The Age of Disruption ContinuesThe Age of Disruption has filled the economic void that the recession created – and it will continue unabated into 2017 and beyond.

• The old business models and practices, especially in the retail sector, have been discarded or turned on their heads.

• Diversity is the norm, not the exception.

• Media has morphed into new forms, with advertising dollars in hot pursuit.

• Consumers prefer an experience instead of a shopping trip.

• Enveloping all are unprecedented and unimaginable technological advancements.

To illustrate just how disruptive the times in which we live have become, Sandy Carter from IBM recently presented a list of 8 digital disruptions that have already happened, to an audience of entrepreneurs.

Maybe, the most amazing aspect of these disruptions is that so many of us have accepted them and adopted them without hesitation – and quickly discovered how beneficial they are.

Despite the change of administration in Washington, DC, 2017 will likely be another year of racing towards a fantastical future. THE MEDIACENTER’s Trends 2017 Special Report can only be a fleeting glimpse at where we’re headed and it will certainly be a challenge for you, your station and your clients to absorb it all and prepare to maximize its value.

1. “The world’s largest ‘taxi’ company owns no taxis – Uber

2. The largest accommodation provider owns no real estate – Airbnb

3. The largest phone companies own no telco infrastructure – Skype, WeChat

4. The world’s largest retailer has no inventory – Alibaba

5. The most popular media owner creates no content – Facebook

6. The fastest growing banks have no actual money – Society One

7. The world’s largest movie house owns no cinemas – Netflix

8. The largest software vendors don’t write the apps – Apple, Google”

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An Economy on the Razor’s EdgeAlthough the recession and the slow recovery that lingers to this day have hurt many individuals, families and businesses of all sizes, it may have taught us an important lesson that has gone unheeded for decades: A slow, but steadily growing economy may create a stronger foundation for the future than a quick rebound to an overheated economy.

The current and forecasted signs are good.

• The GDP for Q3 2016 was at an inflation- and seasonally adjusted rate of 3.2%, the largest increase during the past two years.

• The 60 economists The Wall Street Journal surveys monthly forecast a GDP of 2.3% for Q4 2016, and a similar positive increase for the first three quarters of 2017: 2.3%, 2.4% and 2.5%, respectively.

• Many analysts cautiously predict that the stock market rally towards a Dow Jones of 20,000 for the first time, and beyond, will continue, although the rate of increase will decline during 2017.

• Although there are many Americans who have stopped looking for work, the unemployment rate for 2017 is expected to remain where it is currently, 4.6%, which historically indicates “full” employment.

• The November 2016 agreement among OPEC countries to cut output by 1.2 million barrels a day as of January 2017 may or may not hold, as previous agreements have been quickly broken. Regardless of what OPEC nations do, oil and gasoline prices will be higher during 2017.

One industry analyst predicts $2.40 a gallon by the end of 2017, which shouldn’t put undue stress on the majority of consumers and companies’ wallets, as pump prices were almost $2.20 during early December 2016.

• Realtor.com forecasts that the market will be slower during 2017, with home prices increasing 3.9% and interest rates to reach 4.5%, which could reduce the number of first-time buyers. Nonetheless, existing home sales are estimated to increase 1.9%, new home starts 3.0% and new home sales, 10.0%.

Of course, all of these economic forecasts are predicated on exactly what kind of president Donald Trump will be and what policies he touted during the election can become reality. Historically, presidents who want to make significant changes discover they can’t do everything and tend to move toward the middle ground.

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To the Stores and BeyondOf the many 2017 forecasts for the retail sector, Kiplinger predicts a 3.7% sales increase for the year, which would be just a bit less than what should be the final result for 2016. Trading Economics puts the Q4 2016 retail YOY increase at 3.7%, and then rather steady increases of 3.1%, 3.0% and 3.1% for the first three quarters of 2017.

That being said, department stores are likely to continue to suffer during 2017, if 2016 holiday data are any indication. Thanksgiving and Black Friday net sales at brick-and-mortar stores decreased 5.0% while online sales increased 18% to $5.27 billion, with $3 billion of that total on Black Friday alone.

Although a majority of American consumers still prefer to shop at brick-and-mortar stores, it’s the specialty apparel stores – Forever 21, H&M, Marshalls and T.J. Maxx – that are planning to open more stores during 2017, as more department store locations close.

