The Top 8 Retail Trends in 2021 to Watch (Report)

Photo of a woman shopping
 

By Tricia McKinnon

No one could have predicted 2020 would be such a turbulent year for the retail sector and the world at large. But it was. A pandemic sweeping across the globe causing widespread damage sounds like a riveting Netflix Originals movie but instead it’s our reality. From store closures to curbside pickup to socially distant shopping the pandemic set its sights on the retail sector early on.

A central theme this year which will carry into 2021 is the acceleration of retail trends. Millions of consumers tried services like curbside pickup for the first time in 2020. Department stores like JC Penny which were struggling for years finally filed for bankruptcy. And as is the case with most crises it has spurred innovation. A few years ago no one had even heard of TikTok and now it’s poised to change the way we shop. In 2021 it’s safe to say expect the unexpected but also pay attention to these eight retail trends that took off in 2020 and will be at the forefront in 2021.

1. Social Commerce takes off in North America

Social commerce, think eCommerce meets social media, is seen as one of the next big shifts in the way we shop. China is leading the wave with social commerce sales expected to reach $316 billion in China in 2021, up 30% over this year. One of the apps facilitating the growth of social commerce is Douyin. If you are not familiar with Douyin then most certainly you have heard of Douyin’s English equivalent, TikTok, which is also owned by ByteDance. Globally Douyin has already amassed 690 million users. 

In 2018 Douyin entered into a partnership with eCommerce giant Alibaba to allow creators and influencers using the site to sell their merchandise on the platform. This partnership enabled app users to click on links in videos so they can easily make purchases from their favourite influencers on third party eCommerce sites like Alibaba’s Tmall. Recently Douyin banned links to outside eCommerce sites ensuring all eCommerce sales stay within the app. 

The success of Douyin is one of the reasons why Walmart is investing in the English version of Douyin, (TikTok). “If you're watching a TikTok video and somebody's got a piece of apparel or an item on it that you really like, what if you could just quickly purchase that item,” says Walmart CEO Doug McMillon. “That's what we're seeing happen in countries around the world. And it's intriguing to us, and we would like to be part of it.” 

TikTok recently entered into a deal with Shopify to enable shoppable video ads on TikTok starting with users in the United States. The partnership will allow over one million merchants that use Shopify to place shoppable ads in the feeds of TikTok users enabling them to reach a young and highly engaged audience. Once a TikTok user clicks on a shoppable ad the transaction is completed on the merchant’s Shopify site. “It was obvious early on how [TikTok] was starting to influence commerce trends and trajectories,” says Satish Kanwar, who heads Shopify’s Channels division. 

For a number of years Facebook has tried to cash in on the social commerce trend with limited success. For example, last year it launched Checkout on Instagram so that users can buy from brands directly without leaving the app. But to-date only a selected number of brands have signed on and it has yet to take off. TikTok may have greater success with its partnership with Shopify as ByteDance has already shown in other markets that social commerce works. 

2. Omni-channel retailing grows in importance

Omni-channel retailing has been a buzz word for many years, touted as the future of retail. Well the future has arrived. The pandemic has revealed many things but who would have thought it would thrust omni-channel retailing into the spotlight? Well it has. During what has been one of the most tumultuous years in history what has emerged from the devastation in the retail sector is the strength of omni-channel retailers. 

Omni-channel retailing is essentially the ability for a consumer to shop seamlessly across channels. Imagine that a consumer wakes up this morning and buys a new pair of Nike sneakers online. She likes the convenience of ordering on her mobile phone but she wants those shoes today. So she goes to a Nike store to pick up her order. Just like that she’s all set. The retailers that can make that shopping experience as smooth as possible are the ones that are going to succeed in 2021 and beyond. 

Despite the growth of eCommerce the vast majority of retail sales still happen in-store, even during a pandemic. In the second quarter of 2020 eCommerce only represented 16.1% of total retail sales in the United States. There isn’t a better statistic than that to show that stores still play an important role, representing nearly 85% of retail sales. Even a pandemic can’t keep consumers completely away from stores. That’s why creating a smooth and integrated shopping experience is so important. 

