Retailing in the Week Ahead, Week 4
A single theme has emerged in my ‘start of the year’ conversations with retailers, investors and suppliers. That is ‘Long-Term Planning’. This is happening because there is a strong desire within the retail industry to escape the short-term focus of the past few years and find a better path in 2020.
Many very clever people believe that looking at an ideal way of managing retail in 5-10 years’ time can help companies focus on what not to do in the short-term. That better path has some interesting new elements we would like to discuss. Just as important, however, is what that new path excludes.
Avoiding the realities of today:
Today’s realities can best be described as ‘surviving on thin operating margins’ and ‘price-first’. There are many reasons for this double whammy. Let’s briefly review:
Surviving on thin operating margins. Retailer operating incomes are under pressure on multiple fronts. When looking at the three primary costs of running a physical store – staffing costs, foundational costs (rents or leases, property taxes) and energy expenses – we see pressure in all three areas.
- Online and societal trends require retailers to open for longer and on more days per week – even on holidays. Likewise, labour unions and other groups have put a spotlight on low wage jobs, demanding retailers pay more fairly.
- Similarly, as urban areas have become a larger and larger share of where shoppers spend money, retailers have had to invest in higher costs per square metre locations where governments generally tax at a higher rate.
- Additionally, investments in cleaner energy and less wasteful store designs have come with a higher price tag.
- Finally, technology at store-level is changing so rapidly that store managers are refurbishing and refreshing store design at a faster and more furious rate than ever before. The result is clear – higher overall operating expenses.
Price-first retailing. Mobile phones have ushered in age of price transparency in unexpected ways. The most obvious is that retailers are able to put products on their own digital shopping platforms and consumers can browse and add to basket.
The less obvious way is that ‘spies’ from one retailer looking across the street at another have a much easier time tracking and recording their competitors’ prices. Both developments have resulted in a landscape where prices change more suddenly and where when prices adjust at one retailer the competitive reaction is nearly immediate.
Given all these rapid changes. managers at retailers and at suppliers can become obsessed with trying to manage the reactions rather than manage the speed. Managing reactions means calling leading suppliers into a buying alliance negotiation or calling up a retailer and threatening to remove promotional monies. Managing speed is all about how to find ways to change assortment, promotions, and store design/seasonal themes faster and with less effort.
Developing a Long-Term vision of retail
So, to avoid these two current realities – thin margins and price first thinking – many experts are attempting to paint a picture of what retail will look like in ten years’ time. Four main pillars form this future vision of retail:
A ‘non-packaged goods’ future. Most futurists agree that single-use plastics and other disposable packaging elements in the consumer packaged goods (CPG) industry will face a radical overhaul, if not a complete ban, in the future. Many retailers are trialling, ‘plastic-free’ grocery solutions while CPG brands are scrambling to reimagine production and marketing in a world where consumers put a jar under a dispenser and press a button. When reviewing the news you may have missed from Week 3, be sure to read about the Asda (Walmart) non-packaged trial that has just got underway.
A ‘Just Walk Out’ future. My local Marks & Spencer, as well as Sainsbury’s, have introduced scan & go apps where, should I wish, I could walk through the store, scan what I want, and walk out without having to use either assisted checkout or self-checkout. Visual recognition software and CCTV are now becoming so advanced we can imagine a world where supermarkets are not designed with either security or cash in mind. That means store design is about to get very interesting since two of the key factors that have limited creativity are the need for security barriers as well as speedy and orderly queuing systems.
A ‘robotic’ future. Many modern retailers now have fully robotic warehouses. A very small number are testing similar technologies in stores. In future a much higher percentage of retail tasks will be performed using these technologies. This will make inventory planning, replenishment and other tasks a software problem and not a management problem.
Personalised platforms. This is Personalised retail with a capital ‘P’. This ‘pillar’ - which is the scariest in our future retail vision - is where shoppers surrender their personal data to machines that help personalise retail so the consumer gets the best experience possible. This future only works if two conditions are met: a) Personal data is protected and b) Retailers and brands use that data for good rather than for profiteering purposes. The big ‘P’ in Personalized Retail will never be an easy future path nor a perfect path, but the direction of travel is clear.
Looking ahead at other topics in retail we could develop a long list of future pillars. However, many of these other topics are not truly transformational in nature when it comes to today’s challenges – thin operating profits and price-first competition.
For example, ‘meatless’ is a very big topic, especially in the current ‘Veganuary’ period, but you can argue this is a sub-topic within the personalised platforms pillar of change. So please do not take these four pillars as the definitive list of change over the next 10 years. It is just our view that these four pillars have the most impact on the current profit and price challenges.
Getting out of the present
Hopefully, this exploration of the present and the future illustrates two things. Primarily, that it is very difficult to avoid the present. Secondarily, that finding a new path forward is more about how you manage the present and less about what you manage about the present.
With this in mind, please read Kantar 2020+ Outlook reports and schedule a time to participate in one of our upcoming webinars or speak to one of our analysts, either in-person, over audio, or by email. We love to talk to you and explore these themes in a more Personalised way (Personalised with a capital P). You will find links to our outlook reports, upcoming webinars, and other opportunities below.
Links to Outlook Reports and Upcoming Webinars
2020+ Global retail outlook
2020+ European retail outlook
US retail outlook for 2020+
Click here to register for the free 2020+ European Retail Outlook webinar
Retail IQ Publications from Week 3
How to monetise the moment with Kantar’s interactive New Retail Calendar 2020
The Retail Reveal: Blockchain technology - evolutionary retailing
Tesco wants to shift the sustainability balance
Auchan Retail’s latest strategy shift: plenty of ambition, little concrete plans
Alibaba: Executive summary
Good luck in the week ahead.
Ray Gaul – Ray.Gaul@Kantar.com and @Kantar or @RayGaul on Twitter plus LinkedIn.