Big Issues Will Affect Retail in 2019
The past few years have been a time of upheaval for the fashion and fashion-retail businesses. Expect more in 2019.
A cooling economy this year could put a crimp on consumer spending. And a dip in consumer spending might be amplified by a growing trade war between China and the U.S., which began last summer when the Trump administration levied a 10 percent tariff on $200 billion worth of goods coming from China, said Paula Rosenblum, managing partner for market researchers RSR Research.
“If the trade war continues, we’re going to see some real price inflation of low-end and moderate-priced product,” she said. “Since so much of apparel is a discretionary spend, the impact will be swift.”
How big could that impact be? Rosenblum said it was hard to forecast. “I can’t remember the last time U.S. retailers dealt with fallout from a trade war,” she said.
To get around the impact of a trade war, Rob Greenspan, president of Greenspan Consult Inc., is advising his clients to diversify their sourcing operations. “I’m not saying pull out of China. But I am advising people to spread their risk, be nimble and find alternative sources of supplies,” he said.
Another problem plaguing retailers this year is the growing number of returns being made by online shoppers. “The volume of returns will continue to rise and create inventory and process issues for retailers,” RSR’s Rosenblum said. “Absent a fitting room, consumers just buy a bunch of ‘stuff’ and decide what they’re going to keep when it gets to their houses. And retailers cannot afford to charge a restocking fee because consumers will just shop elsewhere.”
An estimated 15 percent to 30 percent of online orders purchased during the holiday 2018 season will be returned, according to a recent report from real-estate and investment company CBRE. Online returns could cost as much as $37 billion for the 2018 holiday season compared with $32 billion for the 2017 holiday season, CBRE said.
But new tools of the trade might help retailers battle some of the challenges in the retail world. One tech item expected to become more popular this year is voice-activated retail such as Amazon Echo, said Wendy K. Bendoni, the fashion marketing chair of Woodbury University in Burbank, Calif.
Consumers are intrigued by the convenience of being able to order a product anytime they want by vocalizing a request into a machine.
Voice-activated retail has piqued the interest of certain big retailers for some time. Walmart and Target made headlines in 2017 when they decided to sell voice-activated shopping powered by Google Assistant devices, and it was a focus at the recent CES technology trade show in Las Vegas.
Personalization and customization are forecast to be increasingly important to consumers. Mercedes Gonzalez of retail consultants Global Purchasing Companies said that strides in manufacturing will allow companies to offer more unique looks to consumers.
Dutch-headquartered Suitsupply offers custom-made suits and shirting for shoppers at the company’s online store. Other companies offering shoppers a chance to make custom suits are Los Angeles–based SuitKits by Sierra E and Sene. “Made-to-order will be mass,” Gonzalez said.
Los Angeles retail sees some burgeoning neighborhoods
For the Los Angeles retail real-estate scene, business in 2019 is forecast to be similar to the previous year, said Rafael De Anda, a market analyst for CoStar Group, a commercial real-estate information company.
In Los Angeles, the retail vacancy rate has been stable, hovering around 4 percent since the third quarter of 2016, De Anda said. The area had just enough leasing to overcome increased vacancies, but don’t expect more retail space to be developed soon.
“Developers are being cautious. They want to make sure what is being built will be leased,” De Anda said.
Commercial rents in Los Angeles haven’t grown much in the past year, remaining flat in 2018 compared with 2017. “Landlords and brokers understand that there is softening in the retail sector,” the market analyst explained. “They were willing to work with tenants this year to protect themselves from rent closures.”
Andrew Turf of CBRE forecast more growth in certain areas of Los Angeles. One reason is that retailers are interested in taking a gamble on the downtown area, once considered blighted until gentrification took hold with an unprecedented construction boom over the past seven years.
Turf worked on a deal to bring a Vans store to the heart of downtown L.A., where in July the hip shoe company is scheduled to open a two-story, 7,500-square-foot flagship at the intersection of Broadway and 8th Street.
It will be located between an old theater being built out as an outpost for tech giant Apple and the hip Urban Outfitters. Other retailers nearby include Theory, Acne Studios and A.P.C.
Turf also was bullish on more boutiques and stores moving to downtown Los Angeles’ Arts District, where the highly touted Dover Street Market was opened last year by Comme des Garçons founder Rei Kawakubo
Pacific Palisades will be another hot neighborhood in the Los Angeles area now that shopping-center developer Rick Caruso opened Palisades Village last year in that wealthy suburb. Turf forecast that more retailers would open in the neighborhood to meet increasing demand for boutique retail.
Another hot neighborhood undergoing a renovation is Inglewood, Calif., Turf said. The residential community, which was once home to the Hollywood Park horse-racing track, is undergoing a major transformation with a new football stadium replacing the race track and being built for the Los Angeles Chargers and the Los Angeles Rams football teams. The Los Angeles Clippers are also planning to build a new basketball venue near there.
The revamped Hollywood Park area, to be unveiled in September 2020, will have new residential development consisting of 2,500 units of housing as well as 620,000 square feet of retail space and a giant outdoor movie screen.
That kind of development is guaranteed to attract new retailers who want to tap into the flurry of fans who will be bombarding the area for games or new residents who want to be close to sports venues and not far from downtown Los Angeles. “Anybody looking for global attention,” Turf said, “will have their eyes on Hollywood Park.”