The future of retailing is here

Tax hikes and reducing disposable incomes mean retailers are facing their toughest time in decades keeping customers loyal and spending. Staying ahead in the high street requires a major rethink of traditional strategies and systems.

Related articles

  • To find out how The Co-operative Group plans to stay relevant in the retail sector click here
  • Learn more about the international doll icon Barbie in our Mattel case study click here
  • To check out how new high street bank Metro Bank hopes to outshine its rivals click here

This year could prove to be a dramatic one for retailers as a raft of new entrants are ready and waiting to shake up the high street.

These include Metro Bank, the first new high street bank in the UK for 100 years; Union Market in London’s Fulham, which hopes to provide an alternative to supermarket shopping and opens today (8 July); and US electricals giant Best Buy, which will have five stores in the UK by the end of the year.

Launching as they are at a time of austerity, these retailers will need to offer something very different from existing shops to convince shoppers to part with their cash.

There is evidence to suggest that shoppers are willing to spend again. HMV has posted a healthy 17.7% rise in pre-tax profit to £74.2m, while supermarkets are also performing well – with Sainsbury’s and Waitrose performing better than their cheaper priced rivals (MarketingWeek.co.uk 22 June).

But as retail emerges from the recession, so are a number of trends. Consultant Ralph Ardill, founder of the Brand Experience Consultancy, claims retail is set for a mini revolution where the customer has to come first, stimulated by the rise in VAT to 20% in January 2011.

“I think people are going to think about what VAT is. It is value added tax, but where is the value being added? I think our perceptions will change a little.”

Ardill believes the retail experience is the key to recovery on the high street. This will require a complete rethink from brands, he says.

For retailers looking to make an impact, there are five new rules that need to be considered. These cover areas such as customer service, technology, experience, communities and endorsement. We look at how some forward-thinking brands are already starting to follow these strategies to grow their businesses in 2010 and beyond.

1 Smart service

Putting the customer first has always been a fundamental rule of successful retailing. But smart service puts the customer at the centre of the entire business. It is all about making life easier for consumers, and starting off with them in mind rather than focusing on operational aspects.

This may be a world where shops actively help customers to become more economical. This may involve retailers providing services outside their traditional remit. “I imagine, for example, there will be some retailers who will run classes,” suggests Ardill, who adds: “From a business point of view, we are going to have to relearn what is valued and valuable.”

The Co-operative Group’s director of marketing, Patrick Allen, is frank about how his business needs to focus on customers (see case study, page 16) more than ever before.

Retailers are going to have to arrange themselves so they do not behave as silos and put the customer at the heart of the business, says Ardill.

For Adrian Thomas, director of retail at agency Billington Cartmell, great service can camouflage potential flaws. He says: “John Lewis benchmarks so well, and that is firstly down to the staff. If customer service is at its best, you can get away with so much in a retail space. People will forgive certain things if the service is brilliant.” John Lewis is also a co-operative, which helps it to work in this way (see rule four).

Retailers are going to have to think of the customer all the way through the business in the future. A successful shop for a customer means getting what they went to buy in an efficient way, and Ardill says this should be where retailers start when thinking about store layout. “Talk about the outcome from the start and work backwards from what customer success and customer outcome looks like,” he explains.

B&Q does this well, thinks Ardill, because staff start by asking customers about the DIY project they are doing rather than starting off by talking about what products the store has on its shelves.

Electricals retailer Comet also plans to focus more on service (MarketingWeek.co.uk 21 June). Head of marketing Bill Moir says customers can now collect online purchases 30 minutes after they have been bought and they can also talk live with a product adviser on its website. It is this type of smart service that is going to dominate the stores of the future.

bikes
Wheels in motion: High-end cycle clothing brand Rapha and British designer Paul Smith both benefit from a retail collaboration

2 Testing technologies

Trends agency PSFK talks about using the whole world as a retail experience in its recent report Future of Retail. President Piers Fawkes says technology will feed into this experience.

He notes: “Everywhere will be a store, everything will be available to buy and everyone will be involved in the sale. With the technology available to us, I can snap a picture on my camera phone of a friend’s shoes and get them shipped for arrival when I wake the next day.”

