The future of retail favours the brave!
They say that change is the only constant, never before have we lived in a time when this is more true. Not only do we live in an age of continuous tech innovation that is changing the way we communicate, how we spend our money and how we choose to shop; there are also shifts in our demographic evolution, the increase of smaller families, the changing gender roles and the emergence of a generation who are growing up with instant access to information. These tectonic shifts are changing the world as we know it, and the world of retail is at the very epicentre.
Although change can be unpredictable and challenging, when embraced it can also bring about incredibly exciting and unexpected rewards. In this article we will explore some of the rising trends that are shaping the world of retail in Europe and then assess some bold strategies for this brave new world.
Although we are looking at Europe as a whole, it is important to note that Europe is not an homogenous group. Its composed of individual countries, shaped by their own shifts in technology, demographics and economics, at a pace that is unique to them. A research report by PAC highlights the variants of the region by noting that, for example, in the Nordic countries two thirds of retailers are selling through mobile, whereas in Italy less than a quarter of retailers think mobile is important. Furthermore, 85% of German retailers believe that physical stores remain important whereas only 23% of retailers in the UK share this sentiment.
In this new world order, the capitalisation of new markets is now less about entering the individual countries but more about retailers finding cities that have strategic similarities to the ones they currently operate in. And this is just the beginning.
While Omni-channel is not a new trend, it remains a focus as so few retailers have managed to master this shape shifter. With the never ending stream of new technology, digital and particularly mobiles, play a prominent role in consumers' everyday lives. This, along with the rise of social media makes shopping a form of 24/7 entertainment. The challenge for retailers lies in merging offline and online into one seamless customer experience and to engage with shoppers on social media throughout their purchasing journey. The variables of this journey are in constant flux from a straight forward “buy now” approach to a “hold, consider, consult” tactic. According to Google, 90% of users switch between screens to complete tasks, and 38% of all customer journeys involve more than one channel. Due to these rapid channel changes, retailers have to focus on an agile approach so that they can anticipate and adapt their long term channel integration strategies.
The Rise of Mobile
Key to the successful merging of online and offline is the growing significance of mobile phones. According to a report from Hitwise, nearly 60 % of all online searches are carried out on a mobile device, 72% of those were to a food and beverage website and 56% to retail. The intention of searches by shoppers on smart phones is more urgent , with many users going directly to the brands website or app, making strong brand recognition essential. With m-commerce sales expected to top $638 billion by 2018, integrating it into the omni- channel experience is vital.
It commonplace for customers to look for information in the physical retail store and at the same time to gather additional information from their mobile devices about offers and possibly better prices elsewhere. Beacons and Bluetooth technology in-store will help to facilitate connecting the physical store with the consumers' mobiles, enabling the seller to connect and offer personalised preferences based on items in the purchasers' wish list, or based on items that they have stored in their online shopping carts. This technology along with social media is pivotal for building and growing relevant loyalty programmes.
Physical Retail Space
The dichotomy of retail at this time is that although digital is the future, the physical bricks and mortar store still holds a significant place in the retail landscape. The shape and purpose of the stores are starting to morph from purely shopping space to be more lifestyle focused. The traditional notion of what constitutes a physical store is being challenged daily, and a 'store' can include anything, from a pop-up shop, to a showroom where consumers can feel and assess the quality of the products, and even to virtual reality store- fronts and in-store operations.
This shift towards digital is particularly tricky for grocery retailers who are heavily invested in brick and mortar. The convenience of online grocery shopping is very alluring. In Ireland 40% of consumers regard shopping as a chore, and research conducted by McKinsey revealed that 64% of customers will switch from preferred grocery retailers when moving from brick and mortar to online. Services such as click and collect, same day delivery, the ease of navigating the website, and the quality, variety and value for money, all play a significant role when selecting a provider. Increasingly, shoppers are deciding to spend less on the products they view as indifferent in order to spend more on those they care about. In the UK they have seen significant growth in discount retailers such as Lidl and Aldi, which puts a significant squeeze on the middle market. Many grocery retailers are having to reposition themselves to offer either exceptional value or exceptional quality to effectively compete.
Virtual and Augmented Reality and AI
Virtual Reality (VR)
This fully immersive experience is said to be more of a management application, with CEO’s of larger retailers being able to virtually drop into any store regardless of location, and with the overlay of analytics from that store, they are able to effectively assess performance. It is also good for determining various store layouts and A/B testing the most effective product placements. However, VR also gives brands an opportunity to engage the consumer at point of sale. Visors are able to help brands tell their unique story and take consumers on a specific journey, free from external stimuli or distractions. Consumers emerge converted and more likely to buy, and often advocate the products because of their VR experience.
