As 2018 gets underway, you can almost hear the collective sigh of relief from the retail industry. The year of the Retail Apocalypse is behind us. We’ve made it through the Retail Reckoning. No longer do we have to worry about the collapse of the industry. Am I right?
Well, no. I’m not right. The struggles of a 21st Century retailer still exist, even though the calendar now reads 2018. But with the new year comes an opportunity for those brick-and-mortar stores that are still standing to rewrite the narrative around physical store retail. Amazon will always be lurking in the shadows, but that doesn’t mean specialty shops, regional chains, and even those big box stores out there need to be quivering in their boots. Physical store sales still account for about 90 percent of all retail transactions after all.
And, in fact, rather than all of the doom and gloom that most analysts painted over the retail industry last year, the real story could be one of redemption. Case in point: hhgregg, which started 2017 as the banner child for the collapse of physical retail only to end the year making a major comeback under new ownership and with a new vision. And part of that vision, believe it or not, involves a return to brick-and-mortar locations.
“Physical retail is definitely part of our plan. We want to open up a handful of stores next year and over the next, I would say, three to five years to definitely get that number up,” Michael Eisner, principal of Valor LLC—the investment firm that acquired hhgregg’s assets in an auction—told Dealerscope. “There's a lot on the table right now, a lot to digest and to figure out, but brick and mortar retail is definitely going to be a big part of our strategy going forward.”
And, for all of the closings that we heard about in 2017, the National Retail Federation would have you know that there were actually more retail openings than closings last year among major chains. Citing data from IHL Group, NRF said that, as of September, there were 4,000 more store openings than closings in 2017. That number will climb to around 5,500 this year, according to IHL Group.
The NRF and IHL Group aren’t the only ones in the prediction mode, though.
As we prepared for the new year, Dealerscope wanted to look back over the last year of our DS Index reports to try to get a better sense of what we could expect for CE retail in 2018. Using some of our historical data, some of the year-over-year trends we’re already seeing, and a little bit of outside data, we’ve come up with five major predictions for our industry for the next 12 months.
1. Digital Imaging will start trending up.
Remember the way millennial hipsters helped revive the vinyl fad over the past few years? Digital cameras could be the next market to experience something of a comeback in 2018.
We’ll get to other supporting industry data in a minute, but let’s start with what the DS Index has told us about this segment over the last year. As you’d expect, Digital Imaging tracked rather low throughout 2018. On a scale of 1-to-10, with 10 being extremely confident, digital imaging averaged a 5.98 in 2017, which was the third lowest average among the 13 product categories that Dealerscope surveys on. The only categories to score lower were VR and Emerging Tech.
That’s a weak statement to open with, but the reason we believe Digital Imaging is due for a bit of a resurgence has to do with what we noticed over the past six months. Since July, the category has ballooned, rising more than 1.25 points to a score of 6.85 in December. The only product to see a larger increase over that same span was Headphones. Digital Imaging also performed well on a year-over-year basis, seeing its confidence score rise 0.91 points compared to December 2016. Again, that was second best out of all products, ceding the top spot, ironically, to Smartphones in this instance.
All that is to say, digital imaging—for all of the problems it’s faced as smartphones cannibalized the market—has hung around and morphed itself into an industry that still matters in 2018. While a majority of standalone cameras today still resemble the pocket cameras of the mid-2000s, this segment has been helped by the adoption of 360-degree cameras, WiFi-enabled devices, and the wildly successful mirrorless option that companies like Sony have really taken advantage of.
As for those outside numbers, a recent report from the Camera and Imaging Products Association showed that digital camera shipments actually increased in 2017—the first time that that has happened since 2011. And it was strong growth, as well. Shipments were expected to rise roughly 13 percent to 18.9 million units. Sure, that’s down from the high of 88.67 million in 2008, but it could represent a major turning point for this market.
2. Connected Home will be one of the strongest performing categories in 2018.
For all of the talk and all of the cool tech that we’ve seen, there hasn’t been a more frustrating market from a retail perspective than the connected home. It’s not that retailers have necessarily struggled to make money off of smart home products. Rather, it’s that they’re simply not making it at the rate that many analysts had predicted.
Consumers have simply been slow to adopt connected home products. Whether it’s privacy concerns, lack of understanding the tech, or uneasiness around the potential cost, the connected home market has been slow on the uptake. This isn’t anything new or surprising to us, though. We’ve heard time and again how the smart home has been a frustrating market for retailers and manufacturers.
