Retail 2020 – Challenge and Opportunity

Jan 6, 2020

The start of a new year is a natural time for reflection, and for future planning. The start of 2020 brings not only a new year but also a shiny new decade. Looking back, a lot has changed during the past 10 years.

In 2010 our favourite app was Angry Birds, and Toy Story 3 was the biggest film at the box office. We were 2 years into a financial crisis, the effects of which would extended over a full decade. All planes stopped flying for a week because of a volcanic ash cloud, and the word Brexit did not exist.

In the retail world, the last 10 years have seen more than 20,000 shops disappear from our high streets. And this is a trend expected to continue, with another 8,500 likely to close during the next 5 years.

We don’t shop less, we just shop differently. Retail is in the midst of a major revolution that means increasingly we shop online for everyday regular items and a wide range of specialist products not readily available locally. We visit the shops for things we want to see and touch, for an experience, for advice or just for convenience if we are already out and about.

A mix of related developments have shaped the unprecedented scale of this change in our retail habits. Almost universal internet usage by the entire population has been driven by a huge growth in available services, combined with almost ubiquitous access to wifi and steady improvements in usability and functionality of associated hardware and applications.

In 2010 the average home broadband speed was around 5mbps; 50mbps and higher is now available in most homes. 4G mobile access in the UK was introduced in 2012 and now almost universally available.

Apple launched its first ever iPad in 2010 – just 3 years after bringing out the iPhone, a device (along with its competitors) that has done more than any other to drive mobile use of the internet.

Fast forward to 2020 and mobile devices account for over half of visitor traffic to many ecommerce websites, and around 30% of online spending. The figures vary from source to source, but all evidence is that retail customers are moving increasingly quickly to searching, finding browsing and purchasing using their smartphones, whoever and wherever they may be.

The social network sites such as Instagram and Facebook we use daily on our mobile devices continuously target us with ideas to engage with retailers and buy products and services.

There is also strong evidence that the mobile starting point is influencing a growing share of in-store purchasing as people do their research before visiting a store to make a purchase. By way of an example Halfords has made this work very effectively, with over 80% of their online sales being click & collect orders.

Surely this growth of online retail is great news for retailers with a strong online offering. It’s certainly better than for those left behind with just the bricks & mortar. However, it’s not all good news. Competition is much more intense, as it is now much easier for consumers to compare offers instantly between retailers and make decisions based on what is right for them now, rather than through loyalty or only having limited physical access to their local stores.

But the biggest threat for most online retailers is coming from Amazon. Estimates vary, but Amazon now accounts in value terms for around 35-40% of all online retail spending in the UK. And the reasons are clear to the majority of us of us who use their platform on a regular basis. It’s a compelling combination of range, availability, price and convenience. A survey by Mintel in 2019 found that 70% of UK consumers say that Amazon is the first online retailer they go to when looking to make a purchase, and a massive 90% of all consumers use Amazon at least occasionally.

Although there are some contenders emerging to tackle the dominance of Amazon in parts of Asia and India, there is no such challenge emerging in Europe for now. So, you need to consider Amazon in your business strategy. Either work with them or look for market sectors that are resilient to their model. Such as:

  • Your own brands, meaning you have control where they are sold
  • Brands that do not appear on Amazon
  • Products that benefit from enhanced levels of service and/or advice
  • A depth and range of products not available on Amazon

It is clear that mundane and regular shopping will continue to move online and that the major share of this will be concentrated into the hands of a few major players such as Amazon, and the supermarket groups for food.

A mix of online and in-store continues to work for innovative retailers – and studying the success of companies such as Next and Dunelm is worthwhile as they continue to cleverly evolve and thrive in a channel-agnostic world. Of course there is always an exception, and in this case it is Primark, a company that is highly successful without an online channel due to its unique value proposition in prominent retail locations.

A key challenge and opportunity for independent retailers is to find the reasons for customers to come to you, and to keep returning back to you, whether it be online or offline.

High streets and shopping centres are being reinvented, reinvigorated by entrepreneurs spotting opportunities to provide a personal service at a local level, bringing investment and people back into these areas for entertainment and localised retail experiences that cannot be achieved solely through a screen.

Retailers who offer a differentiated service to customers will continue to thrive. In a world where we are continually being marketed the same products by the same companies, there is an appetite for the new, the different and unique, and the local.

Here are some specific trends that look set to continue and need to be considered in business planning this New Year:

Mobile – For an increasing number of businesses, the majority of consumers will never use a computer to access their business online, it will be done via a smartphone or tablet. Either way, they are using a small screen and need to get to the relevant information quickly and efficiently. At least as much attention should go into your mobile storefront as the browser version. Maybe you spend most of your time looking at your online store via a desktop computer, but your customers don’t.

Personalised services – the more you know about your customers, the better you can help them by presenting products and solutions that they like and are therefore likely to buy. Marketing platforms such Instagram and Facebook (and others yet to be invented) make this data available so you can understand your customers.

Automation and prediction – The idea that we are time-poor has gained a great deal of traction. We don’t actually have less time – we just choose to spend it differently. As consumers we are less inclined to spend time on the mundane and more time on leisure. One result of this is the growth of subscription retail meaning that less buying decisions are required, and technology in the home is helping to drive this. There will be more automated ordering based on technology predicting demand on behalf of the consumer.

Innovative products and services emerge all of the time online. Back in 2010 would we have predicted the current demand for electric cars, or that that we would now be talking to our speakers and other electronics at home? When we look back in 2030 a lot will have changed but the fundamentals of retailing will remain the same as they has always been.

The marketing noise is deafening and you need to find your niche, and then locate your customers and enthusiasts within this. The great news is that it has never been more possible to create something new (or even reinvent something) and expose it to a worldwide (or local) and highly targeted audience.

Good luck in 2020, and for the next 10 years – I suspect it’s going to be quite a ride.