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Retailers Have a Nearly $3 Trillion Opportunity

By Daniel B. Kline - Jun 16, 2017 at 9:19AM

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There's money to be made, but it involves changing how they operate.

Lost in the many stories about the death or slow, painful collapse of so many well-known retailers is that American consumers are still buying stuff.

In fact, when you look at a chart of United States retail sales the numbers have been moving steadily higher since about 2009. What's changing isn't whether people spend money, it's how they spend it.

Of course the driving force for that has been the internet. Consumers buy more online, and have become comfortable purchasing things digitally -- like shoes -- that seemed unlikely to move into that realm just a few years ago.

The changes on how people buy have only just begun. In fact the introduction of Accenture's ( ACN -1.06% ) Painting the Digital Future of Retail and Consumer Goods Companies report contends that those industries will change more in the next 10 years than they have over the past 40. In the study, based on analysis from the World Economic Forum, Accenture contends that "a digital wave is underway that could bring a cumulative $2.95 trillion in operating profits by 2025 for the retail industry."

That's quite a bit of money, getting a piece of the pie involves making major changes in how a retailer operates. It's no longer just about having a website and competing with Amazon ( AMZN -1.38% ). It's about adapting to the different ways in which the American consumer has become willing to buy goods and service.

US Retail Sales Chart
Image source: YCharts.

How does a retailer get a slice of the $3 trillion pie?

The Accenture report lays out four distinct areas that are going to keep growing. All of them exist now and their growth has only just begun.

  • Sharing economy: This market exists in the form of services like Airbnb and Uber as well as through countless companies trying to be the Airbnb or Uber of their respective markets.
  • Personalization economy: This exists in the many "surprise me" subscription services that deliver everything from a random assortment of pop culture items to food, clothes, or beauty products.
  • Replenishment economy: Think Amazon's Dash buttons and similar takes on that idea by other retailers. 
  • Service economy: This has moved beyond traditional areas like contracting, electrical, and plumbing into pretty much anything a person needs done, but does not want to do themselves.

The numbers back up the changes the report sees coming. More than one third of U.S. consumers (37%) said they would use a rental subscription for clothing, renting an item for an occasion and returning it after, instead of purchasing it outright.

A whopping 47% said they would use auto-replenishment for household goods while 43% said they would use it for fresh food. In addition 35% of U.S. consumers said they would be willing to hire someone to pick up their laundry, wash it, then return it folded while 32% agreed they would use a clothing subscription where an expert picks items for them based on what they have bought previously.

An Amazon Dash button on a washing machine

Amazon Dash buttons are an early example of auto-replenishment technology. Image source: Amazon.

There is huge opportunity

Amazon already has staked out a major place in both the replenishment economy and the service economy (at least in some markets). That does not mean that other retailers -- both pure-digital and brick-and-mortar -- don't still have time to get in on the action.

This is a major shift in how people shop. It almost certainly means less visits to stores but that does not have to mean the end of physical retail. Instead, traditional retailers need to use their stores as hubs to initiate, explain, and sell the types of experiences detailed above.

Retail is shifting, but it's not going away. Opportunity remains for the companies willing to accept that how people buy has changed and it's going to change even more.

Amazon does have a clear lead in addressing the market, but chains like Best Buy, which has embraced service and is trying out a rental program, have shown that it's possible to adapt to this new economy. Others will either follow and grab a piece of the nearly $3 trillion pie or they will continue to shrink and disappear.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$3,389.79 (-1.38%) $-47.57
Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$105.87 (1.88%) $1.95
Accenture plc Stock Quote
Accenture plc
ACN
$361.42 (-1.06%) $-3.88

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