What will Christmas 2018 bring for Britain’s struggling retailers? We examine the latest aspects of online shopping, including omnichannel selling, personalisation and the use of AI.
The UK’s retail sector has had a rough ride in 2018, with multiple closures and bankruptcies. This year Toys R Us, Maplin, Poundworld and House of Fraser all entered administration, although the latter was later rescued by Sports Direct CEO Mike Ashley.
Even Marks & Spencer, a British high street stalwart, has closed stores, and John Lewis seen its half-year profits fall 99%, while online retailing grows apace. So what will this Christmas and Black Friday have in store for Britain’s retailers?
More retail collapses expected
“2018 will probably be the worst year for bad retail news since the recession in 2008, when Woolworths collapsed,” predicts the Centre for Retail Research’s recent report, ‘Retail at Bay’ 2018.
Indeed, in the first 100 days of 2018, 18 large and medium-sized firms entered administration, the report notes, “involving almost as many stores and certainly more jobs (13,500) than in the whole of 2017”. Six retailers also used CVAs – company voluntary agreements – to close 286 stores, putting 6,000 jobs at risk, and Homebase was sold for £1, with 11,500 jobs at risk.
Unfortunately, a poor Christmas could mean the end for more well-known brands in 2019, explains Andy Mulcahy, strategy and insight director at IMRG, the industry association for online retailers. “Last year there was a lot of discounting going on [ahead of Christmas],” he tells Alvexo. “By the time you get to Black Friday [23rd November], can you go lower? In the New Year you’ll get a slew of administrations. If you’ve had a bad year and then a bad Christmas, with all this kind of pressure on retailers, [it’s inevitable].”
Bricks and mortar-only retailers are unlikely to receive much of a boost from Black Friday, adds Mulcahy, as it has become very much an online event. “It’s very much an online thing now,” he says. “In 2014 there was fighting in the stores but people’s response was to say, ‘I’m not going into a store now over that period’”.
Perfect storm hitting the high street
A number of factors have contributed to high street retailing’s decline, such as weak consumer demand, the growth of online retailing, price competition and a preference by consumers to spend their money on travel, experience and eating out instead, notes the CRR.
What’s more, the high cost of business rates – a levy paid to local authorities based on the value of the premises – and the growth of the National Living Wage have all taken their toll. “The financial model of the traditional bricks-and-mortar retailer was based on regular increases in sales, 25-year leases with upwards-only rent reviews, high rents and occupancy costs and some freedom within limits to set prices,” says the report.
“This is now broken as a result of: pared-down discounters that focus on the cheapest price and online retailers with low operating costs that can provide virtually any product, quickly, at a lower price.”
No wonder that in October this year, Tesco boss Dave Lewis called on Chancellor Philip Hammond to introduce a 2% levy on goods sold online – a so-called ‘Amazon Tax’.
UK retail’s evolution: omnichannel selling
However, retail analysts at consultancy Deloitte argue that the UK high street is not dying but evolving. “We believe we’re witnessing an evolution of the UK high street, rather than its demise,” say Ian Geddes, lead partner and Ben Perkins, head of consumer business research, in Deloitte’s Retail Trends 2018 report.
“Whilst there has been much media coverage on store closures and job losses in retail, it is important to recognise that these stores are not closing simply because of trading this year. Years of rising costs, technological disruption and changing consumer behaviour have led to a tipping point that has forced the UK high street to undergo considerable structural change.”
Specifically, researchers say that the high street ‘store’ of the future will be different. “There will be fewer shops in the future but this does not mean the store is dead, it just means that the role of the store is changing.”
“There are numerous examples of innovation happening within the store: grocers trialling cashless supermarkets, fashion vendors experimenting with concessions and retailers investing in customer experience.”
Indeed, the line between online and bricks and mortar retailers is blurring, with omichannel-selling now an important aspect for firms – where firms straddle both online and high street markets – with established retailers also selling online and online-only firms opening pop-up shops to enable customers to browse products.
For example, high street retailer Argos now generates more than half of its sales online, while Amazon has experimented with opening Black Friday pop-up shops as well as buying upmarket supermarket chain Whole Foods.
