Beyond Digital: The Future Of Retail Depends On Genuine Innovation
Despite the dismal state of retail sales, it is a golden age of retail innovation and reinvention. While technology is central to modern retail, a change in the way retailers think about their product is just as critical to stay ahead of the pack.
Retailers’ products are more than just the items for sale on the shelves. Customers are buying the whole experience of shopping — the feeling of pleasure, exclusivity and access to resources that they do not normally have. Brick-and-mortar stores that want to cultivate loyal customers would be wise to understand what and how to sell.
Walkbase chief operating officer Adrian James is a retail expert who helps companies use technology to increase profitability. But profitability is often found in the most unexpected places. For instance, a change in international accounting standards has changed the way stores are laid out, James said. Until last year, retailers did not have to reflect the cost of a lease on their balance sheets. Corporate balance sheets therefore did not properly reflect liabilities.
Companies looked much more flush on paper than they actually were, so it was possible to expand rapidly. From the 1980s to the present, the trend has been more space, more scale, James said. The result today is too much retail space.
In January 2016, the International Accounting Standards Board published an esoteric rule — IFRS 16, Leases — that marked the end of off-balance-sheet treatment of leases by lessees. Suddenly retailers realized their genuine profits are nowhere near what they thought they were, James said.
“Their currency per square foot has been devalued,” he said.
At the same time, the UK’s notorious bureaucracy makes it difficult for retailers. Now when retailers want to build a retail outlet, the council may demand they also build a play park, food store, maybe even residential units. It is great for business rates and employment, but unless a company is the scale of Tesco, it cannot compete.
“Paradoxically, the only thing that saves them is scale,” James said.
There is more to technology-based retailing than sending specialized discounts to users' phones. James advocates using data to understand customers and deliver bespoke experiences. Mystery shoppers and footfall counters are old-fashioned ways of measuring footfall. James advocates using both Bluetooth and WiFi so retailers can gather good anonymous data to determine what areas and items are making money. Bluetooth enables accuracy to within a meter.
“E-commerce throws out a wealth of metrics,” James said. “We can understand an individual’s propensity to purchase. We can see whether blue or red works better, or where a new sportswear range is best located."
That data is put to practical use, such as determining the best location for products, detecting dark spots in the store or unmanned tills. Topshop, a Walkbase client, amended its opening hours at its Oxford Street flagship based on Walkbase’s footfall analytics report.
Many of James’ solutions to retail problems are not technology-based. One of the easiest ways clothing retailers could dramatically increase sales is to have an attendant in the fitting rooms who could fetch different colours, sizes, styles and accessories. The people in the fitting rooms already want to buy something; they are primed.
“Yet there are often more people on the floor folding sweaters than in the fitting room area where people are actively trying to buy things,” James said.
Another practical thing retailers can do is simply use the infrastructure available to them.
“Walmart has amazing infrastructure, even better than Amazon’s,” James said. “So why not incentivize it?”
Until last week, Walmart's click-and-collect service was a prime example of wasted opportunity.
James said Amazon passes on deep discounts that really should be shareholder profits, but Walmart, with its top-of-the-line logistics, did nothing of the sort; the price was the same whether you bought it online or in the store. That does not motivate anyone to use it, so the supply chain is not maximized, and Walmart loses money. As of 13 April, Walmart has begun discounting click-and-collect purchases.
Not all shopping is based on creating great technical integration. Hammerson uses pop-up stores as an experimental space. Entrepreneur Ross Bailey formalized that process with his company, Appear Here. Originally based in London, the company recently launched in Paris and New York. Appear Here chief marketing officer Elizabeth Trongone Layne said landlords are starting to build pop-ups into their overall strategy. They allow brands to create whimsical or one-off installations, like the Cadbury Creme Egg Café or L’Oreal’s “Blends Room” where users could create their own shampoos.
Increasingly, companies are looking for one- and two-year leases instead of just a few weeks, Trongone Layne said. The demand for them is increasing, as is the hunger for natively digital brands booking space. Trongone Layne said that is Appear Here’s fastest-growing segment.
Hackney Walk in London is redefining outlet shopping by delivering the luxury experience with fashion, arts, food and culture. Founder Jack Basrawy said London has a very rich variety of clients of various nationalities, demographics and income groups, and visitors to London — all of whom would like access to luxury.
“The outlet element of the project is all about affordability, luxury needn’t be expensive. The luxury retail market is evolving. Luxury is ultimately the product, and Hackney Walk will allow different people to access luxury products in a different way. Right now, luxury is trying to squeeze more and more out of an existing client base and, frankly speaking, with the huge variety that there is available in this sector, there is only so much that that consumer can afford to buy. What Hackney Walk aims to achieve is to open up that market, and open up luxury to a wider audience.”
Luxury retail is focusing on customer service. For instance, Farfetch recently created a super-fast delivery service for luxury fashion. In partnership with Gucci, F90 promised it could hand-deliver Gucci clothes and accessories within 90 minutes.
With products that cost hundreds of thousands or even millions of pounds, omnichannel retail is a little trickier. Luxury vehicle brands have begun using retail space to allow shoppers to both fantasize and buy.
Aston Martin recently launched a "brand experience" space in the West End that sells complimentary items from other luxury retailers, and also allows the well-heeled to design and buy their own Aston Martin automobile or yacht.
Bentley launched a personalization studio at Westfields London. If customers are not sure what they want, the company has software that can read their emotions and help guide them to the ultimate ride.
Food and beverage is one of the most exciting sectors of a market already bursting with innovation. While Deliveroo has food delivery down pat, Farmdrop is crushing it in organic farm-to-door delivery.
Farmdrop takes the customization aspect of pop-ups and applies it to food. Customers order using the website or the app and their orders are sent to the food producers where it is made on the fly.
Founder Ben Pugh said if a customer, for instance, had spinach, bread and pasta, the order would go to three different producers that would make the pasta and bread to order, and the spinach would be picked out of the ground. All the producers have access to their own app called the "Producer Portal," where they can see past, present and future orders. This helps them manage their own stock.
The producers deliver the food to Farmdrop’s hub in Bermondsey and within five or six hours everything is collated into individual orders and delivered via a fleet of electric vans on the same day. Customers can track each stage of this order process through the app or online. This click-to-harvest model eliminates waste in the supply chain.
As in traditional retailing, the supply chain is key to success.
“Our mobile technology and electric vans means that we can transport food at the lowest possible cost from farmer to customer,” Pugh said. “By cutting out these middlemen, we guarantee customers the lowest cost access to high-quality local food, while producers are given a share of the retail price, which is roughly double what they would get from the supermarkets”.
Since Farmdrop moved exclusively to a door-to-door delivery model in 2015, the business has been growing fast. Sales over the last year have increased by 600%, and earlier this year the company reached annualised revenues of £3M.
The company recently secured an investment of £7M in its latest Series A investment round. The company will use the money to improve the offline and online experience for customers, create new inventory management tools for farmers and open new hubs in other parts of the country with Bristol planned for September 2017.