Each year, we kick off our content with a look at the retailers or retail segments we think could dominate the year to come.
Last year, we explained why grocers like Publix and Albertsons would thrive, Planet Fitness would drive a major recovery, malls would rebound and a specific group of home improvement retailers would continue to impress.
So who should you look out for in 2022? Here’s our list of the brands to watch.
Target
Yes, Target was in our 2020 iteration, and calling out an already successful company does seem a bit weak…. but, we still couldn’t leave them out. Why?
Not only did Target have a dominant 2021 – only one month of the first eleven of the year was down compared to 2019 – but the reasons the retail giant succeeded show no signs of dissipating. The investments in omnichannel have been impressive, enabling the brand to thrive no matter the wider circumstances, and they have also displayed a uniquely strong understanding of who their customers are and what draws them to a store. The brand has seen success with store-in-store concepts with Disney, Ulta and Apple, and remains capable of taking advantage of any retail opportunity because of their wide range of products.
Target is also continuing to invest in the long term customer relationship, with the company taking the edge off inflation in Q3. And this is what continues to make the retailer so strong - the willingness to invest in the future of where retail is going and in the customer relationship that underpins their strength. Obvious pick? Probably. A deserving one? Absolutely.
Coffee
Starbucks saw consistent and increasing offline strength throughout 2021, and Dutch Bros. was one of the most exciting QSR brands to watch. And the wider strength being seen in the coffee and breakfast space also includes a rapidly recovering Panera, an expanding First Watch and a consistently strong Dunkin’.
And while the top players in the space already outperformed the wider dining category throughout 2021, there is reason to believe that 2022 could be even better for the segment. The return of office and school supports a sector that is naturally built into those routines, but even work from home could give this space a boost, privileging the ‘third place’ model that many of them champion. While the success will likely be distributed – certain urban areas and suburbs will likely perform better than harder hit cities – expect a very strong year for the caffeine driven category.
Grocery Wave - Part II
If 2021 was defined by the success of traditional, one-stop-shop grocers like Publix and Albertsons, 2022 should give a stage to harder hit players like Wegmans, Trader Joe’s and H-E-B. Wegmans and H-E-B saw their visits affected significantly by COVID, but their relative strength even in the face of those challenges is a likely precursor to even greater heights as the pandemic’s retail impact dissipates. Add to this the return and likely popularity of prepared foods in a chain like Wegmans, and the expectation for success becomes all the clearer.
Trader Joe’s belongs in this category for what it has proven in the last year - that it is an unstoppable grocery player that outperforms even when it should be at its most vulnerable. Trader Joe’s began the pandemic as one of the hardest hit grocers alongside Whole Foods, and the assumption was that the retailer simply wasn’t well aligned with pandemic shopping behaviors. Yet, the unique brand strength came into full display as visits continued to track towards pre-pandemic levels – and 2021 saw visits up compared to 2019 in each of the first eleven months of the year. The clear takeaway is that betting against Trader Joe’s offline performance is an unwise decision.
Add to this the fact that the wider grocery sector saw increasing strength throughout the year and the likelihood that this will continue into 2022, and reasons to be bullish about all three chains abound.
Department Stores
If COVID has taught us anything about brick and mortar retail, it is that the discovery process – especially in apparel – is still far more effective in a physical store. So are department stores going to thrive in 2022 like no year we’ve ever seen before? Probably not. Yet, considering how negative the narrative is surrounding these chains, they are still very likely to impress relative to expectations.
Department stores are uniquely situated to aid in the discovery process because of their model. And the willingness of so many players in the space to test new concepts combined with luxury retail’s appeal shows the potential impact these chains could have. Should some of these tests pan out and the brands push to double down on the discovery experience – department stores should be among the biggest retail winners of 2022.
Costco
Costco is another brand whose presence on this list may not come as a shock – but there are still reasons to highlight the retailer. To begin, Costco has been doing incredibly well throughout 2021 when comparing visits to 2019, which was a significant achievement considering that 2020 saw many periods with year-over-year declines. Diving deeper into the data shows that visits per visitor metrics were dropping far faster than overall visits - indicating that the ‘drops’ were just shifts in consumer behavior even as more members joined up.
The wholesale giant has also managed to drive strength even as the wider sector has seen significant visit increases to competitors like BJ’s Wholesale Club and Sam’s Club. Costco will also see the returning value of other elements of their business like travel and in-store services. The result is a very strong brand in a sector that is enjoying a wider wave of success where the retailer maintains its leadership position. The obvious result of such an equation is another great year for Costco.
Beauty Leaders
The final winner for 2022 are two of the leaders of the beauty category - Sephora and Ulta. Both have seen strong performances throughout the pandemic and both took advantage of the strength to launch interesting store-in-store concepts for Sephora with Kohls and Ulta with Target. But there is no reason to expect the good times to end.
Sephora is still just getting a taste of their suburban potential and locations with either beauty concept within them are outperforming those that don’t have them. And all of this is happening as work, events and more return giving ample reasons to boost makeup sales while health and wellness products remain in high demand. The combination of new concepts, existing strength and a continued major market opportunity should buoy both retailers to very strong 2022 results.
Potential Surprises
While not quite convinced enough to declare these retailers out and out winners, there are reasons to believe that the following could surprise in 2022.
Gap is an especially interesting company in that same store sales were actually up for the flagship brand in their latest earnings. If this continues, the result would be a far less vulnerable Gap alongside a thriving Athleta and an Old Navy chain that is likely being impacted by supply chain challenges. Considering the expectations that the latter should diminish in the coming year and there is real reason for optimism.
It’s just too hard to give up on Staples. While Staples was a company that failed to live up to our loftier expectations in the past, there is a feeling like the time for a big year could be around the corner. Performance in much of 2021 was better than many expected, and the work from home shift should provide an opportunity that increases consumer demand without removing office from the mix. Though it’s possible we should just give up the cause at this point, we remain intrigued and still optimistic.
Tuesday Morning is a value oriented home furnishings retailer in a time when value oriented home furnishings retailers are doing incredibly well. Given some space from recent financial troubles, there is ample reason to believe that the brand could surprise - if for no other reason than their exceptional alignment with key trends.
Which predictions will prove worthy and which will fall short? Which surprises will come to fruition? Visit Placer.ai to find out.
