One of the top trends in retail in 2018 has certainly been the tough trading situation and consequentially, the poor financial performances across the retail industry. Retail competition is changing. Retailers large and small have been affected and we have started to see that it is not just the mid-market players that are finding it hard. Retail businesses serving customers at a higher or lower price point are also now feeling the squeeze. But why is this, why now and perhaps most importantly, what should a retailer do about it?
You can read more about the key trends in retail in 2018 here.
The Retail Market of the Last 20 Years
Successful retailers over the last 20 years have tended to focus on one thing. Scale. It has been a race to open more retail space, to expand the reach, to grow into new categories. This has been especially effective at increasing turnover and brand awareness.
Looking at the super-heavyweight retailers of today, compared to 20 years ago and you can see that their success correlates to their ability to scale. The retail competition has shifted significantly over the last 20 years. There have been a few companies that have driven that change.
In 1998, Tesco had recently appointed a new CEO, Terry Leahy. The super-large “Extra” format was still a very new proposition, offering customers a one stop shop under one roof. There are now over 250 of these super large format stores.
Walmart has grown from 3,436 stores in 1998 to 11,700 stores today. It’s revenues have also tripled in this time.
Amazon celebrated its 5th birthday in 1998 and was only selling books online. However, it would soon announce a move that it would start selling “more than just books over the internet”. Books and Kindle books now represent less than 5% of their revenues.
Chinese retailers JD.com and Alibaba hadn’t even launched yet, but were in the final planning stages. Together, they represent nearly $100bn of revenue today.
Returning to today, it would be difficult to imagine what retail today would look like without some of these leading retailers and the progress they have driven.
The Middle of the Market Battleground
The growth area that these businesses have focused on is the middle ground of the retail market place.
As a consequence, this has been the key battleground for retail competition in recent times.
Increased retail competition
In a number of different retail categories, price has always been seen as a key driver to “competitiveness”. Retail today is no different. But, what is different is that we live in a world of increased online presence and e-commerce. This puts huge amounts of price visibility into the hands of customers within a few clicks or screen presses.
We’ve also seen where big retailers have focused on scale and growth so much that new contenders emerge in the retail competition. We’re not just talking about online vs offline retailers. A supermarket is no longer just competing against other food retailers. Now they are competing against clothes retailers, homeware retailers, entertainment retailers, stationers, cafes, restaurants, pharmacists, opticians. The list goes on and the competitive market place quickly becomes crowded.
The “squeezed middle” emerges
As a result, we’ve started to see businesses in the middle of the market become financially challenged. Retailers at higher price points have started gaining customer loyalty and eroding the middle of the market. Discount retailers at low price points are tempting customers away, disintegrating the other end of the middle. It now has the nickname “the squeezed middle” following on from this fierce retail competition.
Consequentially, more retailers have started growing or launching at the extremes of the price spectrum.
What Happens Next: The New Retail Set Up
In the new retail landscape, there is less growth available at either end of the spectrum so you can expect to see the same pattern occurring.
The squeezed middle will continue to see competitive skirmishes, although these will be less intense with fewer casualties. Expect increased retail competition at either end of the spectrum in 2018 and beyond. In particular, this will be ignited as large, battle-scarred, retailers rebrand themselves from mid market players into a high or low price point retailer.
In turn, we’ll see these two areas turn into key battlegrounds – these are the sites of future retail competition.
The new battlegrounds are drawn up
In the low price war, retail casualties will start to happen quickly. By the very nature, these are lower margin businesses and if there is a significant decrease in sales, cashflow and profitability could quickly become a challenge. This is a war of attrition and there can only be one victor when price is the only factor concerned.
Meanwhile, at the other end of the spectrum, expect the battle to focus on end to end customer service and relationship building. This is likely to include more focus on plentiful and accessible expert advice before the sale and continued service and convenient support for a long time after the sale. Customers here will become more demanding and will expect to be delighted more.
It will become increasingly difficult for a retailer to sit in the middle of the market and attempt to fight this war on two fronts. There will come a time of choice for where to focus attention most.
What Should You Do To Remain Fit to Win Over Your Retail Competition
Given the new retail marketplace and where the new battlegrounds will intensify, it will be critical for retailers to prepare now. Below are different strategies to engage to ensure your business is fit to overcome the retail competition.
1. The right operating model
Having an operating model that delivers a clear purpose will drive consistency across your business. Whether it is from week to week or from store to store, your customers know what they’ll get from your retail brand. It is not only your customers who benefits from having the right retail operating model in place though – your staff and shareholders benefit too. Staff can work with clear expectations of what they need to do and are more driven by understanding the bigger picture around what their role feeds into. Shareholders find benefit as it allows the business performance to be more predictable and allows leadership to be more strategic.
2. Effective and efficient ways of working
When a business is in the growth stages, new processes and procedures are built to help guide, shape and control that growth. There is little retail competition at this time.
When life is easy in a growth stage, often the focus is more on pace than on cost effectiveness. This results processes with waste built in. However, these processes need to change before the shift from growing market share to maintaining that position happen. A focus on effective and efficient ways of working will help reduce cost if needed but will also help focus attention on the right elements to drive value for customers.
Lean thinking is an approach you can employ to simplify processes. This simplification can lead to consistency and reduced costs. You can read more about Lean in Retail here.
3. Appealing customer propositions
Understanding your ideal customers is more essential in retail now than for a long time.
There is much hype of building in experiential activities into your operation. But if the customer proposition doesn’t make sense then you buyers won’t be drawn in by this new experience. And the people that are brought in by the draw of this new experience won’t be converted into customers.
Customer insight is the first stage of making sense of this. If you aren’t using customer insight, this is a big opportunity for you to overtake your retail competition.
4. The ability to make change happen
If you’re not already in a place where you have a perfect operating model with effective and efficient ways of working to deliver appealing customer propositions… then you need to make a change to get to that point. (If you are in that place… well done!).
It can seem easy to identify what needs to happen on paper but following through to completion is often where the challenges begin. Ultimately, the ability to DELIVER the change is more important than the change itself. If nothing actually happens, it doesn’t really matter what it is that you’re trying to do.
To give yourself the best ability to make the change happen, you’ll need to ensure that you:
- Identify the right team (not necessarily just who’s available at the moment)
- Build their capability to take on the challenges in front of them (not just crossing your fingers and hoping for the best)
- Give them the tools and the techniques that will work (and not just slowing them down with admin)
- Offer them the support and coaching that they need to make the change (don’t isolate them or leave them to work completely by themselves)
- Set a clear direction and vision (so they can put the pieces together rather than just doing an elongated to do list)
In Conclusion
The retail industry is changing and you need to change too. Expect challenges to come in new ways that you’ve not experienced before. To counter these retail competition challenges, you’ll need to define and develop the right operating model. In turn, you’ll want your ways of working to be both effective and efficient. They will need to be focused on the right customer propositions. Finally, you’ll need the ability to be able to deliver these changes, not just identify them.
If you’ like to discuss ways that you can go about making these changes happen, fill in my contact form for a no obligation discussion.
About the Author
Oliver Banks is an expert at delivering retail change projects and programmes. He has developed operating models and lean processes for different sizes and categories of retail. He blends classic project management techniques from PRINCE2, PMBOK and Lean Six Sigma with a dose of pragmatism and business reality to ensure these important retail projects are led, managed and, most importantly, delivered successfully.
