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Comment: The brave new world of retail by Roger Tejwani of FinnCap

Who would want to be a retailer right now? The Internet is transforming consumer behaviour around the world. Customer expectations are changing fast and the would-be successful shop owner needs a great backstory, a mobile-led sales platform and be ready to compete in a world where everyone is an aspiring retailer. They then need to transform their retail outlets in to shopping experiences and adapt to all new cost models. It’s little wonder some big name retailers are failing, and no doubt more will follow.

But new entrants and established brands can both thrive in this brave new retail landscape by accepting that uncertainty is the only certainty, taking risks, keeping a close eye on the competition and innovating.

Probably the most important thing for retailers to do now is to accept that the internet has changed everything. And mobile Internet is now quickly transforming shopping behaviour globally. 2015 was the first year that mobile Internet sales exceeded those of online sales via PC. The growth in online shopping has meant retailing is no longer about physical presence, and the growth in mobile means anyone with a smartphone now carries a hypermarket in their pocket.

With so much competition at people’s fingertips it has become increasingly important to create a personal connection with the customer to persuade them to come and visit. This has led to the growth in “products with a story”. Consumers are increasingly identifying with brands with history or personalities, and this, for example, has helped craft beer and spirit producers to lift sales.

Younger consumers in particular are increasingly moving from consumption buying into experience buying as we approach the end of a mass consumption era. As Steve Howard, head of sustainability for IKEA, said in January 2016: “If we look on a global basis, in the West we have probably hit peak stuff”.

This growth in online shopping means a growing proportion of retailers have too much space. As a result, they are increasingly exiting sub-prime, secondary space and taking up a smaller quantity of better quality spaces. DFS, for example, is trialling smaller urban stores with limited ranges, and IKEA is trialling smaller formats in Hamburg.

The likely changes to how we use shop space requires some interesting thinking. One guestimate is that approximately one-third of traditional store floor space could be retained as shoppable space, with the remainder converted to warehouse storage or used to drive footfall/dwell time e.g. through a coffee shop.

Luke Jensen, former group development director for Sainsbury's UK, painted an interesting vision of “experiential fresh assortments on the ground floor of dark stores with self-picking the boring grocery and household stuff above”; in other words mundane goods could eventually be stacked and picked automatically in areas of the store not open to shoppers, giving the shopper more time to shop across higher-margin assortments.

Some commentators see flagship stores as key. John Lewis’ CIO Paul Cobi, for example, said that “our beautiful stores are at the centre of our omnichannel strategy”. John Lewis’ online sales are now 40% of total sales and its fastest-growing channel, yet physical stores are an integral part of future sales growth given their status as a ‘shop window’ – possibly reflecting their ‘higher touch’ product categories such as clothing.

Burberry takes a different view again through its flagship Regent Street store. This allows the web experience to inform the physical space, by using it as a fashion/music/entertainment-led venue. This does raise the question for retailers: should online inform the physical store or the other way round?

Clearly, different retailers will take different approaches, but what is clear is that store conformity is a thing of the past and retailers need to be flexible in their engagement with customers.

Roger Tejwani is a consumer analyst at FinnCap. His article includes some ideas from a presentation by Dr Alan Treadgold

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