While the final 2021 retail sales numbers have yet to roll in, one thing’s for sure: The retail industry’s recovery is going strong, and physical retail is anything but dead.

In June, after a strong first quarter, the National Retail Federation revised their annual forecast for 2021, increasing their sales growth projections from at least 6.5% to between 10.5% and 13.5%. As NRF President and CEO Matthew Shay said, “The economy and consumer spending have proven to be much more resilient than initially forecasted.”

In October, early holiday shopping caused sales to rise 1.8%, far exceeding the projected 0.8%. November sales saw a nominal 0.3% rise, likely due to many consumers having already completed their holiday shopping. Still overall holiday sales were up 11% this season compared with 2019, the last holiday shopping season before the pandemic. 

2021 has been a year unlike any other, following another year unlike any other. What can we learn from this year, and what can we expect in 2022?

In our first year of the Spark Plug podcast, we talked with industry experts from all over the globe who had a lot to say about this.

The Top 5 Takeaways from 2021

• Both physical retail and e-commerce are here to stay – and they must work together.
  Dana Telsey, Telsey Advisory Group

In the long battle between physical retail and ecommerce, it’s a draw, at least for now. The question no longer centers around which one will win out, but rather around how they can support each other to make retail stronger. Dana Telsey is CEO of the Telsey Advisory Group, a leading brokerage firm focused on the retail and consumer sector. As she told us back in July this year, “Every company that has a customer base that’s loyal and that’s growing has both a physical retail presence and an ecommerce presence.”

Although warnings of a brick and mortar apocalypse have swirled around for years, physical retail still provides a purpose, both for retailers and consumers. “If there’s one thing that the pandemic taught us, it’s that physical stores are essential. They provide a touch point, they provide an opportunity to be closer to the customer, and they provide social engagement. And everybody needs that.”

What’s more, the pandemic accelerated the adoption of ecommerce by luxury brands who had once scoffed at online retail. Luxury had considered it necessary for customers to have an in-store experience to justify the purchase of expensive items. “Fast forward to today,” says Telsey, “you have brands like LVMH not only doing online but innovating.” Telsey says that the lack of tourism since the pandemic had the potential to take a big bite out of sales, so going online became an important way to keep customers. “The luxury goods industry is the biggest wow to me in taking the meaning of service and extending it.”

Telsey says that 2021 demonstrated the importance of physical stores and ecommerce working together. Data from ecommerce should inform the physical footprint, inventory and merchandising. In-store purchases should inform each customer’s online experience. No longer can these two experiences exist independently of one another. They have to work together to create one consistent experience for the consumer. 

• The in-store experience must be remarkable.
  

  Steve Dennis, author of Remarkable Retail
  

“It’s not the internet that killed Sears,” says author Steve Dennis. “It’s this idea of trying to sell a little bit of everything to everybody in a location that is not a preferred destination for the vast majority of purchases and customers.”

Having a storefront is important, but a physical space alone isn’t enough. With plenty of neighboring storefronts, curbside pickup and home delivery with which to compete, the in-store experience has to be worth the trip for the consumer. A generic experience that feels just like any other store won’t cut it.

In his 2021 book Remarkable Retail, Dennis says that stores must be memorable, radical and remarkable in order to stand out in this world of abundance. “What I talk about is this idea of amplifying the ‘Wow.’ What is that thing that really sets you apart, that is different and highly customer-relevant?”

In this regard, says Dennis, local and independent shops were able to use this advantage to compete this past year. “In particular for smaller retailers, it’s that local market knowledge – to have a product that they know will work. Amazon is certainly not going to be able to go head to head with them.” This ability to create customer intimacy and market customization has been essential to providing remarkable in-store experiences.

Another development over the past year was the expanded role of physical stores. “The big thing that we learned through Covid is what I call the hybridization of retail,” Dennis says. Although the merging of physical and digital is not new, the way in which physical stores supported online shopping evolved. When the interiors of stores shut down for customers, staff continued to offer curbside pickup. Many retailers also decided to use physical stores as fulfillment hubs for online orders, whether through home delivery or shipping. “Suddenly the role of the store really became different, and I think that’s here to stay.”

