Consumers worldwide are spending less – how can the retail sector adapt to the “new normal” of tough trading conditions?
Written by Matthew Robertson, Co-CEO, NetDespatch
All the signs point to a transformative shift in the relationship between consumers and retailers. In fact, a recent global confidence survey found that consumers worldwide are spending less on almost everything. A combination of changes in consumer attitudes, the disruptive effects of mobile digital technology on online sales, on top of cautious spending due to socio-economic factors are creating some of the toughest trading conditions retailers – large and small, on and offline – have experienced. Given the continuing pressure, how can retailers adapt to what appears to be the new normal and make the most of the tough trading environment? I believe integrity, technology and efficiency have key roles to play.
Delivering genuine value – all the time
UK consumers are used to being courted by deep discounts over Black Friday and Cyber Monday - in fact the peak retail period now extends out through the whole of “Black November” - but 2018’s record-breaking peak November trading had a depressive effect on sales during the Christmas period; Deloitte reported “The worst Christmas for ten years”.
Customers are cynical about discounting and more careful where they spend their money. Brands that build reputations for delivering great value products year-round have a better chance of building loyalty – and a more sustainable business model – than those who get involved in a race to the bottom. We’ve already seen some brands, such as Primark, Marks and Spencer and Patagonia, ruling themselves out of the Black Friday frenzy and taking a commercial (and in some cases moral) high ground. I believe we’ll see this stance growing in 2019 and beyond.
Linked to this is the trend towards sustainable purchasing that’s gathering significant momentum among the powerful millennials and Generation Z consumer demographics. Buyers are placing more emphasis on the ethics and values of the brands that they buy from, demanding greater transparency from retailers on issues from worker rights to environmental impact. Clothing brands, in particular, are starting to offer alternatives to fast fashion in the light of customer concerns and powerful lobbying by environment groups. As the millennial/GenZ consumer group becomes the largest, smart retailers of all sizes need to be getting their sustainable, environmental credentials in order so they don’t lose out.
Balancing the back-end technology mix
For retailers with a High Street presence, balancing the relationship between online and offline sales is critical. The BRC reported an upward trend in online sales of +1.7% at the end of 2018, offset by a -2.0% drop in in-store sales. Retailers with omnichannel models ought to have the best of both worlds, with shoppers supported throughout their multi-touch journey. However, there’s a definite sense that, particularly among traditional retailers, the different strands are sometimes acting more in competition with each other than as one business.
Take click and collect, for example. In theory this is a great way to marry digital and bricks-and-mortar presence and offer something that pureplay online retailers can’t provide. The reality is not quite so seamless, though, as in many instances the digital channel gets credit for the sale, but the actual fulfilment (and any returns made through this channel) places a burden on the store. It entails stock handling, storage and management by staff, all of which has an impact on the store’s performance.
Getting this balance right and moving to a truly omnichannel service is a challenge that must be confronted and a lot of it has to do with integrating the management systems and technology platforms of the various lines of business, so they talk to each other more efficiently. With many retailers dealing with legacy technology, this is a big transformation challenge and the clock is ticking.
Even for small online retailers, however, using technology more efficiently should be a priority. There’s a tendency for small businesses to stick to what they started with, but there are new options coming on-stream all the time and as a business grows, so it should re-evaluate what works best. There is a raft of web-based ecommerce solutions available that can improve operations and communications at low cost, while delivering a big benefit for customers. If the business hasn’t looked at the options available for a while, now is the time to re-examine what is out there and make changes.
Reducing inefficiency in parcel delivery and returns
Organisations across all sectors are striving to improve operational efficiency and cut costs through innovations in artificial intelligence. In retail there is huge potential in developments in intelligent delivery scheduling and routing software as well as AI and big data-powered returns management software that cuts out wasted time and resources.
While AI investments are more the preserve of large organisations with deep pockets, there’s still much that smaller retailers can do to improve efficiency in delivery. Research we did with IMRG last year found that, overall, there is a staggering £1.6billion cost associated with failed home deliveries in the UK, so improving the first-time delivery rate even a small amount will pay dividends.
Doing this successfully requires small retailers to really drill down into their customer preferences, finding out which delivery channels and time frames appeal to them. At a micro-business level something as simple as a customer survey distributed via the company’s newsletter could offer an insight into better ways to deliver parcels to customers on time, first time. And of course, getting accurate address and parcel data automatically onto the package in the first place remains fundamental to helping those products fly out of the door in the right direction!
Capturing cautious consumers
Whether large or small, omnichannel or pureplay online, retail’s tough times seem set to continue. Those that adapt to new consumer values and commercial pressures while improving operational efficiency will have the best chance of survival, but it will mean making bold decisions on everything from technology choices to brand values if businesses are to capture the minds and pockets of today’s cautious consumers.