Augmented Reality (AR)
The hype around Pokemon GO, really catapulted AR into the lives of everyday consumers. AR does not obstruct the customers view but rather provides an overlay onto the real world, with videos, graphics, images, and text, making it ideal for retail. Many retailers have successfully been embracing augmented reality in order to help consumers make the best possible purchasing decision. For example, Converse launched the AR app that allowed customers to try on different shoes by merely pointing the camera at their feet. In China, Yihaodian, the largest online grocery store used AR to expand nationally, without the expense of investing in brick and mortar, by setting up designated AR locations where customers could shop. AR provides a fun and novel way for businesses to get consumers to interact with their products, and the opportunities are only limited by your imagination.
Artificial Intelligence (AI)
AI has captured the world’s attention with the launch of Sophia, the first AI to be granted citizenship in Saudi Arabia. The use of AI has been much debated by business leaders, with sceptics like Elon Musk, warning against the use of AI. AI is machine learning, natural language processing and optimisation. Retailers desperate to compete with Amazon look to AI to provide improved efficiencies and service and, often mistakenly, view it as a ‘silver bullet to cure all”. This is not the case. AI does have potential to unlock business value by tackling the long tail data that does not receive human attention. Ideally the AI platform would be specifically trained to avoid mistakes and identify game changing insights. When built from the ground up they can integrate information with end-user workflows. Because AI is new to retail, there are a lot of unknowns. Technology is constantly evolving, and given that it could threaten job security and future prosperity, it is often met with hostility. Knowing what your objectives are when deciding to use AI is important before investing in the technology, but equally it is important to get started on the learning curve.
With increased connectedness, the traditional barrier to markets have been removed, giving rise to the global shopper. These savvy consumers are increasingly discerning about the ethical and environmental impact of the products they consume. Fortunately, social media has provided a platform to showcase the burning issues caused by mass consumerism. Customers are looking to their brands and retailers to embody sustainability. With the rise of sustainability rating agencies like Ecovadis, brands and retailers are under increasing pressure to ensure all elements of their business supply chains comply, or risk eradicating consumer loyalty.
Strategies for the future
Emerging from the tumultuous current of the changing trends the two anchors that will help ground a long term strategy will be nestled in big data and a thorough understanding of the demographic profile.
Data impacts every facet of business from logistics, locations, product production and consumer shopping habits. Big data is the untapped pool of opportunity that allows retailers to identify taste and preferences of shoppers, offering consumers a more omni-channel retail experience. It will also give insights that help determine the dead middle ground, encouraging retailers to hone in on the opportunities in the market more effectively thus aiding them to convert at every stage of the purchasing funnel.
It is estimated that by 2020, 28 billion things will be connected to the internet, from wearable tech to driverless cars and everything in-between. Big data represents the largest opportunity for retailers to offer customers frictionless commerce that is convenient and simple for the shopper. Although there is much concern around consumer data, retailers will need to be mindful to use this data to excite customers rather than elicit fear. With a strong understanding of your data it becomes easier to anticipate and adapt to changes in the market and implement on ground level.
The purchasing behaviour of the connected consumer is being shaped in profound and unexpected ways. Overstimulated and with a wealth of information at their fingertips, they have short attention spans and an abundance of choice. They are time poor and can’t tolerate complexity.
Millennials' shopping habits are distinct from other generations. They are willing to experiment with new retail formats and, because many still live at home, they encourage the older generation to explore technology that gives them access to different retail channels. They are willing to pay premium prices for quality goods.
Although much of the focus is always on the millennials, the over 55’s account for more than half consumer spending growth in Europe. The over 65’s will increase to 1.1billion in the next 20 years making them the most significant age segment. It’s not just the age segments that are important but also the changing gender roles and the shift to smaller families and one person households. Each of these presents an opportunity for retailers to understand the core of what each group needs and to pivot their offering accordingly. It’s an opportunity to experiment with different business approaches to see what resonates best with your demographic.
The future of retail is complex and continuously evolving and there is no blueprint for success. The successful retailers of tomorrow will be those that have a clear vision of the forces that are shaping their industry and who are not afraid to make bold strategic bets while being agile enough to adapt to changes along the way. Success is a moving marker and those most likely to hit it, are those who start to make investments in their future today.