The most important trend to watch in the apparel market is the forecast from Cowen & Co. that Amazon will become the largest clothing retailer in the US during 2017, surpassing Macy’s. Amazon’s clothing and accessories sales will increase approximately 30% during 2017 to $28 billion, compared to Macy’s decline of 4% to $22 billion.

Online Footwear and Apparel Accessories Sales, 2016–2021

Year Total

2016 $63.29 billion

2017 $69.82 billion

2018 $76.85 billion

2019 $83.92 billion

2020 $90.34 billion

2021 $96.41 billion

Statista, December 2016

Contraction and ExpansionAmazon is not the only reason just 7 major department stores – Kohl’s, J.C. Penney, Sears/Kmart, Dillard’s and Macys – closed a total of 692 locations during the period 2013–2016, and have another 145 planned for closing during 2017.

Many of these stores are now in neighborhoods where middle-income households have declined significantly or have totally disappeared. Many are also located in shopping malls that are more likely to resemble ghost towns.

US Retailers’ Expansion PlansRetailer Plans

Aldi supermarket

Adding 1,500 new stores by 2018 to its 1,600 stores

Lidl discount supermarket

First 150 US stores by 2018

Ulta beautyAdding 1,700 stores to its 928

locations

Starbucks Adding 1,500 locations

Dollar General

Adding 1,000 stores by 2020 for a total of 15,000

Forbes, September 2016, and Seeking Alpha, November 2016

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It’s a Great Time To Be a Dual-Threat Media RepOn more than one occasion, THE MEDIACENTER has presented data that forecast US digital ad spending will surpass TV ad spending by the end of 2016, although earlier predictions were for 2017. Both media will have almost identical shares of total US ad spending during 2016, at 36.8% for digital and 36.4% for TV.

It’s a win-win for you, however, as a TV account executive. Not only do you represent the dominant traditional media channel, but also you enjoy a solid reputation as the local rep best positioned to help clients with their digital media advertising. Better yet, TV and digital are clearly the most effective and efficient complementary advertising channels.

Borrell reported more good news in its 2017 Outlook: What Local Broadcast TV Advertisers Are Planning. Local TV advertisers’ total average annual advertising budget was approximately 300% more than all local advertisers, at $325,719 and $105,595, during 2016. In addition, the average budget that local TV advertisers allocate for TV is 54% larger than second place cable TV.

Local Advertisers’ Average Advertising Budget, by Medium, 2016

Medium Budget

Broadcast TV $86,894

Cable TV $56,333

Radio $40,867

Outdoor $35,228

Internet $33,164

Direct mail $24,902

Newspaper $21,316

Cinema $17,342

Magazine $17,004

Printed directories $7,990

Borrell, November 2016

Movement Across the Media LandscapeWith the digital advertising channel proving to be so effective, local TV advertisers are planning to cut budget allocations for three traditional media during 2017 – and they are all print: Yellow Pages, 51%; newspapers, 41%; and magazines, 37%.

Although the table on this page shows that 5% of local TV advertisers will eliminate TV and 19% will reduce their TV ad budgets, almost 50% will maintain current spending levels and 27% are planning to increase their TV ad budgets, the highest percentage among all traditional media.

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TV Advertisers’ Media Spending Plans for 2017, by Medium

Medium Eliminate Reduce Same IncreaseNew

Buyers

Digital 1% 4% 27% 62% 6%

Mobile 2% 4% 24% 48% 22%

Direct mail 4% 14% 51% 23% 8%

Cinema 10% 15% 37% 11% 27%

Outdoor 4% 18% 48% 19% 11%

Cable TV 4% 18% 47% 26% 5%

Broadcast TV 5% 19% 49% 27% 0%

Radio 4% 21% 51% 21% 3%

Magazine 6% 31% 52% 7% 3%

Newspaper 5% 36% 50% 7% 2%

Yellow Pages 9% 42% 43% 4% 3%

Borrell, November 2016

Digital Is the Next Ad GiantAs reported on page 4, many local TV advertisers are eliminating or reducing their use of traditional media, but mobile spending is forecast to increase 70% and digital 68%. Despite these increases, Magna Global predicts that growth is slowing for digital ad sales, including mobile and social media.

