Retail predictions for 2010

17th November 2009

I thought it might be interesting to stick my head above the parapet and speculate as to what may transpire in the world of multi channel retailing over the next few years.

So let’s start with consumers:

According to Verdict research, it’s likely to be 15 quarters before we get back to the same levels of growth experienced in the recent past. And they are forecasting +1% growth in 2010, +2% in 2011 in retail spend.

Consumers are going through a phase of ‘rebuilding of household balance sheets’.

Total consumer debt in 2009 is almost 3 times that of 1998 at 1,457bn.

Debts as a proportion of income was 10.5% in 2008, low interest rates have seen that fall to 7.1% in 2009, however in 2010 and 2011 these levels will rise as interest rates will rise (If rates go to 3% then the rate will be 9.5% to service this debt).

All forms of taxation will increase: Income tax, national insurance, VAT, council tax, pension costs etc

All of this along with decreasing levels of discretionary expenditure will drive behaviour from one of an ‘eager customer with carefree and careless consumption’ that we saw up to 2008, to ‘careful consumption’ now to ‘considered consumption from 2010 onwards’.

New channels such as e-commerce and m-commerce as well as the price driven environment caused by the recession has created the ‘perfect storm’ for retailers whereby there is a supply and demand imbalance: There’s more space, more competition, more channels, less demand…. and now grocers are taking an ever increasing share of non food.

Rising unemployment is also having a big impact upon consumers both in terms of those who have actually lost their jobs and therefore lost their discretionary spend as well as the impact on those who have retained their employment. Clearly they don’t have much confidence and are extremely nervous about making any significant purchases.

This said, recent stats suggest that levels of unemployment may be levelling out.

All of the above is shifting the consumer’s focus. And their priorities are changing.  As retail, household and automotive sectors have experienced, there is less focus on ‘quick fix’ pick me up purchases and more focus on products and services that can create longer - term benefits.

Lower priority

• Retail
• Household
• Automotive

Higher priority

• Leisure/Travel (Feel good, creating memories rather than buying products)
• Health services
• Savings

So the outlook for consumers isn’t great and whilst some small degree of consumer confidence has returned in recent months, it remains extremely fragile.

So it’s fair to suggest that it’ll be another tough year in 2010 for retailers.

So what can you do to counter this?

e-commerce

You can focus on the channel that is still driving growth, e-commerce. But if you want to maximize the opportunity from e-commerce, you need to consider it not only in terms of the incremental revenue generated through this channel but moreover the job it does in driving sales for all channels of the business.

There is increasing evidence to suggest that the web drives between 3 and 5 sales in store for every sale taken online.

You also need to ensure that your site is ‘fit for purpose.’ That means meeting the needs of all user groups first time.

• Some customers are ‘self service’
• Others need their hands held when making a purchase
• Some customers are making a self purchase
• Others are gift buyers
• Some are returning, loyal customers
• Others are first time buyers
• Some are researching online before buying in store

It is my contention that over 95% of all transactional sites is not fit for purpose. And therefore if a retailer doesn’t meet the needs of all of its customer groups first time, someone else will. After all, they’re only a click away.

So there needs to be much more focus on what needs you’re serving online and how well you’re achieving this.

Social commerce

User reviews, social networking, people who bought this also bought…all of these social sales drivers are forms of ‘peer pressure.’ And these will continue to play an ever-increasing role in driving the purchase decisions of consumers.

Customers are no longer influenced by your advertising and by what you want them to believe, their peers influence them.

So you need to learn how to harness this and use it to your advantage.

M-Commerce

The age of mobile as a transactional tool is upon us. It will take sometime before it reaches its full potential, but users are now leveraging it as a channel to make purchase decisions.

Just as broadband was the driver for the explosion of sales in the e-commerce channel, it’s taken the advent of Smartphone’s such as the iPhone to create the right browsing experience that for the first time enables consumers to really enjoy the mobile online customer experience.

