Here Are Four [Somewhat Surprising] Retail Trends:
1. Convenience stores are the fastest-growing sector of the retail industry
C-store in-store sales (merchandise and food service) are the fastest-growing sector of the retail industry, with an annual growth rate of around 6 percent and with a dramatic 18 percent growth since 2010. C-store sales increased from $190 billion to $600 billion in that period. There are now 154,535 c-stores in the country, with Texas housing the most, at 15,671 units. A major contributor to the growth is an increase in fresh and healthier food offerings at c-stores—even Millennials are rolling in to catch a cheap, fresh meal on the fly. Fried foods and hot dogs are being replaced or supplemented with sandwiches, tacos, pizzas and other items made with fresh ingredients, sometimes prepared by hand on site. A recent c-store survey revealed that 76 percent of female and 68 percent of male customers were attracted by the fresh offerings.
Some of retail’s most successful stores—don’t do digital
While many mainstream retailers are panicking over how online sales are having a negative affect on in-store sales, some retailers seem to be safe from such anxiety attacks. National off-price retailers, lead by TJX Cos. (parent of TJ Maxx, Marshalls and Home Goods), Ross Stores and Burlington, account for 75 percent of apparel sales across all channels. Beginning in 2014, annual sales at TJX exceeded those at Macy’s, and while Macy’s plans to close 100 stores, TJX sees potential to open up to 1,800 new units across its brands, globally. And these off-price retailers are not spending big bucks on online shopping sites or social media—their online activities are minimal if at all. Moody’s predicts off-price retailers will realize steady annual growth of 6 percent to 8 percent over the next few years, well in excess of the 3 percent to 4 percent predicted for the rest of retail. Cost conscious shoppers flock to these stores for a number of reasons aside from the obvious cost savings. Due to the opportunistic acquisition of goods, merchandise offerings often change day-to-day. To keep up with what’s new, customers must make frequent trips to stores. Once in the store, a single purchase often converts to multiples. While other stores, especially department store competitors, spend millions of dollars maintaining online efforts, these off-pricers have no such distractions. Nordstrom Rack established a beachhead in off-price, with stores dating back to the ‘70s. More recently, Neiman Marcus, Macy’s, Saks and others have invaded off-price territory, with stores of their own. Originally, the intent of off-price outlets was to liquidate overstock or unsaleable goods from famous brands, but today, some of these retailers manufacture lower-priced merchandise unique to their off-price outlets.
America is under threat of being inundated by packages. They are coming by FedEx, UPS, and The U.S. Post Office and soon [maybe] by millions of drones.
Packages left at consumers’ homes have lead to a new crime of opportunity: Porch Pirating. Crooks follow delivery vans around and run to porches and steal packages soon after they are left there. Close to 50 percent of Americans say they have had a package stolen from their porch or they know someone who has. As a result, secure package delivery has become a top concern for online shoppers. To circumvent this problem, Amazon has begun installing Amazon Lockers in some shopping malls, so recipients will have a safer mailing location.
However, it may not be convenient for many to have to drive to the mall to claim shipments, and if packages are not picked up in three days, they are shipped back to Amazon. In New York City, some high-rise apartment buildings report having to convert space to house the many packages arriving daily, for example, one 28-story residential tower turned its day-spa into a package storage area to house the estimated 300 packages that arrive daily. It also had to hire extra help to keep track, run packages to apartments and to coordinate returns. It may soon begin charging residents a fee for the handling of each package. Additionally, there is the problem with disposal of so many cartons in urban areas.
There is another downside to being flooded with boxes and packing materials:
our landfills are becoming clogged with them. Paper and cardboard containers are biodegradable (if consumers bother to re-cycle), but plastic and Styrofoam are not. Claims that online shopping is eco-friendly are potentially negated by this problem, and as more shoppers turn to online, this problem will only increase.
Memberships and Subscriptions Produce Revenue Streams for Some Retailers
Loyalty programs have tried to tie shoppers to businesses for years. By one count 90 percent of all businesses worldwide have some kind of customer loyalty program, most of which offer reward points or small discounts.