Not only will the mobile ad format have the largest percent change in ad spending, but also smartphones will increase their share of mcommerce sales during 2017, by 65%, compared to 2016’s 58%, and will continue to increase through 2020.

US Retail Mcommerce Sales Share by Device, 2015–2020Year Tablet Smartphone Other Amount

2015 51.7% 46.6% 1.7% $80.94 B

2016 40.8% 58.0% 1.3% $115.92 B

2017 34.0% 65.0% 1.0% $156.43 B

2018 28.7% 70.5% 0.8% $206.53 B

2019 24.6% 74.8% 0.6% $267.26 B

2020 21.6% 77.9% 0.5% $335.84 B

eMarketer, November 2016

The mobile channel will generate these annual increases for two primary reasons.

1. Mobile wallets are becoming standard features on smartphones, other payment applications are making it easier to buy on a mobile device and consumers will have an array of mobile order-ahead features.

2. Mobile commerce is becoming more local with Facebook and Google’s location-based digital ads that provide online-to-offline retail sales attribution. National retailers’ digital ads

can also include inventory from local stores.

According to a Mobile Marketing Association July 2016 study, 78% of “US marketers have increased spending on location-based mobile advertising based on the availability of foot traffic data.”

This trend indicates another win-win for you. The smartphone has become the dominant device in use while watching TV. According to eMarketer, 74.1% of TV users will be accessing the Internet on their smartphones during 2017, compared to 52.4% on desktops/laptops and 33.0% on tablets.

Not only does this give you an opportunity to help your clients use the mobile channel as a more effective advertising channel, but also show them why they must use TV to drive consumers to their smartphones for more information and to make purchases.

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US Digital Ad Spending, by Format, 2016 & 2017Digital Ad

Format 2016 2017Ad Total % Change % of Total % Change

Desktop $37 B -2.1% 21% -4.7%Search $35 B +18.6% 19% +14.1%Mobile $33 B +54.2% 18% +34.5%Social $16 B +48.2% 9% +26.3%

Total $70 B +18.0% 11% +13.6%eMarketer (Magna Global), December 2016

Innovating the Consumer ExperienceConsumers may be the greatest disruptor of the retail environment, now and into the future.

An Experience Instead of a Shopping TripAccording to Alliance Data’s 2017 Trends Report: Now, New, Next, “32% of US shoppers want to learn new lifestyle and creative skills at their favorite store.” The shopping process is transitioning from the old model of simply buying the inventory on the shelves to a desire for experiential and educational opportunities that enhance product understanding, selection and repeat sales.

Example: Lowe’sLowe’s Holoroom virtual reality experience helps customers design and visualize their dream kitchen and bath by allowing them to step into a virtual creation of their own.

Your clients may not be able to install a virtual-reality room, but they are likely to have greater knowledge of their products than the big brands and national retailers. They can use their knowledge advantage by understanding their customers’ emotional motivations and attractions to their favorite products, and then create experiential or educational events based on their motivations.

Create a Gathering PlaceA somewhat surprising result from the Alliance Data report is that 39% of on-demand customers live in rural areas, compared to 30% in the outer suburbs and 31% in closer suburbs and urban areas. This kind of trend is causing retailers to rethink what their store should be.

Example: LululemonLululemon Local is the retailer’s new “part store, part meeting place” concept. With a focus on taking community connectivity to the next level, Lululemon is evolving from a traditional store into a gathering place where guests can shop, do yoga, attend events and view locally curated products, such as artwork and interior design.

Small, local retailers can emulate this trend without incurring excessive costs by partnering with other local businesses and creating a “gathering place” environment in their stores.

Personalization SellsAnother finding from the Alliance Data report is that “85% of Millennials are more likely to make a purchase if it’s personalized to their interests, both in-store and digitally.”

Example: Rent the RunwayRent the Runway connects Snapchat users with “like-sized” employees for questions and product recommendations.

This is another rather easy concept that small, local retailers can adopt. Instead of “like-sized,” the connection between customers and employees could be similar age or generation, hobbies or any connection that product selection might suggest.

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The Changing HouseholdActivate, a New York-based consulting firm, reveals a trend in its extensive Think Again: Tech & Media Outlook 2017 that demands the attention of local media reps and their clients. The Activate report calls it Post-Household America: A New Era of Users, and categorizes them as follows:

Another interesting characteristic of Virtual Families is that some “household members” don’t live under the same roof, but share tech and media. For example, Activate reported that 47% of the people using a streaming video on-demand service (SVOD) account paid by someone else are older than 35.

