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Under pressure

Retailers currently face multiple challenges but, argues Paul Skeldon, InternetRetailing’s mobile editor, adopting innovative approaches can help businesses to meet these challenges.

Retailers are under pressure from all sides. Customers equipped with the latest technology are making ever-greater demands on them, while economic pressures are making an already highly competitive market even more of a pressure cooker. Technology may be part of the problem but it is also the solution. Never has the strategic deployment of innovative approaches been more critical.

Economic pressures

In last year’s Strategy & Innovation Dimension Report, much was hung on the problems that Brexit would drop on the retail sector. A year later, the picture as to what a post-Brexit retail landscape will look like is no clearer. What is clear is that the uncertainty around Brexit has already started to hit consumer spending. According to the latest figures from the IMRG-Capgemini e-Retail Sales Index, UK online retail sales were up 11% year-on-year in July – the lowest July growth rate for the Index in four years, and a contrast to July 2016’s growth rate of 18.6%. Similarly, sales and footfall across the UK’s retail stores have also dropped.

The latest BRC-Springboard Footfall and Vacancies Monitor shows that visitor numbers were down by 1.1% in July, and comes hot on the heels of BRC-KPMG figures for July that showed slowing online and offline retail sales growth. Visitors to high streets (-2.1%) and to shopping centres (-1.3%) were both down, although retail parks saw growth of 1.7%. This represented the fourth consecutive month of footfall decline in shopping centres. The problem stems from a two-pronged attack on retail. Falling consumer confidence is affecting sales month on month across the web and in the real world. Meanwhile, discounting and events such as Amazon Prime Day are seeing any extra sales that do come in via the web not translating into increased revenues.

According to Helen Dickinson, chief executive of the BRC: “Most shopping destinations saw a decline in footfall in July compared with the previous year. Even high streets, which have seen fairly stable growth over recent months, reported a decline. Retail parks were the exception and have fared relatively well since March this year, reflecting in part lower rental costs compared to prime and town-centre locations, as well as convenience for shoppers. The overall decline in footfall translated into weak sales performance for stores in non-food particularly, which fell further into negative territory as consumers rein back spending on non-essential items.”

Online, dwindling consumer confidence in the economic outlook for the UK is having an impact. Justin Opie, managing director, IMRG, explains: “Conversion rates being up sounds positive, but the fact that it didn’t deliver a similar boost to sales revenue growth suggests discounting was probably a factor in driving more visitors to complete a purchase. Prime Day is an established event in the calendar now and it may be exerting an impact judging by this month’s results, although other factors – such as rising inflation and consumer confidence – may also be at play.” Taken together, these two sets of figures paint a picture of increasing bleakness for the retail sector. While we aren’t in the doldrums yet, it looks very much like the economy is heading that way, slowly but surely.

Digital pressures

While the economic outlook may not be great, there are other pressures on retailers too. The digital consumer is forcing the pace of change in the ecommerce business. Technology may have launched ecommerce, but putting ever-more powerful computing power in the hands of shoppers has seen the balance of power shift from the retailer to the consumer. Digitally obsessed consumers now demand instant gratification – often resulting in the need for instantaneous responses to queries; offers on things they are looking at there and then; and, the development having the greatest impact, wanting to be marketed to as an individual.

According to the recent Buying Tomorrow report by Salmon, 23% of consumers are digitally obsessed, making almost all their purchases online – and inclined to shop with digitally advanced retailers. These people put convenience and innovation ahead of brand names, with 88% seeing speed of delivery being more important than the brand being delivered. Crucially, 57% believe they are more digitally advanced than some retailers, while 60% say they would be more likely to shop with a digitally innovative trader. More than half (57%) say they can see why they might allow technology to buy goods for them automatically, based on their sets of product preferences. That’s up from 53% the year before. Overall, 60% say that if a retailer were more digitally innovative, they would be more likely to shop there, while 73% say they plan to spend more in the future.

The problem is exacerbated by young people being even more fussy. Research from Omnico finds that 70% of consumers under 35 want longer shopping hours, a single click-and-collect hub at shopping malls and a single digital loyalty programme – and that most retailers aren’t giving them any of these things. Similarly, Fujitsu’s The Forgotten Shop Floor study out earlier this summer found that 70% of millennials think they have better access to information through technology than through staff in shops. Add in that retailers now have to be ready to offer the best possible experience across multiple channels and through an array of devices, including new-fangled ones such as voice-controlled home hubs, and the challenges facing the sector appear harsh.

“Digitally obsessed customers demand instant gratification – often resulting in the need for instantaneous replies to queries, instant offers on items and wanting to be marketed to as an individual”

Innovative solutions

So what can retailers do about this? While the pressures of the economy are somewhat external to retailer boardrooms, meeting the increasing technological and experiential demands of the consumer can help fight both the battle to satisfy and the battle keep revenues on the up. There are three main areas of technological innovation where retailers must focus in order to help create the revenue-driving experiences that shoppers crave: omnichannel personalised shopping; social engagement; and, perhaps most importantly, artificial intelligence (AI).