• Some companies struggled with remote work models.
  Ben Parr, President and Co-Founder of Octane AI

When Ben Parr and his partners co-founded Octane AI, the zero-party data marketing platform for Shopify merchants, they specifically set out to start a remote company. While this may have still been a rare business model in 2016, by the time the pandemic hit in 2020, they were more than prepared to handle the new landscape of remote work.

Earlier this year, we asked Ben for his thoughts on how companies are adapting to this new way of working and for his tips on how to increase the effectiveness of a remote team.

“I have a strong opinion that a lot of hybrid models do not work,” Parr told us. “The model that does not work is one central office with a bunch of remote employees. What happens is that you get two company cultures: One that’s happening with people talking with each other at the office and one that is on their own talking a little bit through Slack. If you go hybrid, you can have two cultures, and you don’t want to have two cultures.”

Parr shares that a big part of the success at Octane Al is allowing flexible hours for employees. “The reality is that we’re not machines that can work at perfect efficiency from 9am to 5pm. Some people work better in the morning, evening, or need a workout in the middle of the day. That’s the beauty of remote work.” Making sure that employees take their paid vacation day is another important pillar to managing well-being and preventing burnout. In fact, his company pays their employees a bonus for taking their paid vacation days.

Though remote work can have many benefits including flexibility, Parr acknowledges that the drawbacks have to be addressed head-on. “We can be in constant Zooms all day, but make sure to take time to think and process.” Parr says he will often schedule in time to take a walk and think through a problem he might be facing. He encourages anyone who works at a remote company to “Put time on the calendar to just think.”

• Loyalty programs continued to evolve.
  Paula Thomas, host of the Let’s Talk Loyalty podcast

When consumers could no longer stop into a store to make a purchase and receive loyalty points, loyalty programs had to find a way to evolve in order to survive. And evolve they did – at an accelerated pace.

Paula Thomas is host of the Let’s Talk Loyalty podcast. As she shared with us in September, several new loyalty models became popular over the last calendar year. 

“My favorite form of loyalty in the present and very recent past would be paid loyalty. Panera Bread is probably the best example I’ve seen. They realized that customers were beginning to resent how much money they were spending on coffee every day, so they decided to create a loyalty program in which customers could get unlimited coffee for $8.99. What they found was that customers not only came in more frequently, but they were also more tempted to buy lunch or a cookie as well.”

Thomas says that the other defining feature of newer loyalty programs is the concept of emotional loyalty. Consumers want more than just a transactional relationship with a brand. They want to feel understood and to be part of something bigger. Thomas says that brands can actually connect their own members and build a tribe, rather than just having a one-directional relationship. IKEA, for example, began to put their customers in touch with one another after discovering that some customers had a knack for providing tips for putting together furniture. “That’s another extraordinary change accelerated by the pandemic and one that I think is fantastic for certain brands,” says Thomas.

Another recent trend? Simplification. Over the years, complexity has steadily built up in all areas of our lives, including in retail loyalty programs. But consumers want something simple and easy, and brands are catching on. Check-out is faster, menus are shorter, and loyalty program structures are simpler. This will be key to maintaining customer engagement going forward. As Thomas explains, “Anything that simplifies our lives will remain.”

• The retail industry’s recovery marches on – steadily.
  Ebere Anokute, Manager of Retail Research

Ebere Anokute is a writer and retail researcher based in New York. We asked him how the retail industry’s recovery is going post-2020. He shared his reflections on several key findings from his research this past year. 

“One thing that has been really fascinating is the way that ecommerce has started to trend. Back in the first quarter of 2020, overall ecommerce spending hovered around 11% or 12% as a percentage of total retail sales. In the second quarter of 2020, it increased to around 16% or so, because most physical stores were shut down. Since then, it’s been declining pretty steadily and normalizing closer to where it was pre-pandemic. That’s been really interesting to see–the fact that ecommerce spending is not exploding the way that some people make it sound like it is.”

