The Future of Shopping

For: eBusiness &
Channel Strategy
Professionals
The Future Of Shopping

by Sucharita Mulpuru, April 9, 2015
Key Takeaways
Older Shoppers Are, Interestingly, The Most Promising Demographic
While young shoppers often get the most attention, they are a difficult demographic to
serve. They have less income than any other group and have been declining as a segment
of the population. Older shoppers have experienced growth in real incomes since the
1970s and drive significant and growing shopping volume.
A Number Of Technology Developments Promise To Improve Retail
Economics
eBusiness professionals need to improve margins to maintain share in a competitive
shopping landscape. Near-term technology investments like omnichannel fulfillment
and dynamic pricing will improve retailer margins, but longer-term inventions like 3D
printing are necessary to radically and permanently transform shopping.
Health And Education Players Will Be The Big Winners
Retail has been transformed in the last 50 years, and it will continue to change and
evolve over the next few decades. We expect many apparel and grocery stores to shrink
or disappear in the future while services catering to health and education will thrive.
Forrester Research, Inc., 60 Acorn Park Drive, Cambridge, MA 02140 USA

Tel: +1 617.613.6000 | Fax: +1 617.613.5000 | www.forrester.com
April 9, 2015
For eBusiness & Channel Strategy Professionals

Only Six Sectors Will Thrive; Others Will Struggle Or Die
by Sucharita Mulpuru
with Carrie Johnson, Nate Elliott, James L. McQuivey, Adam Silverman, Shar
VanBoskirk, Brendan Witcher, and Laura Naparstek
Why Read This Report

The retail industry is more complex than ever. Every year, startups release new technologies that promise
to help consumers shop more easily or aim to help retailers improve their businesses. At the same time,
consumers are changing. Digital natives are now sought-after shoppers with disposable income and
retailers are nervous that these consumers are capricious and demanding, with unique expectations for
products, customer service, and payments. But larger economic factors pose even bigger challenges for
retailers: Real incomes since the 1970s have declined for many households, driving fierce competition
among retailers, even more so than web pure plays or mobile devices. We expect these negative economic
trends to continue and the retail sector will face even bigger obstacles to growth like runaway inflation
in education and healthcare. This report outlines the challenges and opportunities that eBusiness and
channel strategy professionals will need to address to grow their online and offline sales.
Table Of Contents
Notes & Resources
2 Retail Is Changing But Most Retailers Dont

Understand Why
Forrester interviewed Abercrombie & Fitch,

Alex and Ani, Anthony Bigornia, Deloitte
Digital, FutureCast, Razorfish Global,
SapientNitro, and Urban Outfitters for this
report.
8 Many Innovations Are On The Horizon To

Help Retail Financials
14 Big Boxes Shrink And Make Way For Small
Boxes
recommendations
17 Cut Costs Without Creating A Bad

Experience . . . Or Perish
WHAT IT MEANS
19 The Same Old, Same Old In Retail Means A

Slow Steady Death
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20 Supplemental Material
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purchase reprints of this document, please email clientsupport@forrester.com. For additional information, go to www.forrester.com.
Retail Is Changing But Most Retailers Dont Understand Why

Its a blood bath out there in retailing. Many pundits paint retail as a constantly shifting landscape,
beset by disruptions like digital wallets and location technologies, fickle and tech-savvy Millennial
shoppers, and the explosion of same-day delivery services. These topics are distractions from the
real challenges in retail.
Retail has been at best a zero-sum game. Over the last four decades, most US households have
been spending less in real dollars in the major shopping categories (see Figure 1). Success stories
like Costco and Amazon have grown at the expense of other categories like department stores or
electronics retailers (see Figure 2). In fact, since 2000, population growth not shoppers buying
more drove the only increase in retail spend.1 Here we look at the demographic and industry
trends that have impacted retail to date and will influence retail into the future.
Figure 1 Share Of Money Spent Over Time
Share of spend by categories
(Household average, adjusted for inflation)
Essentials
Change in real
dollars spent between
1973 and 2013
Shopping
1973
2013
37%
Over 65
64%
36%
76%
24%
9%
55 to 64
63%
37%
76%
25%
-10%
45 to 54
61%
39%
74%
26%
-11%
35 to 44
59%
41%
73%
27%
-14%
25 to 34
37%
73%
26%
-19%
Under 25
32%
72%
28%
63%
67%
Note: Percentages may not equal 100 due to rounding. Shopping spend includes food (at home and away
from home), apparel, entertainment, leisure, and personal care. Essential spend includes housing,
transportation, healthcare, education, phone, and mobile expenses.
Source: Consumer Expenditure Survey, US Bureau of Labor Statistics
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Source: Forrester Research, Inc. Unauthorized reproduction or distribution prohibited.
2015, Forrester Research, Inc. Reproduction Prohibited
April 9, 2015
Figure 2 When One Sector Wins, Others Lose

Sector share of overall retail
2000 2013 Change
Grocery, food, and mass 41%
41%
0%
Home, furniture, building supplies 17%
14%
-3%
Department stores 13%
5%
-8%
Clothing/fashion/shoes/jewelry 9%
9%
0%
Warehouse clubs 9%
17%
+8%
Sports, books, toys 4%
2%
-2%
Electronics and appliances 4%
2%
-2%
Office supplies 2%
1%
-1%
9%
+8%
Online retail
1%
Total 100% 100%

Note: Categories other than online retail include only sales in non-web channels.
Source: Forrester Research eBusiness estimates
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Older Consumers Are More Important Than Younger Consumers