The latest iteration of loyalty programs is membership and subscription service programs. Popular warehouse club store Costco has offered memberships, with a range of fees, for years and does not allow those without a membership to shop there. In 2016, Costco cardholders spent $2.6 million on membership fees. These fees are passive income that goes directly to the bottom line and profits.
Barnes & Noble Book Sellers has offered a discount to members for an annual fee of $25, for more than a decade. Restoration Hardware has experimented with a membership program, giving members a 25 percent discount in return for $100 a year, and retailer Bed Bath & Beyond is considering doing away with its popular 20 percent-off coupons and offering members a permanent 20 percent off and free shipping for an annual fee of $29. The Juggernaut of membership programs, online retailer Amazon, offers Amazon Prime members access to special deals, savings, perks and free shipping for a fee of around $100 a year. There are 65 million Amazon Prime members, who spend an average of $1,200 each per year.
Popular subscription services include meal-kits that are delivered to homes. Most of these include fresh ingredients and recipes that allow the diner to assemble and serve appealing and often sophisticated dishes. Among the most popular providers are Blue Apron, HelloFresh and Chef’d—Blue Apron says it delivers more than 8 million meals a month. Subscription services Ipsy and Birch Box offer beauty products and samples, while BarkBox, Meowbox and PawPack deliver pet supplies and treats. Subscription box services, which started from a micro-niche in 2010, are considered one of retail’s fastest-growing sectors. It is too early to tell if these services have sticking power—perhaps part of their appeal is simply the novelty of something new—but retailers should consider them a competitor, one that didn’t even exist a decade ago.
2. Demos Are Destiny
While most retailers focus on the next quarterly balance sheet, it pays to also be alert to longer-term consumer trends, and one of the best ways to figure out the future is to pay attention to demographics. Retail Intel has unearthed some pertinent data that can help you suss out opportunities and challenges that are headed our way.
Population growth less of a driver of the economic engine
According to the U.S. Census Bureau, the U.S. population is growing at the slowest rate since 1937. The gain of only 0.7 percent in 2016 was the lowest rate since the Great Depression, nearly a century ago. The change is due to a number of things, including an increase in the death rate, fewer births and a slowdown in immigration (reduced by 4 percent in 2016). Population movement to the West and South is a long-term trend, and there has been a migration of blacks from the north back to the south. New York shrank for the first time in a decade, and Utah became the fastest-growing state.
Businesses are accustomed to projecting growth based on expanding doors and enjoying unlimited population growth, out into the suburbs and beyond. Less population will require fewer existing stores and less expansion, meaning that existing stores must become more productive—especially troublesome considering the increasing threats from online shopping.
Changing financial fortunes contract the middle class
There is only so much pie—and it can only be divided so many ways. While the wealthy may be immune to long-term income contraction, most middle- and lower-class consumers simply have less to spend. They are captives, waiting for better jobs and raises in income, full recovery from losses in the Great Recession, more reasonable prices for goods and services and more affordable housing. Until this happens, the majority of Americans will have less to spend in the consumer marketplace. Pew Research reports that the middle class is no longer a majority on a nationwide basis. In 1971, according to Pew, 61 percent of adult Americans were middle class or middle income, but that number fell to below 50 percent of the population in 2015. According to the Russell Sage Foundation, a typical household today has a net worth 14 percent lower than the typical net worth in 1984. One group of international economists studying incomes found that stagnant wages have decreased the share of income going to the bottom half of the U.S. population to a 12.5 percent share of total income, from around 20 percent in 1980. Based on a survey by Google, approximately 62 percent of Americans have less than $1,000 in a savings account, and a report from Bankrate states that only 41 percent of Americans have enough savings to handle an unplanned expense of between $500 to $1,000.
In addition to lower family financial resources, we are seeing a compression of financial assets into certain geographic areas—often at the expense of others. Ninety percent of the United States’ gross domestic product and 86 percent of all jobs are generated in only 3 percent of the continent. This may be a factor in the trend of moving back to and regentrifying city centers, which has been particularly popular with Millennials. Over the past several decades, those living in cities, especially large urban centers, have differentiated dramatically from those living in other parts of the country. And it is providing a point of conflict, as evidenced in the recent Presidential elections, where candidate Trump gained traction by appealing to “those left behind.”