So, given all of this then, how can we predict such strong performance for a category that doesn’t have the best track record? Consider this: According to Parks Associates, more tan 100 million U.S. households did not have a smart home device at the end of 2016 out of a possible 117 million. That places smart home penetration at roughly 14.5 percent. That’s a low number, but it represents great news for the retail industry, because that means the opportunity is right there for the taking. Growth potential in this space is enormous.
To go back to the DS Index, when we looked at the annual average of by-product confidence levels, Connected Home actually finished 2017 as the second-highest ranked product. The 7.09 average it finished 2017 with ranked behind only Smartphones—the two were the only products to finish about a 7.0.
That tells you how retailers feel about smart home products, despite their performance to date. And the analysts out there seem to agree. Markets and Markets projects that by 2023 the smart home market will be worth roughly $137.91 billion.
3. The DS Index will track higher throughout the year.
The bold prediction here, in all honesty, is more of a gut feeling, but it’s a calculated gut feeling.
Sure, retail was down in 2017, the DS Index reflected that as the industry’s confidence spiraled downward from April until it bottomed out in September at an all-time low. And, yes, retailers certainly expressed their frustrations with lack of foot traffic and weak sentiment throughout the summer months.
But, much like the whole retail apocalypse thing, the drop-off felt a little overstated. Not once, throughout the year, did a higher percentage of retailers ever miss their sales goal than those who hit or exceeded it in a given month. Additionally, watching the industry’s confidence level roar back the way it did the final three months of the year tells us that 2018 will get off to an excellent start, and that momentum should carry over deeper into the new year. Already, the confidence level of CE retailers is tracking higher than it was at this point one year ago. January will be a telling month—the first month of 2017 saw a record-high confidence score achieved. If retailers are able to eclipse that mark, we certainly feel confident in our prediction here.
Throughout the year, we do expect the ebb and flow to continue. January and February will start off strong as the holiday momentum carries up through the Super Bowl season. Retail traditionally slows down as summer approaches and families go on vacation. Other factors that will play into the increased year-over-year confidence level include things like tax reform and the impact it has this year on consumers’ tax returns, an economy that continues to improve, consumer confidence, and how creative manufacturers can get with new product launches.
4. Omnichannel strategies begin to pay off.
If there was one buzzword that really stood out in retail last year, it had to be omnichannel. At this point, we understand that omnichannel is the merging of the in-store and online shopping experience and that having an omnichannel strategy is crucial to the future success of one’s retail business. Simple enough, right?
Companies that have been touting their omnichannel successes include all of the regular big box players like Best Buy, Walmart, and Target. Their successes stem from having programs that offer “click and collect” options where customers can shop online, purchase a product, and pick it up almost immediately in the store. But that’s just one type of omnichannel approach that retailers can start to adopt. There’s also the optimized app experience, loyalty programs that crossover between the digital and physical shopping experience, digital wallet presentations, and more.
Plenty of retailers are “doing omnichannel right,” but when will we start to see the payoff?Our guess: 2018.
Throughout the course of the year, we noticed that, while our online- and foot-traffic confidence scores tracked along the same path, there was still some noticeable separation on a monthly basis, granted it was by fractions of a point. On occasion, the scores would be identical on a given month.
Then, starting in September, the two started coming in at an exact match and rode that wave through the end of the year, climbing to a near-all-time-high by December. This could be a coincidence, but the way we’re reading into it, it seems like CE retailers understand that the two go hand-in-hand when it comes to overall success. The physical store strategy has to by in sync with the digital strategy and vice versa if a retailer hopes to survive in 2018 and beyond.
5. CE retailers will hit/exceed sales goals by a wider margin.
One of the most interesting data points to track throughout the year with each DS Index report was the performance against sales goals. The data here painted an almost ironic picture of the industry throughout 2017, because, while confidence continued to sign, retailers continued to perform well against those sales goals.
The scale never once tipped in the direction of more retailers missing their goal (the closest it ever came was a 52-48 split in February), and while the downslide in confidence was happening over the summer, the percentage of those who hit or exceeded their sales goal actually steadily rose.
And now, as the calendar turns, we already have year over year data that we can use to help us forecast what 2018 could have in store for the industry from a sales performance perspective. SO far, September and October sales in 2017 have fared way better than the same months in 2016, according to the DS Index. In 2016, the splits were 51-49 and 54-46 in September and October respectively. Our 2017 numbers show both months are way ahead, going 60-40 and 68-32, respectively. October actually saw a record number of CE retailers who hit/exceeded their sales goal. Split out, the 37 percent who exceeded their goal was the second-highest percentage in the survey’s history.
Fall sales started out strong for CE retailers, and we anticipate that will carry through the holiday months and into the new year.
Related story: DS Index: Q4 2017 Report