Misplaced concerns about young consumers are distracting shiny objects for retailers looking to
boost sales. In the last two years alone, organizations from Accenture Interactive to the Presidents
Council of Economic Advisors have released major thought leadership pieces on the Millennial
segment (consumers born between 1980 and 2004).2 Much of this research highlights the unique
technology innovations that will likely create different behaviors, expectations, and outcomes
specifically for young consumers. This overemphasis on the impact of innovations like smartphones,
eCommerce, and social networks on young consumers is misguided: The history of technology
innovation suggests that changes impact all age cohorts (see Figure 3). Furthermore, young
consumers under 25 are hindered by unique economic circumstances now that make them less
attractive shoppers altogether. Longer life expectancies, high shopper churn, expensive customer
reactivation programs, and vibrant older shoppers turn the hypothesis that young shoppers have the
greatest lifetime value on its head. In fact, demographic data reveals that:
Older shoppers have experienced the greatest growth in real income. Older consumers have
significantly greater financial power and, in aggregate, spend significantly more than consumers
under 35. Following decades of savings and building equity in homes, older consumers have
made significant financial gains. The oldest consumer groups are the only segments that have
made any gains in real income: Households over 65 have experienced a 30% gain in purchasing
April 9, 2015
power since 1973. Even the next younger cohort, households ages 55 to 64, has gained 11%
more. As a result, older consumers are now enormous drivers of discretionary spend: In 1973,
households over 55 comprised 25% of shopping spend and by 2013 drove 35% of that spend.3
The young consumer segment has shrunk in spending power and size. When retailers
see lower sales figures from these demographics, they worry that they failed to address that
shoppers needs or that startups like Instagram or Venmo change how people consume.
Declines in real income are bigger reasons shoppers spend less and such drops have affected
young consumers more than any other group. In 2013, households under 25 had only 82% of
the purchasing power that they did in 1973. Of total shopping spend in the US, households
under 34 comprised 21% in 2013, down from 28% in 1973 (see Figure 4). Plus retailers face
another challenge: a smaller youth population. Households under 25 comprised 9% of total US
households in 1973 but only 7% of the population by 2013.
Young consumers do become important shoppers . . . when they are older. Ballooning
educational expenses mean that for now, young consumers have less to spend. In 2013,
education expenses rose to 7% of their wallets, up from 1% in 1973. Eventually though,
marriage and education will pay off and enable these young households to become more
financially secure. While consumers in their early 20s have the lowest average household
incomes, as those consumers age into the next cohort (25 to 34), they see their incomes rise
significantly.4 Over the last forty years, shoppers over 35 consistently control 70% or more of all
shopping spend.
April 9, 2015
Figure 3 Technology Innovations Have Impacted All Generations Over Many Decades
Media &
Communication
Financial
Age range of consumer group over time

Color TV programs introduced
Portable radios popularized
Copy machines introduced
LP records popularized
Early days of cable TV
Credit cards introduced
First satellites launched
Passenger jets popularized
Container ships become mainstream
50s
100
90
80
70
60
50
40
30
20
10
0
Retail
Handheld camcorders popularized
CDs popularized
Transportation
DVDs introduced
Digital music popularized
WWW, VoIP, and email popularized
Peer-to-peer digital money transfers introduced
Online stock trading and banking introduced
Contactless payments introduced
eCommerce introduced
90s
Floppy disks introduced
Handheld music players introduced
Personal printers introduced
Word processors introduced
Subscription TV channels introduced
Cell phones introduced
Ethernet invented
UPC technology developed
First successful tablet device

Streaming video popularized
Smart TVs popularized
3D printers broadly available
Virtual currencies introduced
Mobile commerce popularized
Driverless cars introduced
70s
10s
Seniors
(b.1925-1945)
Boomers
(b.1946-1964)
Gen X
(b. 1965-1979)
Millennials
(b.1980-2004)
60s
00s
Digital cameras popularized

Casette tapes introduced
VCRs popularized
Portable digital music players popularized
Computer video games
Touchscreen mobile phones popularized
introduced
Social networks popularized
Handheld calculators invented
Digital books broadly available
ATMs introduced
80s
Commercially viable electric cars introduced
First human in space
HDTV introduced
Disposable cameras introduced
Video games at home popularized
Digital cell phones introduced
PCs and laptops popularized
Magnetic stripe credit cards
broadly adopted
GPS popularized
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Source: Forrester Research, Inc.
April 9, 2015
Figure 4 Share Of Income By Age Of Household

% of income
generated by each
group
1973
2013
1973
2013
% of
income
gain
Under
25
9%
7%
5%
3%
25 to 34
20%
16%
20%
35 to 44
17%
17%
45 to 54
18%
55 to 64
% of population
65+
% of shopping
spend by group
1973
2013
%
change
-2%
6%
5%
-1%
15%
-5%
22%
16%
-6%
21%
21%
0%
23%
21%
-2%
20%
24%
24%
0%
24%
24%
0%
16%
18%
17%
21%
+4%
15%
18%
+3%
20%
22%
12%
17%
+5%
10%
17%
+7%
Source: Consumer Expenditure Survey, US Bureau of Labor Statistics

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The Economy Has Changed Retail More Than Technology Has

While demographic factors have significantly impacted consumer spending over the last four
decades, there are a number of other retail-related factors that are also important to note. The
biggest changes have been:
Untamed growth in store locations. While total nominal retail sales have grown from $2
trillion to more than $3 trillion between 2002 and 2014, the total number of establishments
has grown even faster: Retailers added nearly one million new physical retail establishments in
that same time frame (see Figure 5). That has caused the revenue per physical establishment to
plummet by over 50%.
Massive manufacturing and distribution changes. Consumers can now get adequate
(even better) quality food, clothing, and cars for less than theyve paid in the past because of
efficiencies, economies of scale, and innovation in the production and distribution of food,
apparel, and other physical goods. In the media industry, the average unit price of books and
music has fallen due to digital downloads. Players like Wal-Mart, Forever 21, and Old Navy
brought about major changes in apparel, namely fast fashion and ultra-cheap clothing. In the
grocery sector, the agricultural industry is nearly three times as productive as it was 60 years
ago, which has increased the supply of food and reduced its cost.5 Replacement cycles for cars
are down as many original equipment manufacturers (OEMs) now have lengthy warranties.6
April 9, 2015
An enormous new restaurant industry. While consumers spend less of their wallets on food at
home, they are spending more of their discretionary dollars on food away from home. All age
groups grew the amount of discretionary dollars they put toward restaurant meals since 1973.
Families with dual-income households and single parents overall are significant drivers of that
trend, but households under 25 years old show the most shocking increase: 27% in 1973 has
grown to 40% in 2013.7
The emerging consumer health sector. The oldest consumer segment spends a significant
portion of expenses on healthcare. Consumers over 65 spent 14% of their expenditures on