Lower household incomes do not bode well for families or for the country, and they do not bode well for much of the retail industry. The reality is that retailers, who have traditionally served the middle class, have less middle class to serve—and even those shoppers are financially stressed. For many, aspirational shopping is a thing of the past. Retailers serving cost-driven shoppers are fairing the best. These shoppers have lower standards, do not demand quality and shop more often, because they are living paycheck to paycheck. But even cost-driven shoppers can be fickle, as Target and Wal-Mart have found out over the past few years. Dollar stores, c-stores, warehouse clubs, and off-price stores are doing the best in this economic climate, as well as online sources that offer hyper-competitive prices and free shipping.
The rise of Multi-generational housing
One in five Americans now lives with more than one generation in the home—a record 60.6 million people. Around 40 percent of young adult Americans (18 to 34-year-olds), or Millennials, live at home with their parents or with other family members, the largest percentage since 1940 and an increase from 33.5 percent in 2012—in spite of the improving job market. Additionally, according to Pew research, for young adults, living with parents surpassed living with a romantic or relationship partner for the first time since 1880. Pew attributes this to Millennials’ delaying both marriage and household formation. There has also been an increase in “Grandfamilies,” households where a grandparent is the head of household. In America today, one in ten children lives with a grandparent.
This is having a major effect on how often households shop and what they buy. The traditional business model of the family shopping unit: two parents and two kids, is no longer as meaningful for predicting spending activities. Housing is also affected, including the size of homes and how spaces are divided up within the home, including consideration for the number of bedrooms and baths and even the size of garages.
Fortress families in fortress homes
Americans are staying [sheltering] in place. According to the U.S. Census Bureau, the number of people moving in a given year dropped from 20 percent in the 1960s, to 15 percent in the 1990s, to 10 percent today, the lowest level since 1948. The number of people moving from one state to another has fallen by half since the 1990s. The reasons are complex: economic challenges for some, seniors locked in place by falling house values during the recession, a general fearful, apprehensive environment and lack of confidence in the future. Familiar surroundings provide insulation and protection from the unknown (both real and imagined), as Americans become more adverse to risk taking and more obsessed with security and safety.
Public environments, including malls and stores, must project an aura of safety and security. Even small towns need to be concerned about acts of terrorism and crime, including police shootings. Clothing that people wear in public has become more anonymous—workout wear, jeans, etc.—more generic and less attention getting, especially less likely to send signals about wealth, which might attract undue attention. Expensive homes have retreated behind walls and gates. Fortress families and fortress homes are the new normal.
Retailers can forget sprucing up their childrens’ departments, at least for the time being. The post-recession baby boom has not yet materialized and that may mean growing pains for the economy. With the typical birthing age of a mother now at 26 or older, the birth rate dropped to an historic low in 2015. There have been 3.4 million fewer births than normal since 2008. There are now more households with dogs than there are with children, 43 million vs. 33 million. And with the trend leaning toward smaller families, two kids or less, when Millennials do start having children, the numbers aren’t expected to surge as much as with prior generations.
Older retail professionals may recall a time in the late 1960s to early 1970s when there was a similar baby drought. Some department stores closed down their children’s departments completely for several years. Of course, the numbers are different now since there is a much larger overall population, and parents are willing to spend much more on their children. Still, businesses depending on kids would be well advised to keep an eye on this population slowdown.
For the first time, there are more single adult Americans than married Americans—124.6 million adults, or slightly more than 50 percent of the population. In 1960, 72 percent of Americans were married. And in the 1960s, 93 percent of children were born to married parents, but by 2010, that number had dropped below 60 percent, and it is less than 50 percent today. A record 8 percent of households with minor children are headed by a single father, up from 1 percent in 1960. In 2016, Single women accounted for 17 percent of all U.S. homebuyers and 35 percent of all first-time homebuyers. It is estimated that one in four Millennials may remain single for life.
Households with single heads, or one income, usually do not have as much income as households made up of married couples, though they may desire the same quality and abundance. Retailers can benefit from offering lower prices, providing support services and designing special products to these consumers. For example, we are already seeing more packaged single-serving food items in grocery stores.
