The forth part of the Webloyalty and Conlumino Future of Retail report discusses the opportunities for retailers in the next five years. The report makes suggestions to retailers about how to change sales tactics to reach 'multichannel' customers, and to integrate your marketing effectively. You can view the full retail report on the Webloyalty website: http://www.webloyalty.co.uk/images/webloyalty_retail_research.pdf

1. 4. Winning propositions

2. Section 4
The future of retail
Winning propositions
The supply picture
Winning propositions
Introduction
•
The frivolous, carefree consumerism of the past has given way to a more considered mindset,
where retail is losing out to spending on other priorities. Therefore, success is becoming
increasingly reliant on stimulating spend through highly targeted propositions.
THINGS TO CONSIDER
•
The key for retailers will be to make people want things that they don’t necessarily need. To do
this requires very different selling skills. Part of the change will involve understanding the
consumer and engaging with their values.
•
Persuade consumers to buy. Retailers must inspire people to ‘want’ things, in other
words, to really sell to them. This requires a very different retail model, with a different
selling skill set to drive it, than many retailers are used to.
•
Consumer demand has become increasingly fragmented and it has become less viable to go
after the whole market. Retailers must break down and segment their ranges into discrete
areas that have relevance to individual consumer groups, ensuring that they are offering
compelling products.
•
Offer compelling product. Target your consumers and clearly segment, catering to
different price points and values.
•
Adapt the store portfolio. In a time of slowdown when the performance of each and
every store becomes paramount, retailers need to ensure that all stores are trading
well. This means moving away from a ‘one-size fits all’ store portfolio to ensure local
demand is met.
•
Build synergies between channels. Physical retailers can leverage their store estate to
offer customers a more complete service. Central to this is a holistic multichannel offer
empowering customers to make purchases through a variety and mix of channels.
•
Making intelligent savings without damaging the business. Potentially attractive
savings can often damage future growth prospects and retailers must think about the
long term implications of cutting costs and ensure future prospects are not damaged.
•
It today’s retail economy, retailers need to make their pitches more aggressively, more cleverly
and more compellingly. Their brands are essential, not merely for identification but as banners
representing their entire proposition.
•
Non-retail activities are increasingly attracting the attention of consumers and distracting
them from traditional retailing. Retailers need to explore how they can tap into this.
•
The role of stores is evolving, both of terms of the role they play in the purchase journey and in
terms of the importance of location, with ‘destination appeal’ increasingly important in order to
overcome regional variations.
•
The internet will continue to grow rapidly during the slowdown; retailers that do not have an
online presence will not benefit from this lucrative channel. Yet, online retailing is more
demanding and new strategies are required to succeed, as well as closer integration between
stores and online.
•
Retailers need to cut costs in an intelligent way. Retail is a lean business and most UK retailers
are already pretty efficient. This makes further cost cutting very challenging. As such
‘creativity’ is the watchword in successfully managing this downturn: retailers need to think
beyond cutting costs to strategies which can help defend their top lines and market shares.
23
The future of retail: the supply picture
Prepared for Webloyalty by Conlumino
August 2013

3. Section 4
The future of retail
Winning propositions
The supply picture
Key skills
Persuading the customer to buy
Retailers are having to change their approach to ‘selling’ in order to
stimulate increasingly cynical consumers
•
24
A further issue for retailers is that of editing ranges. Over the past five years consumers have become
increasingly demanding of ranges which are suited to their needs; rather than being presented with a
massive choice of products they want a good selection of products which are specifically relevant to them.
A final rule will be to engage with consumers far more. The days when retailers could simply put products on
shelves and expect them to sell have gone. Instead, products must be displayed to their maximum potential,
in the correct environment. Retailers that create interesting environments, that stimulate consumers and
give them a reason to visit their stores, will be the ones that secure the most footfall.
The future of retail: the supply picture
Prepared for Webloyalty by Conlumino
August 2013
product
choice
differentiation
range
niche
convenience
fashionability
product as brand
retailer as brand
personal service
brand marketing
signage
•
For example, the model needs to have segmented ranges to move away from the ‘all things to all men’
approach of the mass market general merchandisers. Retailers need to know who their customers are and
what they want and cater to their needs, either under one roof or through developing different retail brands
all under one ownership.
price
product marketing
•
In order to persuade consumers to buy more of what they already own, the challenge for retailers is to
inspire people to ‘want’ things and provide them with more reasons to purchase; in other words, to really sell
to them.
NEW SELLING SKILLS
self service
•
OLD SELLING SKILLS
experience