healthcare in 2013, up from 11% in 1973. As consumers spend more on healthcare expenses, the
retail sector has also benefited in this area. Notably, pharmacies and nutrition stores, as well as
services like massage venues, urgent care clinics, and exercise facilities, are all more prominent
in the physical retail landscape and are occupying leases in prime commercial shopping centers.8
The advent of eCommerce. Every category in the entire retail landscape has been upended by
eCommerce and online selling which provides shoppers the ability to buy virtually anything at
anytime from anywhere. Consumers in the US now have over 800,000 web stores from which
to pick products, up from 55,000 in 2002. Powerful social tools like ratings and reviews are now
commonplace and provide shoppers the confidence to complete transactions online, and they
enable retailers to offer millions of items without investing in onerous creative costs. Online retail is
now a sizable fraction of overall sales 9% and categories range in penetration from 2% to 75%.9
The new mobile sector. The mobile phone industry has kept much of the electronics sector
alive in the last decade even as eCommerce has put a nail in the coffin of players like Circuit
City and CompUSA. As mobile devices have become more popular, so have mobile stores such
as those from Verizon, AT&T, Sprint, T-Mobile, and others. Phone expenses, including mobile
devices and monthly telecom bills (which are often paid in stores) grew from 2% to 3% of total
household spend between 1973 and 2013.10
Figure 5 Total Stores And Revenue Per Store Over Time

Non-web stores
Total number of
establishments
(in thousands)
Percentage
change
971
Web stores
Percentage
change
55
+1,354%
+102%
800
1,964
2002
2014
Revenue per
establishment
(in thousands)
$2,148
$710
-52%
$1,489
-31%
$342
Source: US Census; National Retail Federation; Forrester Research estimates

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April 9, 2015
Many Innovations Are On The Horizon To Help Retail Financials

To survive in this environment, retailers need to become truly digital businesses, creating new
sources of value through digital customer experiences and digital operational excellence. Specifically,
retailers must innovate to reduce retail costs like labor, inventory, real estate, and even marketing
expenses. Pockets of incrementality are few and far between: Many retailers have lean supply chains
and already adopt and optimize data and marketing solutions.11 In this section, we lay out the
near-term (within the next 24 months) and the long-term (up to several decades into the future)
experiential and operational innovations that have the greatest promise for retailers. Missing from
this list? Hyped distractions like location technologies and same-day delivery services, which fail to
address the types of cost savings retailers need to desperately address. Instead, digital innovations
and technologies that either get shoppers to buy more (driving incrementality through new or better
products or an innovation in the shopping experience) or enable retailers to spend less (driving
efficiency by making labor, inventory, or real estate more efficient) will be the winners.12
Near-Term Digital Opportunities Promise To Reduce Retailer Costs
Many digital solutions that already have some adoption and are likely to have the greatest impact on
retailer expenses are (see Figure 6):
Mobile tools. Web-connected mobile phones and tablets are already in the hands of most
shoppers and store associates. Phones and tablets provide cheap, portable POS systems that can
reduce friction in the checkout process. Handheld self-checkout tools implemented in retailers
ranging from Stop & Shop, Nordstrom, and Home Depot have reduced the need for checkout
cashiers, enabling retailers to deploy those resources in more important functions such as
service and shelf replenishment.13 Mobile devices also provide information and transparency
to shoppers seeking information or to store associates looking to assist and upsell customers.
Furthermore, mobile tools enable emerging use cases like store traffic measurement and
associate monitoring from firms like Nomi and Path Intelligence.
Omnichannel fulfillment. Omnichannel investments like in-store pickup, store fulfillment, and
shipment of goods directly from manufacturers or factories provide retailers with accurate views
of their inventory in stores and distribution centers, as well as visibility into manufacturing and
supply chain partners. Ultimately, this enables retailers to sell through slow-moving inventory
and to reduce markdowns, all while making a broader assortment available to shoppers. The
best omnichannel retailers like Nordstrom or Tesco enable shoppers to select from these
broad assortments and retrieve items however they choose, whether it be in stores or in other
convenient pick-up points like lockers. This is becoming increasingly important to shoppers:
Shoppers want to see what is in stores, and the figure skews even higher for young customers.14
April 9, 2015
Marketplaces. While marketplaces like eBay and Craigslist have been around for years, there
are now more diverse marketplaces than ever before that enable retailers to dynamically create
ecosystems of value. Some are Amazon Marketplace clones features bolted onto other retail
sites but mobility has enabled online marketplaces for broad-ranging services like taxis
(Uber), hotels (HotelTonight), even hair salons (StyleSeat).15 Online marketplaces empower
small merchants and sole proprietors by giving them low marketing costs and broad customer
reach. In some cases, they also enable fractional ownership of underutilized assets (e.g.,
vacation rentals or parking spots). This fractional ownership suits the young, financially pressed
consumers discussed earlier particularly well because it helps their dollars go further.
Dynamic pricing. Dynamic pricing tools give retailers the ability to respond to the prices of
competitors, inventory levels, or consumer demand in real time. While elementary versions
of these tools only monitor prices online and lower prices, more sophisticated versions of
these tools offered by startups such as Boomerang Commerce incorporate data about product
elasticity. This helps merchants find the valuable opportunities to increase prices where
consumers may be willing to pay more, replacing the antiquated practice of examining margin
and then putting a markup on the item over its cost. While these tools are most useful for
eCommerce retailers, they will find their way into physical stores as digital signage and shelf
displays become more common.
Ultra-rapid web connectivity. Widespread broadband access has been perhaps the single
biggest catalyst for eCommerce. In the future we expect even faster access to web content.
Solutions like Google Fiber promise to bring ultra-fast web connectivity to homes and
businesses, which not only enables Internet connectivity on devices like TVs, but also helps
to improve speed for increasingly critical mobile connections. Speed of access to Internet
content is constantly cited as an inhibiting factor in web sales.16 As connectivity gets faster,
more consumers will be able to complete transactions with even less friction.17 Additionally,
retailers will be able to transmit rich (and high-converting) video content and live or interactive
customer service support on websites and mobile devices more easily in the future.
Personalization technologies. The Spotify of shopping doesnt exist yet but technology
vendors promise we are getting closer. Recommendation engines on websites were phase 1
of personalization, but companies like Datalogix and even Facebook are working to create a
universal purchase graph of shoppers browse and buy behavior in stores and online. This
would enable phase 2 of personalization, where search engines would be able to predict what a
customer wants and provide appropriate recommendations before a shopper even starts typing.
The best near-term opportunity is in apparel where fit is imprecise and difficult.18 Companies
like True Fit, which aggregate massive databases of brands, sizes, and shapes, could represent
a significant improvement in the apparel and footwear industry by reducing waste and better
matching shoppers to their needs. They also can ultimately improve the sell-through of apparel.
April 9, 2015
10
Figure 6 Near-Term Technologies