This is evidenced by a recent survey by Starcom Media Vest, which suggests that 53% of mobile users have only begun accessing the web in the past year. And iPhone users are prolific users of the web with 69% accessing it every day.

We also know that consumers are heavily reliant upon the web for sources of information as well as for their media consumption. According to Forrester, 42% of consumers rely on the web for info as opposed to 31% from high street retailers, 30% magazines, 19% TV and 13% rely on newspapers.

So what does this all mean for retailers? Well It’s still going to be a while before mobile generates the level of incremental sales potential it has and that’s because too few retailers have created a mobile adaptation of their website. However, it clearly shows that mobiles will be used to access the web whilst on the go and that means when consumers are planning a purchase as well as when they are actually on the high street. As an example; if you don’t have stock of a particular product in your store, they’ll access the web through their mobile there and then to see where else they can buy the product.

But let’s also not forget that mobile will also be a driver of social commerce. Word of mouth is a thing of the past. Now you need to concern yourself with ‘word of web.’ And just as consumers are shopping on the move, they’re also accessing social networks and blogs.

If a customer experienced an issue with your business a number of years ago, this might have led to a few dozen people being influenced negatively about your brand, nowadays by the time it’s posted on Twitter, Facebook, MySpace, Linked In on other social networks or on a blog, within a matter of hours, tens of thousands of potential customers can be influenced.

Cross Channel

How long have we been hearing about ‘integrated multi channel retailing?’

It has to be around 15 to 20 years. And yet here we are nearly in 2010 and there are still very few, if any, truly integrated or ‘cross channel’ retailers in the UK.

How many UK retailers can tick the following boxes?

• Provide a truly consistent customer experience across all touch points with their brand. The customer is in control and so they determine where and when they engage with your brand. If you don’t ensure that this experience is consistent across all channel then the customer will go elsewhere
• Enable the customer to purchase, receive their order and return their goods through their channel of choice
• Have a single customer view where they can track all customer behaviour irrespective of the channel the customer engaged with

John Lewis, Mothercare/ELC are amongst a small number who get close to achieving this.

With all of this in mind, here is my retail roadmap for the next 3 years:

2010:

-       e-commerce is the channel of focus for growth for multi channel retailers. Verdict predicts that the total growth of on and offline spend will be as follows: Online 49.2% growth over next 5 years, 5.6% offline and 8.8% total

-       Social commerce is a focus for all e-commerce propositions as all retailers look to harness ‘peer pressure’ to drive sales

-       Mobile is a focus for early adopters who look to leverage its potential as a marketing tool as well as a sales driver

-       Multi channel retailers with the right model expand their store portfolio and footprint (New Look, Arcadia Group brands)

-       Those retailers who are finding the going tough will look to rationalise their portfolio and close stores not delivering an appropriate level of profitability and focus instead on the web

-       Some pureplay e-commerce businesses will add new channels such as bricks and mortar retail stores and direct mail catalogues (ASOS, Net-A-Porter, Play.com etc)

-       There's a move by retailers to Internationalise and extend the reach of their brand into new markets

2011:

-       Retailers propositions move away from price to adding value as they look to ‘defend their share of spend.’ This will become even more important as consumers buy less but begin to trade up. So retailers will be extremely focussed on bolstering margins

-       Augmented reality becomes widely adopted on e-commerce sites, enabling retailers to deliver an experience closer to that enjoyed in store and enabling consumers to have a much better idea of what a product might look or feel like. This will be of particular benefit to apparel, footwear, optical and home furnishing categories

-       Video content is leveraged by the majority to drive sales on e-commerce sites as retailers look to merge brand and transactional experiences and content

2012:

-       E-Commerce represents 20% of a mature multi channel retailer’s turnover

-       Mid tier retailers achieve 7% to 10% of sales through e-commerce

-       30% of all web access is through mobile

-       The mobile channel delivers a ROI from the incremental sales generated

-       First few mid tier retailers become cross channel

-       The majority of large retailers in the UK become truly cross channel

Posted In:

Comments

There are no comments for this entry yet.

Post Comment