2017 RETAIL PREDICTIONS From the global to the individual

Now that 2017 has dawned, we bring you the final in our three-part series of predictions for what the New Year will bring for ecommerce and multichannel retailers. Here, we hear from contributors across the industry about the trends and technologies they believe will be important in the year ahead.

Rupal Karia, managing director of Retail and Hospitality, UK and Ireland at Fujitsu, puts the emphasis on personalisation and on working together.

Continued focus on personalisation

2017 will be the year where the shopping experience comes full circle to the days where retailers knew their customers on a personal basis. The online experience has mastered this already, and now it is the physical stores turn. With loyalty amongst customers being so poor in today’s retail landscape, retailers need to be thinking about the personalised experience they bring in store and the value that face to face adds to a customer journey. What needs to happen is a true integration between instore and online to create a truly personalised experience. An example of a company that is providing this new heightened level of personalisation is McDonalds as they now through their in-store devices permit customers to customise their orders to the last detail transforming the way people purchase fast-food.

Co-creation for a collaborative nation

In 2016 collaboration between retailers grew as we saw the likes of the Post Office and WH Smith team up, Tesco and Arcadia do more together, as well as the major acquisition of Argos by Sainsbury’s. In the next year this collaboration will continue, as retailers find ways to maximise the in-store footprint, and see consolidation as an effective way of doing this. Collaboration also works in reverse, with physical retailers teaming up with online only players to widen their reach as we saw with Ocado and Morrison’s. Through collaboration, whichever way retailers choose to do it, it allows them to maximise their offering to customers and ensure that they are making themselves available at every channel. By teaming up with retailers that already do in-store or online well, they are able to provide a better service offering and focus on delivering that customer experience, rather than starting from scratch.

The days of tilling are numbered

Tilling as we know it needs to have a change. In most cases, shop processes have been the same for decades; and with the recent launch of Amazon Go, we have seen how retailers can again push and innovate a physical store. The instore model where customers load their shopping baskets to then unload, scan, repack, and pay all of their items as they would have done fifty years ago are limited. Amazon Go is an example of how retailers can harness technology and embrace innovation in their physical stores to create that invaluable seamless customer journey. Now that the level of customers’ expectations is at an all-time high, retailers need to find ways to match it and ensure they are differentiating themselves from their competitors. Shopping instore is now very much experiential. By bringing innovative new ways to shop, retailers can enhance the shopping experience to make it more interactive, and digitally enabled. Those that do will be the retailers that stand out in a noisy retail landscape.

Lucie Greene, director of JWT Innovation, puts the emphasis on Brexit and new retail concepts.

Brexterity

First it was the Marmite scare. A price dispute between Tesco and Unilever over the polarizing breakfast spread grabbed viral headlines in October 2016, worrying devoted fans that it might disappear from British supermarket shelves.

Ultimately, Marmite remained in stock, but in the long term, consumer prices in a Britain with a weakened pound suggest future declines in buying power. Unilever’s chief financial officer Graeme Pitkethly told investors on an earnings call that “prices should start to increase to cover the cost of imported goods due to weaker sterling.”

In November 2016, Toblerone began shrinking the size of its famous triangular chocolate bars in the UK to cover lost revenue caused by higher prices of imported chocolate. The cost to print books jumped from £1.50 ($1.86) per unit to over £3 ($3.72) per unit between June and November, Sam Jordison, codirector of Norwich-based publishing company Galley Beggar Press, told CNBC, adding that the company had been in danger of folding as a result.

Apple raised UK retail prices 20% at the end of October 2016, making MacBooks in the United Kingdom about $275 more expensive than in the United States. Microsoft has announced a similar plan to “harmonize prices” with the EU. The likely implication is that, absent salary increases, British consumers’ buying power will decline next year and onwards, especially as talk of a “hard Brexit” continues to spook traders.

Why it’s interesting: Globalisation has delivered small but incremental increases in buying power to consumers across the board in recent decades. Watch to see whether this trend is fully reversed along with the rising tide of economic nationalism. And double down on delivering more value for less.

Retail naturalism

Technology brands are evolving retail concepts away from cold and minimal shops toward something friendlier and more natural.

Apple’s store on central London’s Regent Street received a major facelift in fall 2016 that features the company’s new “town square” layout, with a central space, the Forum, that hosts daily entertainment. The store showcases the brand’s new design philosophy, which is interactive and community-oriented. A central hall lined with trees, an open layout flooded with daylight, and other natural touches like wooden fixtures and plant walls mark a departure from Apple’s classic, bordering on clinical, aesthetic.

