From Data Science to Gen Z: The Trends That Will Impact Retail in 2016

Why Read this Article

This article previews the most important trends that will impact the retail industry in 2016 and helps merchants prepare for a dynamic year full of technological innovations, new customer behavior trends, and shifts in the competitive marketplace.

Introduction

A lot happened in the world of retail and e-commerce in 2015. Pop-up stores kept popping up, mobile commerce continued growing at a rapid pace, and “omnichannel” took over everything (while becoming one of the busiest buzzwords of the year).

But what does the future have in store for 2016? Are there new marketing trends that will reach critical mass this year? Or are there new technologies that will change the retail landscape in 2016? People throughout the industry are already making their 2016 predictions. And while we can’t know for sure what will happen, we can make some educated guesses.

Here’s what we expect to happen in the world of retail during the remainder of 2016, with a focus on e-commerce trends.

Retailers will capture a 360-degree view of the customer (and use it in creative ways)

Tracking an individual customer’s activity — from transaction to transaction and across all manner of devices — is no longer a luxury. In 2016 it will become a necessity. That means it will no longer be acceptable to treat someone as a brand new customer just because they’re navigating to your website on a different device. There will be further movement toward encouraging (or even requiring) authentication for each interaction. The benefits of personalizing the experience for each customer are now too great to ignore, which will force e-retailers’ hands.

Greater personalization will make it possible for any retailer to take advantage of the sophisticated kinds of targeting that today’s cutting edge marketing and e-commerce tools enable. Kevin Eichelberger, the Founder and CEO of e-commerce agency Blue Acorn says “every marketer knows that segmenting an audience and tailoring the message to that audience is an effective way to market and sell products, but personalization had long been out of reach for many brands and retailers due to the expense and the complexity. Today, thanks to companies like Monetate, Qubit and Optimizely, we have tools that give everyone the ability to personalize the shopping experience.” Eichelberger predicts we’ll see “mass adoption” of personalization in 2016.

This trend will not only affect e-commerce. In-store shopping behavior will be affected as well. An article at NRF.com speculates that personalization could change the in-store experience, saying, “in a fashion apparel aisle, for instance, a consumer conceivably could pick up an item and the sensor on the garment would interact with the shopper’s smartphone and direct her to a nearby rack for a recommended accessory, including personalized content about the items.”

Data science and automated tools will be used for powerful new insights

With the additional data retailers now get from consumers (see above), they are going to be increasingly reliant on data science as a powerful tool to aggregate and act upon the data. This will help retailers on a macro-level by telling them when to put certain items on sale or which products to feature most prominently, and also on a micro-level by telling them which product to highlight for a specific customer. Rama Ramakrishnan, the Chief Data Scientist at Demandware recently wrote in Demandware Predicts – Retail in 2016, “an [automated tool] could recommend that retailers run a buy-one-get-one sale on women’s sandals to clear out excess inventory, and even suggest the optimum time of day to run the sale.” These data science insights will become so deeply interwoven in the buying process that customers won’t even notice them.

But this automated intelligence will be brought to bear in tandem with human intelligence, namely in the form of data scientists being welcomed into the decision-making process at retail companies. In Demandware Predicts, Graeme Grant, the Vice President of Intelligence at Demandware, said that “2016 will be the year that the majority of retailers move from intuition-based decision making to data-driven decision making, creating, among other things, a severe talent shortage of data scientists.”

E-commerce merchants and traditional retailers will go “all in” on omnichannel (if they haven’t already)

Yes, it’s a buzz-word. And yes, it’s not a new trend. But omnichannel continues to be the biggest change agent in the e-commerce world, and that won’t stop in 2016. Nicolas Ullah, the Senior Director of Marketing at custom furniture retailer Joybird, notes that “according to ICSC, omni-channel customers tend to shop more frequently and spend 3.5 times more than single-channel shoppers.” That data is borne out by what Joybird sees with its own users, according to Ullah. “Even if customers aren’t converting on their desktop computers, several of them will still use their mobile devices or tablets to browse, research, and make their decisions,” he says.