On the omnichannel front, many retailers are already working on how to pull together all the strands of their business, often using mobile as the ‘glue’. Leading UK pet store Pets at Home has launched a new iPad app across all its 434 stores to make it easier for customers to find products. Chris Holyland, ecommerce director at the company summed up what all retailers know at launch when he said: “We want our consumers to be able to learn about and order the right products across every channel, and mobility is at the forefront of this transformation.” He continued: “By customising Sales Assist, in collaboration with IBM and Apple , we are providing our consumers with access to an even bigger range of goods regardless of location.The unique tool allows our colleagues to confidently show product information, ratings and reviews from the shop floor, opening up opportunities to foster higher brand engagement and ultimately provide our consumers with the experience they expect.”

Similarly, Arcadia Group’s seven brands — Topshop , Topman , Miss Selfridge , Evans , Burton , Dorothy Perkins and Wallis – are all getting their own online ordering in-store services.

Developed to improve in-store sales, efficiencies and customer service, the dedicated assisted sales application connects online with offline to bring all the benefits of the website to the physical store. Simon Pritchard, group digital director of Arcadia Group, has said of the project: “We are always looking for exciting ways to develop our business and encourage new ideas and innovation that will resonate with our customers and improve their shopping experience, both in store and online. With online ordering in store, combining Red Ant’s technology and wider industry experience with a highly customer-focused, evidence-based development process has delivered a major advance against our ambitions to provide a richer and more connected experience in store.”

Retailers are also looking at how to pull in virtual reality (VR) and augmented reality (AR) to reshape the in-store experience. Consumers want VR and AR technology on their devices – a study by finds that enquiries about VR-capable and AR-capable devices are up 300% this year – and those that have experienced these technologies say they are winners. Some 96% of consumers who have experienced AR in a retail store say they found it helpful and report that it has improved their shopping experience, a survey by Vista Retail Support has found. In the purely online space, retailers need to be thinking about mobile as a main driver for innovation. Not only will mobile fuel in-store tech deployment, but it is driving what little growth there is.

According to the latest BRC-Google Online Retail Monitor, the volume of searches from UK smartphones increased by 26% between April and June – the second quarter of 2017 – compared with the same quarter a year ago. This mobilisation of consumers is also seeing social media becoming a more integral part of the shopping process for consumers. Salesforce’s Q2 2017 Shopping Index suggests that as much as 6% of mobile traffic to UK retailer websites is now driven from social media apps, typically Instagram and Snapchat – more than in any other country.

Jamie Merrick, director of strategic solutions at Salesforce Commerce Cloud explains: “The days when we would wait to log onto a laptop or computer to buy a new shirt are far behind us. Mobile is quickly becoming the most disruptive force to retail since the arrival of ecommerce. Mobile saw the biggest increase in buying intent with growth of 48% year-on-year. Retailers that have a mobile-first approach are the ones that are winning.” He continues: “Social apps like Snapchat and Instagram are also playing a part in the increase in mobile traffic. In the UK, 8% of mobile traffic is driven by social – more than any other country globally. This trend highlights the importance of unified commerce across all channels – whether a customer shops in-store or is scrolling through Instagram and purchases on mobile, the experience should be consistent and easy for the customer.” Social media is also starting to be seen as the place to mine information about consumers that can then be used to create more personalised engagement and experiences. But to pull that off requires a huge leap in technology: artificial intelligence (AI).

The next step

AI has the ability to learn and marks the next big innovative leap that retailers need to make. AI can process vast amounts of data to spot the patterns and trends, groups and individuals that retailers need to target in real time if they are to live up the demands of their customers. In the next five years, it will come to dominate online retailing, but retailers have to get in on the ground floor today to be able to evolve it.

Some retailers are doing this. In this year’s Top 50 retail initiatives from Webloyalty, innovations around AI in customer communication and supply chain operations claim numerous spots on the list. “The various AI initiatives show how retailers are working hard to evolve customer journey. They are thinking outside the box and coming up with new ways to answer customer demand for convenience and immediacy, as well as looking for solutions to improve every step of the supply chain,” says Guy Chiswick, managing director of Webloyalty , Northern Europe.

One company on the early path to AI deployment is retail sales aggregator, which has a unique problem to solve. It works with more than 700 multinational retailers, processing millions of products a day, separating out everything that’s discounted so it can be displayed to consumers enabling them to shop every sale in one place. With this comes the challenge of managing between 10 times and 50 times the number of items even the largest of retailers have in their product catalogues. Managing a product catalogue of this size is an insurmountable task for traditional merchandising.

Enter Minerva, the AI system developed by the retailer. Minerva’s role is to understand what each product is, understand what attributes it has – such as product gender, colour, length, style, material, fit, pattern and so on – place each product into the relevant area of the site, and then to promote more popular products over less popular ones, dependant on a user’s activity. Minerva has managed to classify and categorise more than 1m products on its website, at a speed that could change the face of traditional merchandising. It completes a task that would take a team of 10 some four years to complete, in just under eight hours.

In fact, many retailers are starting to deploy AI to handle some tasks – Ocado to handle customer emails, Yoox Net-a-Porter to manage multichannel relationships to name but two – and it will be the increasing driver of customer service and lean business management in the years ahead. But it is just part of the strategic innovation needed by the retail industry and part of a whole suite of technology that needs to be implemented. However, the true innovation will come from those businesses that see how technology plays will make them reshape their business structures – and that is a much bigger challenge for all.

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