Ten Trends That Are Reshaping the Retail Industry

The retail industry is undergoing a major transformation right before our eyes—and it's just the tip of the iceberg. Given the accelerating rate of change, what is your company doing to adapt and stay relevant today and into the next decade? The future will belong to those agile industry players that can rapidly renew themselves—and refuse to cede ground to the competition.

As discussed in BCG's Retail 2020 report, the following ten trends are profoundly changing the retail industry:

1. Empowered, Discriminating Consumers. With access to product information, price comparisons, and user reviews, consumers can make informed decisions—and widely share their complaints. For retailers, the bar is rising, and they must add meaningful value to what shoppers can find for themselves, both online and in stores.

2. Ubiquitous Connectivity. With the Internet available at work, at home, and on the go, consumers will be full-time shoppers and most purchases will have some online aspect. Smartphone numbers will be in the billions by the end of this decade.

3. Buying Local, Going Green. Shoppers want to consume in a responsible, sustainable way. They want to purchase from organic and local vendors, and want proof of product origins. But it remains to be seen whether they will pay more for green products.

4. Explosion of Consumer Data. Points of sale, social media, corporate websites, and tracking URLs are generating an enormous amount of consumer data, but few retailers are capable of fully exploiting the potential value of this input. It will take time, because the volume of data is still growing faster than the ability to process it.

5. New Age of Marketing. With more data on customers, their online activities, and purchasing patterns, retailers will be able to create more targeted marketing campaigns—once they figure out how to mine the insights. This will require experimentation and calibration—and consumers will have limited tolerance for misguided marketing efforts.

6. Scientific Retailing. By applying smart algorithms and deep, data-driven analytics to the unprecedented volume of data from multiple sources, companies can optimize all aspects of their business, including inventory levels, pricing, warehouse space, assortments, shelf displays, and staffing.

7. Growing Retailer Power. The top five grocery stores in the U.S. now have a 33 percent share of the market—up from 25.5 percent in 2000. As their spending increases, they have more clout with suppliers. But in several categories, the increased retailer power may tilt toward large Internet players or marketplaces as their growth outpaces the brick-and-mortar competition.

8. Maturing Retail Technologies. A wide range of maturing technologies is allowing companies to streamline backroom functions and increase efficiency, helping to offset higher labor costs. While these are part of the solution for brick-and-mortar retailers, they won’t fundamentally alter the relative economics between store-based and online transactions.

9. Blurring Boundaries Among Channels, Formats, and Brands. CVS is selling fresh food, grocery stores have in-house bank branches, and bookstores have cafés selling Starbucks coffee. Rather than thinking in terms of channels, consumers are simply opportunistic. If they have a need and can fulfill it easily and conveniently, they will.

10.Challenged Store Economics. The rise of online buying is eroding store traffic, forcing retailers to rethink their costly real-estate assets and merchandising formats. How valuable will bricks and mortar be in the future and for what role? Dynamics will play out very differently by category and location.