August 18, 2017

Why retailers are facing a cliff edge and how to avoid it in 3 steps

Marie-Louise Forsberg

Head of Retail and Services, Sweden, Tieto

Do you really think customers are loyal forever?

Every once in a while, I get flashbacks to the 1990s and the days before smartphones, flat screen TVs and climate change anxiety. It pains me to report, however, that it happens mostly when I’m either downtown or hopelessly lost in a supersized shopping mall in the suburbs.

“Did time stand still?” I ask myself as I rummage through endless rows of clothes on hangers in a ready-to-wear fashion store. There’s not a single shopping attendant in sight – nothing and no one to acknowledge my presence. A robot would be a true blessing!

Then, after a classic 15-minute wait to the fitting rooms, I’m told at the checkout counter (after more waiting) that my 20 per cent discount voucher expired a week ago. Not the end of the world, perhaps. Until two days later when I receive an invitation from the very same store to a “VIP evening” with 50 per cent discount on the latest collection.

Frustration is brewing…

Hang on a minute! Didn’t I spend a minor fortune on upgrading my wardrobe just 48 hours ago at full retail price? Is this what is meant by a ‘great VIP experience’?

Something is rotten in the state of my customer journey, and it happens more or less every time.

Push and sell is dead

I do not like to be the bearer of disappointing news, I am a very positive, flexible person (I am told) but the dominating sales and marketing approach of the past decades is no longer fit for purpose. Push and sell retail is dead. Our technological society has moved on.

However, most people in retail management clearly haven’t. Not only are they slow to change, but they seem to invest in outdated tactics with more relish than ever.

In a world of mobile-empowered consumers, the idea of investing in huge inventory and supply chains configured to historic purchasing patterns, and pushing price and product in shopping malls, is nothing less than a recipe for disaster.

Retail managers, please lend me your ears! You’re heading towards a cliff edge with your feet on the gas pedal.

What’s your reason for being?

To put it bluntly, this mindset gap is why shopping malls are feeling more and more like retail graveyards, or temples of confusion and mediocrity at best.

Where’s the experience? The inspiration? The customer engagement?

Whether consumers are looking for Stella McCartney handbags or robotic lawnmowers, they are never more than two finger taps away from limitless choice and home delivery options on their mobile devices. And in just seven years’ time, in 2025, one of the most powerful consumer groups will be Digital Natives who already have little or no inclination to visit physical stores. Their reflection/reaction is simple: “Why go to the store?”

Remind us again why this generation – or anyone else for that matter – should head over to your store instead of going to the gym or playing tennis? Why do we keep building gigantic, dull shopping centres with thousands of square metres of retail space?

It’s bordering on madness.

Here’s the reality check: according to a recent report published by Credit Suisse, 25 per cent of all American malls will be closing in the next five years. In addition, Amazon has just announced a major acquisition of Whole Foods which, as analysts predict, will make Amazon the biggest grocer in the U.S. by 2030.

In the Nordic region the e-tailing trend is equally unmistakable and Zalando, the online fashion retailer, is a good example. After just five years of operating in Sweden it has achieved annual sales exceeding €100 million. Growing by 67 per cent in 2015 alone, it has quickly become the country’s largest e-tailer.

Brand relevance: Three steps to engage customers

So what can you make of all this? Is it enough to see the future of retail through a smartphone screen? Well, not quite, but that doesn’t mean change is beyond anyone’s capability.

Today’s consumers want a positive engagement with brands in all channels. We know what we want and when we need it. When people visit physical stores, it’s because they want to be served, inspired or just happened to pass by.

So, the burning question that demands an answer from retailers is – “Why should we visit your store?”.

Here are three basic steps for restoring relevance, competitiveness and avoiding the cliff edge scenario where customers forget you even existed:

 1. Understand your customers. It’s a cliché that unfortunately needs to be resurrected. Only by truly understanding your target group’s behaviour – why they buy groceries one way and sneakers another – can you begin to build relevance again. What are the differences between Generation X and Millennials? Do your homework, don’t cut corners in your research!

 2. Walk and run at the same time. If your business model is not flexible to change you need to find a way of experimenting with new, future proof concepts that focus on customer engagement. This can be done either by setting up internal start-ups within your organisation or through a separate enterprise. Think multi-speed! Do this or risk going out of business as competitors overtake you. Understand your “reason for being” based on the customer journey.

 3. Create a strategy for adopting agile ways of working. There’s no magic digital pill you can swallow. Transforming your IT is not done in one shot. Find a partner who can steer the course for you and implement changes step-by-step in all channels. Rethink your business model and adapt your system capabilities. Challenge the market by focusing on services – be unique and, most importantly, recognise that the era of piling up stuff is over.

On a final note, I would say that understanding the changing landscape is the most valuable skill in retail today. Disruptive technologies, from mobile innovations to AI, are here to stay. Customer expectations can also outmaneuver brands very quickly.

Unless you rethink and prepare for new business models – you are simply far less likely to survive the storm.

 

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