Just look what is happening on the British high street. New Look, Select Fashion, and House of Fraser are all insolvent in their current form. Toys R Us has shut down. Fashion brands Bench and East, electronics store Maplin, the shoe chain Shoon, furnishing businesses Feather & Black and Multiyork, and Jaques Vert have all crashed into administration.
Debenhams profits are down 85 per cent, while Mothercare and Carpetright have had to seek emergency funding and are shutting stores. Even the discounter Poundworld is struggling and up for sale.
Carnage on the high street is relentless. Many surviving high street retailers have reported poor performances over the past year, suggesting that the industry is struggling to both understand and meet changing consumer demands.
Of course there are retailers that are doing exceedingly well - think Primark, JD Sports, Superdry and Lush. A-Grade shopping centres are thriving as they excel in the experiential.
Changing consumer behaviour is having a huge impact on the retail industry. People are becoming far more confident in their shopping - technology has made it simple to compare prices before venturing out. Many commodities are being bought via ecommerce sites, which are often able to offer lower prices due to leaner overheads.
In many small town high streets, shopping is now a drag - what’s the point of lugging bags of expensive commodities around? Queuing to pay or trying to find the right sized shoes is becoming unnecessary.
22 per cent of all non-food shopping in the UK is now done online. The underlying trend suggests that this will increase, and only those retailers that are prepared and able to adapt will survive in the world of bricks and mortar.
Adapt with the shoppers needs
To adapt they need to focus on the core motivations of why someone today may want to go out to a store to shop. Do the consumers need to pick something up in a hurry? Need advice from a real person? Get something they can’t buy elsewhere? Want entertainment? Need inspiration or test/try products? Or pick up an online order?
Retailers that are not addressing one or more of these needs nor providing exceptional service may find themselves being left behind in the market very quickly.
Shopping is changing
The general public is more willing than ever to spend their hard-earned cash online and younger shoppers, in particular, expect much more from an in-store experience than ever before.
Writing for the Retail Gazette, Dr Felicity Hardley, Senior Lecturer in marketing and business strategy at Westminster Business School, suggested: “We are effectively moving into an experience economy where the customer journey is paramount. Many online only providers understand this and have engineered their whole service offerings to more adequately meet customer needs and expectations.”
She claims that the most successful retailers will be those that retain a physical presence and also offer an e-commerce option. However, they also need to understand how consumers now use their mobile devices while shopping - even in-store. In addition, traditional department stores are finding it difficult to offer the same level of tailored marketing that their online counterparts can achieve. E-commerce retailers can identify and target specific segments of the market. Consumers are used to being able to quickly and easily track down products that suit their very exacting individual needs online and this simply doesn’t translate in-store. This is the challenge hitting profits at businesses like Debenhams and M&S.
The rise of ‘buy now, pay later’
In addition to challenges presented by the general changes in consumer behaviour looked at above, there is to be a fundamental shift in the way goods are purchased that could completely change the game for retailers. This is the rise of ’buy now, pay later’.
Some 40 per cent of retailers have noticed an increase in cases of ‘intentional returns’ whereby customers buy more items than they plan to keep, try the items on at home and send back several pieces for a refund.
In response to this trend early adopters such as ASOS and Schuh hope to boost sales by offering customers the chance to try several items at home before they part with any cash. Taking this leap is likely to pay off according to a piece of research by Brightpearl, which found that 76 per cent of consumers would ‘definitely’ or ‘maybe’ buy more items if they were offered the chance to try them before making a purchase.
Researchers found that the majority of retailers claim their margins are being tested by the cost of processing returns. However, denying the fact that this consumers behaviour is here to stay would be foolish. Instead, retailers need to look for ways to turn the challenge into an opportunity.
Writing on ‘Retail’s Innovation Problem’ for Businessoffashion.com, Doug Stephens argued: “While retailers talk at length about radical innovation, much of what they produce pales when compared to the concepts and ideas that relative outsiders bring to the market.”
Those failing to evolve are risking collapse
2018 is shaping up to be the worst ever year for retailers. In 2008, which was the height of the economic crisis, 12 major UK retailers failed. So far this year 10 have already launched company voluntary arrangements (CVAs), suggesting that 2018 will trump 2008 for retail doom.
Although CVAs don’t always precede total collapse for a business, those affected rarely return to highly profitable state and often it’s simply a way in which failing businesses delay the inevitable.
Commentators claim that, in addition to the challenges presented by changing consumer behaviours and expectations, there are huge financial pressures facing retailers at the moment, such as rising rates, rents and wages. These factors are all combining to make this year a genuine make-or-break period for a large number of retailers.
Turning challenges into opportunities through acquisition
EY, in its latest Global Capital Confidence Barometer report, asserts that retailers are keen to acquire start-ups that can help them adapt better to the latest consumer trends.
The report states: “Those retailers and consumer products companies that can adapt to the range of change drivers, from advances in personal tech to changes in social norms, will be best positioned to meet the demands of the future consumer.
Many companies are acquiring startups and local players to enter new or niche markets, as well as investing in new technology to drive innovation, with early-stage venturing a common theme.”
An example is Amazon’s purchase of Body Labs, a New York-based start-up offering 3D body scanning technology, which could, in theory, help people to buy clothes that fit perfectly without ever having to try them on. The deal was worth as much as US$70m, according to Techcrunch, but being one of the first retailers to offer this service to customers could be worth a whole lot more to the e-commerce giant.
Meanwhile, London-based e-commerce platform, Farfetch, has just revealed that it will be launching a start-up accelerator aimed at bringing a whole new range of tools and technologies to the market that could help both online and physical retailers change the way they operate. The tools will help retailers do everything from track consumer behaviour over several locations, to processing online payments more efficiently. Savvy retailers will be keeping an eye out for start-ups such as these that they can bolt onto their existing operations, so that they can more easily meet consumer demand and face the inevitable new challenges.
It’s fair to say there’s plenty of activity in the retail tech industry at the moment and it’s up to businesses to invest - often by making clever acquisitions - to enable them to adapt, survive and ultimately thrive.
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