Ebere says that at the end of 2021, ecommerce is back to around 13% of overall retail sales. Even Black Friday numbers held steady, being roughly the same as they were in 2020. Overall, holiday sales showed good improvement over last year, with more room for growth. “We did not see a return to pre-covid levels just yet. But we’re trending in the right direction. Foot traffic was up 48% from 2020 but it’s still down around 30% from 2019 levels.”

Another key finding from 2021? The increase in Buy Now Pay Later platforms (BNPL). “That was something that really blew my mind in terms of the popularity they were seeing and the proliferation they were seeing in that space. Even paypal has started their own buy now pay later system.”

The Top 5 Trends to Expect in 2022

• Livestream shopping will become more popular.
  Tiffany Shi, Vice President for Product and Growth at ShopShops

Tiffany Shi is the Vice President for Product and Growth at ShopShops, a global shopping app that mimics the fun of in-person shopping through the magic of livestream video. Livestream shopping has been popular in China for years but hadn’t yet gained ground in the U.S. as of early 2020. 

When the pandemic began closing down stores that Spring, ShopShops accelerated their plans for expansion into the U.S. in order to help stores establish an ecommerce presence and keep selling inventory. Since then, the platform has gained popularity with shoppers of all ages.

“Livestream shopping is a very experiential way to shop online,” says Shi. “Everyone’s on it – parents are on it, kids are on it. And every product category you can think of. I knew that it was only a matter of time before it came to the U.S.”

ShopShops enables hosts or “creators” to livestream from any store around the world to a global market of consumers. The technology allows anyone to be a retailer by setting up a store and selling something. Shi says that the magic is in the authentic storytelling nature of live streaming, which resonates with U.S. shoppers in particular. There is no editing or overly produced material. Live streaming gives consumers a story that they don’t get from traditional ecommerce. 

If 2021 is any indication, expect to see more live streaming shopping in 2022.

• Diversity in tech will increase in order to respond to consumer demand.
  Joan D. Pepin, Founder and CEO of ZeroWall.ai

We’ve all received letters from a business that we’ve visited telling us that a security breach has exposed our data to outside hackers. It’s a troubling letter to receive and may sour our view of that business, at least for the time being. Security breaches take a big toll on the customer and can lead to a level of distrust that will eventually take a toll on the bottom line as well. 

Joan D. Pepin is the founder of ZeroWall.ai, a stealth-mode security company dedicated to data privacy. When we spoke with her last March, she explained that security needs to be a priority for companies if they want to protect their customers’ data and maintain a trusting relationship with their customers. “Security should not be an after-thought or an add-on,” explains Pepin. “Security is a feature that your customers should count on just as they count on other features of your products or services.”

The problem is that there is a severe talent gap when it comes to staffing these data security positions. One study demonstrated that global cybersecurity hiring needs to increase by 89% worldwide and 41% in the United States in order to keep up with demand.

Pepin sees an extraordinary opportunity to diversify the field of tech and fill these positions at the same time. “I think a big way that we can close this talent gap in information security is by opening up the tent – by bringing in people from different backgrounds and from different schools and different races and sexual orientations. People are willing to be trained. We can make this a much bigger, more accepting and more diverse community.”

• Retail real estate will continue to hold value – for more than just retail.
  James Cook, Americas Director of Retail Research 

He said it here first: “I’m going to go out on a limb here and say that even 20 years from now I think the majority of things that are bought and sold are going to happen in physical stores.” So prophesied James Cook when he spoke with Spark Plug in November this year. Cook is the Americas Director of Retail Research at JLL where he analyzes retail property markets across the nation.

Cook’s reasoning for making such a bold statement? “There is a strong percentage of sales that is now occurring online and that’s going to grow. But it has to plateau because there are only so many things that can be appropriately sold online.”

Cook sees local and independent retail shops remaining particularly strong in the years ahead, due to the value that they bring to communities and neighborhoods.

