May 24, 2016
Connect Media joins the throng of attendees who’ve gathered in Las Vegas this week for the International Council of Shopping Centers’ RECon show. We connected with JLL’s James Cook, one of the top retail research minds in the industry, to gain his insights about the trends shaping the sector.
Here’s the second in a series of deeper dives with James.
It’s all about human needs! Or in JLL Retail speak, check out Maslow’s Hierarchy of Needs.
The hierarchy of needs can be used to predict which channels will be most useful to which retailer.
- Goods and services that meet higher needs like status, esteem, family and friendship require higher touch personal service, are less prone to automation and have better profit margins.
- Higher needs will trend toward physical retail. Lower needs will be delivered in whatever format is cheapest and fastest.
- Some believe they can sell more goods once consumers have experienced them.
- A discount grocer with a customer base that is focused primarily on savings will find most of its product meeting basic physiological needs. Thus, this retailer can expect to meet consumer demand by continuing to offer many locations in high-traffic areas. Furthermore, shoppers at these stores will more readily trade automation and an impersonal experience for savings and convenience.
- Apparel sellers often meet higher needs, such as esteem. These retailers are serving a smaller audience, but one that requires personal physical interaction. Luxury clothiers, for example, should never plan on ditching too many physical stores in favor of an online presence. That’s because luxury shopping is not only a shared experience, but it is also one that thrives on feelings of status and esteem, which cannot be felt in the online vacuum.
- Most traditional online retailers should expect their futures to be in physical retail as well. Warby Parker, seller of hip prescription glasses, has already found this to be the case. Its goods, which are health-related (level 2) and fashionable (level 3), are most successfully experienced in a physical setting. This is why Warby Parker has now opened physical stores. The list of pureplay online retailers that deliver higher level goods only online will dwindle.
- While e-commerce as a percentage of online retail is still growing, that growth has slowed. In fact, a forecast from Bain & Company finds that e-commerce penetration will plateau at about 20% by 2030. Ninety percent of computer sales will be made online by 2030. Apparel sales will plateau at around 25%. Furniture, cosmetics and grocery sales will continue to occur mostly in physical stores.
Which channel a retailer uses will depend on which needs it caters to, but the future is certain to have a mix of online commerce as well as physical stores. In addition, the use of automation in physical stores will be most successful in retailers that meet lower orders of human needs.