2018 challenging for ecommerce too
Online shopping continues to grow apace. CRR figures show that online’s share of the retailing sector should reach 17.8% of the market this year (£61.4bn) – 26.5% of the non-food sector and 6.3% of food – and is expected to hit 34% by 2022. In August 2018, UK online sales grew by 14% compared to the same period in the previous year.
However, this year has also been a mixed bag for ecommerce firms, explains Mulcahy at the IMRG. “It’s actually been slightly topsy-turvy for the online side of things,” he says. “The first half of the year was very very good, but the third quarter was quite a lot lower.
“In the second quarter, the spend was actually pretty good, but then we had the Royal Wedding, the World Cup and people were down the pub and then there was the incredibly hot weather. Perhaps people have overextended themselves and are trying to tighten their belts.”
In the meantime, firms both online and offline are adopting a raft of new tactics to try to attract and retain customers.
Same day delivery
More and more retailers with an online offering, including Argos and Sainsbury’s, are aping Amazon by offering same day delivery. The trend is being seen worldwide, with Go People, a Sydney-based courier service claiming that 65% of retailers will be offering same-day delivery by 2019.
According to data from PwC, 88% of shoppers are willing to pay extra to ensure their goods are delivered the day they are ordered, with 40% willing to accept deliveries from drones while, according to Econsultancy, 33% of millennials say they consider first whether an online retailer offers the service before choosing to do doing business with them.
“From a business perspective, the value of same day delivery can be helpful in increasing your sales volume,” explains Nick Hartman, Go People’s marketing and communications manager, on the firm’s blog. “There’s nothing more convenient for consumers than receiving their orders directly on-site. This level of service that comes with same day delivery can give you a lot of repeat business from customers.
In fact, Hartman claims that businesses offering same-day delivery can enjoy twice as much conversion and significant increases in year-on-year sales. “Whenever you deliver on your promise to make their orders immediately available for your customers, you are making a good impression that will help keep your brand on top of their mind.”
However, the downside is the increased cost in terms of labour and fuel, especially for smaller firms, says critics. “If you’re selling something for $20 or $30 and you’re paying minimum wage [to your courier], I would assume the margins are pretty thin,” Kerry Rice, analyst at investment bank Needham & Company told Inc. “You really start to eat into what’s profitable.”
Instore: Surprise and delight
Meanwhile, insiders say it’s becoming increasingly important for retailers – whether online or bricks and mortar – to grab the attention of consumers by using so-called ‘surprise and delight’ tactics.
“A fashion retailer, for example, may have a live catwalk in store which, while having nothing to do with direct transactional engagement, will certainly capture shoppers’ attention; they stay, they watch, they’re surprised and delighted,” writes Scott Lester, CEO of Flixmedia, in Marketing Week.
“Morrisons has introduced dry cleaning pick-up and drop-off services, and Target in the US has started putting barber shops in its stores. Both are additional reasons to stay in the store. I can get a haircut and shave while the family does the shopping? I’m surprised and delighted.”
Augmented reality a ‘useful tool’ for shopping
Online, says Lester, retailers are adopting the use of augmented reality (AR) to create a stand-out experience for shoppers. Indeed, a recent survey by the ISACA, an IT governance organisation, found that 62% of respondents thought AR would be a useful shopping tool.
“Amazon recently released an AR app that enables shoppers to snap one of around 15,000 products and place it on themselves or their home – essentially a virtual approach to ‘try before you buy’ – and IKEA and online home goods retailer Wayfair are doing something similar too,” says Lester.
For example, the Ikea Place iPhone app helps consumers picture exactly how furniture might look and fit in their homes, using true-to-scale 3D imaging via the iPhone camera lens. “You see the scene as if these objects were real and you can walk around them and interact with them, even leave the room and come back,” says Michael Valdsgaard, the Leader of Digital Transformation at Inter IKEA Systems B.V. “It’s really magic to experience.”
