Matt Rubel for the WSJ: For the Retail Industry, 2020 Was a Wild Ride

The highs included strong spending on home and garden maintenance. The lows included bankruptcy filings by more than two dozen traditional retailers.

By Matt Rubel

December 15, 2020

Changes have been coming to the retail sector for years. But in 2020, with the onslaught of the Covid-19 pandemic, the industry received a ticket to the Fury 325 roller coaster.

The year’s highs and lows reminded us that in retailing, no matter the rhythm of the ride or the dynamics of the journey, there is one thing that matters most: keeping a steady eye on your customers and how to serve and delight them.

Perhaps the most surprising part of the 2020 retail experience was that through the first 10 months of 2020, retail sales (excluding gas, auto and food services) rose 6.4% from the year-earlier period, according to the National Retail Federation’s analysis of U.S. Census Bureau data [census.gov]. Oddly, 2020 could turn out to be one of the best years in the overall retail sector in the past 20 years. The industry did experience a precipitous dip in April, with a sharp drop in sales of 5.5%, including a startling plunge in apparel sales of more than 86%. But concurrently, food-and-beverage store revenues were up nearly 27%. Losses and gains in these two sectors have been persistent throughout the year, as a dressed-down population focuses on essentials for their families and homes.

In many cases, traditional or overleveraged retailers struggled to navigate through the uncertainties. More than 27 retailers declared bankruptcy in the first nine months of the year, from Lord & Taylor (the oldest department store in the country) and the haplessly positioned J.C. Penney to the inappropriately capitalized luxury retailer Neiman Marcus Group and J.Crew Group. Some significant brand names have disappeared from our shopping malls forever, while others will be led by new blood yet face challenges to compete in the new world ahead.

So if overall revenues are increasing, where have all the shoppers gone? Clearly, we as Americans are still spending, but not on hotels, airplanes or eating out. E-commerce sales have continued to rise by double digits all year, although they have leveled off a bit since the pandemic hit hardest in April. And we’ve significantly increased spending on the areas in which we’re spending most of our time these days: our homes. Spending is up for home and garden maintenance, childrens’ toys and games, home offices and, of course, toilet paper and cleaning supplies.

But the surprising fact is that the retail store as we’ve known it isn’t dead (at least not yet). American consumers still love to get out and shop. In January, before the coronavirus swept across the U.S., just over 15% of retail sales occurred outside of physical stores. That number spiked to about 20% of sales in April, and has since leveled back to about 16% of sales in the three months ended in September. That doesn’t point to a populace that no longer enjoys shopping outside of the home.

So what are the key trends to think about as we move toward the end of 2020 and beyond?

First and foremost, if American consumers have money, they will spend it. When the stimulus checks hit early in the Covid cycle, retail sales spiked. The Christmas season and fourth-quarter sales should be robust, as well, as consumers allocate the money they normally would have spent on traveling to gifts for loved ones. We saw this trend on Mother’s Day, when jewelry sales sparkled with double-digit increases. The competition for those dollars will be fierce, as always. One change to note: This season, holiday shopping began long before Black Friday’s arrival, with more than half (52%) of shoppers making holiday purchases through early sales and promotions before Thanksgiving, according to the National Retail Federation.

Second, the playing field in retail is undergoing rapid changes. For centuries, the key reasons people buy things have remained essentially the same. Yet the tools of how we bring them to life are in constant flux.

Convenience matters now more than ever. The options available at the local town market now come to our front door. Our FedEx [wsj.com] and Amazon [wsj.com] drivers are as familiar to us as was our favorite salesperson in a physical store. The result: Enclosed malls will diminish in importance, shrinking from 1,800 just a few short years ago to possibly 200 to 400 sustainable malls. While consumers continue to desire shopping experiences, they may be more attracted to outdoor shopping spaces or individualized retailer locations than to large, generic malls.

Third, the brands we love are changing, and the standards we judge them by are evolving. Consumers are starting to consider where and how the goods they buy are made. Consumers are asking: What are the core values of the retailer and the brand, and do they align with my worldview? There is much talk in the area of values-based sustainability, and it continues to grow in importance. The new status is becoming the ability to signal virtue, not just the ability to spend.

Still, don’t believe for a minute that people will buy sustainable and politically correct products in lieu of ones that are priced for affordability. Price and relative quality are still the primary drivers of consumer behavior, but have become blended with a new consciousness. Smart retailers will combine both.

Most important, technology continues to change nearly everything about the retail experience. Personalization and the ability to stimulate our interest via data and artificial intelligence will be startling. Retailers will know us better than our spouses and families do.

How products are sourced, produced, distributed and consumed will be tracked. The merchant princes of the past must become the consumer-insights leaders and data analysts of tomorrow. They will need to combine an understanding of consumer needs with a core appreciation of design, math and technology.

Live streaming has taken off in China and will accelerate here in the U.S. as retailers use it to advertise, sell products and train employees, among other things. This will have a real impact on our shopping habits. Since the start of the pandemic, Facebook [wsj.com] Inc. has released a native shopping platform for small businesses, and TikTok has taken onWalmart [wsj.com] Inc. as a major-stake investor—demonstrating the centrality of retail to the virtual world’s bottom line.

Yes, the roller coaster is a real one in retail. In 2020, changes in the way we are engaging, selling and retailing have accelerated. But our love of shopping is alive, and retail isn’t dead. This is a moment in which, like a season’s end, we begin to clear out the brush to allow new branches to grow and bloom. What replaces the relics of the past will be clearer, cleaner, more vibrant and even more affordable. Retailers will create communities around their brands that become points of gathering. We will shop together virtually and share tidbits in all ways we communicate. Shopping will be fun and we will aspire to be a part of retail movements and moments.

But within those changes, core retail principles will remain constant. In the end, the retailers who will win are those who watch their pennies, focus on the customer, and build and sell great products that meet needs and fulfill aspirations.

Key Retailing Dates in 2020

Mr. Rubel, a retail and consumer investor, is chairman of the executive board for MidOcean Private Equity and the chief executive officer of Empower Ltd, a special-purpose acquisition company. He can be reached at reports@wsj.com.

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