Labor force changes
During the recession, it was no secret that more men lost jobs than women, probably because the women’s jobs paid less. And as the economy has recovered, it has created more new jobs for men than women. But the presence of women in the American workforce actually peaked in 2000. Since then there has been a slow retreat of women from the work place. By 2020, The Labor Department predicts that women’s labor-force participation will be lower than in 1990.
Boomer retirees are beginning to leave the work place in significant numbers and Social Security claims are soaring. Many were laid-off during recent recessionary years, and now Boomers are aging out, passing the traditional retirement age. The aging of American society will present challenges for our networks: social, financial and cultural. Unprecedented, costly health care issues— dementia and Alzheimer’s are dramatically increasing in the elderly—are threats to Medicare, families and society. Middle-class families’ spending on health care has increased by 25 percent since 2007, which is especially challenging for retirees on fixed incomes.
Hard economic times always punish those with less money and power, so it is no surprise that the elderly and women may miss out on freedoms and influence they had gained over the past 100 years—possibly even taking some steps backwards. (This is a complex subject, past the potential to explore here.) Since women account for around 80 percent of all consumer-purchasing decisions, reducing their presence and power in the economy may not bode well for retailers and other businesses. Boomer retirees will have to spend a much larger portion of their incomes on health care than prior generations (largely due to rising prices), leaving less to spend on consumer goods. Yet retailers can identify new opportunities to serve women and seniors—retirees are virtually an untapped market—that will be beneficial and pay off.
Mobility: phones win out over cars
Thirty years ago, the majority of 16-year-olds had driver’s licenses, but today, that figure has dropped to around 25 percent. Car ownership among 18 to 34-year-olds has dropped by 30 percent in the past five years. Many Millennials do not see the need for a car, as long as a pal has one and is willing to chauffeur the group to the mall or the movies—or they can borrow Dad’s. According to Kelley Blue book, the average price for a new car or light truck in 2016 was $34,000, beyond the reach of average incomes, especially for the young. And since the average monthly amount now spent on digital equipment and services may be as much or in excess of a monthly car payment, many individuals simply do not have enough income to support both financial commitments—and the digital wins out. There is also a cultural shift as more and more people depend on car services, such as Uber or Lyft, to provide affordable transportation and there is less need for individual car ownership. Of course, as Millennials age and have children, the need for family-sized transportation may become more of an issue. While car sales have been strong over the past few years, with some recent weakness, the future of traditional auto ownership may soon see major changes. The entry of self-driving or antonymous cars to the marketplace may change the driving equation, but much will depend on whether incomes rise or not. And the more technological bells and whistles added to cars, the higher the price, and the more complicated and higher the costs of maintenance.
The cost and responsibility of car ownership may become an obstacle to some individuals and families and may deter them from being as mobile as they might like. That drive to the mall may involve more of a commitment than in the past and shopping visits could be curtailed. This will likely force more activity online.
Rise of the Nones
A Pew Research Center survey found that the fastest-growing religious cohort in America is the “Nones,” those who say they have no religious affiliations or beliefs. This group is more than 23 percent of the total population, and 32 percent of those under age 30, or around 97 million people. Millennials, who tend to be less religious in general, are more likely to identify as “Nones.” The Nones subscribe to different values than most mainstream Americans, are less likely to vote or to participate in civic institutions or activities, and in some cases they may not celebrate traditional religious holidays. Another shift in religious demographics is the expansion of the Muslim religion in this country and worldwide. Globally, the Muslim population is expected to increase by 197 percent by 2050, with Muslims expected to be nearly as numerous as Christians by mid-century. At the same time, in the United States, Christians are expected to decline from three-quarters of the population to two-thirds of the population.
Retailers will see this as both an opportunity and a challenge. With larger families, different dietary strictures (halal foods) and different religious holiday celebrations, it may be difficult to serve the needs of Muslims, while also serving the expectations of traditional Christian customers and other religions, such as Judaism. Considering recent conflicts and incidents of radical Islamic terrorism in this country and abroad, points of discord can be expected. There are other more subtle changes: for example, swearing on a bible, or other religious document, in court may become meaningless for many. And with more difficulty in obtaining universal agreement on what is right and wrong, stiffer, more detailed laws may be needed.