Technology
State of
adoption
Labor
savings?
Inventory
efficiency?
Real estate
benefits?
Incrementality
driver?
Mobile tools
Widespread
Maybe
Yes
No
Yes
Imminent innovations
Improved beacon use cases (e.g., people counting, monitoring parking spaces,
managing queues); digital wallets merged with mobile banking, stationary checkout
cashiers
Omnichannel
fulfillment
Medium
No
Yes
Yes
Yes
Customization and on-demand products from manufacturers; product delivery
direct from manufacturers and factories
Marketplaces
Medium
No
Yes
No
Yes
Matching healthcare and education providers with buyers of those services
Dynamic
pricing
Small
Maybe
Yes
No
Maybe
Pricing with elasticity testing to eliminate traditional cost plus pricing models
Ultra-rapid web
connectivity
Small
No
No
No
Yes
No
Yes
Broad availability of Google Fiber-like speed
Personalization
technologies
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Small
No
Yes
Improved matching (e.g., Spotify for what to buy next when size and fit matter) of
goods to shopper needs
April 9, 2015
11
Longer-Term Opportunities Are Even More Interesting But Still Speculative

Bigger changes that promise to transform retail are in the manufacturing and supply chain worlds.
These innovations, however, are far further into the future and highly speculative (see Figure 7).
That said, if these solutions are ever broadly commercialized, they will shake the retail world to its
core. The most fascinating opportunities will be in:
Remote customer service. Our annual Customer Experience Index research finds a high
correlation between how consumers rate their experiences with a company and their willingness
to buy from the company again.19 Remote customer service enables retailers to provide superior
customer service, particularly to shoppers in-store, at a manageable cost. This provides
shoppers and store associates the ability to receive live customer service on demand, similar to
a call center but by employing video and mobile technologies. Bank of America, for instance,
employs such support on its ATMs and Hertz Rent-a-Car has done the same on kiosks at its car
rental centers. The next generation of customer service will employ screen sharing, video chat,
knowledge bases, and location awareness to provide support to customers.
Image recognition. Image recognition enables shoppers to take photos with mobile devices and
identify similar items available at other merchants. Google-owned Like.com was one of the early
movers in the space but had utility limited to categories like online shoes and handbags. Since
then, other companies like Superfish have made advances where virtually any item anywhere in
any lighting condition can be photographed and matched with other similar items online. These
types of sophisticated, mobile camera-led solutions have the ability to connect shopper impulses
to products that meet their immediate expectation. When combined with the reach of sites
like Pinterest, Instagram, and Houzz, a new type of commerce experience will unleash impulse
shopping purchases.
RFID. RFID tags enable retailers and manufacturers to track pallets, boxes, even individual
items as they flow through a supply chain. Companies like Proctor & Gamble, Wal-Mart, and
Zara have incorporated this technology to monitor stock levels and to improve their ability to
identify where merchandise may be at any point in time. This enables a company to quickly
respond to low-stock situations. While omnichannel investments are critical to retailers,
the single biggest challenge retailers face is the reality that few stores know precisely what
merchandise is where in any given store at any point in time. RFID tags have the ability to solve
that conundrum but they have been plagued by their inoperability with certain materials (e.g.,
metals) and their heavy cost.
3D printing. 3D printing enables retailers and manufacturers to create virtually any product on
demand, cost effectively with special 3D printers. Companies like Nike, New Balance, and auto
manufacturers already use 3D printing to create specialized products and samples.20 3D printing
disrupts the manufacturing process, which typically involves large-scale production in markets
like China. The technology has the greatest promise with materials that are easily malleable
April 9, 2015
12
like plastics and metals but could one day replicate things as complex as human organs or
Stradivarius violins.21 In the near term, retailers in sectors such as toys, for instance, could create
plastic dolls as they need them, versus ordering them from factories a year in advance.22
Biometrics. Biometrics enables customers to use fingerprints, iris scans, facial recognition, or
some other feature unique to humans (e.g., heart rate) to authenticate themselves for payment
or entry to a restricted zone. Biometrics reduces friction even more than digital wallets because
it (theoretically) completely eliminates the need for a person to have a physical device for
authentication. Apples fingerprint iPhone feature, which for now is limited, could be the first
success if other businesses can take advantage of it. In the future, we expect stores and banks to
link shoppers to fingerprints or iris scans (as hospitals, for instance, already do). Such systems
could become so sophisticated that they could extend credit at the point of sale based on
biometrics alone.
Voice recognition. Voice recognition like Apples Siri is imperfect. It has the potential, however,
to dissect and respond to different voices, languages, accents, and expressions seamlessly, like
a UN interpreter with the speed of Google. While this technology is many years away from
being broadly commercialized, it has the ability to automate customer service by replacing
customer service representatives (CSRs). Once voice recognition improves, look for content to
explode. Why? The spoken word will be easily cataloged and for retail that means more product
information and cheap market research.
Virtual reality, mixed reality, and 3D vision. While Oculus Rift is, at best, a geeky product for
video game enthusiasts, simulators are advancing at rapid rates and promise to help customers
accurately simulate experiences and products. Stanford Universitys Virtual Human Interaction
Lab has examples of simulators which mimic scenarios for safety and training but could
ultimately be used to take a shopper in California to a store in London, or a New Englander to a
hotel in the South Pacific. Other solutions like Microsofts HoloLens create holographic images
that can, for instance, render an Ikea sofa in ones living room.23 This enables an extension of the
already-popular know before you go experience in retail. Flagship stores would benefit the
most from this type of innovation but product developers looking for feedback on how different
consumers interact with different types of products would as well.
New energy and power sources. If the last several decades comprised the information
revolution, academics like Robert Metcalfe believe the next few decades will welcome an
energy revolution in which new power sources make the need for fossil fuels obsolete. Already,
Googles Urs Hlzle has developed ways to significantly reduce the energy consumed by data
centers. A revolution in energy sources could enable developments like Elon Musks Hyperloop,
which aspires to one day provide the ultra-fast transportation of humans and goods between
long distances. This would decrease costs of operating retail real estate, but more importantly,
herald a supply chain revolution in which products can be transported long distances in short
periods of time (e.g., hundreds of miles in a few minutes).
April 9, 2015
13
Figure 7 Medium- And Long-Term Technologies