Ocado is already experiencing the way technology is changing purchasing behaviour. Five per cent of the supermarket delivery business sales are now made through its app, which allows people to scan products in their fridges with an iPhone, and then put them into their online shopping basket.

For Metro Bank, technology means customers will be able to open a bank account in-store in 15 minutes (see case study, page 18). And The Co-operative Group is testing out technology to help shoppers navigate its aisles with much more ease (see case study, below).

Thomas at Billington Cartmell says these technological developments which benefit customers directly will continue.

He says: “Ultimately, you are trying to treat people as individuals. If an app is able to identify the best place to buy a v-neck jumper on a Saturday, then that can save you a lot of time. It’s that sort of empathy that lets customers know a retailer understands them, and which will be important to future success,” says Thomas.

But Thomas warns that retailers must carefully consider what benefits technology will bring to consumers. “It’s got to make life easier or add some value or reward. When Tesco introduced TV a few years ago, there was a lot of hype about it being the new [advertising] media at the point of purchase. But that wasn’t really the case. Its a classic case of a retailer forgetting about the customer and not considering whether they would want to be negatively interrupted,” he warns.

3 Feeling the future through experience

The way we want to experience shopping is changing and, in future, technology might allow consumers to choose the type of mission they are on and be recommended a route through a shopping centre accordingly, suggests Thomas. So brands and retailers will be able to provide unique shopping experiences for their customers.

An app that can identify the best place to buy a v-neck jumper is the sort of empathy that lets customers know a retailer understands them

Adrian Thomas, Billington Cartmell

Big US brands such as Hershey and Mattel’s American Girl have opened retail emporiums selling only their products in order to create a full brand experience. And last year the inaugural Barbie store opened in Shanghai (see case study, above), allowing customers to immerse themselves in the brand.

Another American retailer, Whole Foods Market, arrived in the UK in 2007 selling piles of brightly coloured organic fruit and veg and a huge range of other groceries at premium prices. Although it has struggled recently, Thomas calls shopping there a “sensory overload” and says people go there to have a good experience, “otherwise we would all be trekking to discount warehouses”. Whole Foods announced earlier this year that it wants to expand in the UK.

New grocer Union Market opens its doors in Fulham, London, today (8 July), aiming to be a hybrid of a farmers’ market and supermarket, sourcing 80% of its produce from Britain. Founder and commercial director Tony Bromovsky claims it will offer a cheaper alternative to Whole Foods but will also focus on the shopping experience.

It is eschewing loyalty cards or other types of data collection in favour of a more old-fashioned shopping experience. The first shop is housed in a listed building that was previously an Underground station.

Bromovsky says: “We are trying to make shopping fun. London is full of old electricity substations and cinemas, which don’t have a purpose other than for holding rave music parties, perhaps. But we think they can be used to make shopping fun rather than the chore it has become,” he says.

He believes “experience” means respecting customers and not draining them of data with “big brother-style intrusive technology.”

“I think you get more loyalty from stepping back and respecting people,” he says.

Richard Bates, chief creative officer at The Brand Union, which worked on the Barbie store, says we may see “big box” retailers start to take smaller floor spaces. This has already been shown by B&Q announcing it is to open smaller city-centre shops. “Big box retailers have tremendous overheads,” he argues.

The success of a retail experience is defined by how big the store is but also “the synergy between the shop, the website and the whole new peer-to-peer social media potential,” suggests Bates.

4 Community clout

Union Market is working with Fulham Primary School, teaching its pupils how to grow vegetables and providing equipment to do so. The school will then sell the produce back to the retailer, which will sell it on to customers. PSFK identifies this type of community behaviour as ‘group clout’.

Although brands working with the communities in which they operate is not new, Thomas believes this kind of work will become more popular. “There is so much more talk about community projects. Although there is a technology explosion, communities are as strong as they ever were,” he says.

Co-operatives have also been rising in popularity; their combined turnover rose 16% to nearly £34bn this year. Secretary general of trade body Co-operatives UK, Ed Mayo, says the desire for its affiliation is on the up.