Not only will retailers increasingly adapt to omnichannel customers, but they will make use of new innovations that allow customers to make purchases anytime they want. Sen Sugano, who is in charge of marketing and growth at sneaker marketplace GOAT, says “in 2015, we saw the introduction of Buy Buttons across social media channels, such as Facebook, Instagram and Pinterest. In 2016, we’re going to be seeing a lot more of this. E-commerce companies will need to continue to think omnichannel and give their customers the ability to buy wherever and whenever.” Sugano insists that this will include mobile shoppers as well: “In 2015, you kept hearing ‘this is the year of mobile, this is the year of mobile,’ but I think 2016 is actually going to be the year. We still have a lot of room for optimization and growth here. E-commerce companies will need to optimize their mobile apps to include personalized and content-rich experiences that help customers make informed decisions to purchase on the go.”

JoybirdGOAT-screenshot (1)

Joybird and GOAT optimize for an excellent mobile experience

A trend of the last few years is also likely to continue: the rise of “pop up” stores. With brands from Bonobos to Birchbox opening brick and mortar locations, it’s a strategy that’s catching on. The pop up stores or guideshops offer customers a chance to try products in person before making a purchase online — an improvement over the traditional e-commerce shopping experience. Retailers with an established physical presence will need to look for new ways to take advantage of these storefronts. Kevin Eichelberger of Blue Acorn says “Amazon is continuing to grow market share, and if you sell products online, you’re forced to innovate to compete with it. The best way is to leverage your strengths against Amazon’s weakness, which is the fact that it has no physical stores. Brands and retailers will have to get creative with their physical storefronts and point-of-sale purchases, and use their creativity as an asset in that battle. Success will require an excellent grasp on omnichannel, and it will be a big push this year.”

Omnichannel is no longer just for young, technologically advanced merchants. One example of a large, traditional retailer who is experimenting with a better omnichannel experience is Macy’s. A recent VendHQ article points out that Macy’s, “in addition to offering typical omnichannel services like click-and-collect, also lets customers browse the inventory at their local store on the Macy’s site. This lets shoppers see what’s in stock at the nearest Macy’s location, and they can either purchase a product and pick it up right away, or arrange for same-day delivery. The Macy’s mobile app also lets users scan product barcodes in-store, so they can view online reviews, promotions, and more.”

Retailers will add improved payment options and use these to attract new customers

Payments have evolved so much in the last few years alone. There are now a plethora of options for almost every use case. With all the hype that some new payment options receive, it’s fair to wonder if there’s any steak beneath all the sizzle. We predict that not only is there substance to these new payment methods, but that they will continue gaining traction among consumers in 2016.

Perhaps most important for e-commerce merchants are the new crop of consumer financing options that allow people to pay over time for a purchase instead of paying the full price up front. Companies like Affirm, Klarna, and PayPal offer merchants a way to avoid dealing with risk factors like non-repayment and fraud by owning the entire credit process. The result is a simple UX that makes customers more likely to go through with a purchase. Kevin Eichelberger of Blue Acorn says, “For a long time, you could only pay for online purchases with credit cards. Today, there are numerous choices, from Bitcoin to Affirm to Apple Pay to PayPal, and more. The challenge here will be creating the best payment experience for customers, without introducing friction from too many options.”

Affirm Checkout

Affirm, a payment option for e-commerce

Shipping and delivery will become even more of a battlefield

In a retail culture that increasingly encourages a “get it instantly” mentality, shipping and delivery are facing dramatic change. Of course, the major driver of change in this area is Amazon, the ubiquitous e-commerce giant that continually pushes the envelope on what entails a speedy delivery process. But it’s not only Amazon that retailers must compete with. More and more, same-day and next-day delivery are becoming commonplace. Sen Sugano of GOAT believes this will be an important trend to watch this year. He says “there has been a shift in consumer attitudes the last few years, which has fueled the proliferation of concierge-type apps, such as Instacart and Postmates, that make it easier to get the things you want. Consumers are increasingly saying, ‘We want it and we want it now.’ In 2016, I think we’re going to see even more of this with retailers focusing on optimizing their shipping and logistics to not only get their customers what they want, but to get it to them now.”