Estimated time
to small or
Labor
Real estate
Inventory
Incrementality
Technology
medium adoption
savings?
benefits?
efficiency?
driver?
Yes
No
Remote customer
<5 years
Maybe
Maybe
service
Possible innovations
Matching highly skilled remote customer service agents to local venues via mobile
live video chat or kiosks
Image recognition
5 to 10 years
No
Yes
No
Yes
Yes
Maybe
Search on mobile devices with phones
RFID
5 to 10 years
Yes
Yes
Affordable item-level tags to monitor every item in a store with precision
3D printing
10 years
No
Yes
No
Maybe
Plastic and metal-based commodities (e.g., toys, sporting goods, automobiles,
cookware) made primarily with 3D printers
Biometrics
10 years
Yes
Yes
No
Unlikely
Wallet and phone-free payment capabilities (e.g., pay by touch)
Voice recognition
10 to 20 years
Yes
No
No
Yes
Audio recognition of any voice and language in most scenarios
Virtual reality and
3D vision
20 to 30 years
New energy and

power sources
75+ years
115521
No
No
Maybe
Yes
Simulated visits to stores, offices, or factories to inspect goods
No
Yes
Yes
Yes
Ultra-rapid people and package transportation
April 9, 2015
14
Big Boxes Shrink And Make Way For Small Boxes

Future retail success will come at the expense of others. Merchants that reinvent traditional store
experiences through a combination of mastering digital customer experiences and operational
excellence or take advantage of trends in consumer spending will grow while others facing
greater web price competition will remain stable or decline (see Figure 8).
The winners: Web, luxury, manufacturers, healthcare, education, and restaurants.
Benefitting from the growth of the Internet (including mobile), online retail will naturally
continue to grow. But dynamic pricing, marketplaces, customization, and 3D printing will be
the bigger reasons eCommerce keeps growing. Luxury retailers will also fare well because the
highest income consumers have made the biggest gains in real income over time. As dynamic
pricing becomes more prevalent and firms adopt CRM practices, many of the strongest
manufacturer brands will opt out of mass distribution and control their destinies and their sales
channels. Retail opportunities within education and healthcare will also grow. Adjacent services
like tutoring and training of students and professionals and businesses like urgent care clinics
will power this growth. Finally, the food away from home sector has grown tremendously in
the last 40 years and we expect this to continue with new concepts and population growth.
Stable: gas stations, clothing, appliance, and mass merchants. Because we dont expect auto
volume to grow substantially but do expect electric cars to take share, gas station retailing,
which has been flat in the past decade, will remain stable. Auto sales growth will hover at about
1%, so we expect more sales to actually come through parts and services as replacement cycles
for cars grow.24 While clothing and accessories stores have been hard hit over the years, we do
not expect any other major changes to cause more deflation; improved fit and customization
have the ability to raise prices in the sector as shoppers may now be more likely to get better
products. And although electronics stores have limited upside, appliance stores should remain
solid due to the high-touch and high-service nature of the industry. Finally, as commodities
become more expensive to ship online, the large multicategory merchants and warehouse clubs
will manage to maintain share since everyday staples remain the drivers of local store visits.
The losers: other big boxes, furniture stores, and food and beverage. Shopping for
discretionary products in the entertainment or leisure categories has declined significantly

since 1973. Additionally, web pure plays and manufacturers challenge big box stores with
broader assortments online. Solutions like 3D printing could help to preserve some sales in
big box physical stores but will likely not offset the overall decline to the channel. Although
housing costs are a greater share of overall expenses for consumers, deflation in the overall
home furnishing sector due to value-oriented retailers like Ikea and price competitive web
sellers like Wayfair and Overstock.com will likely push more shoppers away from traditional
furniture stores to online merchants. Finally, deflation and further improvements in agricultural
productivity and the prevalence of genetically modified products (uninhibited by the pockets
of backlash in upper income demographics) mean that food as a percentage of spend will likely
decrease even further.
April 9, 2015
15
Figure 8 Some Retailers Will Win, Some Will Remain Stable, Some Will Lose
8-1
Retailers with positive outlooks
Retailer type
Category outlook
Reasons
Online retailers
Very positive
Continued mobile device growth