“There is a real interest in belonging and a real question for retailers about how to tap into that. Co-operatives have it easier because people are co-owners of the business,” he says.

Major retailers are involved with co-operatives simply by stocking Fairtrade goods, a movement that Mayo helped to initiate. And he says non co-operative businesses are also trying to behave in a more inclusive way. “The kind of language that is used, such as Marks & Spencer using ‘Your M&S’, is a way of suggesting there is co-operation between retailer and customer,” Mayo says.

Co-operative thinking is moving to the online world too. Group-buying power is enabling retailers to get rid of surplus stock through sites such as Groupola.com and Wahanda.com, which sell discounted deals when enough people have committed to buy them. But Groupola.com founder Mark Pearson says the concept is yet to catch on here as much as it has in the US.

“We’ve still got to find out what UK consumers want. We have hundreds of thousands of users in the US, but here there’s a confidence hurdle to overcome. People think it sounds too good to be true,” he says.

5 Seal of approval

Marks & Spencer this year started stocking popular food brands such as Coca-Cola and Marmite, and for PSFK’s Fawkes, featuring other brands alongside your own can only improve your company’s perception by customers. “Mixing your product with like-minded brands is a no-brainer. The values of each brand rub off on one another and you are helping the customer make a choice through recommendation,” he says.

High-end cycle clothing brand Rapha, which sells 85% of its products through its website, also stocks accessories by designer Paul Smith, and has members’ clubs in the form of two pop-up shops in London and New York. Founder investor Tim Ashton, who is also creative director of its advertising agency Antidote, says the Paul Smith partnership enabled the brand to reach a larger market than it otherwise would have been able to do.

“Paul Smith is established and has many more years of trading experience. It has scale and volume, and that has huge advantage in distribution,” he explains. It allows Rapha products to be sold in Paul Smith shops in Japan, for example.

But the brands also have a halo effect on each other. “We are both British, passionate and high quality and the back story is of British eccentricity,” Ashton claims. Smith himself demonstrated this with his ambition to be a professional racing cyclist until an accident at the age of 17.

But Ardill warns that collaborations must be done carefully to work well. Beauty brand Lush, which has launched day spas in four towns and cities in the UK, stocks only its own products in its shops and online, and says including other brands would not work. “We own the whole of our chain, from invention to manufacture and retail, so stocking products from other brands is never in the frame. If we see a gap, we like to invent something ourselves to fill it,” says its ethics director Hilary Jones.

For Ardill, a retailing revolution must not simply be executed by marketing departments because of the forthcoming VAT increase. “There’s going to be some fascinating conversations going on in boardrooms about how to respond to the VAT increase, which is beyond marketing.

“It will be more of an ideological response on the way retailers want to design better relationships with consumers, because if we bleed them dry not only will they desert us, they will stop spending all together on anything.”

Case study

RULE 2: TESTING TECHNOLOGIES

Barbie

International doll icon Barbie is the number one doll in the world and has 1,000 YouTube channels dedicated to her, according to parent company Mattel. Last year it decided to open the world’s only shop devoted to her, a six-floor pink palace in Shanghai, one of the best examples of rule three, feeling the future through experience. Mattel has created a full-on Barbie world that it feels is relevant to how people around the globe perceive the brand.

Mattel worked with The Brand Union in New York, creating the concept of the Shanghai shop. The store has been designed to reflect the different aspects of the doll and includes a spa, a clothing line, a make-up counter and café, driven by the then head of brand Richard Dickson.

Richard Bates, chief creative officer of The Brand Union, says: “Mattel is not a retailer, it makes products. It really had no experience in the retail world. However, Dickson saw the opportunity to start talking about Barbie very differently. At its core, Mattel is a toy maker but he saw that Barbie on its own and without any help was very much a fashion and lifestyle brand, but wasn’t being treated as such.”

Bates explains that the global icon is seen very differently around the world and the Shanghai store brings these different aspects to a market in which it is relatively new. “In Japan, for example, consumers are not that interested in the doll. They like the brand and there is a line of women’s clothing that has dresses costing $2,000 and $3,000. Barbie Shanghai is really six floors of playground-meets-luxury-boutique,” he says.

