The retail world is changing
There was a time, not so long ago, that shoppers had a personal relationship with the retailers on their high streets. They knew the families they served by name, their families, and their interests. Retailers were relied up to know what people in their area needed, when, and at what price. They brought new products to their customers, anticipating what would make life easier and better for the people they served. They were experts in the products they sold, and an essential part of a local community.
Today things are different, these shopping communities are larger, global even. Shoppers now find out for themselves about new products they like and want online. They know, or can find out, everything about the products they are purchasing. They don't rely on local retailers to curate the products available to them. Big data has replaced personal interactions with shoppers encouraged to voluntarily give information about themselves to brands in exchange for discounts or an improved shopping experience. Loyalty is based on the last transaction or online review, rather than proximity, expertise or personality.
It's easy to feel nostalgic about these bygone times, but progress has made life easier and products cheaper for consumers.
Major and ongoing advances in transport and communication been changing the structure of retailing for at least the past 100 years. From the steam locomotive, to the jet engine, and now drone delivery - our means for getting products from one end of the world to the other, and from one end of town to the other have gotten fast, better and cheaper. In the same way, communications, from the telephone to ultra-fast broadband, have moved information flows from fast to instantaneous. Shoppers can learn about products on mobile devices everywhere, source them at the right price, and have them delivered increasingly quickly.
Deregulation and local competition has meant that goods can be bought on the high street at a comparable price anywhere in the world, but is this sustainable when local retailers are facing overhead costs and tax obligations that the global online players can avoid?
Local retailers are differentiating themselves with unique instore experiences and great service, but for many shoppers this doesn't tip the scales in favour of purchasing from a local merchant. When the brands and products are exactly the same as you can find online for a cheaper price, why would you?
For many local retailers it is getting close to crunch time, the race to the bottom on price can't be won against massive global players. But is there another way? It seems that retail is going in two directions, one speeding up and the other slowing down.
In the slow direction are the consumers who are thinking differently about how they spend their money. Environmental concerns are making people more aware of the sustainability and ethics of the retailers they are supporting and the products that they are buying. These "conscious consumers" want to know what they are investing in, rather than simply the product they are buying. For some this might even mean investing directly in retail businesses via crowdfunding platforms. The onus is retailers to give these consumers all the information they seek, which includes details that until now have been invisible. For example, images of the factory in which the products they sell were manufactured, guarantees that workers are paid a reasonable wage, or evidence that that products are make from sustainable sources and recyclable.
This presents an opportunity for locally produced products. The rise of bean-to-bar chocolate is a case in point. Local producers are sourcing organic and/or fair trade cacao beans and turning them into high quality product that tastes nothing like the mass produced product sold by global brands. We see the same in high quality footwear (Allbirds), seafood (Yellow Road), wool (Ice Breaker) Cosmetics (Antipodes) and clothing (Kowtow, Cactus). In many cases these involve a collapsing of the supply chain with producers selling directly to consumers, making it easy for consumers to find out exactly how things are produced. While these are niche products for high-end consumers, they have found markets and are giving consumers unique products they can’t get anywhere else.
Retailers operating in this space are tending to stock fewer brands and products. Curating and showcasing a small selection that have similar aesthetics and/or ethics. They should know the products as well as the producer and can tell their story to customers on their behalf. Producers on the other hand want their product available for sale on every platform available, from Ali Baba to direct sales via their own website.
Against this is a trend toward retail with fast turnover, high volume and/or massive product range. Fast fashion is an example of this, with large retailers seeking low cost product, with flexibility in design, quality, and speed to market. The gap between new trends appearing on celebrities and fashion show runways has shrunk, and the product offering is being refreshed far more often to encourage shoppers to visit stores more frequently. This has also necessitated changes to the design process and supply chains.
The same can be seen in department stores, homeware, toys and gifts retailing. Large scale retailers are increasingly desiring rapid responsiveness and greater flexibility in their product offering, wanting to differentiate themselves with something new and fresh regularly and rapidly.
We are yet to see where these two diverging trends are going to end up. In the fast direction, big data will continue to be important in reaching customers, and automation will likely replace much of the retail work force. An example of this is Amazon's recent instore innovation which removes the queue and check out process completely - shoppers can simply grab what they want and walk out of the shop. The Amazon Go app detects when items are taking from the shelves and when shoppers leave the store their Amazon account is automatically charges and a receipt is sent.
Physical expansion of warehousing for the global retail platforms will allow price to come down further and allow faster (same day) fulfilment. While pressure has been on high street retailers for some time, the worst is probably yet to come with Amazon and Ali Baba's Tmall Global knocking on our door. Head to head competition from local retailers will be increasingly difficult.
In the slow direction, the emphasis seems to be going back on personal interactions. Consumers' investment in the retailers and producers they support is personal. It defines how they see themselves and who they want to be. It also provides opportunities for social connections and unique experiences. Instead on competing on price, local retailers need to understand and engage with customers in new and better ways.
What do you think about where retail is going? What are your customers telling you about price and the products you stock? And, how can Retail NZ help you navigate these changes? We'd love to hear your stories - email us at email@example.com.
by Scott Fisher, Retail NZ CEO