4. Section 4
The future of retail
Winning propositions
The supply picture
Product
Make it compelling
Meeting consumer needs with a clearly segmented, visually inspiring offer,
where ranges are given their own values and identity
•
•
As retailers have differentiated their offers and as consumers have become increasingly fragmented, it has
become less viable to go after the whole market. Consumers today want an edited and coherent choice.
•
A slowdown also makes it imperative for retailers to have different parts of their ranges targeted at different
audiences. In essence this means that a retailer can simultaneously offer a value -oriented range to a hard
•
pressed consumer at the same time as offering a value-added range to a more affluent consumer. Good,
better, best range segmentation is critical here ,where good product provides the value element of the mix,
better product is the mainstay of the retail offer, and best product provides the value-added trading up
element.
Sub-branding is critical in allowing consumers to understand what part of the product offer does what and
how different parts of the range are differentiated from each other. Different groups of product should
have their own identity to prevent confusion among consumers and to make the offer easy and logical to
shop.
Visual merchandising has also become increasingly important and is a critical part of stimulating wants.
Consumers need to be presented with themes and stories to help them make their choices. This process of
‘editing’ is part of ranging and segmentation and is still something that many retailers do not get
consistently right.
GOOD
• High volume
• Low price
• Low margin
• Competitive entry prices
25
BETTER
• Core product
• Core offer
• Basis of positioning
• Standard margin
The future of retail: the supply picture
Prepared for Webloyalty by Conlumino
August 2013
BEST
• Low volume
• Highest price points
• Higher margins
• Premium offer

5. Section 4
The future of retail
Winning propositions
The supply picture
FINANCIAL
Building a brand
• Range fragmentation =
lower volumes per unit
• Higher promotional
support
• Higher margins
How to be effective
A strong brand helps retailers bond with increasingly disloyal consumers
•
One of the most important factors for success is branding. In the past, retail merely served as the final link in
the distribution chain, with little need for retailers to differentiate - as needs were relatively similar and
competition was weak. However, in today’s mature environment the situation could not be more different.
Consumers are spoiled for choice, are shopping around more than ever before and have different needs and
different requirements. Branding is the medium through which retailers must build more engaging
relationships with them.
•
In essence, a retailer’s brand is what represents the value it adds to its products, or put another way, its
margin. Retailers add value in a variety of ways from customer service and convenience to low prices and
superior choice. Whatever the mix of ingredients, the shopping experience offered by a given retailer is
embodied in its brand.
•
Retailers are having to make their pitches more aggressive, more clever and more compelling. Branding is
crucial, not merely for identification but as a banner representing their entire proposition. Good brands have
a relatively narrow focus, and this focus helps increase brand equity and consumer understanding. They are
also consistent across all aspects of the retail proposition, from product to marketing to store environment.
•
However, branding is not static. It needs constant evaluation, with reference to changes in customers and
the competitive arena. Nor is branding, in and of itself, the answer. The brand is, in many ways, the end
point: it has to be driven by an understanding of which consumer is being served, what they want and what
the respond to. A good brand evolves over time and in response to changing conditions; however, the core
essence of the brand should not change often, if at all.
BUYING
RANGING
• Sourcing
• Short production runs
• Frequent range rotation
• Frequent visits
• Higher sales/visitor
conversion
• Focused
• Empathetic
• Added value
• Premium price
CUSTOMERS
MARKETING
• Focused customer
Relationships
• Strong customer loyalty
• High visiting rates
• High conversion rates
• Strong market penetration
• Identity
• Packaging
• Pricing
• In-store support
• Advertising
BRANDING
26
The future of retail: the supply picture
Prepared for Webloyalty by Conlumino
August 2013

