Profound changes in lifestyles and consumer behaviour will change the face of retailing forever writes Niall Savage, Retail & Manufacturing Lead, KPMG in Ireland.
Not much more than a half a century ago, grocery shopping meant walking into a store and handing a list to a shopkeeper. They would pick the items out for you from a shelf behind the counter, pack them into bags and sometimes they even brought them to your car.
Many argued that the model would never change, that people would never sacrifice those service levels for the supermarket experience where they had to do everything for themselves. They were completely wrong. There were some consumers that were initially reluctant to adopt the supermarket model, but the great majority enthusiastically embraced it.
Physical retail will need to offer consumers new reasons to purchase offline.
The shift to online shopping hasn’t been quite as swift. Consumers have been reluctant to “go online” for a variety of reasons, but COVID-19 has changed all that. In the first six months of the pandemic the penetration of online retailing - accumulated over twenty years – has doubled.
The KPMG Consumers and the new reality report published in June of this year reflects the global challenges posed by COVID-19 for physical retail reporting that “Consumers will go to physical stores only when the price is right, when it is convenient and when it is safe to do so”. It indicated that one in five consumers now shop more for groceries in online stores (and thirty five percent for non-grocery).
More notable for the future, however, were the numbers of consumers who said their shopping habits had changed permanently. For grocery shopping, 50% of them said the change was permanent with 45% saying the same for non-grocery. The report gives a clear message that physical retail will need to offer consumers new reasons to purchase offline.
This behavioural shift is game changing for the retail sector and the trend is likely only to go in one direction. What we have seen is an acceleration in trends which were already evident prior to COVID-19.
For many businesses forced to close temporarily during the pandemic, the key question is not when they will reopen but how.
People who may have been reluctant to shop online due to security fears or simple preferences for a personal experience have been forced into it. They have had to set aside their misgivings and, in many cases, have been pleasantly surprised. The convenience of not having to go to the shop has outweighed the factors which were once deal breakers for them.
There is little doubt in these circumstances that the vast majority of retailers without some form of an online presence and/or delivery channel are unlikely to survive in the medium to long term. There will be exceptions, niche players and luxury goods for example, but for many businesses forced to close temporarily during the pandemic, the key question is not when they will reopen but how.
In this new world, many will have to pay at least the same level of attention to their online presence as to their offline store. And for many Irish retailers, that may well involve moving into the virtual world for the first time.
And a website is just the shop window. E-commerce enablement requires slick payment capability, radical operational changes to inventory, merchandising and procurement and of course the critical “last mile logistics”. This requires whole new mindsets, skillsets and capabilities which can be quite difficult to acquire and are very much in demand.
Poor performance in any of those areas could result in severe damage to a retailer’s brand. Consumers have grown accustomed to a very smooth online purchasing experience and rapid delivery. People will walk away from a brand, both in its online and offline incarnations, if the experience is in any way sub-optimal.
For many, existing marketplaces such as Amazon, Ebay and Etsy are the shopping malls of the future.
For retailers and brands looking to grow online, there are two strategic routes – launching and managing their own brand store and using existing marketplaces. Many successful retailers are carefully mixing both.
The brand store is a retailer’s own online channel, integrated with existing offline operations. This allows for greater engagement with existing loyal customers and more control of service levels. Crucially, it allows the retailer to provide a consistent experience and message to its customers. While they have many advantages, they can be expensive to set up, promote and maintain and may take time to launch.
Many retailers are enjoying the benefits of listing on existing marketplaces (such as Amazon, eBay and Etsy). They allow for an accelerated online market presence, a low initial outlay and access to established world class operations. For many, these are the shopping malls of the future and are increasingly important for helping retailers trade at volume and for opening up international markets.
Again, there are downsides - obtaining a listing can require strict adherence to defined (and challenging) service levels and of course one can be at the mercy of seller ratings. Retailers should also be aware that they will be just one among many and the competition can be quite intense for those who don’t have a strong brand presence or some kind of unique offering.
Many Irish grocery and fashion retailers have made that strategic shift to a more upmarket, locally sourced offering.
At a local level it is not always necessary to go for either.
A click and collect service can and does work perfectly well for local stores, restaurants and retailers. This reduces the complexity and expense associated with e-commerce and puts order fulfilment back in the hands of the consumer. For a level above this, developing a basic “shop here” website can now be done reasonably quickly and inexpensively (with significant grant funding available).
Basic online operations allowed many retailers to remind their consumers of service to and sponsorship of the community. This was one of the key trends identified in the KPMG Consumers and the new reality report – a marked preference for local products where their spending has a noticeable impact on the local economy.
Indeed, being a local offering can be a key differentiator for Irish retailers as they try to compete online. We have already seen a number of Irish grocery and fashion retailers make that strategic shift to a more upmarket, locally sourced offering. This enables them to stand out from the crowd as well as meet the growing preference of modern consumers to shop local and spend their money with companies which have more than just profit as a purpose.
That said, these retailers are also investing in their e-commerce offerings in order to meet that aspect of changed consumer behaviour. The future of retail is moving online or at least to a blend of virtual and physical offerings and those that fail to embrace it may fail to survive.
For information on how your business can adapt to the changing face of retail, contact Niall Savage, Retail & Manufacturing Lead.