A seismic shift is happening between traditional stores and online sales
‘New Retail’ is developing to fill the gap. We have seen the decline of the traditional high street with an average of 16 chain store closures per day in the UK. The rise of Amazon with $52.9bn sales in Q2 2018 alone, of which $42bn is direct from Amazon and $10bn from third parties. In China, the scale and speed is even faster with the likes of JD.com and Alibaba platform sales channels.
Traditional stores are going online – as an example, John Lewis online sales grew by 9.9 per cent in 2017, and also online businesses are opening stores – like Amazon acquiring Whole Foods which has annual sales of over $16bn. Alibaba, with Hema stores are merging online and offline with information being made available in store about product providence, recipes, no-till check out, in store food experiences – and delivery within 30 minutes. (You can see the experience with Andrew Gaule in his video on LinkedIn ).
There is growing wealth and middle class in Asia, South America and Africa which is going to be satisfied with the new tech and business models. An example is global fashion growth in 2018 is forecast by McKinsey in its the State of Fashion 2018 report to have a growth of 3.5 – 4.5 per cent with APAC over 6.5 per cent.
The key areas to succeed in New Retail we believe will be led by the customer experience, Online2Offline connectivity, transparency of business and changed business model.
The experience of traditional retail with stacks of standard products displayed on shelves or hangers does not add any value to the customer. Especially when compared to online where massive selection and comparisons on features and price can be found. Customers want a quick easy purchase experience which delivers products fast – for example, Amazon Prime or Alibaba with Ele.me delivery within hours or even minutes.
Alternatively, people want an experience when going shopping. Shopping malls like the Bull Ring, Cabot Centre Bristol run by Hammersons have many events and entertainers. They provide cinemas, activities, restaurants and coffee shops provide venues for families and friends to meet, and maybe shop.
The Apple Store is an example of a busy retail venue in shopping malls as people come to experience the store and products while the stock is in a stock room, or delivered direct. Apple staff are at ‘Genius Bars’ providing insights and help. Sales per square foot, per year are in excess of $5,546 for an Apple store. This contrasts to the traditional retail with declining sales now down to $340 on a similar metric, according to research firm CoStar.
Online and offline connected
The online experience and offline are connected so if a customer sees a product in store they can decide to purchase later or if they purchase a product online they can be informed about the product providence. Of course, if the products and the stores are not differentiated then the customer may trial in store but then decided to purchase the cheapest option online.
When visiting an Apple store the assistant asks for your email or Apple ID and can immediately confirm compatibility to other purchases, send a receipt and provide product support.
The omnichannel approach is more common with the click and collect option, demos in store and delivery direct to home. The integration is still however developing and new concepts like Alibaba with Hema seen earlier. Also online fashion businesses such as Everlane are opening stores. CEO Michael Preysman told the New York Times in 2012, “We are going to shut the company down before we go to physical retail.” But he now realises stores show the products, give an experience and promote their ethically sourced approach.
Impact and transparency of sustainable and fair trade
Customers are becoming more conscious of the impact of their products on the environment and wish to know the source of the product, it is from sustainable sources from fish to wood, and the carbon impact of products and use of renewable resources.
There is now a wider awareness of the impact of purchases not only on the environment but on how they are made, fair trade, economy and their community impact. Consumers are looking for stories and traceability behind their purchase decisions. Information on products and their makers can now be provided more easily online – and connected to in-store information. And if a supplier is not honest or is behaving badly, social media will share that information very quickly.
An organisation which is providing the wider certification on Purpose and Profit and helping build better business for inclusive and sustainability is B Corporation with organisations like Patagonia, Ella’s Kitchen, New Belgium Brewing, JoJo Maman Bebe and many more. The principles and transparency are being followed by many smaller brands and is now expected by customers.
A poor retail business model of carrying large quantities of stock is now being challenged with more data and online solutions. Stock can go out of date, be wasted or go out of fashion, which means it needs to be heavily discounted or destroyed. Recently there was a backlash when Burberry destroyed £28m of its own stock. This is being challenged by the new business models in retail.
I have experience from a venture Rufus Roo, a travel product that I created, that the traditional store was not a viable option for the business or for retailers. The business needs to providing large quantities of stock for each location, merchandising, lower margins and conditions like sales or return. Stocking in Amazon in Europe and USA needs just two stock locations and Amazon provides the advertising, order taking, despatch, customer feedback, return service and fast payment all for less than 25 per cent margin.
Lone Design Club (LDC) is a leading example of a fashion venture with a new business model. LDC creates high impact, short term concept stores in new locations, meeting the designers and makers, events with customers. There is a merging of online and offline with live broadcasts from store, QR activated in store videos provide connection with designers and purchases can be made in store and online after a concept store. See the introduction to LDC by founder Rebecca Morter Lone Design Club. The products have a whole story on addressing many issues like vegan non leather products Fabrikk, high fashion swimwear recycled from recovered plastic from the sea MAARI Porto Cervo, clothing ‘with a message’ related to environmental issues Gung – Ho or fantastic jewellery made by crafts people in Afghanistan, Africa Artisan & Fox. Stock is low in store as customers order tailored products which are ‘constant fashion’ not wasteful ‘fast fashion’.
The designers and products are showcased to many more customers and followers as the concept store pop up on new locations and then the experience and purchase can continue online. The LDC model is a profitable store and online retail model, brands benefit from direct customer contact and sales. Customers love the experience and getting to know new ethical products.
Retail in traditional stores and pure online offerings are going to see the development of New Retail. Features of Experience, Connectivity, Transparency and New Business Models will be key to success with customers for incumbents and new entrants.
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