One third of the way through the year and already, a big theme of Retail in 2018 has been the continued challenging market. Bricks and mortar retailers are feeling this harsh reality in particular. However, there have also been some winners already in 2018 too – so it’s a level playing field and sets up the rest of the year in an interesting way.
Technology continues to develop and there have been exciting developments to focus on both customer experience and cost saving. Whilst business transformation continues to be a hot topic, so too do acquisitions – as retailers and investors look to gain a strangle hold of our large and attractive industry.
Financial Pressures
There is no surprise that bricks and mortar retail businesses are finding it tough in retail in 2018. Household brand Toys’R’Us has closed – and it’s not alone. A number of retailers in almost every established retail territory have shed costs, jobs and stores in response to the ongoing retail market challenges.
People talk about the squeezed middle in retail – but is it just about being in the mid-market with middle of the road price point? I think when you stand back, you’ll find that the middle market players are often trying to be all things to all people. In turn, they are trying equally hard to satisfy varied demands (whilst each of these is attractive to one segment, they may be turning off another segment).
To achieve this, they have disparate operating models and consequentially waste time and money running these confusing operations in their bid to satisfy those varied demands. There is no primary focus and consequentially there is no target customer they focus on.
How to thrive in retail in 2018
To survive and indeed thrive in this marketplace, it’s essential to have:
- Clear and consistent operating model
- Lean and cost effective ways of working (see lean in retail)
- Coherent customer propositions (based on real customer insight)
It’s not all doom and gloom though. Building a strategy to clarify and optimise against these three points is proving successful. We’ve seen the resurgence of Tesco, under the watchful eye of CEO Dave Lewis, and Morrisons, led by former Tesco boss David Potts. In both of these instances, the business has focused on the above 3 elements and are now seeing the benefits.
Meanwhile, other businesses are also thriving in the 2018 retail landscape. Businesses such as Aldi, Lidl and Primark have focused on lean operating models alongside a very clear view of what their customers want. This has led them to focus on low price points for customers whilst still delivering profit. They’re using a classic retail volume strategy of “pile ‘em high, sell ‘em cheap”. It worked in 1950 and it is still working in retail in 2018.
Not just focused on price, retailers like Screwfix, who recently won Retail Week’s Retailer of the Year have again been focused on their target customer and how important convenience is for them. While Zara have continued to win the day based on their highly responsive production and supply chain strategy.
Technology Developments
Technology continues to develop for many different uses in retail in 2018. The best or most interesting innovations to date this year are:
Staffless shops
Amazon have been in the headlines with their Amazon Go concept store. But they are not the first to market with the idea of a shop with no staff. Companies in China, Korea and Japan have been experimenting with this for a while and already have plenty of staffless shops.
Artificial intelligence (AI) and chatbots
Is 2018 the year that AI truly takes off in retail? There are a number of retail use cases that could be revolutionised by AI. Plus, there are also a number of different businesses growing their capability in this sector. These combined mean it will be interesting to see how successful applications start to drive businesses forward.
More retailers are starting to use chatbots to serve on-site instant chat help and support as well as in Facebook and WhatsApp. But in this customer service focused world, will a chatbot really be advanced enough and credible enough to build true customer loyalty? Or is this just the new best way of frustrating your customers?
The significant question around whether businesses reveal to customers that they are talking to a bot or not still needs to be answered. I’ve seen examples of both recently and there are pros and cons both ways. Comment at the bottom of this article to have your say.
Partnerships and Acquisitions
Retail in 2018 has seen an increase to the number of partnerships and acquisitions. The financial pressures facing the industry at present has added fuel to the fire.
Retail elements of Conviviality have been bought out by Bestway. Tesco have completed their takeover of wholesaler Booker. Both of these bring new capability and new customers to the parent company.
Businesses are using acquisitions to buy global expansion across sectors in retail in 2018. JD Sports have purchased Finish Line which enables them a fast route into the US market. Sainsbury’s have started merging the customer journey of their stores with Argos on a much bigger scale than ever before.
Meanwhile, rumour of a Target and Kroger merger would form a huge retail business to build a triple threat contest between them, Walmart and Amazon.
Acquisitions are not all plain sailing though. Homebase / Bunnings is having tough time in the UK marketplace (purchased 2016). As are House of Fraser (purchased 2014). Alongside thes, there have been a number of failed acquisitions in recent times too, such as BHS (purchased 2015, administration in 2016).
The common theme is that these acquired businesses have lost sight of who their ideal customer is and thus failed to drive home results.
What Does the Future Hold for Retail in 2018?
The trends you to now feel like they still have energy to develop yet – with a few twists yet to come I’m sure! Some key stories to look out for:
Retail businesses will continue to have a tough time
Expect more store closures and companies entering into administration. You probably didn’t need a crystal ball to see this one. Retailers will continue to talk “transformation” in a bid to restructure their business model, operating model and organisational structure. Which companies will be ready to actually deliver on their transformation plans to retail in 2018 – therefore altering their future for the better?
Customer insight will continue to play an increasingly large role in retail
Capability for handling big data continues to grow – both leadership understanding and in technical data processing. Businesses will increase their data mining efforts to better understand and focus on key customer behaviours.
GDPR will cause at least one major retailer grief and bad press by the end of the year
As the General Data Protection Regulation takes place in Europe, how will businesses ensure they are compliant and still successfully ready for retail in 2018? Combined with the recent Facebook revelations, it feels like it will be a matter of time until there is a major player who undergoes investigation through re-targeting for online advertising, data sharing or unwanted marketing. Who will be the first to report a major data breach? Where unethical use of customer data generate a social media storm and bad press?
Have your say – what else will we see in retail in 2018?
I’m sure there will still be few surprises to come out through the rest of the year. Who will be the winners and losers? Where will customers scream in delight – and where will they scream in anguish? What are your predictions? Comment below and have your say.
About the Author
Oliver Banks is an expert at delivering retail change projects and programmes, ensuring that transformation goals lead to genuine transformation. Whether building operating models, developing lean ways of working or realising customer propositions, Oliver is always passionate about retail change. He’s determined to get the right balance between maximising benefits and making sure progress is predictable and on track.
