Gamechangers Retail: Growth through consumer-centric innovation
May 3, 2016 at Lisbon, Portugal
From Amazon to Etsy, ZaoZao and Zappos … through branded boutiques and online marketplaces, digital walls and mobile marketing, big data and personalised promotions … what is the future of retailing, in general, and for your business in Portugal?
Walking around the Burberry flagship store on London’s Regent Street, with its beautifully arranged clothes, it magic mirrors that superimpose your image in the clothes of your fantasy, and place of your choice, and the VVIP room on the top floor, it is a world of imagination, where emotions not rational desire prevails. It is the work of designer Christopher Bailey who has overseen the rejuvenation of the brand from its “chav” ubiquity to its super premium status. The $100,000 limited edition, white alligator skin jacket, not to everyones taste, perhaps demonstrates this stretch. It is a brand that is truly global, more Asian than European if measured by its custom, and more digital then physical, based on the focus of its innovations. Burberry shocases the future of retail – as a niche focused, premium branded, hybrid experience.
Smart shoppers, smart stores
Online retail has grown rapidly over the last decade, from a marginal bolt-on, to major revenue stream in a multi-channel model. In the US, it has grown by around 18% per year, and now accounts for 8% of all sales. But digital is more that this, it is not just another way, but a fundamental capability that can enhance every channel. Search on your phone, buy online, pick up in store. Go to store, use your phone to buy, delivered to your home. Retail innovation is about hybrids, combing physical and digital activities and options in a more experiential and valuable way.
Retail purpose, formats and incentives all change – whilst loyalty cards originally drove behaviour through points, people soon became wise that the rewards were trivial compared to special offers in store. Whilst stores have enhanced their shopper experiences, markets have fragmented with more space for discounters. In Turkey for example, BIM has taken around 40% of the food market with low price, small outlets across cities. At the same time, online players have morphed into credible alternatives, where Amazon sells wines and eBay replaces physical outlet stores. More emotionally, technologies such as Synqera from Russia can “mind-read” a shoppers emotions, judging how to best engage them as they shop, and how to make them smile.
Digital hybrids, data and mobile
Mobile is already a huge factor: at upmarket fashion retailer Gilt, 50% of shoppers, and 30% of sales is by mobile. It is the glue that brings together online and offline, creating more personal experiences, from individual promotion geo-targeted, for in-store research and navigation, price checks and comparisons, as well as fast and safe payment. As newspapers are replaced by digital news, TV is on demand, and online retailers never close their doors, the ways retailers engage and serve consumers changes. We expect 24 hour access, we don’t tolerate stock outs, compare prices instantly, shop beyond our borders, and demand delivery in 24 hours.
Big data, the huge quantitites of transacational data, mashed with other sources of personal and behavioural data through complex algorithms, means that marketing is highly personalised. Around 35% of all Amazon purchases and 75% of Netflix movie choices are based on recommendations. Of course these suggestions compete with the much more trusted recommmendations of friends and peers on social media, often valued around 10 times more highly than anything from a brand. A brand therefore needs to think laterally, about how to influence communities, and give them the abilities and incentives to influence each other. Consumers also become much less tolerant of failures, unavailable products or poor service, they expect free and easy returns, and they immediately tweet their feelings, particularly the negative ones, to thousands of people like them.
Together, our gamechangers show how the variety of innovations build a future vision of retail. The demand side is led by the engaging, personal experiences – driven by the passion of Zappos, collaboration of Threadless, affinities of Greenbox or latest desires of Zao Zao. On the supply side, this is about the efficiency and speed of Amazon, the reach and richness of Aramex or Etsy, and the transparency of Positive Luxury. In between is the ability to match niche segments with lifestyle store experiences, and whilst the Aberchrombie brand portfolio is not without challenges, it knows how to connect.
How does this apply to Portugal?
After recent years of decline, retailing in Portugal stabilised during 2015 with some tentative signs of recovery. The purchasing power of average Portuguese consumers is slowly returning to pre-recession levels. Nevertheless, the economy is growing again, unemployment has started to decline and consumer confidence has recovered lost ground. The store closures which plagued Portuguese high streets and shopping centres during the years of economic recession have now slowed down and some retail channels, mainly in grocery retailers, are once again experiencing positive growth.
For three decades, the Portuguese retailing industry has been accustomed to a constant stream of new large retailing spaces as hypermarkets and shopping centres appeared consistently in even the most remote areas of the country. Only 18% of the 308 municipalities in Portugal do not have at least one large shopping centre or a hypermarket. However, saturation and three consecutive years of recession brought this expansion to a grinding halt during the review period. During the 12 months to the end of 2014, only one new shopping centre and one new hypermarket opened in the country. There are signs that this may yet represent an opportunity for consumers to rediscover the joys of shopping on the high street. One example of this can be seen in modern grocery retailers, where smaller supermarkets and convenience stores are prospering in urban locations.
Non-grocery specialists continues to be more negatively affected by the constraints imposed by the economic crisis than grocery retailers. There are a few reasons for this. First of all, non-grocery products are generally less essential than grocery products. Second, non-grocery products have so far faced more competition from non-store retailing channels, mainly internet retailing, than grocery products. Portuguese consumers remain enthusiastic about shopping online for consumer electronics, consumer appliances and apparel and footwear. However, online sales of grocery products remain low in Portugal and only three of Portugal’s leading grocery retailers have so far entered the online channel. This could change over the forecast period, however, as more Portuguese grocery retailers are expected to adopt a multi-channel approach to their operations.
Sonae SGPS SA continues to dominate retailing in Portugal. For each €100 spent by Portuguese consumers on grocery and non-grocery goods, €14 is spent in stores owned by the Porto-based company. Sonae’s core business focus is on grocery retailers, a channel in which it remains the leading player. However, Sonae is also present in apparel and footwear specialist retailers with the Mo chain, electronics and appliances specialist retailers with the Worten chain, sports goods stores with the Sportzone chain, drugstores/parapharmacies with the Well’s chain and internet retailing with the Continente Online website.
Time to think different
In his keynote, Peter Fisk will challenge you to go beyond today’s world. To think of new possibilities. To learn from the best ideas around the world, and even from other sectors. And by applying new approaches from design thinking to gamechanger strategies, new business models to lean innovation, consider how you can innovate and grow.
You can download the summary of my keynote here
http://www.slideshare.net/geniusworks/gamechangers-retail-growth-through-consumercentric-innovation
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