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Traditional retail operating models are slowly disappearing

Our 2017 Retail Report has found that where the power once lay firmly in the hands of the retailer, the consumer is now the driving force in the relationship. This shift of power, combined with an ever-changing social, demographic, economic and technological landscape, is forcing retailers to get closer to their customers than ever before.

Technology

Technology and digitisation are becoming increasingly important to the way consumers shop and retailers communicate.

Retail_Landscape

Old legacy systems are no longer fit-for-purpose and business models that worked five years ago are no longer appropriate or agile enough for today’s digital consumer.

Economic

A weak economy will result in cautious consumer behaviour hampering opportunities offered by modest rises in disposable income and a growing population.

Demographic

The customer base is becoming polarised. While Millennials have overtaken Baby Boomers to be the largest living generation, those aged 50+ represent more than one-third of the UK population.

An increasingly culturally diverse nation has external implications such as aligning product ranges to specific cultural segments, while internally affecting retention and diversity. 

These factors, alongside others, are disrupting the market and the way customers shop and interact with retailers.

Customer_Expectations

THE EMPOWERED CUSTOMER

Historically, in the old model of retailing, retailers could select the ranges they wanted to offer to the customer, make them available locally on the high street, and price them competitively against other stores in the locality in order to win footfall and sales. Practically unimaginable to consumers today, their choice was limited by the availability of competing products and services within the same local market.

This new hegemony requires retailers to think differently about customer retention. In a world equipped with mobile technology that encourages consumers to shop around to get the best deal, it is even more important that retailers are able to attract and retain customers. When shopping habits are as impulsive as the range of goods is extensive, the key to success will be to unlock customer loyalty.

FULFILLMENT IN INCREASING URBANISATION

Even as population centres grow, developing retail locations to serve them may be hampered by the very policies that make urbanised areas liveable.

By 2008, The United Nations reported that around 50% of the world’s population was already living in urban areas. By 2050, it is predicted that around 86% of the developed world will be urbanised. Accommodating this shift will have a profound impact on the future of retail.

FROM OWNERSHIP TO SHARING

The sharing economy has rapidly emerged as an attractive alternative to ownership. Although it’s still in the early stages, we are seeing a number of profit and non-profit ‘sharing’ solutions evolving, enabled primarily by advancing technologies.

Why wait to hail a taxi when you can get one to come to you with a few swipes on your smartphone? Why deal with overbooked, generic hotel rooms when you can sign up for charming accommodation to suit your family’s unique needs?

Sharing economy = an economic system in which assets or services are shared between private individuals, either free or for a fee, typically by means of the internet.

The sharing concept applies more broadly than just to consumers. We are seeing businesses share infrastructure and services with each other, allowing smaller retailers to access capabilities that previously required significant capital investment, such as home delivery. As the sharing economy develops in the retail sector it will be vital for retailers to track and respond to the various risks, trends and opportunities as they emerge. This will give them the visibility to avoid an erosion of market share such as that seen within the hotel and rental sector as Airbnb emerged as a disruptor.

SHIFTING THE BOUNDARIES

The power is shifting from retailer to consumer but the connected consumer is also enabling new paths to purchase. These are transforming the traditional model of manufacturers selling to retailers selling to consumers – and challenging retailers to develop more creative uses of existing supply chain capabilities.

These changes are resulting in increased direct competition from suppliers who are finding more innovative paths for products and services to reach consumers.

DISRUPTIVE TECHNOLOGIES

Disruptive technologies have been at the heart of retail innovation and development for the last decade. If anything, the rate of disruption is likely to increase over the next 10 years, posing a further threat to traditional retail models.

We are already seeing customer expectations significantly heightened by services and new technologies in other non-retail sectors, such as Uber and Just Eat. This move towards immediate gratification has profound implications for retailers, as customers begin to expect similar levels of service and convenience as a given in their retail journey.

THE FUTURE

The world is going to keep changing and retailers must remain agile, optimising their end-to-end supply chains to deliver their customer proposition profitably. Given the ongoing changes that continue to have an impact on the sector, the question is no longer whether retailers know they need to put customers first and align their business operating model accordingly. It’s whether they have the capacity and motivation to change their business operating model and shape their supply chain to service their clients’ needs profitably.

Retailers should look at customers first, and cost second; it’s about understanding what you are as a retailer, knowing what you do and how you present this to the market as a differentiated proposition.

Neil Ashworth, CEO, COLLECT+

 

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