As retailers cross their fingers and administrators circle over the final quarter results, Jonathan Reynolds looks at changing shopping trends.
Traditional festivals still matter
The final, ‘golden’ quarter of the year is always seen as critical for retailers: it’s the period when they expect to make the most sales. And no wonder: Thanksgiving, Christmas, Halloween, Singles Day (the Chinese ‘anti-Valentine’ celebration) are all, aside from any religious or cultural significance, reliable festivals of consumption – and that is unlikely to change.
Other stimuli for shopping are simply no longer very dependable. Seasonal ‘sales’, for example, are seen by consumers as inauthentic. Shoppers have become more suspicious of claims being made about prices, largely because they are better informed. It is easy to price-check an apparent bargain against everything else online.
Shoppers are learning to bide their time
While some people do still respond immediately to special offers, there are now significant numbers of people, in all generations, who are much smarter. They know that prices go up and down and are prepared to refuse to deal at full price and defer purchases (if they know what they want) until the price is right.
What is more, live price comparison sites such as Camelcamelcamel allow the shopper to track prices in real time, and also to see how they have changed over the past three years. So someone wanting to buy a vacuum cleaner, say, might look at how much the price fluctuates and decide not to buy until it goes below a certain price – at which point they receive an email to prompt them to buy.
Large chains will sustain fewer physical stores
The ‘omnichannel’ model is a very costly one for traditional retailers. They have to meet the needs of same group of shoppers, but it’s costing them more. They have to set up a website and delivery system, enhance the service in their physical stores – but sell at the same price as an online-only retailer who doesn’t have that cost base. If they’re not careful, they end up competing with their own websites and, at the very least, destroying margin. Adapting to this challenge will mean closing some stores or changing the nature of their activities.
For M&S in the UK, for example, some stores are no longer making money, in part because they are in areas where there is much more online activity. M&S is reorganising its business to create networks of stores that are fit for the nature of demand. In some cases they are even talking about pulling out of some sites which they had previously agreed to open– making themselves vulnerable to legal action over breach of contract.
Shopping malls are becoming leisure centres
The difficulties of coaxing shoppers out of their homes and away from their screens have led many developers to seek to reinvent the concept of the shopping centre or mall. It is no longer just a place to go shopping, but a centre for eating, drinking, and entertainment. Oxford’s own new shopping centre, The Westgate, includes a multi-screen cinema and a raft of restaurants on the rooftop terrace.
But the latest malls in China house 4D cinemas, virtual reality booths, and – in some – a large area devoted to educating and entertaining children, with mock market stalls and skating areas putting traditional ball pits to shame.
The mall has therefore become a service and experience operation rather than a collection of conventional retail activities. Within the stores themselves, too, individual retailers are starting to think about what service they can offer rather than simply about what products they can sell.
In-store service is increasingly important
Providing advice, demonstrations and tastings, listening to the customer’s needs and solving problems: all these add value to customers’ experience of the brand and, crucially, they can’t be delivered well online.
Yes, some customers will still go to the store for the demonstrations and advice – and then go back online and buy from a cheaper outlet. But most are prepared to pay a premium for advice and service, especially when they feel they have built a rapport with the sales adviser.
The challenge for retailers is that if you want to provide a service, you need staff with good social skills, expertise, and knowledge of the products. And they will, quite reasonably, demand higher salaries. This is easy for a high-end luxury retailer such as Burberry; but it’s more of a squeeze for businesses in the mid-range. Yet, in Oxford’s Westgate Centre, the partners in the new John Lewis department store even received theatrical skills training.
New players and services are emerging
Different retail models always offer trade-offs for customers: between service and price, for example, instant gratification and driving to an out-of-town mall, or large delivery charges and the horror of dragging children round a crowded store on a Saturday afternoon.
New players are now beginning to experiment with ways in which they can profit from those trade-offs. For example, the furniture store IKEA was able to keep its prices low because customers paid for both transport and assembly, and endured the weekend crowds at the same time. Now some firms are offering to buy and collect IKEA furniture and then assemble it in the customer’s home. An IKEA price plus the delivery and assembly service is still cheaper than the premium charged by a more upmarket furniture retailer.
Discount stores are spreading
But all these trade-offs depend on people having the money to be able to make choices.
The vast and increasing divide between levels of income means that, along with the development of new retail models and services, there has been a parallel growth in discounting formats. These tend to be physical stores, as customers cannot afford a laptop or computer to be able to shop online. In the US, the discount store Dollar General is finding that it can open in locations that were previously closed to it, as the tide goes out in some communities. Indeed, in direct contrast to the trend amongst mid-range retailers, Dollar General has announced plans to open 900 new stores across the US in 2018.
Discounters have benefited also from an increased preoccupation with price and value for money even amongst higher income households, which has led to still greater success for both food and non-food discount operators around the world.
Clothes shopping will continue to develop and change
Clothes remain one of the most difficult products to sell online. Fit, feel, and exact colour are all important – and difficult to convey via a photograph on a computer screen. In addition, an abundance of choice can result in a dizzy feeling as you scroll down the screen.
This explains the continued popularity of in-store shopping for clothes, with personal advice and assistance increasing as you go up the scale. But new models and ideas are being developed all the time.
Asos, the UK online fashion store, is typical of what has now become the industry standard for online clothing retailers. It has solved the problem of fit, feel, and colour by building free delivery and returns into its business model. You can try on three or four different sizes and simply return those that are not right. Filters enable you to shop by category, colour, size, brand, and price, while videos show you exactly what the item looks like in action. Asos goes further than many: you can share a video with friends or save it for a while to think about it; even create your own gallery for people to comment and vote on your look. Meanwhile, an ‘Inspirations’ section provides style advice and ideas about putting outfits together.
All of this depends on having a returns centre that can receive, clean, and repack clothes for resale. It also requires retailers offering home delivery or click-and-collect opportunities to think hard about whether their delivery systems can cope. As retailers seldom own their own delivery companies, the question becomes who they deal with and how much they can be trusted.
A growing trend is for exclusive collections that can be viewed online by invitation only. This ‘narrowcasting’ creates demand for what is perceived to be scarce or difficult to obtain, and exploits the ‘fear of missing out’ (FOMO) often triggered by social media.
Consumer confidence is still key
Overall, economic conditions and expectations have a major impact on consumer confidence – and that affects not only how much shopping people do and how much they are prepared to spend, but the types of things they buy and the places they go to buy them.
In the UK the desperately slow and uncertain process of Brexit negotiations has had a big effect. As price rises continue to outpace wage growth, consumer confidence has been knocked back to where it was immediately post-referendum. With Christmas out of the way, there is little to look forward to apart from the Royal Wedding, so it will be a challenge to sustain spending growth.
The US is experiencing something of a spending boom, largely thanks to the tax giveaway signed at the end of 2017. Retailers reported a good Thanksgiving, though predominantly in online sales.
In China Singles Day was once again phenomenally successful, although there are some doubts about how it is being measured in terms of growth.
And other European markets are seeing stronger economic growth than they have had for some time. Retailers’ prospects here are looking a little less bleak than they had been.
About Jonathan Reynolds
Jonathan Reynolds is Academic Director of OXIRM, Associate Professor in Retail Marketing and Deputy Dean at Saïd Business School. He is also Deputy Director of the ESRC’s Consumer Data Research Centre. Jonathan is one of the leading academic experts in the study of the retail sector internationally.