Google’s Manhattan pop-up store, which also opened in October, features similar touches. A massive wooden “fountain of light” takes center stage in the store, anchoring it in a unique architectural feature. There’s also a whimsical play area to experiment with Google’s Daydream View virtual reality headset, and a homey kitchen setup to try Google’s Home line in action.

Increasingly, Apple is working to preserve the architecture of historical buildings, rather than impose contemporary layouts. In February 2016, the New York Landmarks Conservancy gave the company an award for its work protecting New York’s rich architectural history at its locations, including Grand Central Terminal and a Beaux Arts bank on the Upper East Side, where architects preserved the vault.

Why it’s interesting: Consumers expect more out of bricks-and-mortar retail—whether it’s an experience, or a space worth visiting even when they’re not in the market for a specific product. Apple and Google are admitting that varying their well-honed aesthetic can keep retail spaces fresh.

Bhavesh Unadkat, management consultant in retail customer engagement design at Capgemini , says it’s all about loyalty and new technologies.

The ‘rebirth of loyalty’

There are many loyalty schemes in the market and customers are enrolled in multiple schemes – but how many of them do they actually use and how many influence purchase decisions? Even the extent to which they drive any kind of advocacy to the brand is to be questioned. The reason for this is loyalty schemes as a whole are very similar and are based largely on financial rewards – spend £1 and I’ll give you 1p back. Retailers more than ever are now thinking about how their schemes can be more sustainable and be built on a reciprocal value exchange with their customers that provides a differentiation and more reasons to be loyal.

The ‘rebirth of loyalty’ will be about the ability for retailers to craft propositions which create and use a deeper understanding of customers, to engage and reward them at a more meaningful level. Loyalty isn’t built in a moment, but instead over time, and it needs to be considered as a more holistic outcome, achieved through supporting, inspiring and engaging the segment of one customer.

The Internet of Things (IOT) will expand its reach in the retail sector

By the end of the decade we can expect to see the number of internet-connected objects increase significantly, and its impact on retail will be dramatic. The number of wearable devices purchased doubled in 2016 and with technology like Amazon Echo facilitating a connected experience for the customer the opportunities for retailers playing in this space become substantial. As well as customer facing opportunities there are a number of supply chain benefits that IOT can help unlock. For example, the ability to more accurately measure supply and demand in a near-real-time way will allow businesses to better ensure things do not run out based on a surge of demand, or that stores are not overstocked. Retailers will spend 2017 experimenting further to strike the right balance between making the experience a better one for customers and at the same time unlocking business value through a more connected shopping experience.

Augmented and virtual reality

Augmented and virtual reality are two technologies that have been well embraced already by retailers and these will continue to become mainstream in the customers shopping experience. Mothercare is a great example. It introduced an innovative twist to its catalogue this year by allowing those customers with its app to scan the page and watch models showcase the products on their screens.

Virtual reality eliminates the limitations of space and time, so that retailers can dream of whatever experience or design they choose. As the technology evolves and costs lower (look at Google Cardboard as a headset for example), we can expect this to be more of a common site, with virtual showrooms and virtual fitting rooms becoming the norm.

Jon Copestake, retail and consumer goods analyst at The Economist Intelligence Unit, says many emerging markets will rebound after a poor 2016, but uncertainty in Western Europe and slower growth in China will peg back sales.

China

Fears of a debt bubble in China are unlikely to result in an economic crisis but the economy is expected to experience a slowdown in growth which will sharpen in 2018. As a result 2017 will see Chinese consumers becoming increasingly bearish with luxury goods firms continuing to bear the brunt. Despite slowing growth, China will still be among the five fastest-growing retail markets in the world, with e-commerce continuing to thrive.

Brexit and Western Europe

A greater worry for retailers will come from Western Europe. Fallout from the Brexit vote, and potential for further political upheaval in European elections will weigh on consumer confidence in 2017 leading to virtual stagnation in regional sales volumes. The UK could be hit particularly hard as the decision to leave the EU sinks in and a weak pound pushes up prices. An expected decline in sales volumes will put the UK among the five worst performing retail markets in the world in 2017.

Emerging markets

There will be bright spots however. India and Iran will be the world’s fastest growing retail markets, with India liberalising its retail sector further and with the Iranian economy finally beginning to open up to foreign investment. Innovations like AR, VR and AI are also set to be hot topics in the coming year and will drive product innovation. Meanwhile, retailers will experiment more with cross-channel investment with the likes of WalMart betting heavily on e-commerce even as Alibaba and Amazon look more towards bricks and mortar investment.

One unknown will remain: the election of Donald Trump as US President could bolster domestic demand through lower tax rates and infrastructure spending, but also weigh on various international trade agreements, causing considerable uncertainty beyond US borders.