Dynamic pricing enables value seeking.
Marketplaces expand long-tail inventory across categories.
Ultra-rapid web connectivity in more communities
Luxury retailers
Very positive
Increased affluence among the highest income shoppers

Remote customer service and technology in stores have
the ability to create flagship wow experiences.
Experiments with technologies like 3D printing and virtual
reality are likely to resonate within this segment.
Brands selling direct

to consumer
Very positive
Competition among retailers means brands can retain some

unique inventory and control supply.
Omnichannel efforts help move long-tail inventory.
Health and personal

care stores
Positive
Food services and

restaurants
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Slightly positive
Growth of health category spend enables retail alternatives to

healthcare (e.g., urgent care centers).
Significant expansion of food away from home over the years

Restaurants taking real estate space in lieu of some
categories of physical stores
Lower costs of agricultural inputs enable restaurants to have
relative low costs, enabling more on service and experience.
April 9, 2015
16
Figure 8 Some Retailers Will Win, Some Will Remain Stable, Some Will Lose (Cont.)
8-2
Retailers with neutral outlooks
Retailer type
Category outlook
Reasons
Auto and parts dealers
Neutral
More units offset by slower replacement cycles

Innovation in the auto industry with hybrid and electric cars,
as well as new models for ride sharing promise to keep
demand steady
Older shoppers still driving growth and demand
Building material and

garden stores
Neutral
This category is still primarily offline due to the need to touch

and feel items.
Ultra specialization for categories like tile and fixtures are
areas of growth and opportunity in warehouses and remote
showrooms.
Clothing and
accessories stores
Neutral
Shift to web with better fit technologies and long-tail

assortment
Neutral
Electronics and
appliances stores
Neutral
Electronics are already heavily online.

Appliances can shift to online with strong customer service
support, detailed specs, and installation guarantees.
Gasoline stations
Neutral
Continued growth of the auto industry

Slow transition to electric cars
Expansion of gas stations to incorporate food services
General merchandise
stores
Neutral
Heavily commoditized with vulnerability to price competition

Shift of these categories to the Web
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April 9, 2015
17
Figure 8 Some Retailers Will Win, Some Will Remain Stable, Some Will Lose (Cont.)
8-3
Retailers with negative outlooks
Retailer type
Category outlook
Reasons
Food and beverage

stores
Slightly negative
Cheaper agricultural costs even for organic foods promise to

keep food costs low.
Some integration of food away from home with food at home
(e.g., Eataly)
Furniture and home

furnishings
Slightly negative
Showrooms are less effective as breadth of merchandise and

customization become more commonplace.
Augmented reality, customization, and marketplaces promise
to shift more of the category online.
Sporting goods,
hobby, toy, and music
stores
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Negative
Heavily commoditized
Substitute products becoming digitized
R e c o m m e n d at i o n s
Cut Costs Without Creating A Bad Experience . . . Or Perish

