Predictions for the Coming Year: Consumer Packaged Goods, Part 2-Retailing

Stephen DeAngelis

December 31, 2013

In Part 1 of this two-part post, I noted that the area of consumer packaged goods (CPG) involves both manufacturers and retailers. In that post, I discussed predictions about the manufacturing sector made by analysts from IDC Manufacturing Insights. In this post, I’ll discuss predictions about retailing made by analysts from IDC Retail Insights. [“What Will Consumer Goods Look Like in 2014?” Consumer Goods Technology (CGT), 10 December 2013] Both the manufacturing and retailing predictions were discussed by IDC analysts in a December 2013 webinar. You can access the IDC Retail Insights webinar by clicking here (registration required). The CGT article notes, “[These] predictions will help both sides of the supply chain to grasp emerging market opportunities and plan for future growth.” The first prediction deals with omni-channel commerce.

Prediction #1: In 2014, fast-followers will chase the 50 global retailers already transforming store, mobile, and e-commerce channels, supply chains, merchandising, and marketing for the omni-channel customer experience. Joel Anderson, CEO of Walmart.com, told USA Today, “I think 2013 will be remembered as the year online went mobile.” [“Cyber Monday clicks in with record sales,” by Hadley Malcolm, and Bruce Horovitz, 2 December 2013] According to the IDC prediction, mobile technologies will continue to transform the retail sector. For a good overview of how things are trending, read my post entitled Digital Path to Purchase Holiday Shopping Trends.

Prediction #2: Business transformation will drive ERP, core merchandising, FAR, and planning investment to a 9% CAGR through 2015. IDC likes to talk about 3D value chains where the three “Ds” refer to demand-oriented, data-driven, and digitally executed processes. According to IDC, these 3Ds build upon four pillar technologies: big data and analytics; cloud; mobile, and social & collaboration. Both downstream manufacturing and upstream retailing value chains rely on these technologies, which, when combined correctly, transform businesses.

Prediction #3: By 2016, leading retailers will improve same-shopper sales with immersive commerce driving additional revenue growth of 1.5% and margin growth of an additional 3%. Marketers are increasingly discussing the importance of providing consumers with great experiences regardless of their path to purchase. With so many choices now available to consumers, retailers are going to have be creative if they want to attract tech-savvy consumers. According to a Media Buzz article, “Omni-channel goes beyond social networks, email, web and mobile, as it actually includes the entire customer experience, like in-store displays, kiosks, interactive television and set-top boxes as well. It’s essentially anywhere there’s a digital touch point, which is everywhere you look nowadays. As a result, retailers and brands have to reformulate their supply chain strategies to match this paradigm shift. With omni-channel retailing, marketing is made more efficient with offers that are relative to a specific consumer determined by purchase patterns, social network affinities, website visits, loyalty programs, and other data mining techniques. According to IDC Retail Insights, omni-channel shopping ‘requires providing an immersive and superior customer experience regardless of channel’.” [“Omni-channel retail maturity will move from foundation to convergence and precision to immersion“]

Prediction #4: By 2017, marketing and advertising technology investment will increase by 50%. This prediction shouldn’t come as a surprise to anyone who has been following marketing trends. The investment in marketing and advertising technology is being driven primarily by the emergence of Big Data analytics that can provide better insights into consumer buying patterns and offer a means of targeting consumers with the right offer at the right time. Nevertheless, as the next prediction indicates, marketers and retailers are still trying to figure out how best to use these new technologies.

Prediction #5: Retailers will narrow and enable big data and analytics (BDA) projects in 2014 as 20%-30% of projects fell short in 2013. Despite this prediction, IDC’s Research Director Thomas Vavra state, “You can no longer pick up a publication about IT without seeing the term [i.e., BDA] everywhere. It’s easy to see why many would want to dismiss this development as nothing more than a lot of hype and marketing. Do so at your own peril. The foundations for the discussion around Big Data are simple and undeniable: We are going to keep producing more data at greater velocities. We can either ignore it, quarantine it, save it ‘just because’, or try and make use of it. Big Data is a new reality, brought about by changing IT landscapes, devices, and all the data they generate.” [“IDC Big Data and Business Analytics Forum 2013,” IDC, 13 February 2013]

Prediction #6: Emerging consumer privacy concerns will force 50% of early adopters to revisit hyper-personalized promotions by 2015. I’ve written a number of posts about how privacy is the elephant in the room during any discussion about big data. There is a fine line between being helpful and being creepy when it comes to hyper-personalized promotions. I agree that walking that line will keep a lot of retailers up at nights in the years ahead. As a result of Edward Snowden’s revelations about NSA spying, consumers have become even more sensitized to privacy concerns than they were in the past.

Prediction #7: E-commerce and store platform replacements that enable mobile, integrated and interactive experiences will support a 10% CAGR in commerce investment through 2017. This prediction complements a number of the IDC prognostications discussed above. According to the Media Buzz article, “All shopping channels work from the same database of products, prices, promotions, etc., thus merchandise and promotions are not channel specific, but rather consistent across all retail channels. The bricks-and-mortar stores become an extension of the supply chain in which purchases may be made in the store, but are researched through other ‘channels’ of communication. According to IDC, retail leaders have no other choice but drive business model transformations and focus investment decisions around the ‘new consumer’. To sustain growth going forward, businesses will be looking to leverage the third generation of IT platform in newer and smarter ways, with the objective of addressing specific industry requirements.”

Prediction #8: As product assortment refresh cycles quicken, 25% of mid-sized retailers will initiate new PLM or sourcing projects in 2014. The electronics sector has faced rapid refresh cycles for years. Rapid technology advances inevitably mean that some unsold older products need to be recycled, resold, or repurposed if profits are going to be maximized. With more and more consumers aware of environmental and human rights issues, sustainability is becoming a bigger issue for many retailers, which is why product lifecycle management is growing in importance.

Prediction #9: Retailers will double the rate of industry supply chain investments in 2014, as compared to 2013. One of the reasons that IDC predicts an increase in supply chain investments is that many companies are beginning to expand internationally to try and win their share of new global middle class consumers. Even though much of this growth will occur online, supply chains much transform to meet the new demand. “Over the past five years, global online retail has undergone an annual compound growth rate of 17 percent, and, according to IDC projections, international e-commerce is expected to expand at more than double the rate of the U.S. e-commerce industry between 2012 and 2017. IDC estimates that the sales volume for physical goods, especially clothes and consumer electronics, will grow 18 percent annually on average over that timeframe, outpacing the United States’ projected seven percent growth.” [“E-Commerce: the New Normal for International Retail Expansion?Consumer Business Compass, 27 November 2013]

Prediction #10: By 2016, 50% of national retailers, will invest in distributed order management, enterprise inventory visibility, and workforce management to enable same day fulfillment. Amazon CEO Jeff Bezos created quite a stir when he appeared on CBS’ 60 Minutes news program and discussed using drones that could delivery packages as quickly as 30 minutes after a consumer placed an online order. Some skeptics believed his pitch was just a public relations stunt. But, as the IDC analysts highlight, same day fulfillment is becoming a big deal, especially in urban areas where such services are likely to be offered.

Taken together, the IDC predictions for manufacturing and retailing provide a fairly comprehensive overview of what lies ahead in the CPG sector. It’s fair to say that companies that if companies aren’t moving ahead they are falling behind.