It’s early, but there are several encouraging signs that consumers will spend more in 2020, signaling a comeback year for retail.
What a difference a year makes.
In late 2018, retailers and consumers across the U.S. faced many uncertainties—a government shutdown, a jittery stock market and the opening salvos of trade wars with Europe and China. That turmoil led to a disappointing holiday shopping season, with a sales growth rate of 2.9%.
There was less uncertainty in November and December of 2019, despite U.S. tariffs on some Chinese goods that took effect earlier in the fall. The stock market was booming, unemployment was at a record low and consumers opened up their pocketbooks to give retail a 4.1% holiday season boost over the previous year, according to recent figures from the National Retail Federation.
Going into 2020, there’s reason to believe that retailers can continue that momentum. Wall Street seems to believe it. As of early February, the SPDR S&P Retail ETF Index, with equity stakes in a range of retail stocks, has gained more than 16% in value since August 2019.
Worldwide, the retail and wholesale market is expected to expand this year. The Business Research Company predicts that retail and wholesale will be the world’s largest market in 2020 at $73.5 trillion, due primarily to low oil prices, emerging technology and more disposable income for consumers.
Consolidation over the last few years has largely helped the retail industry, said Jordan Novak, senior vice president of market innovation for C2FO. The winners in each retail sector are those that have embraced e-commerce and and omni-channel models outside of physical storefronts.
“Luxury goods have shown strength outside of those trends as their consumers are more discerning and enjoy the in-person experience of shopping for these items,” Novak said. “That will continue in 2020 for sure.”
As a supplier, is it time for you to prepare your business for a 2020 retail comeback story? Here are the four major reasons why consumers are expected to spend more in 2020 across a wide variety of retailers:
1. Continued Innovation
Retailers have made tremendous strides in leveraging technology to drive smarter growth and provide greater accessibility for consumers. Innovations like data-driven supply chains have made retail verticals from apparel to grocery to luxury items much smarter in estimating supply and demand along their aisles.
At the same time, services like same-day grocery deliveries, curbside pick-up service and, of course, e-commerce have made traditional retailers more efficient at meeting a range of customer needs.
E-commerce sites that are smartphone-friendly look to be a vital factor in 2020, especially for younger consumers. Research from Cowen shows that more than 63% of Americans ages 18 to 34 spend at least four hours a day on their phones.
Retail numbers bear that out: in 2019, Cyber Monday mobile transactions totaled $3.1 billion, nearly a third of Cyber Monday’s record total sales of $9.4 billion.
Look for e-commerce and curbside pickup to continue to grow in 2020 as retailers capitalize on a blend of digital and physical shopping.
Much has been written about millennials and their shopping habits—and for good reason. In 2020, the full impact of millennials’ buying power is expected to peak at $1.4 trillion, according to a report from consulting firm Accenture.
One way these younger consumers are unique is that they prefer products and services that fit with their moral values and world views. Many millennials favor products and foods that are sustainable and less harmful to the environment, and retailers have picked up on this trend. In 2020, consumers are projected to spend an estimated $142 billion on sustainable fast-moving consumer goods—items like food and toiletries—up from $128 billion two years ago, according to Nielsen.
“We believe brands that promote sustainability will gain wallet share of younger consumers and become more relevant,” wrote Cowen analysts in their “Future of Retail” report.
Novak of C2FO agrees that sustainable products are of growing importance for retail brands, as long as prices remain relatively close to similar, less eco-friendly products.
“Consumers will always make their way back to rational behavior based on price, and I’d expect younger consumers to continue to prefer sustainable products as long as the prices are within reason,” he said.
3. Strategy Over Expansion
The traditional mentality of opening as many brick-and-mortar storefronts as possible to meet consumer demands is now out the window for retail. This approach has led to some questionable decisions for many companies that chose poor locations or high rents in a short-sighted effort to drive more sales growth.
Expect retailers in 2020 to take a more measured, strategic approach to growth than in recent years. The amount of consumer data now available through online sales should enable companies to view shopping patterns and their store programs with greater depth.
Grocers, for example, can use Instacart and other native mobile applications to analyze purchasing patterns and then correlate products that fit consumer preferences. Online advertising can follow consumers through digital media, enabling retailers to use targeted marketing and incentives to drive more online orders.
The growth of e-commerce for many retailers should reduce the pressure to open and operate more physical locations and allow those companies to think more strategically about how digital and brick-and-mortar can generate more sales and better branding.
4. A Strong Economy
Some of the concerns about a coming recession that lingered throughout 2019 (remember all that frantic talk about the inverse yield curve?) have now dissipated.
As of today, rates continue to be at record lows and the stock market is continuing its bull run. Unemployment hovers around 3.5% and January’s “phase one” trade deal between the U.S. and China will buy retailers some time to make their supply chains less dependent on Chinese products.
The strong economy no doubt contributed to last year’s strong holiday season and there’s little reason to expect it won’t continue through 2020.
“I’d expect the economy to continue without major hiccups as long as consumer demand, wage growth and jobs numbers remain strong,” Novak said.
The Bottom Line
More than anything, a robust economy and a strong job market should fuel a higher rate of consumer spending in 2020. At the same time, retailers are using technology to become savvier about supply chains and logistics, eliminating cost and complexity wherever they can. If you believe that most retailers are poised to benefit from a strong 2020, how do you, as a supplier, prepare for increased demand from your retail customers?
One way is to ensure that your company has the working capital necessary to effectively manage your inventory, serve your customers and facilitate growth. An early payment program like C2FO is an effective tool for rapidly building more cash flow and reducing the need to borrow more money from your line of credit.
Currently, more than 70% of receivables for U.S. retailers are on the C2FO early payment platform. It’s a quick, simple way to build more capital for your business when you need it, at discounts or rates that you choose. How often to use it is up to you.