SVOD Users’ Password Source, 2016

Source Percent

Direct (immediate family) 66%

Extended family 17%

Friend/acquaintance 11%

Roommate 5%

Colleague 1%

The Wall Street Journal (Activate), October 2016

The study also revealed that in the Multicultural category, US-born Hispanics (third generation) have very similar tech and media habits of non-Hispanics, and first-generation Hispanics’ tech and media habits exceed them both.

Although tech and media companies must continue to find ways to offer affordable services to lower-income households, current pricing structures create greater penetration than expected.

Top Five Tech and Media Services by Income Bracket, 2016

Service <$25 K$25–$35K

$35–$50K

US Average

Standalone home

Internet52% 46% 44% 47%

Cell plan 49% 61% 64% 65%

Streaming video (e.g.

Netflix)37% 44% 43% 52%

Bundle (double or

triple)31% 44% 47% 43%

Streaming music

service19% --- --- ---

Standalone Pay TV

--- 21% 27% 26%

The Wall Street Journal (Activate), October 2016

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Post-Household America Categories

Category Characteristics

Virtual Families

60 million+ live in multigenerational

households

25% of adult renters have roommates

Boomers and Seniors

75 million+ are Boomers

45 million+ are Seniors

Millennials 75 million+

Less than 33% are married

or cohabiting in their own household

Multicultural65 million+ don’t speak English at

home

25 million+ have limited

English proficiency

The Wall Street Journal (Activate), October 2016

Daily Tech & Media Preferences of First/Third Generation Hispanics and Non-Hispanics, 2016Tech/Media

Habit

First-Generation Hispanics

Third-Generation Hispanics

Non-Hispanics

Mobile video 52% 42% 36%

UGC (user-generated

content)47% 37% 35%

Movies on opening

weekend37% 23% 24%

Spanish-language

TV49% 13% N/A

The Wall Street Journal (Activate), October 2016

Technology UnleashedWhat may have been just fanciful thinking on the part of an entrepreneur or some tech geek is quickly becoming reality. They may not be trends that are available to your clients today, but now is the time to be aware, and prepare.

• Few companies are more cutting edge than Amazon. During the day this Special Report was being written, Amazon announced its first commercial drone delivery. A British man living near Cambridge received a Fire TV and a bag of popcorn.

Amazon isn’t the only company making the first drone deliveries. Flirtey, Inc. delivered Domino’s pizza to a New Zealand test market during November and UPS started deliveries of more critical items, such as medicine, to remote areas during September.

Few, if any, small, local retailers will be able to start their own drone delivery services, but you can bet the ranch that Amazon and others will soon offer deliveries as a third-party service at affordable rates.

• Amazon will be opening the first of its Amazon Go brick-and-mortar convenience stores for Seattle consumers during early 2017. Customers will be able to select products, place them in a bag, exit the store and be billed later via Amazon’s Just Walk Out technology.

• Voice-recognition technology will improve productivity in the retail environment. Theatro is a company with such technology. It provides each sales associate with an earpiece to communicate with all other associates as well as back-end inventory and point-of-sale software to obtain product information and availability.

• TV is becoming a real-time buying channel. Wayfair and A&E Television Networks are launching an hour-long show, The Way Home. Viewers will learn about DIY renovations and home improvements using products only available from Wayfair. As these products are presented/discussed, popups will appear directing viewers to visit the Wayfair site to purchase them.

Sources: Floor Covering Weekly Website, 12/16; The Wall Street Journal Website, 12/16; Realtor.com Website, 12/16; USA Today Website, 12/16; Charles Schwab Website, 12/16; Kiplinger Website, 12/16; Trading Economics Website, 12/16; Reuters Website, 12/16; Wall Street Pit Website, 12/16; Fortune Website, 12/16; Forbes Website, 12/16; Seeking Alpha Website, 12/16; Statista Website, 12/16; eMarketer Website, 12/16; Borrell Associates Website, 12/16; MediaPost Website, 12/16; National Retail Federation Website, 12/16; Supermarket News Website, 12/16; Tech Crunch Website, 12/16.

Updated: December 2016

© 2017 THE MEDIACENTER. All rights reserved.

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