6. Section 4
The future of retail
Winning propositions
The supply picture
New streams of growth
Use of services
Capitalising on growth in non-retail spend provides opportunities to
diversify
•
Traditional retail spend is set to lose out as consumers are faced with more demands for their disposable
income. However, while this is potentially a threat to retailers, it is also an opportunity to diversify, in order
to supplement growth and bolster sales. Retailers already have relationships with consumers and these
relationships can be leveraged to sell non-retail products. Moreover, there is an opportunity for retailers to
consider partnerships with other companies already offering services, which they can then brand as their
own.
•
In order to be successful, retailers must offer services that are of interest to their core customer base and
which fit with their brand. A high end retailer should focus on selling high-value added services, a
discount retailer should focus on selling value or price focused services. They must also be careful to
ensure that they do not crowd out their retail offer. These services are incremental revenue drivers; they
must not crowd out the main product offer or overshadow the main retail brand.
Competing spend
Retail opportunity
Holidays & travel
Total growth 2013-18: 16.2%
More people are travelling, and travelling more often, mixing
short breaks with long breaks farther afield; retail expenditure is
not only being diverted to the cost of holidays but also to
retailing abroad
Shopping facilities in travel locations – airports, train stations and on board ships. supplying
clothes, equipment and literature for travel.
Developing ranges to reflect holiday experiences (e.g. Taste of Italy food)
Cars
Total growth 2013-18: 14.9%
Car ownership is on the increase, with many families owning two
or more cars
Car accessories and equipment; car insurance; on-site petrol stations; placing convenience stores
in petrol stations, at motorway stops and out-of-town retail developments – convenient for car
users
Sport & leisure activities
Total growth 2013-18: 17.1%
Rise in gym membership, health clubs, participation in sport and
sporting events, visits to theme parks; increase in eating out and
use of hotels
Sports clothing, health & beauty products linked to pampering and health; outlets in gyms, clubs
and hotels; sponsorship of events and the promotion of sporting activities linked to retail brands
(e.g. Nike Run London)
Recreation & culture
Total growth 2013-18: 19.7%
Popularity of cinema admissions, outdoor musical events, art
exhibitions, educational activities
Supplying food to accompany events (e.g. Waitrose picnic hampers), merchandising links to films
and exhibitions.
in-store product demonstrations, cookery courses, activity holidays
Health, insurance,
savings & investment
Total growth 2013-18: 21.9%
Shift from dependence on state to self-dependence and making
own provisions for health and pension cover; greater command of
personal financial matters
Provision of financial products – trust of retail brand extended into another area
Domestic services
Total growth 2013-18: 12.6%
27
Consumer lifestyle changes
Employing domestic support services – such as cleaners, window
cleaners, gardeners and childcare
Crèches in-store, home delivery services; food, laundry, dry cleaning; extended services from
retailers e.g. gardening from garden centres.
The future of retail: the supply picture
Prepared for Webloyalty by Conlumino
August 2013

7. Section 4
The future of retail
Winning propositions
The supply picture
Store portfolio
Adapting and shaping
Store portfolios need to evolve to meet changing shopper habits
•
Individual shoppers are increasingly diverse, behaving in a variety of ways according to the type of shopping
mission they are undertaking.
•
Broadly there are four main types of shopping mission: the destination shop, the comparison shop, the
bargain hunting shop, and the top-up shop. This is a generalisation and it is possible that a shopper may
engage in more than one form of behaviour during a single trip. Nevertheless, it provides a useful shorthand
for understanding consumer behaviour and destinations are becoming more segmented along these lines.
•
Retailers need to have a strategy for segmenting their supply according to consumer demand and the local
competitive environment in which they trade. The best example of this can be seen with John Lewis, which
has opened larger flagship stores in major catchment areas, while in-filling gaps with smaller, flexible format
outlets.
Competition is local
•
•
Store portfolios should contain a range of store types to tackle each of the broad markets the company
trades in. Although it will be part of the wider brand, each format should have a distinct identity. This is
important for managing customer expectations: if there are different store types in the chain, consumers
need to know what to expect before they go into each store.
A ‘one size fits all’ store portfolio is no
longer appropriate
Retailers must have formats to address the
different needs of different markets
A multi-format model ensures messages
can be clearly communicated
Each location should be assessed to establish which store format is best suited to meet the needs of the
local shopper population. Ranges can also be flexed to local demand, to ensure that the price and product
mix is appropriate for consumers and competition in the area.
Multi-format must be designed by demand
rather than done by default
Segmented store formats
28
The future of retail: the supply picture
Prepared for Webloyalty by Conlumino
August 2013