Retail will get more competitive in years to come as consumers spend more on essentials like
housing, healthcare, and education. eBusiness and channel strategy professionals, tasked with
evolving their companies to truly digital-led businesses, must take specific measures to ensure they
survive. Specifically they should:
Strategize how to address lucrative older shoppers. While the obsession often is with
younger shoppers, shoppers over 35 have more discretionary dollars, are a bigger and
growing segment of the population, and in aggregate spend more shopping than those
under 35. New categories and formats to attract this demographic are well-positioned to
find success. This doesnt mean you should open geriatric offices in redeveloped shopping
centers in South Florida, but if your business targets young customers, look for adjacencies,
new product categories, or potential acquisition targets to provide insurance for your
company should your concept(s) become mature or less relevant. If nothing else, consider
store features that support older shoppers: larger font options on websites and smartphones
(which, yes, older customers do use), senior discounts, and even services that address the
health and wellness of older shoppers.
April 9, 2015
18
Remember that bad omnichannel execution is the same as no omnichannel execution.
While omnichannel solutions like in-store pickup and ship from store efforts have the ability
to boost margins, badly executed omnichannel efforts can increase costs and cancel out any
positive benefits. Scrutinize the specifics of your operation to make sure that there arent
hidden pockets of expense that diminish the benefits of omnichannel. Are you seeing higher
labor costs for picking store shipments? Are you splitting shipments across multiple stores
when the orders would be cheaper in one box? Are you routing orders to stores with poor fill
histories? If so, these are opportunities to improve omnichannel efficiency.
Keep investing in loyalty programs. Loyalty programs have been a boon to the retail
industry, providing valuable shopper details to marketers while giving a brands best
shoppers a reason to spend with them. Though loyalty programs are frequently kickbacks
that are essentially shopper rebate programs, these are vital tools to maintain wallet share
in an otherwise vicious retail environment. Companies should also integrate their loyalty
programs to mobile devices, enabling customers to access real-time information about
any stored value they may have. Starbucks has done just this, and as a result has become
retails most successful mobile payment case to date. Loyalty can also come in the form
of subscriptions. Subscription companies like Netflix disrupted Blockbuster. Consider if
subscription fees have a place in your industry: Companies like Trunk Club and Dollar
Shave Club have demonstrated they can work almost anywhere.
Look for adjacencies in other growing categories. The two areas of retail that have
captured the most shopper spend are education and healthcare. Both have private sector
retail opportunities that will affect the retail landscape in the years to come: Academic
tutoring, training and skills development for professionals and students, extracurricular
activities, physical therapy and massage venues, vitamin and nutrition stores, senior day care,
and urgent care clinics are all businesses that address these growing sectors of spend.
Pursue a startup strategy. Because the size of the retail pie has been shrinking over time,
companies should never underestimate a new entrant. Consider early potential acquisitions
of interesting concepts to maintain and grow share. Retailers have been reluctant to grow
through acquisition in the past they have instead opened new stores or changed their
merchandise assortments but now could be a time to take a page from @WalmartLabs
and consider mergers or venture investments as part of a growth strategy.
April 9, 2015
19
W h at I t M e a n s
The Same Old, Same Old In Retail Means A Slow Steady Death
While we would love to say that the future of retail will be a fabulous world of automation and
instantaneous personalization, the truth is that retail will be a more difficult environment as
expenses like healthcare and education eat up more of every dollar, leaving less to spend on
shopping. Ultimately, this means that:
1. More retailers will disappear in the future. We expect that the competition within retail
will cause a shakeout of more retailers in the future. Many like Best Buy and Toys R Us will
successfully stave off death for at least five years by cutting costs and lowering prices, but
in the long term, these businesses will be unable to survive unless they have fundamental
structural improvements in their economics compared to their competitors. At the same
time, a number of gems will continue to shine. Players with fresh or underserved concepts
will be the ones that take the place of old brands by shifting dollars away from incumbents,
or by lowering the prices of existing products and services. Examples are Arhaus in the
furniture space, Eataly in the grocery and restaurant sector, and urgent care clinics located
in drugstores.
2. Mediocre store associates become an endangered species. Lackadaisical cashiers may
now be a staple of physical retail but there will be little tolerance or budget to support them
in the future. HR models from companies like Trader Joes and The Container Store, which
pay fewer store associates more in order to get higher quality, and more cross-training will
become the norm for high-performing stores.
3. Consumers can expect longer store hours and retailers wont pay more for it. To
compete with the Web, retailers will need to extend store hours to offer greater
convenience. Grocers, pharmacies, and convenience stores already do this with 24-hour
service, and pilot efforts like this have been executed during the holiday season with stores
like Macys and Kohls. As the Webs big value is shop any time, look for more retailers to
chip away at that advantage, particularly as remote monitoring, self-service, and skeletal
staffs can be used to operate physical stores in the future.
4. Traditional retail functions like buying and planning are reinvented. Buyers and
planners wont go away entirely, but new retail functions to discover, source, and fulfill
products will evolve as small-batch manufacturers, long-tail inventory, customization, and
3D printing become more commonplace. Large brands in the future will distribute through
their owned stores or stores-within-stores, which means that more efforts will be placed
on visual merchandising and store analytics over traditional buying functions. Big box
retailers and grocers will find lucrative annuity streams in renting space within stores to
smaller tenants (say, USPS or coffee shops), making real estate brokerage more important
than merchandising for some companies.
April 9, 2015
20
5. The age of the retail conglomerate begins. Historically, retailers particularly in the US
have only been in the business of selling products in stores. But companies like Amazon
and, even before that, companies like the Danish transportation behemoth Maersk, have
demonstrated that retail can coexist with very disparate businesses. In some situations, the
profit from other disconnected businesses can even enable the retailer to better compete.
As the economics of retail become more challenged, retailers will realize that what they
bring to the table is their loyal customer or supplier relations and their physical footprint
which may have the potential to be exploited in other ways.
Supplemental Material
Survey Methodology
We derived the key data points for this document from the US Bureau of Labors Consumer
Expenditure Survey. Data was captured from the files for household spend and were adjusted to
real dollars according to the CPI calculator also available on the site. All figures that are inflationadjusted are calculated in 2013 dollars. The inflation calculator used for this document can be found
here: http://www.bls.gov/data/inflation_calculator.htm. The general methodology for gathering data
for the CES can be found here: http://www.bls.gov/cex/faq.htm#q10.
Data was selected to approximated decades but was sometimes unavailable for specific years.
