The retail sector is currently polarised between two camps: established high street and online stores with loyal customers, and the new breed of ‘challengers’ that are turning the traditional shopping model on its head and attracting a new wave of digitally-minded consumers.
The challengers have made some inroads, creating a more competitive market to keep the larger, more established organisations on their toes.
Challengers include personal shopping services like Chapar and subscription style services such as Dollar Shave Club, as well low cost supermarkets like Aldi and Lidl, whom Morrisons CEO Dalton Philips said pose the ‘biggest supermarket threat ever’ in 2014.
But does the culture and ‘business as usual’ mentality of established retailers stifle their own innovation – or can they be challengers themselves?
A new breed of challenger is emerging: traditional players that are embracing digitisation of retail, welcoming disruptive technologies and bringing their offerings into the digital age.
These retailers are building their propositions around the consumer, and thinking and acting differently. By playing to the strengths they have over and above the start-ups, it puts them back in the driving seat.
By combining their experience with innovation, they have the potential to disrupt on a larger scale.
John Lewis is a great example of this with its JLAB incubator programme – an initiative to find startups leading the way in retail innovation and technology to bring new products and services to its customers.
The company is also helping customers to understand the potential of connected homes by setting up a specific department for the Internet of Things (IoT) and having a smart homes section in its flagship store.
Other successes include Screwfix, which has been phenomenally successful in its omnichannel model based on a deep understanding of customer needs.
The DIY retailer now offers a very easy mobile interface and is getting products delivered direct to site in record time in order to minimise project downtime.
Smaller online retailers are often more nimble and, with light asset and infrastructures, can adjust and adapt more quickly to demand – for example adding or dropping product lines.
Some online-only players, such as Boohoo and Zalando, are also very savvy and successful in using technology to drive engagement. However, traditional retailer brands undoubtedly have core strengths that set them apart from the startups and smaller digital companies moving into their space.
By combining their existing data, heritage, trust and services with an improved digital and mobile presence, stores can offer what the startups and tech innovators cannot: an all-encompassing customer experience that spans a range of needs and reaches a broad audience.
They can embrace new technologies available, such as artificial intelligence and IoT, to demonstrate connection with their audiences and to fit into the busy, on-the-go lifestyles of today’s tech-savvy consumers.
Traditional retailers also have the scale and financial ability to invest in fighting back – as is evident in the supermarkets’ price wars against the discounters.
Finally, personal service still remains a very important attribute for attracting and retaining customers, and this can help fight off digital competition.
One example of this is Dixons, which focused on offering high-quality service and product knowledge and was able to fend off the threat from Best Buy attempting to eat into its UK market share.
These new challengers are transforming their businesses by creating new innovation cultures and using ‘mission-based’ approaches that empower their most talented people to respond to business challenges at pace, without the traditional hierarchy and complex decision-making processes.
They are embracing diversity and collaboration, and bringing small teams of people together both from outside and within their businesses to solve business challenges.
They are finding rapid ways to bring their new innovations to market in record time, sometimes within ten to 20 days, so they can learn from their customers and staff before they invest significant resources in building and scaling the solution for a full launch.
They are opening up their ecosystems and looking for partners that can help bring new products and services to market quickly, without impacting their existing platforms and systems.
Tough as new Boots
Boots has been working hard to maintain its appeal to high street and online shoppers, especially to reinstate its importance as a retailer of choice for health and beauty products.
This has been vital following the emergence of a new breed of competitors, including supermarkets making toiletry shopping more convenient through their broader ranges and convenient access channels.
Boots worked with design consultancy Market Gravity to form ‘skunkworks’ to achieve radical innovation at pace. The dedicated team worked collaboratively to identify and launch four key initiatives that would enhance the health and beauty product and service offering.
The first major launch was ‘Beautiful You’, a free and impartial beauty service available online and across 13 stores, growing to 57 later this year. This has already resulted in a 20% increase in in-store conversions and online sales have doubled, compared to the main page, Boots.com.
The ‘Thoughtful Inspirations’ rewards scheme sends product samples out to loyal customers and has been positively received, especially via social media. Other new initiatives include personalised discounts on favourite brands and a health coach consultation service.
Time to challenge
There is still plenty of opportunity for traditional players to lead on innovation. Whilst challengers continue to enter the market, traditional retails still have time to act and, in fact, have strengths that can help them leapfrog.
Many of the new kids on the block are still looking for funding. Many simply don’t have the pedigree of employee or investor found in established retailers or don’t offer the same breadth of products or customer support.
Here are four things retailers can do to keep up with these fast-paced changes.
1. Challenge the conventional selling model
Rather than just selling ‘what we have in stock’, create competitive eco-systems or networks that will help address customers’ on-demand needs.
This could include offers such as personal stylist services, as evidenced by Nordstrom acquiring Trunk Club. Or by allowing other retailers to occupy your floor space – as Sainsbury’s did with Argos, even before its acquisition of Home Retail Group
2. Invest in technology
The first wave of digital investment enabled online shopping, which has had a dramatic impact on how customers buy products and services.
The second wave of technology will include robotics, artificial intelligence, visual recognition and bots, and will again change the way consumers shop.
The whole experience is set to become more interactive and dynamic. This second wave is getting closer and retailers need to embrace and lead on this.
>See also: Internet of Things: a retail perspective
3. Continue to invest in customer access
Retailers need to go beyond click and collect to lead on innovative delivery for point of demand, such as exploring social delivery models.
4. Add value
Retailers need to understand and invest in services that can add value to customers, creating unique experiences and driving retail product sales.
Today’s consumers want shopping options that are built around the lives they lead now. New technologies – from apps and wearables to Facebook messenger bots and artificial intelligence – will change the way consumers shop, browse and pay for their goods.
The market is moving faster than ever before and it’s important to recognise that no organisation can predict the future with any certainty.
With the emergence of new entrants and services to the sector, it’s important for the larger and more established retail businesses to embrace the technological innovations and digital trends to stay ahead in this competitive and fast-moving marketplace.
Sourced from Robin Scarborough, managing director, Market Gravity