And although Chinese parents may not have grown up with Barbie, mothers are still keen to buy it for the novelty factor for themselves as well as their daughters. “Mothers and their daughters were looking for a quality experience where they could go and spend the best part of a day together,” Bates says.

The concept was carefully researched and the location was chosen for its economic value. “All the Mattel brands wanted the store in their region. But there are cost implications of putting a giant store like that on the Champs Elysees in Paris, for example,” he notes.

Shanghaiwas also chosen because of the way the people from that country interact with the Barbie brand. Bates says you have to consider what story you want to tell in the store because the Barbie brand has matured to different levels in different countries.

The brand is now using the store almost as an experiment so that it can learn how to sell more product and then pass this knowledge on to retailers. “I think at the Barbie store, people make purchases almost like they are at an event and want to take a memento home with them. It is not wall-to-wall product; there are activities in the store.”

In future, Bates imagines the store concept may be segmented to work in different markets. “It’s building blocks. It might be a Barbie spa in Paris or restaurant and bar somewhere else, or a design-your-own-doll studio in another country. That, coupled with the shopping and maybe the café. There are lots of ways to do a segmented version of the store to cater for the particular demands of a country.”

Case study

RULE 1: SMART SERVICE

Metro Bank

A new high street bank is aiming to take smart service to heart, and will launch in London’s Holborn on 29 July. Unlike its rivals, Metro Bank will open seven days a week and until 8pm during the week.

It will have a 15-minute account opening service where people will get their permanent, working credit and debit cards.

In addition there will be public toilets, lollipops for children and biscuits for dogs. In effect, Metro Bank is trying to rewrite the rules of banking by calling itself a retailer with “stores” rather than branches.

Chairman and co-founder Anthony Thomson says profit will be a byproduct of good customer service. And customer service will be the foundation of the business.

He says: “If you look at great retailers, invariably they grow their own culture. The Apples or Home Depots of this world don’t do it by acquisition. You can’t acquire and grow great businesses,” he says.

the annual
See the Metro Bank’s Anthony Thomson appear at The Annual, Marketing Week’s new conference on 29 September 2010 www.theannual.co.uk

His approach is three-pronged: focusing on the business model, culture and execution. “Great retail businesses have a clear model and ours is based on giving the customer a better experience.

“The culture is finding people to help deliver that model. Then the execution is about being fanatical about detail,” he says.

The bank won’t be trying to push customers online or to call centres to save money, Thomson claims. “Existing banks have said that it is too expensive to service customers in store, and that they’d rather do it by phone or on the internet because that is cheaper. Our view is: you are the customer, you decide how you want to bank with us. We are always trying to create reasons for customers to interact with us so we can give them a better service experience,” he says.

Thomson is so confident of his model that he has not researched it. “The experience will be very different to what people have experienced before. I’m often asked by marketing people what research I have done into how people view this type of banking. And I’ve said ‘none at all’, because people’s only term of reference is their own bank,” he says.

He insists that toilets and dog biscuits are not gimmicks and that he won’t mind if non-customers come in to use these facilities. He laughs: “Who cares? ‘But we might get people who are not customers coming in’ is exactly what a bank would say. Why should I care if they come in? They might tell their friends and get a bank account.”

Book your place at The Annual now. Visit www.theannual.co.uk for details

Latest from Marketing Week

NOT REGISTERED? IT'S FREE, QUICK AND EASY!

Access Marketing Week’s wealth of insight, analysis and opinion that will help you do your job better.

Register and receive the best content from the only UK title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work. The more we know about our visitors, the better and more relevant content we can provide for them. And, yes, knowing our audience better helps us find commercial partners too. Don't worry, we won't share your information with other parties, unless you give us permission to do so.

Register now

THE BEST CONTENT

Our award winning editorial team (PPA Digital Brand of the Year) ask the big questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.

THE BIGGEST ISSUES

From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we are your guide.

PERSONAL AND PROFESSIONAL DEVELOPMENT

Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Having problems?

Contact us on +44 (0)20 7292 3711 or email subscriptions@marketingweek.com

If you are looking for our Jobs site, please click here