8. Section 4
The future of retail
Winning propositions
The supply picture
Multichannel
A critical part of the offer
Achieving online growth is requiring more forethought
•
•
Despite the ongoing growth and outperformance of online, internet retailing is not easy and we are now
entering a new era of more competitive online retailing. Retailers can no longer expect to reap strong growth
by casually listing their wares on a site and to maximise potential, retailers’ sites must not only offer
products in a coherent way, be easy to use, have great functionality and offer good customer service in
respect of delivery and returns, but must go even further.
Websites must be more sensitive to the requirements of individual users and, where possible, should be
personalised in terms of the products they present to shoppers. Websites must also be ‘stickier’ and
incorporate aspects like peer-reviews, expert advice and video content in order to attract and maintain
customers.
•
For the online shopper, price is critical, especially during a slowdown. While this is positive in driving cost
conscious consumers online to save money, it does mean that price is central to the buying decision.
Retailers must ensure they compete effectively and consistently with their rivals on price otherwise they will
lose out as fickle web shoppers transfer their custom elsewhere.
•
Advantages can also be gained from blending the internet with other sales channels to create a holistic
multichannel offer, using the internet to drive footfall to stores and vice versa. This is especially crucial for
filling gaps and reaching additional shoppers, as retailers re-shape their store portfolios.
Reasons consumers prefer to buy clothing & footwear online
Cheaper prices
49.5
Saves time
37.7
Can shop at any time
37.6
More choice
31.3
Can shop at a retailer not near me
20.4
Couldn't find what I wanted in store
Products not available elsewhere
16.2
11.8
More enjoyable
Don't like physical shops
The future of retail: the supply picture
Prepared for Webloyalty by Conlumino
August 2013
8.8
Sold out in store
29
9.7
5.8

9. Section 4
The future of retail
Winning propositions
The supply picture
Managing costs
Intelligent management
Cost cutting is necessary but it is crucial that it does not damage the
competitiveness of the business
•
Over the past ten or so years, the retail sector has become incredibly lean and efficient across most of its
operations. That does not mean, however, that there is no further room for improvement; indeed, in
constrained economic times when both margins and cash become squeezed, it is imperative that retailers
look to tighten up on cost management.
Easy wins
Non-critical and risky investments with longer term returns
Expensive stores/locations which can easily be replaced by alternative
channels – i.e. the internet
•
Blind cost cutting does not work and retailers need to think carefully about the implication of cutting a
particular budget. For example, trimming a marketing budget may seem an attractive way of making
savings, but in a competitive retail environment the long term implication could be a decline in sales. Cost
cutting must be a creative and intelligent exercise which is intrinsically linked to, and not at odds with, wider
business objectives.
Cutting back on inventory costs where demand is slower
•
Cutting staff – one of the largest areas of retail cost – may have an adverse impact on customer service and
consequently on sales. However, while cutting wholesale is often a mistake, retailers can think creatively
about deployment. In a downturn, patterns of demand change and retailers should ensure that there is some
flexibility to move staff to where they can be most profitably be employed within the business.
Unprofitable stores and sites – so long as their unprofitability is longer
term and cannot be easily resolved
•
Managing inventories is particularly critical in a downturn. Retailers anticipate demand and ensure they do
not over order product, leaving them with overstocks which then have to be marked down to clear, negatively
impacting on a retail margins.
Cut with care
Store investment programmes that can be postponed
Supplier costs – squeezing suppliers can yield results, but suppliers
should not be alienated
Don’t do!
Long term investments that will reap rewards at the start of an upswing
Staffing that has a direct impact on customer service levels
Marketing budgets that are needed to stimulate consumer interest
30
The future of retail: the supply picture
Prepared for Webloyalty by Conlumino
August 2013