Target has emerged as a model omni-channel retailer. With 75% of the United States population living within 10 miles of a Target store, Target is able to leverage its store network to serve customers better. For example, Target provides a Drive Up service which allows customers to pull into a Target parking lot at nearly 2,000 stores one to two hours after making a purchase online and have Target employees bring their purchase directly to their car. Target also provides in-store pickup and home delivery via Shipt.

In Target’s second quarter of 2020 it experienced its strongest sales growth ever. Sales were up by 24.3% in the second quarter. “Our second quarter comparable sales growth of 24.3% is the strongest we have ever reported, which is a true testament to the resilience of our team and the durability of our business model. Our stores were the key to this unprecedented growth, with in-store comp sales growing 10.9% and stores enabling more than three-quarters of Target’s digital sales, which rose nearly 200%,” said Brian Cornell, Target’s CEO. 

Target’s Drive Up service grew the fastest out of all of Target’s same day eCommerce services, up more than 700% in the second quarter. In Target’s third quarter of 2020 comparable sales were up 20.7%, not bad after a blowout second quarter. Drive Up sales were up 500%, home delivery sales were up 280% and in-store order pickup was up 50% in the third quarter.

“Target definitely smashed it out of the park… It’s very evident that today more than ever [a] good omni-channel strategy is key for any retailer to survive. It’s not just about selling key essentials but really investing in the omni-channel experience – something that Target did five years ago” said Michael Lasser, broadline and hardline retail analyst at UBS. 

3. Big box retailers continue to dominate

While everyone is focused on Amazon, at times to their detriment, a formidable set of competitors is rising. For lack of a better term call them big box retailers and they include the likes of Walmart, Target and Costco. They are established, have deep pockets and are savvy, best-in-class retailers. While some consider them dinosaurs their performance, especially in 2020 tells a different story. Yes, the pandemic favoured these companies but to capitalize on a trend you have to be ready for it and they were. Target’s CEO Brian Cornell says that Target increased its market share by more than $6 billion in 2020 alone. That’s a staggering amount of market share to acquire in one year and the year isn’t even over yet. 

The growth of big box retailers is not new. As the New York Times writes: “over the 14 years through 2013, Amazon added $38 billion in sales while Costco added $50 billion and the Sam’s Club division of Walmart added $32 billion. Amazon had the higher growth rate, but the bigger problem for most brick-and-mortar stores was other, larger brick-and-mortar stores.” That sentiment is still true. 

Providing so many options to receive eCommerce orders is difficult for smaller retailers. They do not have enough stores to make pickup services convenient. And even if they offer delivery, it’s an expensive service to provide especially when customers are buying lower priced items or in small quantities. 

One of the advantages big box retailers have is they offer one-stop shopping. From Walmart to Target to Costco consumers are seeking refuge in retailers where they can get what they want in one trip. You could attribute this to the pandemic since consumers are reducing their exposure to COVID-19 by consolidating their shopping trips but that doesn’t explain why consumers are choosing these retailers for online purchases when they can easily and safely make purchases from other retailers from the comfort of their homes. 

What we are witnessing is a trend towards more convenient shopping trips. Why buy your grocery and household items online from several retailers when you can save time by getting everything you need from Walmart or Target. Shopping with one retailer also saves you delivery fees. Having everything in one place simply makes shopping easier. With more dual income households people have less time for shopping and would rather consolidate their trips, not only now but in the future. 

The fall of Sears and other department stores has only served to usher in a new kind of department store, the big box store. It has a different name but in many respects it serves the same function. Consumers can shop at a Walmart or a Target and get most of their weekly needs fulfilled without having to shop at multiple stores. 

These retailers also have big pockets allowing them to compete better in areas like eCommerce. After Walmart suffered its first decline in sales in 2015 since 1970, it entered into attack mode. Against who? Amazon. To increase its eCommerce growth Walmart purchased a host of eCommerce businesses including Jet.com for $3 billion (in 2016), Bonobos for $310 million (in 2017), Eloquii for $100 million (in 2018) and ModCloth for between $50 million to $75 million (in 2017). Along the way Walmart seems to have figured out how to succeed in eCommerce with sales up 79%in the third quarter of 2020. 

