The future of retailing is 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.

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.”