It has been a year of Brexit uncertainty, ups and downs, turnarounds and collapses.
It was the year Maplin, Toys R Us, Orla Kiely, Poundworld, Warren Evans and many others disappeared from the high street.
It was the year of CVAs (Company Voluntary Agreements). In fact, it felt like it was mostly CVAs.
Here’s a quick review:
CVAs & Administrations
The past 12 months were undoubtably the year of the CVA. New Look, Carpetright, Homebase, Office Outlet, Mothercare, The Original Factory Shop and Select all used the insolvency process to slash store numbers.
The question is: are CVAs justifiable given the sizeable overheads of running large store portfolios or do they just allow struggling companies to renege on contracts – leaving other parties to foot the bill – in order to keep themselves afloat?
Mergers & Acquisitions
The best way to address a sales slump? In 2018, the answer was to acquire and/or partner with others – strength in numbers was certainly a popular trend, particularly in the grocery industry.
In the past year, retail mergers and acquisitions have risen by 15%, including Co-Op’s purchase of Nisa, Multiyork being bought by DFS and Tesco Optician’s acquisition by the holding company of Vision Express.
Then there is the potentially largest of them all – the JS Sainsbury’s/Asda merger which is still under investigation by the Competition and Markets Authority (CMA). Watch this space.
Retail, of course, has been no exception in this regard.
Ray Kelvin of Ted Baker, Paul Marciano of Guess? Inc., Laurent Potdevin of Lululemon, Mike Shearwood of Clark’s, Richard Liu of JD.com. Most notably, Topshop owner Sir Phillip Green has been at the centre of one of the year’s most significant #MeToo scandals after he was accused of ‘serious and repeated sexual harassment’.
Serious room for improvement is required in 2019 to make retail environments a professional and welcoming space for all.
Because of Mr. Attenborough and a certain episode of Blue Planet II, one of the more positive trends of 2018 was retail’s commitment to reduce the use of plastics and improve sustainability measures.
There have been a number of leading retailers who have led the charge here, with notable mentions for Morrisons with their bottle deposit reserve vending machines, Co-Op for rolling out biodegradable plastic bags and ASOS’ pledge to train designers in circular fashion.
So, what will 2019 bring?
The death of the squeezed middle
The collapse of middle retailers will continue. Physical retail isn’t dead, boring and mediocre retail is, which is why we continue to see the vast majority of store closures and CVAs concentrated among those brands that remain stuck in a sea of bland sameness. Treading water just won’t cut it anymore.
In the era of digital disruption, failure to be remarkable eventually leads to failure of a growing concern. Many have learned this lesson all too well – good enough is no longer enough. Retailers that fail to do one thing well and execute this brilliantly are on their way out.
DNVBs will further embrace bricks and mortar
For Digitally Native Vertical Brands (DNVBs) 2019 will be all about stores. It’s now much more apparent that much of ecommerce is unprofitable and that truly scaling pure-plays is nigh on impossible.
In an ironic twist, we predict that many of the digitally native brands that have raised hundreds of millions on the premise that stores were unnecessary and not what consumers wanted are now not only going to start opening stores, they will realise that the majority of their growth will come from physical locations. Even Amazon has started to open physical stores, with big bricks and mortar plans on the horizon.
It’s Virtually a Reality
Flexible ordering and payment and delivery options are of paramount importance to today’s consumer and customer expectations are higher than ever. Voice as a channel is growing at a rapid rate, as more and more Alexas and Google Homes feature in today’s modern household. Many retailers are now including this as part of their wider engagement strategies and exploring ways to develop this is a commerce channel, to bring a hyper-convenient service to customers.
It’s not just voice that’s growing though – social is being used more widely as a path to purchase, particularly with the younger consumers, such as Instragram’s shoppable ads. Consumers are also demanding ways to pay on their terms, with the rise of ‘Buy Now, Pay Later’ schemes offered by the likes of Asos, Missguided and Amazon – a theme that we expect will develop further throughout 2019.
Last Mile Battleground
The consumer need for immediate gratification is most apparent in the demand for fast and flexible delivery options, with next day delivery now commonplace and same day delivery being increasingly offered.
Hema’s 24-hour delivery concept in China is a great example of this – customers can order products when Hema’s physical stores are closed and have them delivered in 30 minutes. The race is on for the UK market to catch up.
Micro Markets Start to Shine
Yep, customers want everything, right now and at the cheapest price. However, the mass-ification of retail (whether via Amazon or big box category killers) means that there’s a lot of average stuff for average people – and who wants to be average? Blanket retail can’t work any longer.
The long tail has plenty of advantages in making remarkable products available anytime, anywhere to just about anybody, but that is more about search and discovery rather than delivering a memorable value proposition to a highly targeted segment, which in itself engenders customer loyalty.
Enter concepts like Phluid, which creates a community for gender non-conforming customers. Or Bottletop that delivers sustainable fashion. Or the Akola Project, the first 100% social impact jewellery brand. Or any of the dozens of new brands who innovate not to pursue the largest viable market, but – at least initially – the smallest. In today’s world where breadth of range and speed of fulfilment are easily mimicked, these micro market concepts offer a new point of differentiation for retailers in the market.
Automate or Die
As customer expectations increase, the back-office operation of retail will need to be set up to deliver, whilst also remaining lean to keep costs low. This is particularly true when we consider omnichannel, and the need for this in today’s world – many retailers do not have integrated systems to enable this, resulting in a disjointed experience for their customers.
These back-office solutions will be mostly technology driven, in a bid to automate, drive efficiencies and grow the bottom line. Whilst investment in the back-office isn’t the most attractive proposition for retailers when choosing where to spend their money, but absolutely necessary nonetheless to future-proof the foundations.
Sustainability on the Rise
‘Veganuary’, ‘plastic free’ and ‘saying no to animal testing’ are just some of the terms we are hearing at the moment and provide a key insight into the shift in consumer behaviour with regards to sustainability. Particularly for Gen Z, sustainable and ethical sourcing is of increasing importance, and this is likely to grow as consumers become more conscious and aware of where their products come from and this topic is discussed more widely in the media.
Retailers who have a strong ethical stance as part of their brand are seeing success – the likes of Lush for example, who are famous for not testing on animals and only using natural products, are resonating well in today’s market. Similarly, Morrisons has received a positive response to its recent ‘plastic pact’ to drastically reduce its current plastic usage.
With the rise of digital shopping, traditional KPIs used are no longer a true indicator of how a retailer is performing. As the customer journey becomes more disjointed with the wealth of channels now utilised, it’s more challenging for retailers to understand how they are faring across both physical and digital. This is particularly true in a marketing context – many retailers have limited understanding of the ROI of their marketing spend and if/how it has changed customer behaviour.
Throughout 2019, retailers will need to become smarter on how they measure performance and how they use customer data to do so. Nike are an example of one retailer who is working hard to understand consumer behaviour and reflect this in their merchandising, at a local level. Their Melrose Avenue store in Los Angeles features products which are stocked by the consumers, based on data from its Nike Plus members in the local area.
2019 is set to be an exciting, but challenging year for retail. The unprecedented pace of change in the market is forcing retailers to address some of the difficult questions which consumers are demanding answers to. Retailers will need to face into these questions to survive, whist also managing costs to balance the bottom line. The winners will be those that do this whilst also maintaining their uniqueness and brand identity, providing true differentiation in today’s crowded market.