Out on the cutting edge, Amazon and others will continue pushing the boundaries and perhaps we’ll see the beginning of a long-term move away from traditional delivery services. Kevin Eichelberger of Blue Acorn says, “Today, when you think of package deliveries, you think of FedEx, the U.S. Postal Service and UPS. In 2016, we’ll see a chipping away at these methods as innovative companies begin offering alternative methods of delivery. Our client Rebecca Minkoff, for example, is starting to offer rush delivery via Uber. We’ll also see retailers with their own fleets, and we’ll even see drone delivery.”

A battle of the titans may emerge, with Walmart being forced to improve its shipping options. Jack Neff, speaking to AdAge, predicted that Walmart “will expand its ShippingPass pilot, which in its current form costs roughly half what Amazon Prime does annually ($50 versus $99), for a slightly slower shipping speed (three days versus two days). Walmart already has demonstrated it’s willing to invest and lose money to compete with its fastest-growing big retail rival.” Even Google may get in on this fight. Rob Garf, Vice President of Industry Insights at Demandware, predicts that “Google will begin to position its self-driving cars as a retail fulfillment method as retailers continue to look for innovative ways to defray the profit-crushing expense of free shipping and returns.”

The next generation of customers will capture retailers’ attention

While the Millennial Generation has been in the spotlight for years, a new generation is quietly getting older and amassing greater purchasing power. These younger consumers, often referred to as Generation Z, will account for a small but growing percentage of retail sales in 2016. Matt Mayes, Manager of Data Intelligence and Insights at Demandware, says that Generation Z “will become a larger percentage of online commerce in North America, driven in large part by integrated experiences between e-commerce sites and social media. The ease of payment (TouchID, etc.) means that adolescents can have their fingerprint added to their parents’ mobile wallet accounts, obviating the need for their own credit card.”

With this generation rising, it’s almost certain that new brands will emerge to conquer yesterday’s trendiest brands. Adrianne Pasquarelli, speaking to AdAge, says that “In today’s digital age, fickle youngsters have long been gravitating away from traditional mall-based teen brands — Aeropostale, American Eagle and Abercrombie & Fitch — toward fast-fashion players such as Zara, Forever 21 and H&M, and moving a bulk of their shopping online. The A’s are left holding the bag with a surplus of stores in shopping centers few consumers visit, and excess inventory of graphic T-shirts, stonewashed jeans and skimpy tank tops. In 2016, teen retailers will need to further develop their marketing message, especially on the technology side, and figure out their target audience.”

In general, when crafting and disseminating their marketing messages, retailers must increasingly consider a customer’s group affiliations, regardless of age. More and more, such affiliations will be used by retailers in the process of identifying and persuading target customers. As Nicolas Ullah of Joybird notes, “understanding the groups consumers belong to and which influencers have an impact already is a key strategy for marketers, but will grow in 2016.”

While these 2016 trends may or may not play out as described above, there’s no doubt that the retail industry will remain full of innovation and change throughout this year and beyond. The technological upheaval of the last decade shows no signs of slowing down, and retailers of all types and sizes must continue to adapt or risk being left behind. However, the good news is that within many of these trends lie opportunities for scrappy merchants to compete for (and win) customers from the largest retailers. The savvy merchant will take advantage of these opportunities, learn from past mistakes, and be nimble enough to serve the needs of today’s unique customers.

DISCLAIMER: The views contained in this article are those of Affirm only. Affirm has not received any consideration whatsoever for creating this article. Any brands contained in this article are included as examples only. Affirm does not intend to endorse or promote any brands contained in this article.