The death of retail? Not so fast.

There’s hope when you invest in your customer experience above all else.
Everyone knows that ‘retail is hard’ right now.

Online seems to be gobbling up the traditional retail business and once-great brands are disappearing from our main shopping streets. In the US, the Sears group is emblematic of the trend: the company has halved its store frontage in the past five years, and the K-Mart subsidiary is looking particularly tired. Toys-R-Us famously collapsed; with Simon Thomas of the chain’s administrators, Moorfields, saying that the business simply “isn’t what consumers really want now.”

But maybe the picture isn’t quite so black-and-white.

Only one pound in five in the UK is spent online. In the US, e-commerce still accounts for only 9% of retail sales and that’s consistent with a European average of 8.8%. Clearly, we haven’t given up on shops yet.

Then we must consider the dysfunctional debt mountain at the heart of some retailers. Check out Toys-R-Us in depth and the business was loaded with long term debt: in Bloomberg’s words, “The Wayne, New Jersey-based company has operated for over 10 years with debt that now totals $5 billion and costs the chain around $400 million a year.”

Maplin, a UK electronics retailer currently executing its ‘closing down sale’ has been a Private Equity toy for over 20 years: the Financial Times reported that in its most recent sale, 80% of the strike price represented the assumption of debt. Plenty of retailers are in better shape.

And finally, if you need proof that retail ain’t all bad, Amazon — the undisputed king of online retail — is betting big on stores. It acquired Whole Foods Market, and it’s not as though nobody else was interested; Whole Foods apparently had seven potential suitors. Amazon is also investing heavily in seamless in-store experiences with Amazon Go, the automated store experience now expanding from the pilot store in Seattle. And finally, it’s announced a tyre-fitting service with none other than Sears (pumping Sears shares up 16% overnight in the process).

So what is really happening in retail?

To say that online is replacing offline is too simple. Instead, several trends are coming together and the smartest businesses are optimising both the online and offline experiences to meet those new consumer demands.

On the one hand, most consumers across the Western world are finding their incomes squeezed. Analysts McKinsey reported: “A major culprit behind this reversal [in disposable income] is the deep recession and slow recovery following the 2008 economic crisis in the advanced economies. From 1993 to 2005, GDP growth contributed about 18 percentage points to annual median household income growth, on average, in the US and Europe; that figure plunged to just four percentage points from 2005 to 2014.”

Because many people are poorer in real terms, they are increasingly price sensitive. This has powered the move towards online shopping where prices can easily be compared, just as it has fuelled the growth of the challenger/discounter supermarkets like Aldi and Lidl.

Jet.com, for example — owned by Walmart and perhaps Amazon’s most effective and agile competitor, has elbowed its way to a $3bn valuation by allowing price sensitive consumers to gain new advantage, for example by trading speedy shipping or free returns for a better deal.

On the other hand, we are not just cash-poor, we are time poor. And this is stratifying the retail experience into two distinct processes.

Where shopping is a necessity, we begin to value convenience and seamlessness almost as much as price; and this is where Amazon’s focus on simplicity has reaped dividends. Think of Amazon Dash buttons. Or the fact that it doesn’t require a CCV code from your credit card (saving a few clicks). Everything about Amazon makes non-fun shopping more bearable.

Elsewhere, where shopping is for fun, retailers must relentlessly focus on experience — indeed this is what many critics of Toys-R-Us, Sears and the rest believe has been missing. Analyst Deloitte’s Retail Trends Report 2018 says “Retailers need to ensure that their stores remain relevant and are places that consumers want to keep coming back to. Experience is more important than ever, and retailers’ stores need to be more than just places to transact.”

Drapers’, the fashion industry bible, is even clearer: “From blow-dry bars to yoga classes and department store concierges, more and more multiples and department stores will be faced with the challenge of creating memorable experiences in their stores. However, experience for experience’s sake is a waste of time — and resources. Retailers must ensure that their store interiors enhance the overall customer journey, rather than being distractions from or sticking plasters for poor retailing. This year, retailers will need to hone in on the customer and improve the multichannel journey in order to succeed in an increasingly competitive environment. Customers don’t view retail in channels – they shop when, how and where they want to. Retailers must ensure this journey is as joined up and seamless as possible by intertwining their systems, and their teams, to capture that all important spend.”

That is an extraordinarily succinct and clear expression of the retail challenge. The customer is price-sensitive, but wants world-class experiences on the channels of their choice and simplicity and convenience into the bargain.

How can a retailer do it all?

Well, they can’t. As we saw above, retailers must understand that consumers have different demands in different contexts. Matching delivery to expectations is the priority, because nobody can afford to be all things to all people. But you can afford to make a brand promise and then consistently outperform it.

Unbabel’s client Daniel Wellington (DW) is a watch brand, known for sleek design, interchangeable NATO straps and mid-price positioning. Founded in Stockholm, Sweden in 2011; by February 2017 it had become the fastest growing business in Europe – with growth across three years of an extraordinary 4500% and an estimated value of around $200m.

Whilst the company runs a successful e-commerce operation and the sort of social media glamour you would expect from a watch brand (Daniel Wellington on Instagram has over 3 million followers), it has also pursued a reseller-based retail strategy in partnership with flagship retail brands.

You might think that that disqualifies DW from being considered a true retailer. But whilst DW doesn’t rent floorspace directly, it is, if anything, even more at the whim of its retail partners. And DW does not have the luxury of operating at the high end of the market: mid-price positioning always means that lower-end players can compete on price and higher-end players can compete on quality.

Recognising this, DW’s approach has been to propagate its brand values and then live them from the core. Randolph Heyrowsky, Head of Customer Service, says: “There’s a coordinated effort across teams at DW, with marketing, e-commerce, social commerce and of course customer service to grow the company across the world. Matching the expectations of different cultural backgrounds and expectations is a daily challenge. Customer happiness is our North Star, with CSAT, first reply, issue resolution time and NPS being the key metrics to measure success.”

Meeting that brand promise on every channel to global audiences whilst locking down cost and complexity includes not just Unbabel (for rapid translation) but a range of other tools, in particular Zendesk for cross-channel support. It’s the difference between a Daniel Wellington – consistently reinforcing its brand positioning and honouring its commitments to customers, and a Sears, which one CNN analyst recently called “desolate, uninviting backwaters in the world of retail.”

Deloitte again: “Brand authenticity and sustainability are becoming increasingly important in retail. Consumers want to associate themselves with brands that have a sense of purpose and represent their views, beliefs and values. They are also becoming increasingly intolerant of brands who aren’t transparent and who don’t follow through on their promises.”

Customers are not homogenous. They want different things –sometimes value, sometimes convenience, and occasionally something a little special. Multi-channel engagement is non-negotiable and requires investment. But beyond that, it’s the brand promise that dictates the balance between price and experience.

The in-store experience is about to get shaken up again with tools like virtual reality; and online we are already seeing the emergence of augmented reality (e.g. Glasses Direct’s Virtual Try-on or Ikea’s preview-before-you-buy furniture app). So there’s no shortage of technology to drive new efficiencies and new experiences; or, indeed, to waste money on if it’s spent unstrategically. The difference between the two is a deep understanding of positioning and a religious commitment to brand.

Source: https://unbabel.com/blog/the-death-of-retail-not-so-fast/