If you are the little guy or even a bigger guy like Kohl’s it’s very hard to keep up with the Walmart’s of the world who seem to have a near limitless amount of funds to spend on acquiring and retaining market share.

4. Retailers introduce more convenient store formats

Long before the COVID-19 pandemic arrived and upended our lives consumers were strapped for time. There are more dual income households with both parents working and juggling parental duties and household responsibilities. If you feel like you are struggling to manage it all you are not alone. The pandemic has only revealed and amplified this trend.

Along those lines, earlier this month Chipotle Mexican Grill opened its first digital only restaurant in New York called Chipotle Digital Kitchen. The location will service delivery orders as well as pickup. Customers must order in advance either on Chipotle’s app, its website or from a third-party delivery service if they want to pickup their order from that location. Chipotle’s digital sales like many other fast-food chains’ have taken off during the pandemic. Chipotle’s digital sales were up 202.5% in the third quarter of 2020 and compromised 48.8% of Chipotle’s total sales. 

In an effort to increase digital sales Chipotle launched an initiative last year called Chipotlanes, its take on the drive-thu. Instead of ordering at a drive-thru window or by punching in an order at a kiosk outside, customers using Chipotlanes, order using Chipotle’s app or through the company’s website. No more sitting in front of a sign in the drive-thru pondering what to order, instead everything is done digitally before you even arrive at Chipotle. Once a customer has placed an order they drive up to the drive-thru window at a specified time to pick up their order. “It’s clear that customers appreciate the added convenience, because these stores generate digital sales far above the national average,” says Chipotle’s CEO Brian Niccol.

A key motivation for not having menu boards in Chipotle’s drive-thru is management’s belief that soon there will be a time when customers will not wait the average four minute wait time to be served at a drive-thru.

More convenience based transactions where customers can order ahead and pick up their orders have become so popular that Starbucks has modified its store strategy. Starbucks stores have always affectionately been known as the “third place” between a customer’s home and work. But Starbucks can’t ignore that many customers are opting to take their orders on the go. 

In November of last year, the first Starbucks Pickup location store opened in New York. Starbucks Pickup locations are small and do not have seating but there is enough space to pick up mobile orders. Starbucks is planning to close 400 stores in North America by the end of 2021 and open 300 new stores this year with a focus on pickup and takeaway. 80% of Starbucks transactions are already “on the go” and in the first quarter of 2020 17% of Starbucks transactions in the United States were mobile transactions. "Our vision is that each large city in the US will ultimately have a mix of traditional Starbucks cafés and Starbucks Pickup locations," Starbucks said in a statement. 

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5. The hollowing out of mid-priced retailers continues

One of the trends that has accelerated is the squeezing out of retailers targeting the middle of the pricing spectrum, like Gap or JC Penney that aren’t too expensive or too cheap. While increasing competition from online retailers is often cited as the reason middle tier retailers are suffering the main reason has to do with economics. In 1985 it took a male breadwinner in the United States 30 weeks to pay for critical expenditures like housing, healthcare, transportation and education for a family of four. By 2018 it took 53 weeks. 

What does this mean? Consumers have less money to buy many of the items retailers sell. And when they do make a purchase they are choosing lower priced retailers over middle tier retailers out of necessity. The COVID-19 pandemic is like a double whammy since many consumers reigned in their spending habits after the last recession and never looked back. Now with the pandemic the situation is even worse.

It is telling that even before the pandemic, Todd Vasos Dollar General’s CEO said: “the middle-class continues to go away, unfortunately, to the lower end of the economic scale versus the higher end.” “So as this economy continues to chug along and creates more of our core customer, I think there’s going to be more and more opportunities for us to get in and build more stores.” If only he knew how right he would be. 

