, but a few are still in partnership with outside licensors, including Hearth & Hand with Magnolia, designed with Chip and Joanna Gaines, and WhoWhatWear, inspired by the online lifestyle and fashion publication and brand. Some of Target’s ongoing proprietary labels remain, including the C9 athleisure brand created with Champion.
Amazon has been adding to its portfolio of in-house developed brands, of which it has dozens, while Walmart ended its longtime direct-to-retail deal with Iconix for DanskinNow, which will still be available through January 2019. (The latter continues to market other licensed private labels, including Gold’s Gym in fitness and Better Homes & Gardens throughout its home goods departments.)
The winnowing down of licensed brands at key mass merchants as they transition to in-house development means that new deals in the still-robust market for retail-exclusive licensed products are more likely to involve the likes of Williams Sonoma or Pottery Barn than Walmart or Target.
Many licensors are also looking to new categories of retail partners for growth; Major League Baseball recently forged a deal with Camping World that includes exclusive merchandise at its various nameplates in the outdoors segment.
Unusual retail pairings. Through consolidation or partnership, retailers partnered to enter new categories and price points and bolster their multichannel capabilities. In the strange bedfellows department, luxury department store Lord & Taylor partnered with Walmart to create an online flagship for the former on Walmart.com. And retailers Kohl’s, Sears, and Best Buy all teamed with their online nemesis Amazon, selling Amazon’s devices and services within their bricks-and-mortar stores.
Meanwhile, Amazon strengthened its bricks-and-mortar presence and position in grocery with the acquisition of Whole Foods, and Walmart further solidified its presence in the online space by purchasing online apparel retailer Bonobos, following its previous acquisition of Jet.com in 2016. These are just two of the highest-profile of several retail mergers during the year.
All of these moves further blur the lines between various tiers of retail.
A positive note at year-end. Mastercard SpendingPulse said U.S. retail spending during the holiday season overall (including online, mobile, and bricks-and-mortar) was up 4.9% year-on-year in 2017, with electronics and appliances (up 7.5%), jewelry (5.9%), and home goods and home improvement (5.1%) particularly strong.
That rosy picture extended across a number of retailers as well, even some that have been struggling. Macy’s and JCPenney both saw holiday sales grow and exceed analysts’ forecasts. And Target announced that comparable sales grew 3.4% in the last two months of the year, compared to the same period in 2016. Target expects full-year sales to rise in the low single digits.
None of this suggests that challenging times will not continue for many retailers, of course. But the fourth-quarter positivity does inject some optimism to cap off a difficult year. It also is one indicator that the developments cited above are part of a changing retail landscape more than of the much-talked-about “death of retail.”