US Insights

Will the retail apocalypse continue in 2018?

Ray Gaul

Senior Vice President of Research and Analytics

Retail 01.29.2018 / 12:00

EmptyMall

It's all doom and gloom, if that's the only thing you're looking for.

2017 was year of many high-profile retail failures – particularly in the USA. The media has chosen to call 2017 the year of the “Retail Apocalypse.” To sell newspapers and magazines they throw all types of retailers into this definition, including some who have closed a few stores. They also talk about 10,000 store closings (without talking about the huge numbers of stores that were opened). 

2017 was certainly bad, but the media makes it sound worse than actual figures would support. As a reminder, big companies like Toys R Us, Sears, J.C. Penney, hh Gregg, and many more, all announced astonishing numbers of store closures. So, the question remains, will 2018 see the same, more, less, or different? Will the retail apocalypse of North America make its way to Europe and Asia?

The situation in Europe was not any better with hundreds of retailers looking for relief.  Several companies found some relief but are still in danger such as one of Denmark’s largest grocery chains – Dagrofa – who closed down their Kiwi discount chain, yet continue to signal ongoing concerns. Others were forced to streamline by cutting jobs and selling assets but are actually performing well and investors are rewarding them with higher share prices.

In just one example, Tesco closed two distribution centers in the UK in 2017, simplified its customer service operations, sold-off its opticians business, and reduced staff levels in its head office. At the same time, Tesco’s results are very strong, they have reduced their debts and acquired their way into an adjacent industry through the Booker Wholesale merger.

Early signs of trouble in 2018

Many retailers are signaling concerns with the trading environment of 2018. This list should be familiar:

  • Rising costs with higher taxes, business rates, minimum wage rates, and rents going up
  • Many retailers have issued profit warnings or revised guidance downward
  • Higher levels of inflation squeezing consumers, particularly in discretionary spending areas
  • Price wars, being launched from unfamiliar places such as discounters moving into new territory or online retailers getting more aggressive on price
  • Fewer trips to stores among digitally-enabled shoppers
  • Higher levels of promotional engagement, with big events like Black Friday growing in importance over the years

Early signs of relief in 2018

Many retailers are also signaling signs of optimism with the trading environment of 2018. This list is rarely reviewed but should be when we make a prediction about the 2018 landscape as a whole.

  • Increased economic growth, with most major economies raising their forecasts for growth, including consumer spending
  • Business and consumer confidence increases with a global stock market rally
  • Big investments in supply-chain to service digital consumers more rapidly made in prior years allowing retailers to focus on making consumers happy with these services rather than focused on building them
  • Huge amounts of innovation taking place in store design, product design, and ways of engaging shoppers

Overall views of 2018

It is very difficult to reconcile the headlines of 2017 with actual figures. “Retail apocalypse” sounds great if you are trying to sell a newspaper but does not make sense when you look at hard numbers. My colleague Doug Hermanson's piece on December retail sales shows how wrong the headlines are when compared to the big picture.  

Likewise, when you look at what retailers are saying about 2018, we see a mixed bag. It is true that many retailers will go under in 2018 and that head office jobs will be squeezed, price wars will be fought, and overall retail will be challenging. However, it is equally true that the economic outlook and consumer outlook for 2018 is as robust as anyone can remember since the crash of 2007.

We encourage everyone doing 2018/2019 planning to look at the facts and not the headlines.

Source: Kantar Consulting

Editor's Notes

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