In this piece for RetailTechNews, Paul Fennemore, c-suite-level digital transformation & customer experience consultant, Sitecore, discusses five factors that, combined, have caused a perfect storm for the UK retail sector. With 2018 over, it was a tough year for high street retail. Research shows that the number of company insolvencies from the UK’s retail sector has increased by 59% over the past year. The previous year wasn’t much better – 6,000 UK outlets closed, including stalwarts BHS, and Homebase. In the U.S., it was a similar situation – 7,000 closed and 50% of U.S. shopping malls are expected to shut their doors by 2023.
The blame seems to have been firmly placed on online retailers – but there are many other technological and social components creating the ‘perfect storm’. So, what are the changes that are causing a shift in consumer behaviour and, therefore, having a knock-on impact for retailers?
Separate from the continued economic and political upheaval, squeezed consumer incomes, and rise of online competition, there are five other pain points for brands that share the responsibility for the consumer apocalypse.
Technological determinism: The march of technology
Technology is so accessible and widespread that continuous innovation is almost inevitable, and it’s happening more and more quickly. All it takes is for a new app or experience to launch and it can instantly be in the hands of millions. This kind of scale was never achievable in the past and makes the inexorable nature of technological determinism even more so.
The first major elaboration of a technological determinist view of socioeconomic development came from German philosopher and economist Karl Marx, whose theoretical framework was grounded in the perspective that changes in technology, and specifically productive technology, are the primary influence on human social relations and organisational structure. According to Marx, social relations and cultural practices ultimately revolve around the technological and economic base of a given society.
Marx’s position has become embedded in today’s society, where the idea that fast-changing technologies alter human lives is all-pervasive. Technological development and innovation become the principal motor of social, economic, or political change.
The great channel challenge
The world is said to be moving to omnichannel, but brands still cannot move quick enough to be able to orchestrate customer journeys across different channels. For example, a recent study of a major U.S. retailer’s customers found that 73% followed an omnichannel purchase journey, compared with just 7% who were purely digital – meaning there’s a huge need to ensure brands are delivering on that customer reality.
However, brands looking to understand this customer journey and deliver a more personalised approach to their marketing struggle to manage and mine customer data. On average, brands say they’re collecting seven different types of data about online customers, yet almost a fifth (18%) point to a lack of skills needed to properly use or analyse the data collected, and 42% don’t have the capabilities to integrate data collection. Without a handle on this, teams do not have a joined-up approach to their marketing efforts, which in turn leads to disenfranchised customers.
From product to subscription models
The subscription model is a booming field. According to recent research, this market has grown by more than 100% year-on-year, increasing from USD$57m (£44.37m) in sales in 2011 to USD$2.6 (£2.02bn) in 2016. A good example of a successful subscription-based business is Dollar Shave Club, which has grown to take 12% of the U.S. razor market in just five years. The company offers a subscription and membership service for cost-effective razors and home grooming products that are delivered to customers by mail.
Even Volvo Cars’ CEO has ambitious plans to create direct relationships with millions of customers through its subscription service, Care by Volvo, and hopes half of its sales will come through subscriptions by 2025.
Convenience is key for customers when they are shopping in-store. According to a study by retail marketing agency TCC Global, more often than not convenience and location will win out when it comes to visiting a physical store. In fact, only 3% of all shopping trips are made to a store more distant and inconveniently situated. Therefore, we are seeing brands including Lidl, Aldi, and Tesco making the investment to build flats with their stores situated underneath so that they have a guaranteed footfall and customer base.
We’re also seeing small store formats, such as pods and mobile pop-ups, which deliver experiences and new products to small, specific areas. For example, carmaker Toyota has developed a self-driving vehicle, called e-Palette, which can be used for everything from deliveries to creating movable shoes and clothing stores. The idea is that when customers want to try something new, but don’t want to leave their house, they can simply request this service. Furthermore, technology like Beacon and IoT innovation can deliver proximity-driven marketing and sales messages. If marketers can combine personalised data with proximity data, they can crack the ‘what, when, where, and who’ spectrum of customer targeting and deliver a truly individualised experience.
The decline of brand loyalty
Many brands already know that it takes more than rewards to build brand loyalty. Customers are no longer loyal to a brand if the product they receive on their first interaction meets their needs. More than a third of U.S. internet users (37%) said it took more than five purchases before they became brand-loyal. This is perhaps understandable when you consider that loyal customers are being ripped off to the tune of £4bn a year – or as much as £877 per person – according to Citizens Advice. The good news is that retailers are increasingly realising that a good customer experience is the secret ingredient to driving loyalty, not so much the tangible benefits that come with a loyalty scheme. And we’re already seeing retailers that revamp their loyalty schemes to reflect this. Take as an example apparel and outdoor gear retailer The North Face who incentivises loyalty members to earn rewards by offering flexibility in how they’re redeemed – with options tailored to match their customers’ lifestyles. The North Face’s rewards speak directly to the target customer and aren’t generic discounts on products, but curated experiences that help build a strong relationship between the customer and the brand.
There appears to be a lot of scaremongering within the retail sector. But the truth is, online sales still account for less than 10% of all retail sales, which means that high street retail is far from dead. However, no one can deny that the sector has been battling this storm for several years already; and the likelihood is that it won’t see clear skies just yet. Against all these challenges, it’s essential that retailers adapt their business models to the modern market. In my next piece, I will discuss what brands can do to tackle some of these challenges.