Let’s not forget that the largest retailer in the world is Walmart and the second largest is Amazon. The three largest clothing retailers in the world are Zara, Uniqlo and H&M which all sell lower priced merchandise. The middle of the pricing spectrum is not a good place to be in 2021 as it makes it difficult to provide a compelling value proposition. Why shop at Macy’s when Target is still cheap and cheerful?

6. Malls struggle to stay afloat

The United States has the highest retail selling space per capita by a wide margin and the lowest sales per square footage of any country in the world meaning that the United States has too many stores. At some point consolidation was bound to happen but no one expected it to happen at such a fast pace in 2020. 

Coresight Research estimates that 25% of the approximately 1,000 malls in the United States will close in the next three to five years. One of the reasons malls are struggling is due to the mix of stores in malls. 14 out of 20 of the largest mall tenants in the United States are either department stores or apparel retailers. Those retailers are not fairing well. JCPenny, filed for bankruptcy earlier this year, clothing sales are in a structural decline and many other mall based retailers are in trouble.

Once a department store falls the entire mall is at risk. One of these risks comes from co-tenancy clauses. These clauses state that if an anchor tenant is no longer there then other retailers can pay less rent or break the lease. “If the anchor tenants close stores in the mall, other tenants are likely to follow suit,” said Coresight CEO Deborah Weinswig. 

mall based retailers

Another risk is that department stores take up a lot of space. When a department store vacates a mall finding four to five other tenants to fill the space is not feasible in this environment and certainly there aren’t any new department stores looking to move in. The malls that will feel the biggest impact the most are lower tier malls. Malls that are higher end, the ones with an Apple or a Nike store, are less likely to feel the impact of anchor tenants leaving but they are still suffering. 

Mall based retailers have already started to flee. Five mall-based retailers: The Children's Place, Inditex (which owns Zara), Guess, G-III Apparel Group (which owns Calvin Klein), and Signet Jewelers announced more than 2,100 store closings within a single week earlier this year. 

Gap, a mall staple, is planning to close 350 Gap and Banana Republic stores in North America which will leave the Gap with a small presence in malls. "We've been overly reliant on low productivity, high rent stores," says Gap Global president Mark Breitbard. "We've used the past six months to address the real estate issues and accelerate our shift." Once the shift is complete in 2023 only 20% of Gap’s store will be in malls. 

Mall operators have already started to feel the pinch. CBL & Associates and Pennsylvania Real Estate Investment Trust which together own 130 malls in the United States filed for bankruptcy earlier this month. JC Penney is one of CBL’s largest tenants and so is Ascena Retail’s Ann Taylor which has also filed for bankruptcy.  

7. Retailers partner with third party platforms for last mile delivery

When thinking about the fast delivery of goods Amazon naturally comes to mind. But delivery platforms like DoorDash and Instacart are working hard to change that perception. As online sales continue to boom, up an estimated 32.4% in 2020 and projected to increase by 6.1% in 2021 retailers are struggling to keep up with demand. They may have the goods but getting merchandise to their customers efficiently has always been a challenge. 

Instead of going it alone more and more non-food retailers are relying on delivery platforms for last mile delivery. Take Macy’s. In October Macy’s (including Bloomingdales) became the first department store to sign on with DoorDash for last mile delivery. Now after using DoorDash to order some pizza you can use the app to order a pair of shoes from Macy’s. “Our customers want more options, including speed of delivery, and our partnership with DoorDash in 500 stores nationwide means they can take advantage of every option we have available, including same-day delivery, even in the week leading up to Christmas,” said Jeff Gennette, Macy’s Inc. chairman & CEO.

In another signal to the market that this type of service is here to stay, beauty powerhouse Sephora, signed on with Instacart in September. Now no one has to wait to get their hands on another cucumber sheet mask since Instacart delivers Sephora’s products to customers in as little as an hour. “We’re always looking for unique, yet practical ways to meet our clients at every touchpoint. Now, more than ever, we know they seek ease and convenience. With our Instacart partnership, we can offer a new same-day delivery service option to our existing clients and also introduce some of the benefits of being a Sephora client to Instacart’s marketplace,” says Carolyn Bojanowski, svp and gm of e-commerce at Sephora.