Mid-century, a milestone for big demographic changes
By 2050, according to U.S. Census Bureau figures, Caucasians, or whites, will no longer constitute the majority of Americans. This will be one of the biggest changes in the history of the country, with numerous implications and impacts. Actually, this milestone was predicted to occur earlier, but stricter immigration policies and other factors have slowed the flow of foreigners into the country in the past few years. (Earlier predictions called for white children to become a minority by 2023, and the overall white population to be a minority by 2042.) Between now and 2065, the U.S. population will increase by 36 percent to 441 million. Immigrants and their offspring will make up 88 percent of the increase, or 130 million people. Asians are now on target to surpass Hispanics as the largest foreign-born group in America by 2055.
Many retailers already try to appeal to different racial and ethnic groups, with targeted merchandise, special language signing, etc. Expect to see more efforts as dominate groups shift and exert their influence, demanding more recognition. All public environments will become more multicultural, which will be at once more welcoming and more confusing or chaotic. Smaller, specialty, niche businesses will proliferate.
3. Food: Massive changes are occurring in the buying and consumption of food
Over the past two years, it was reported that the percentage of retail sales in restaurants and bars was closing the gap and beginning to exceed food expenditures in grocery and beverage stores. (In 1995, restaurants and bars accounted for 9.5 percent of total retail sales, while food and beverage stores accounted for more than 17 percent.) It is clear that eating out is becoming more entrenched in the American way of life, especially among younger consumers.
No doubt convenience, value and variety all play a role as more Americans seek speedy access to meals, the ability to stretch dollars, and a desire to try new and appealing menu items. Consumers also look to food to improve their health and to enliven their social experiences. And today, the majority of food shoppers of all ages say that they now prioritize “saving money” over quality and variety.
The past several decades have seen a dramatic evolution in food consumption. The movie, “The Founder,” based on the history of the creation and expansion of the McDonalds food chain, ushered in the era of fast food dining, offering tasty but standardized burgers prepared in a flash, served in a bag and eaten on the go. Contrast that with the new, popular chain-eatery Shake Shack, whose high-end burgers offer custom options, are served with fresh-ingredient smoothies and, accordingly, cost much more. Or even home delivery of burgers with all the trimmings—yes, there is an app for that.
Food trends today are influenced by generational, economic and psychographic factors. For example, we are seeing a divide in food buying and consumption segregated by age groups. Surveys indicate that seniors and retirees have cut back on eating out and increased grocery shopping and food prep at home. As Boomers begin to retire, it is becoming apparent that the Great Recession has eaten away at their investment funds, leaving them pinching pennies. Preparing more food at home is one way to save money. At the other end of the spectrum, a survey by Piper Jaffray indicates that teens, Gen-Z, are spending more than ever on eating out, more than one-fifth of their total budget dollars. (Of course, since most of them are still living at home, Mom and Dad usually foot the bill for their groceries.)
The boomer foodies of the past few decades were sophisticated, adventurous explorers of the food universe, who would spare no expense nor effort to experience the rarest and best available, prepared by world-famous chefs or at home in their luxury stainless-steel kitchens. Today’s younger foodies prioritize freshness and healthy, sustainable, unadulterated ingredients; but want affordable, convenient, immediately accessible options—and most of them have little interest in toiling over a hot stove.
According to government data, shoppers in their 20s and 30s are frequenting grocery stores less often than their parents. Millennials are more apt to shop in a variety of stores, rather than a one-source grocery chain. In fact, according to one marketing study called Trouble in Aisle 5, Millennials buy only 41 percent of their food at traditional grocery stores. While they may shop the neighborhood supermarket for basics, they seek out stores like Aldi or Wal-Mart for cost savings; Whole Foods for organics; specialty shops or artisanal producers for fresh-baked breads, confections, cheeses and the like; and farmer’s markets for fresh local produce. Their food dollars are spread over a host of sources, many of which are smaller specialty operations, where the food is perceived to be fresher and a personal touch enhances the experience.