For other kinds of retail real estate, the future may look a little different. Take malls, for instance. Over the past few decades, America has seen the construction of far more malls than can be supported by consumers, putting us head and shoulders above the rest of the world in regards to malls per capita. Cook predicts that we will start to see “a tale of two malls” in the near future.

“We classify malls by quality: ABC and D. The A malls have the Apple store, the cool new restaurant, and maybe some fun new virtual reality entertainment. People are continuing to go to those. Even now, foot traffic is back to what it was at pre-covid levels in most cases. But then you’ve got the C mall, which has lost department stores, and it’s going to have to reinvent itself. We’re seeing a lot of those transition to things like medical use, office use, and back office. They’re all good real estate, but a ‘mall’ isn’t the best use for a lot of them anymore.”

• The media will have to respond to evolving consumer expectations too – just like retail.
  Shannon Atkinson, founder of CHNL

Shannon Atkinson is the founder of a new social media platform called CHNL. The aim of this new platform is to allow users to control their own social media data by using a subscription model rather than being powered by advertising dollars. 

In the great debate around consumer privacy and data collection, ie. Apple vs. Facebook, Atkinson says that his company falls on the side of Apple, and that other media companies will likely follow suit. 

“Getting away from advertisers as the main crux of your business model helps diversify your portfolio in the way that you receive revenue and also enhances the user experience. 97% of users opt-out of IOS tracking. Users want to get away. They don’t want to be tracked.”

CHNL also aims to respond to growing concerns over fake news by authenticating its creators. During the onboarding process, creators enter a set of credentials and must use trusted and verified sources when it comes to obtaining information for their content. Atkinson explains that this kind of quality control allows information to be traced back to its original creator.

The way in which we consume media also continues to evolve, and Atkinson says that media outlets will need to continue to deliver content in a highly customized way to each consumer. “We’ve noticed a pattern in video content where people want to consume media in a very specific format. Either they want to see it on their phone, their tablets, or their TVs. We’re adjusting our platform so that we can meet those requirements and reach the consumers in the way that they want to be reached and deliver the content they want.”

• Customer-centricity will reach new heights.
  Cate Trotter, Head of Trends at Insider Trends

“Retail is coming to the customer in a new way,” says Cate Trotter of Insider Trends. 

Cate had many insights to share with us when we spoke with her in September about the future of retail. No matter which trend we zeroed in on, they all came back to one thing: The consumer. “We’re talking about a new definition of customer-centricity. The customer almost doesn’t have to do anything if they don’t want to. It’s a whole new level of convenience.”

From loyalty programs to product inventory, brand experiences will start to wrap themselves around the consumer in a new and exciting way. Developing relationships with the consumer will become just as important to brands as transactions. For instance, Cate shares the example of a bike company that developed a loyalty program around how their customers interact with the product. Bikers’ activities are tracked via a chip inside the bike, and they gain points for completing certain routes and distances. Although the bike has already been purchased, the brand is able to maintain a relationship with the customer through this post-purchase experience.

Omnichannel will also serve a new purpose. “We have a strong view that omnichannel should be about learning about the customer. If a customer tells a brand something about them online, the brand should be able to access that to improve the experience when they’re in the store. And when customers are in the store, they’re going to share other useful bits of information which should then be used to optimize the online journey.”

The customer and the customer’s experience will be at the heart of retail moving forward, and Trotter is a big fan of this trend.

2022, Here We Come!

If retail has demonstrated anything over the past two years, it has demonstrated its resilience, adaptiveness and staying power. For several years now, pundits have anticipated the end of physical and independent commerce, yet they continue to live on. 

The pandemic caused most of us to re-evaluate our lives and values, and with that came a renewed desire for in-person experiences and community, as well as a great enthusiasm for supporting local businesses. 

We’re excited to see all of that is to come in the year ahead, from new technologies and customer-centric business models, to the enhanced integration of physical retail and ecommerce. After nearly two years of accelerated evolution, the retail sector is primed and ready for the opportunities that lie ahead, and we suspect that they’ll be taking most of their cues directly from their customers.