Other retailers that are partnering with third party delivery platforms to offer same day delivery include Bed Bath & Beyond, Staples, Sam’s Club Pharmacy, H&M Canada and Best Buy. As much as you may want to use Instacart’s app to get same day delivery of a $2,000 fridge from Best Buy, orders on Instacart are capped at $500.00. It’s almost as if they could read the minds of overzealous consumers.

These platforms allow big and small retailers alike to offer more convenient delivery options without having to build an entire logistics network. Think about your local flower shop or bookstore that is struggling to serve its community during the pandemic. This provides an option for these retailers to serve their customers and a good alternative to Amazon Prime.

The trend for fast delivery will continue on well past the end of the pandemic. “I think the shift for consumers to shop more and more online and the desire for the kind of instant gratification of those purchases is something that’s going to increase and will stay post-pandemic,” says Mike Buckley, senior vice president of business at Postmates.

8. The COVID-19 pandemic continue to take its toll

There’s a light at the end of the tunnel. With several vaccines showing promising results everyone is hoping for a quick end to 2020. While an effective and safe vaccine provides promise for the retail sector and beyond it will take time to vaccinate billions of people around the world. "By the time we get through December, January, February, March, April, we hopefully will have been able to get to the people who are listed as priority people," says Dr. Anthony Fauci, an expert on infectious diseases speaking about the distribution of a COVID-19 vaccine in the United States. 

"I would say starting in April, May, June, July, as we get into the late spring and early summer, that people in the so-called general population, who do not have underlying conditions or other designations that would make them priority, could get them.” “At least 75%, hopefully close to 80%, 85%" of people in the United States will get the vaccine by fall 2021, in order to have "close to some degree of normality,” says Fauci. That means things won’t get back to normal as quickly as we would like.

While Amazon, grocery and big box retailers are seeing gains many parts of the retail sector are struggling and will continue to struggle next year. Take small retail businesses. The COVID-19 pandemic has created a phenomenon that does not bode well for these businesses. Many of the impulse shopping trips consumers make on a daily basis have shifted to big box retailers or Amazon. Think about a walk home from work. As you walk home you often stop along the way. An inviting store window pulls you in and before you know it you have bought a new pair of pants. This is the way many retailers stay afloat, it’s called walk in traffic. Consumers discover retailers while they are doing fairly rudimentary daily activities. During a pandemic those activities largely do not exist. 

As we move into 2021 restrictions on store capacity and in some cases lockdowns will continue until the number of COVID-19 cases are under control. After more than a year in a severely constrained retail environment many small businesses will not make it through and many have already gone out of business. Even as retail sales continue to recover as they have in Canada and the United States it is shifts in consumer spending that are causing trouble. Increases in eCommerce sales have not been spread evenly across the retail sector. Instead, the online sales boom trigged by the pandemic has favoured larger retailers with big pockets. Take a look at Target. In the third quarter of 2020 Target reported that it had gained $6 billion in market share in 2020 alone. That has to come from somewhere and small retailers are one of the casualties

A report by the Business Development Bank of Canada found that only 23% of small retailers in Canada reported eCommerce sales last year. It’s not that these businesses do not want to serve their customers in a multitude of ways but eCommerce is expensive and cost prohibitive for many companies. Restaurants also face a similar fate. Many restaurants were struggling before COVID-19 arrived. While consumers love to use their favourite delivery apps to order food they take a toll on restaurants. A survey of restaurant owners conducted by Restaurants Canada found that 55% of those surveyed believe delivery apps are slightly profitable, 21% believe delivery apps are not at all profitable and under 10% believe delivery apps are very profitable. With commissions of up to 30% paid by restaurants to delivery platforms like Uber and DoorDash that’s not a winning business model.

Retail sales in North America will continue to grow in 2021 but expect the path to normalcy to be laced with challenges. One of the silver linings will be new innovations as retailers dig deep and find creative solutions to serve customers effectively.

Tricia McKinnonTrends, Strategy & GrowthComment