There can surely be no question now that Amazon is the most important agent of disruption and change that the retail industry has ever seen. That reflects not just its scale and reach but the way that it has changed fundamentally and forever how people want to shop, and the range of goods available to them – largely irrespective of where they happen to live.
This is only the start, more disruption is inevitable as shoppers continue to migrate their sales to online options that offer more convenience, more variety, greater ease and, very often also, lower prices. We are already seeing the impact, this year John Lewis has seen a sharp deterioration in its sales, Debenhams is closing stores and making others smaller and House of Fraser’s administrators sold the 169-year-old business to Sports Direct. Neither is the pain confined to department stores. Several very well-known retailers including Poundworld, Carpetright, Mothercare, New Look and Homebase, are using Company Voluntary Arrangements to exit unprofitable sites and agree rent reductions with landlords to try to avoid entering administration.
Retailers will also face more intense competition, not just from Amazon and other online shopping sites, but from their own suppliers. A recent PA Consulting survey of 150 major consumer goods companies around the globe found 88% expect their direct sales to consumers to increase over the next two years. Every one of the consumer goods companies surveyed reported that it is in the process of either strengthening or developing its direct-to-consumer offerings.
All this means retailers must reimagine and reinvent their business to be more customer-centric than ever before. One key element in this will be to look very hard at their store portfolios and ask how many stores they need. For many, that will almost certainly be far fewer than they have today and, for those they retain, they will need to rethink the very concept of a store. No longer is a brick-and-mortar location merely a place to ring up sales. Physical stores, more than ever, must be brand builders. They need to cement brand loyalty by creating experiences – part entertainment, part education – that can be had only in person. By strengthening the bond with customers, retail outlets will drive sales both in person and online.
Some retailers clearly do understand these challenges and are responding in impressive ways. Selfridges uses its iconic central London department store to host an ever-changing variety of promotional events and experiences, all designed to keep the customer entertained and wanting to come back to see what’s new and exciting. H&M is making its stores more than just places to buy things, and its products more interesting, through hook-ups with iconic designers, creating H&M exclusives at affordable prices. They are also reimagining their flagship stores as places that shoppers will want to visit for the experience. Their New York Times Square store offers the chance for shoppers to ‘virtually’ try on products, test out a new look with friends on social media, and win the opportunity to appear in a live in-store catwalk show that’s shown on a huge screen in Times Square itself.
These approaches underline the need to start with the customer and understand their needs and expectations in forensic detail. What challenges can you solve for them? How can innovative approaches engage them and deliver better experiences? What are the sources of added value to the customer that will, in turn, add value to the enterprise? This understanding needs to be underpinned by a detailed understanding of data. Effectively participating in, and implementing, digital platforms and D2C initiatives requires advanced data and insight capabilities. Without this, retailers won’t understand where the strongest opportunities for value creation are.
The next key requirement for retailers is to be agile and open to new models. In a fast-changing world defined by disruptive change, the companies that succeed are those that design and implement in-market initiatives in an agile way. They’re also open to embracing new working models, such as Lean Start-up and Agile methodologies, and discarding at least some of their current ways of working.
Thoughtful leaders also consider carefully what innovation means for their enterprise and their customers, as well as the type and scale of innovation they should and can consider. For some, this may mean being at the leading edge creating entirely new value propositions. For others, it may mean being a ‘fast follower’, learning and benefitting from the experiences of others.
Finally, retailers need to be realistic about how they can drive change and innovation. That means carefully considering the capabilities they need, the cost of changing and acquiring them, and the barriers that will need to be overcome.
While it is clear that the explosion of online retailing is one of the greatest threats in history for traditional retailers, far-sighted companies that can navigate the complexities and create and implement effective consumer engagement strategies will have an opportunity-rich future.