The 1972-73 data set was therefore used to approximate 1970 and the 1984 data set was used to
approximate 1980. Data was available in ten-year intervals after that. We also selected the most
recently available data set (2013) as of the publication of this report.
Companies Interviewed For This Report
Abercrombie & Fitch
IBM
Alex and Ani
Razorfish Global
Deloitte Digital
SapientNitro
FutureCast
Urban Outfitters
April 9, 2015
21
Endnotes
The total number of households has increased from 110 million to 125 million between 2000 and 2013.
Total inflation adjusted retail sales in that same time frame grew from $2.7 trillion to $3.1 trillion. Both
sets of numbers have a compound annual growth rate of 1%. Source: Consumer Expenditure Survey, US
Bureau of Labor Statistics (http://www.bls.gov/cex/).
Accenture Interactive, The Boston Consulting Group, Deloitte, the National Association of Home Builders,
Nielsen, Pew Research Center, Verizon Wireless, and the presidents Council of Economic Advisers have
released reports on this demographic segment.
The average retirement age is also decreasing, down from over 66 in the 1950s to under 63 by 2000. Source:
Retirement age declines again in the 1990s, Monthly Labor Review, October 2001 (http://stats.bls.gov/
opub/mlr/2001/10/art2full.pdf).
Households under 25 made an average income of $32,200 in 1973 (inflation-adjusted). By 1984, households
25 to 34 made an average income of $48,572. In 2000, households under 25 made $25,398 but by 2010,
households 25 to 34 made an average income of $62,418. Source: Consumer Expenditure Survey, US
Bureau of Labor Statistics (http://www.bls.gov/cex/).
Source: Sarah Wolfe, Why Americans spend less of their income on food than any other country, The
Week, May 27, 2014 (http://theweek.com/article/index/262049/why-americans-spend-less-of-their-incomeon-food-than-any-other-country).
The average age of light vehicles (cars and light trucks) owned increased from less than10 years to more
than 11 years between 2004 and 2012. Source: Annual Financial Profile Of Americas Franchised NewCar Dealerships, National Automobile Dealers Association, 2014 (http://www.nada.org/NR/rdonlyres/
DF6547D8-C037-4D2E-BD77-A730EBC830EB/0/NADA_Data_2014_05282014.pdf).
Discretionary spend includes food away from home, apparel and footwear purchases, entertainment
(including media, toys, and sporting goods), and personal care. Discretionary spend excludes all essential
spending (e.g., housing, healthcare). Grocery spend is also excluded from discretionary spend.
Many big box and retail centers are being converted to medical office properties. Source: Andrea Cross,
Medical Office Trends and 2014 Outlook, Colliers International, 2014 (http://www.colliers.com/-/media/52
2CB10620D9454B8772A26D6A2B343E.ashx).
Source: Forrester Research Online Retail Forecast, 2013 To 2018 (US), Q4 2014 Update.
Source: Consumer Expenditure Survey, US Bureau of Labor Statistics (http://www.bls.gov/cex/).
10
Most of the highly useful analytics solutions, such as loyalty programs and web analytics, are already
broadly adopted within retail. For more information about the state of retail analytics technologies, see the
TechRadar: Retail Analytics Q3, 2014 Forrester report.
11
For more details on using digital technologies to create sources of value across all industries, check out
Forresters The Digital Business Transformation Playbook For 2015 (https://www.forrester.com/The+Digit
al+Business+Transformation+Playbook+For+2015/-/E-PLA710).
12
April 9, 2015
22
Stop & Shop has tested handheld self-checkout tools for years. The benefits are reported to include reducing
checkout time and staffing needs as well as leveraging customer data for real-time offers. Source: Kate Kaye,
Stores Weigh Risks and Rewards of Going Mobile, AdAge, October 28, 2013 (http://adage.com/article/
dataworks/stores-weigh-risks-rewards-mobile/244970/).
13
Nordstrom integrated mobile POS devices into most stores in 2011 in large part to speed transactions.
Source: Kelly Clay, Nordstrom Sees Sales Boost From Mobile POS Devices, Forbes, April 6, 2012 (http://
www.forbes.com/sites/kellyclay/2012/04/06/nordstrom-sees-15-3-increase-in-retail-sales-followingintroduction-of-mobile-pos-devices/).
Home Depot introduced various mobile devices to associates in recent years to improve customer service
and inventory levels. Source: Joel Schectman, Home Depot Rolls Out New Mobile Devices for Workers,
CIO Journal, June 21, 2012 (http://blogs.wsj.com/cio/2012/06/21/home-depot-rolls-out-new-mobiledevices-for-workers/).
In 2013, 34% of US online adults expect to have access to available inventory online or via mobile device.
Source: Forresters North American Technographics Customer Life Cycle Survey, Q1 2013.
14
For more information about ecosystems of value, see the Develop A Digital Business Road Map That
Drives Innovation Forrester report.
15
Broadband penetration among households in 2000 was 5% and grew to 82% by 2014. In that same time,
online shopping penetration grew from 17% to 57% of individuals. Source: Forrester Research Online
Access Forecast Broadband, 2012 To 2017 (US) and Forrester Research Online Retail Forecast, 2013 To
2018 (US), Q4 2014 Update.
16
Currently only about 3% of households have ultra-fast connectivity. Source: Four Years Of Broadband
Growth, The White House, June 2013 (http://www.whitehouse.gov/sites/default/files/broadband_report_
final.pdf).
17
Fit remains elusive and creates significant waste in apparel. Return rates in the apparel, accessories, and
footwear categories range from 15% to more than 50% depending on the type of store. Source: The State
Of Retailing Online 2015, a joint research effort between Forrester and Shop.org.
18
To read Forresters study on the impact that customer experience has on three loyalty measures, see the
The Business Impact Of Customer Experience, 2014 Forrester report.
19
Nike has used 3D printing technology to create special cleats for soccer players. Source: Nike Football
Accelerates Innovation with 3D printed Concept Cleat for Shuttle, Nike press release, February 26, 2014
(http://news.nike.com/news/nike-football-accelerates-innovation-with-3d-printed-concept-cleat-for-shuttle).
20
New Balance has done the same for some running shoes. Source: New Balance Pushes The Limits Of
Innovation With 3D Printing, New Balance press release, March 7, 2013 (http://www.newbalance.com/
press-releases/id/press_2013_New_Balance_Pushes_Limits_of_Innovation_with_3D_Printing.html).
Auto manufacturers already spend about a quarter billion dollars on 3D printing, primarily to create
samples. Source: Daniel Terdiman, 3D printing in auto industry should quintuple to $1.25B by 2019,
VentureBeat. January 3, 2015 (http://venturebeat.com/2015/01/03/3d-printing-in-auto-industry-shouldquintuple-to-1-25bn-by-2019/).
April 9, 2015
23
A February 2011 issue of The Economist featured a violin on its cover representing the future of 3D
printing. Source: Print me a Stradivarius, The Economist, February 10, 2011 (http://www.economist.com/
node/18114327).
21
Shapeways, a marketplace for 3D printing goods of different materials, can deliver a customized plastic item
in as little as one week.
22
For more information about the Microsoft HoloLens, see the Brief: Microsoft HoloLens Changes
Everything With The Next Natural Computing Interface Forrester report.
23
Approximately 80 million cars are expected to be sold in the US between 2002 and 2030, which represents
annual growth of 1%. Source: Joyce Dargay, Dermot Gately, and Martin Sommer, Vehicle Ownership and
Income Growth, Worldwide: 1960-2030, New York University, Arts and Science, January 2007 (http://www.
econ.nyu.edu/dept/courses/gately/DGS_Vehicle%20Ownership_2007.pdf).
24
April 9, 2015
About Forrester
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For eBusiness & Channel Strategy Professionals

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Why Read This Report

Notes & Resources

2 Retail Is Changing But Most Retailers Dont

Forrester interviewed Abercrombie & Fitch,

8 Many Innovations Are On The Horizon To

17 Cut Costs Without Creating A Bad

19 The Same Old, Same Old In Retail Means A

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Figure 2 When One Sector Wins, Others Lose

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