In pursuit of speed and convenience, younger consumers also frequent c-stores, which have increased their fresh, ready-to-eat food selections. When they dine in restaurants, usually with groups of friends, they seek an experience that is unique and special, rather than national chains that emphasize consistency. Expect to see a changing of the guard, as older restaurant brands are replaced by newer, more appealing concepts. And when some Millennials cook at home, they are experimenting with online meal kit subscription services such as Blue Apron or HelloFresh, thereby avoiding grocery shopping altogether.
Grocery stores face several challenges related to these changing trends. When grocers offer more fresh [perishable] items of produce and ready-to-eat options, if they are not in high traffic locations, they may experience increasing costs from spoilage. Target has complained about this, and it is clear that logistics and operational factors are key to maintaining quality fresh selections. And contamination of foods, as experienced by the popular Chipotle chain last year, is also a higher risk with more fresh items.
Grocers are also experiencing decreasing sales for frozen packaged foods, which younger shoppers do not equate with fresh and perceive as a relic of their grandparents’ generation. Today, more than 50 percent of shoppers who buy frozen foods are age 45 or older. Millennials also are leading the push for “clean” food, food that is natural or organic and free of additives and chemicals, which has caused many restaurants and food vendors to alter their offerings. Some other evolving trends include changes in the Top 10 most frequently consumed foods in-home and away-from-home, with Americans eating more sandwiches, fruit and salty snacks (of all kinds) and less cereal, soft drinks, milk and salad. Salad actually fell off of the Top 10 list. Vegetables and Coffee maintained their respective ratings of No. 3 and No. 6 on the list.
In another significant change, restaurants have seen a dramatic increase in demand for chicken—some younger consumers perceive chicken to be healthier—which is even edging out beef in some fast food chains. Of the 100 biggest restaurant chains in the U.S., three of the five fastest growing are chicken concepts. Based on purchases, demand for chicken surpassed the burger sector last April, making it the No.1 category in the fast-food business, and most burger chains now offer some types of chicken sandwiches as well. The recent introduction of Taco Bell’s Naked Chicken Chalupa is one example of this trend. Mainstay chicken chain Chick-fil-A is reporting double-digit sales growth. Breakfast is another category that provides more affordable options and is enjoying renewed emphasis, with breakfast items often being offered all day.
While food prices experienced dramatic increases in 2014—called the highest price increases in 26 years—there were some declines in prices in 2016, especially for items like eggs, milk and some meats. The government index of grocery prices found a decrease of 2.2 percent in 2016. Lower gasoline prices have reduced transportation costs, and there has been a recent oversupply of some food commodities (more than 43 million excess gallons of milk were dumped in the first three quarters of 2016). Lower prices may attract some shoppers back to grocery stores, but not all savings from lower wholesale prices have been passed on to shoppers, and on an historic basis, food costs are still high. In some packaged goods categories, and in some food categories, including fruit, prices have continued to rise.
Many restaurants have raised their prices over recent months, mostly in anticipation of rising wages for workers due to minimum wage increases.
The Bureau of Labor Statistics food away from home cost index rose by 2.8 percent across all restaurant types last year. Some reports indicate that prices at mid-market to better table-service restaurants increased by 20 percent in the past year. Consumer demands for better quality while maintaining affordability have put pressure on restaurants, and we have seen a recent increase in restaurant closures, with 12 restaurant companies filing for bankruptcy in 2016.
Grocery stores and restaurants will find both positives and negatives among the many changes underfoot as Americans shift their preferences for food shopping and eating. Retailers in these categories will be challenged to keep up and to transform into venues that will appeal to the emerging new influencers: Millennials and Gen-Z. To make matters worse, competition will increase as German grocery chains Aldi and Lidl intensify their American expansion programs, with Aldi planning to operate 2,000 U.S. units by the end of 2018, and with Lidl launching its first 100 stores here by the end of 2017.
Retail Intel is an Atlanta-area-based consulting firm, specializing in research, analysis and interpretation of consumer trends, including shopping, economic, psychographic, social and cultural trends. The firm helps retail and business clients get a better understanding of existing and emerging trends shaping the consumer marketplace. For more information, contact:email@example.com.
Report by: RoxAnna A. Sway, RDI, Retail Intel, Director
Release Date: 3/15/17
Copyright © Retail Intel, 2017