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Retail Reflections: fewer, smaller stores and how they can survive

 

Alan Monahan writes: Good retailers will know that customers crave innovation – and new findings by Salmon Insights confirms it, with 60% of people preferring to purchase from a ‘digitally innovative retailer’ and a quarter of us now identifying as ‘digitally obsessive’.

However, a closer look at the research suggests that consumers desire innovations that make life easier and more convenient. Notably, they care less about being loyal to specific brands and retailers. So, as a retailer, if you offer a better service based on convenience, you stand to win the customer … right?

Sounds plausible, but it’s not straightforward. While online shoppers predominantly turn to Amazon (39% of online spend in the UK by Salmon’s count), our grocery shopping and provision of music is typically with another provider.

The linear growth of retail has burdened ‘digitally obsessed’ Western consumers with historic associations. The adoption of technology also takes a more gradual, straight path, resulting in fewer revolutionary changes in shopping habits.

According to Salmon, the Eastern consumer is more technology free, or ‘traditionally futuristic’. Their digital adoption is non-linear, hence the proliferation of mobile whilst also maintaining traditional purchase habits, preferring direct relationships with vendors and cash-on-demand payments. Ecommerce has had comparatively more space for development in China than in the West and this has brought more opportunities for newcomers to gain significant market share.

Customers clearly benefit when a retailer or brand recognises the desire for ease and convenience when shopping online. However, what consumers expect often varies depending on geographical location. Those in China appreciate that well-known, high-end brands guarantee high quality, authentic products and decent customer service, making it easier for them to trust the company.

On the other hand, consumers in the West rate convenience and price as the most important factors in their online shopping journey, with brand loyalty in decline. In fact, of 6,000 consumer survey in Salmon’s study, 88% were more concerned about how quickly an item would arrive, rather than the brand they purchase from!

Perhaps the greatest international opportunity – and challenge – for European organisations is the overlap of digital and physical/bricks-and-mortar stores which we are already observing in the US with Amazon, and China with Alibaba. Both ecommerce giants have realised the future of commerce lies in integrated omni-channel experiences – the pure-plays will no longer be playing purely online!

I wrote recently that the retail and consumer goods industries will change more in the next 10 years that they have over the past 40, with traditional stores undergoing a metamorphous to stay relevant as online purchases in most categories grow.

Despite the continued increase in digital commerce, the physical store will continue to be the largest revenue producing channel for retailers until at least 2026, according to Accenture Strategy.

However, Aviva Investors, which has £20 billion worth of property under management in the UK – including several shopping centres – believes that store-based retail is set to “decline significantly” because of the relentless rise of online shopping.

The Times reports that Europe’s largest property investment manager is already in the process of slimming down its portfolio in the UK, having sold 110 properties worth £950 million this year but bought only six new ones.

The paper says that Aviva has told clients in a report that the rise of online shopping and the growing sophistication of “smart” products in the home will kill off stores.

The investment manager believes that those shops which survive will be smaller and will have to offer a personalised, “high-engagement” experience which, as Salmon Insights also suggests, will merge online and physical retail. “Instant gratification” for customers “will need to become the norm, not the exception”, with no long queues. And shopping centres will also have to become destinations in their own right to compete with online shopping.

Meanwhile, the British Retail Consortium has warned that without swift action to provide certainty for people from the EU working in the UK and a new immigration system fit for the future, consumers could pay the price.

Some 170,000 people from the EU work directly in retail, which accounts for 6% of the industry’s workforce. In some regions of the country and different parts of the industry this is much higher – over a quarter in warehousing and distribution, for example.

In a BRC poll of retailers, 56% of them revealed that their EU colleagues are concerned about their right to remain in the UK. And 22% reported that people from the EU have already left their UK workforce.

The BRC says that the knock-on impact of a potential reduction in availability of skills and workers, and higher costs of employment could hit consumers – “from the service delivered in a store to next day delivery of an online order; from the latest developments for your mobile phone to the prices of what you buy, it is clear that people from the EU play an important and highly valuable role”.