In the world of retail, 2017 promises to be another exciting year.
Customers are, of course, still in the driver’s seat. Their habits, preferences and priorities continue to quickly evolve, a fact which led to 77% of retail CEOs saying they’re concerned about the impact of shifts in consumer spending and behaviour – considerably higher than CEOs in other sectors.
In this tough economic environment things will only get harder as retailers expand their global reach and the marketplace becomes more competitive.
If businesses aren’t constantly improving, competitors (both old and new) are ready to surpass them. And once they’ve been overtaken, it’s hard to catch up again.
Take Blockbuster, for example. Once Netflix – a contemporary, on-demand streaming service – entered the market, Blockbuster was confined to history. The video rental chain went from over 9,000 stores at its peak¹ to bankruptcy in 2010. Netflix is currently valued at around US$60 billion². To make matters worse, Netflix had originally offered to work with Blockbuster and was rejected; Blockbuster was worried about cannibalising its own business with an online service because its (short-sighted) goal was to protect revenue from late fees.
So, standing still is not an option. CEOs in the retail sector must be aware of where their industry is heading, strategically plan for that future and make adjustments to their own brand’s trajectory.
Before we launch into what 2017 could bring, it’s worth recapping on recent developments in the retail sector:
We’re also seeing digital continue to influence changes in the way consumers shop:
What can we expect from the retail industry in 2017? Here are my suggestions for some of the significant trends:
The rise of the smartphone will continue.‘Nomophobia’ is the fear or anxiety that comes from being without your phone – and in some parts of the world it appears to be on the rise.7 But we don’t just need phones in our pockets, we increasingly seek to include them in our shopping journey.
Mobile devices used to be a pre-purchase tool, for activity such as researching products and prices. Now, they’re increasingly being used to make the purchase itself. PwC’s Total Retail Survey 2016 found that 34% of shoppers say their mobile device is now the preferred shopping tool.
That statistic holds water. Black Friday is the biggest shopping day of the year in the US. Most recently, in November 2016, Black Friday saw a quarter of all sales made on a smartphone and 11% on tablets8.
These days, the customer decides how they interact with a retailer, whether that’s in-store, over the phone or on mobile, tablet or desktop. This ability to hop between sales channels is what defines omnichannel retail – and it looks as though omnichannel will continue to be the dominant strategy in 2017.
The challenge for retailers continues to be their capacity to sharpen their systems and processes to ensure that the customer experience is a seamless one. The performance trajectory of the pure play retailer (those that stick to one channel) is now seriously questionable.
There are standout examples of omnichannel globally, particularly when it comes to department stores. John Lewis, in the UK, saw retail sales grow by 2.7% in 2016 9. John Lewis’s success lies in putting the customer at the centre of its thinking. It created a true omnichannel experience that includes QR codes next to items in store windows, which allows customers to purchase via their phone the items that catch their eye. John Lewis also expanded the footprint of click-and-collect locations to include its Waitrose supermarket chain. In 2015, click-and-collect overtook home delivery in popularity10, and currently makes up half of all online purchases11.
Changes in shopping behaviour, coupled with the rise of e-commerce, means that retailers have started to seriously rethink and refine the purpose of their physical spaces.
Traditional stores could be downsized, existing floorspace turned into showrooms or fulfilment centres for local web orders, or stores could become more of an experiential space for customers.
A trend for marketers to be mindful of is the proliferation of ad blockers, which are now easily available as apps. A third of mobile users have used ad blockers, and a further 40% are are interested in doing so, says one study. That’s a huge challenge. The trend isn’t just restricted to mobiles: some network providers are looking at blocking ads at network level.12
This means that digital content will need to be more engaging, entertaining and valuable than ever before in order to get through to consumers. In fact, the best approach is to produce such great content that it becomes naturally social: people enjoy it and choose to share it among themselves.
The power of social is reflected in another recent finding: 67% of consumers say that either reading or writing social media reviews and comments influences their online shopping behaviour.
Whilst consumers can remain nostalgic about the traditional corner store, the reality may be different once they think of range and pricing. What they still miss however, is the personal knowledge and service that goes with the local store: a place where your name, your needs and tastes are known immediately.
As retailers become increasingly global, they mustn’t forget they’re selling to a diverse range of people that are seeking contextual, local, personalised experiences.
As consumer expectations around experience continues to heighten in the physical store, it will continue to heighten online. Consumers want brands to adapt to their locale as well as speak their language as a local would, with customised products and offers. Enter ‘glocalisation’, which brings the best of global and local together. This is supported by hyperlocal targeting, which responds to the individual based on their geographic context.
Drill down further and you reach personalisation, which contextualises and responds to the individual user based on their personal needs and preferences. Using data analytics to not only respond to but anticipate customer needs is the next step on from that.
Retailers must ramp up their efforts to provide such contextual, personalised shopping experiences. That way, they can truly connect with their customers and target their offerings more efficiently.
Automated customer service won’t go away, but it will get better. At the same time, online customer service will increasingly be automated as well, thanks to better artificial intelligence and chatbots that understand context a whole lot better than before.
Examples include Starbucks’ ‘conversational ordering system’, which lets you order coffee via a chatbot, and fashion chain H&M’s chatbot that offers sartorial advice.
Of all the industries, food is the most interesting to watch in terms of automation. Last year, Domino’s Pizza made the world’s first food delivery via drone, while in the UK, JustEat launched its first food delivery robot. From the December announcement of Amazon Go it also appears Amazon has cut human interaction from the service element of its grocery store. This is the dehumanisation of checkouts and delivery – and it’s not that different from the ATM revolution in banking.
Paul Zahra is Global Retail Adviser to PwC. He has been a leading force in the retail industry for over 30 years, previously holding senior management roles at Target Australia and Officeworks. Most recently, Paul was CEO and Managing Director of Australia’s premium department store, David Jones.
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