My industry colleague, Seth Berman, and I co-authored this post to put a different spin on the 2016 predictions we’ve enjoyed from others in the community. Please let us know your thoughts in the comments!
- Brands will come closer to just-in-time manufacturing. Innovation here will happen for two primary reasons. First, retailers currently are being burned — again — by carrying excess inventory. They need to find new ways of doing business and will put more pressure on brands not to ship them merchandise until demand for it is clear. Brands, too, have been hurt by having manufactured more more units than they could sell. For their part, investors have shown strong preference for marketplace startups that carry no inventory and have healthy margins over e-commerce startups with inventory and lower margins. The companies that solve this problem can win on their own and with retailers. A good example of a company delivering made-on-demand product is Shoes of Prey. And Nordstrom’s recent investment in this company reinforces the retailer/brand dynamic we’re describing. Second, the consumer increasingly will expect endless options and the ability to get exactly what s/he wants. Redbubble, Seth’s company, is an example of a marketplace capitalizing on these trends with 15 million designs from independent artists printed as ordered on more than 40 products. Greater speed and customization will come through end-to-end creativity in the traditional supply chain, as well as in the form of 3D printing.
- Stores will continue to dabble with consumer-facing technology. Many retailers have introduced a “magic” mirror, photo booth or interactive screen. The story goes something like this: Retailer and vendor distribute press releases headlining the installation, we later discover the technology is in only one or a handful of a chain’s many stores and go seek it out, we see the technology isn’t working or isn’t being used, we don’t hear much about it again and, in some cases, it’s not in the store on our next visit or is never rolled out to additional locations. The underlying problem is that while the one-time press hit is nice and the curiosity-driven traffic bump may linger, these devices aren’t steadily increasing conversion to purchase. We’re excited about the prospect of in-store technology evolving to a need-to-have from just a nice-to-have and expect to see a lot of trial-and-error along the way.
- Facebook will challenge Google’s dominance in retail advertising. Google Shopping ads (also known as Product Listing Ads) have become the primary paid customer acquisition channel for retail advertisers in recent years. And search still dominates over social when it comes to e-commerce revenue by channel. In response, Facebook released Dynamic Product Ads in February, 2015. Facebook Dynamic Product Ads retarget site visitors by showing products the shopper has viewed and other products from the retailer’s catalog that Facebook recommends. Facebook’s speed of innovation in this area is impressive, and 2015 saw retailers shifting budgets from web display, retargeting channels and television to Facebook. While we see plenty of room for growth in retail ad spend with both Google and Facebook, in 2016 Facebook will become a much more meaningful source of revenue for retailers.
- A bifurcation of mobile beacons/geolocation will emerge. Stores that are large enough and have high enough purchase frequency can sustain their own beacon programs. Target’s offering has been lauded, rightly so, and we’re optimistic about Kroger’s strategy. The key, in addition to above-average visits per customer and length of visits, is both of these apps are more about optimizing customers’ experience with the brand and in the store than they are about driving traffic to the store. More retailers in this category will invest in ways similar to what Target and Kroger have done. But for retailers who want to acquire store traffic, they’ll realize the need to seek a network effect and partner with publishers and/or beacon platforms. An strong example of this when ELLE pushed out its editorial product picks on both ShopAdvisor’s and RetailMeNot’s apps; when approaching featured stores, customers received notifications and discount offers that enticed them to visit.
- Pinterest Buyable Pins gain traction. Unlike social networks that were earlier to the advertising and commerce games, Pinterest users have long engaged on its platform with the intent to purchase. Separate from Promoted Pins, we think the ability of Buyable Pins to link inspiration to transaction will be embraced by Pinterest users and an increasing number of commercial pinners. Given that Buyable Pins have initially been offered at no cost to retailers, it remains to be seen whether the feature will help Pinterest increase monetization overall.
- Retailers and consumers will adopt messaging for shopping and service. Everlane and Zulily were the first to start using Facebook Messenger as an order status communication and customer service tool. More recently, Facebook and Uber announced that users can request an Uber inside Messenger, and these so-called chat bots seem to be getting the most attention from Facebook. With the proliferation of chat commerce in Asia, and the battle for a new mobile interaction model in the U.S., we expect more U.S. retailers and e-commerce players to move aggressively into messaging commerce in 2016.