Other retailers’ apps, including those used by Zara and Burberry, allow customers virtually to try on outfits and see matching accessories. Flixmedia also now have their own AR app – Point & Place – which won an Ecommerce Award this year.
“Experimentation in AI technologies is increasingly at the forefront of traditional retailers’ strategies to improve convenience for shoppers and increase in-store footfall,” Alastair Harvey, chief solutions officer of Cortexica, a world-leading expert in visual AI solutions, told the Evening Standard. “We fully expect to see this as the norm in the near future.”
Lester also argues that retail websites with a ‘one-size-fits-all approach’ will soon struggle as the personalised shopping experience becomes more important.
“We see a need for personalised shopping so that as a retailer gets more information about a customer, such as what devices they use and what influences them, it then uses that information to serve a personalised page to that customer the next time they visit,” he says.
“Indeed, we’re working on a single line of code that retailers can add to their website, which will enable them to deliver personalised shopping experiences based on the attributes of the visiting shopper.”
Examples of this include intervening when a customer has abandoned their online shopping basket and attempting to reengage them with the purchase.
The challenge, says Saima Alibhai, practice manager professional services at Bronto Software, is grasping their needs swiftly enough to generate the right kind of content. “Marketers are now beginning to move upstream in the shopping lifecycle, creating personalised campaigns that react to browsing behaviour with triggered messages well before an item has been added to a basket,” she writes on the IMRG’s blog.
“New technology offerings have made such basket recovery programs more cost-effective, allowing ecommerce marketers to develop a more complete re-engagement strategy for customers. Smart marketers will take advantage of this user activity and leverage the valuable browse data to re-engage the individual with a personalised offer encouraging them to return and complete the purchase.”
Harnessing artificial intelligence
AI is also becoming a game-changer in retail. The BBC recently reported how at its 18-acre site in Andover, Hampshire, online grocery retailer Ocado uses a ‘swarm’ of 1,100 robots – albeit part of the same machine – to help pack 65,000 customer orders a week. Travelling at 4 metres per second, they collect crates of food and deliver them down a chute to human workers, while another robotic pick machine picks up items and packs them into a crate.
Meanwhile, last year delivery firm DHL purchased four ‘Sawyer’ robots from US firm Rethink Robotics to working alongside its British warehouse employees and help them pack items. Each year the company packs over 50 million cases at its 19 UK warehouses.
Amazon also famously partnered with the UK government in 2016 to make small parcel deliveries via drone technology in less than 30 minutes.
But robots are not just being used to make physical tasks less onerous, AI technology is also being utilised to prevent fraud and in customer service applications. Since 2013 Paypal has used machine learning algorithms to detect fraud, while Tesco is using data manipulation technology, such as Hadoop to monitor buying behaviour, such as how many people shop in a particular store, how often they return and what prompts them to buy certain products or product combinations.
“By centralising the Hadoop framework, [Tesco] company managers can draw insights from the data no matter where the store location is around the world,” writes Ben Rossi in Information Age. “It is accessible to any division when they need it.”
Shop Direct also uses AI technology to help it decide how to communicate with its shoppers and take action when a customer wants to stop shopping with it. The technology can help it determine this issue early on and help keep its customer on board. Meanwhile, Gartner forecasts that by 2020, over 45% of retail customer interactions will be handled by AI.
AI shopping– a post-Brexit advantage?
In fact, Rossi thinks AI could provide UK retailers with a much-needed edge when Britain leaves the EU. “Big data will also prove valuable in the wake of Brexit,” he writes. “As retailers shift their strategy and try to better differentiate themselves from competitors, the access to big data and analytics will play a big role. Data insight for retailers will be critical to deal with challenges such as increased labour costs and changes in trade policies.”
However, in the short term, retailers will have to “keep a close eye on the consumer”, say Geddes and Perkins. Although there is underlying consumer confidence, the interest rate hike in August along with the drop in sterling may reduce consumer spending.
What’s more, retailers will have to rely on more than fancy gimmicks to keep consumers happy, warns Mulcahy. “It’s all about proposition,” he explains. “The personalisation side of things is very important [for example], but you’ve got to have that proposition that people respond to.”