Global supply chain optimisation provider, Manhattan Associates, Inc., has released its predictions for retail shopping in 2012, and they all point to one factor: web and mobile are fundamentally changing the way people shop and challenging traditional bricks and mortar retailers. The projections forecast an increase in impulse purchases, physical stores becoming experience centres and increased consumer control through the use of smart devices and social media.
"Increasing costs of raw materials, fuel and transport coupled with wage stagnation, the threat of rising inflation and continued insecurity due to the global financial turbulence, will make 2012 a challenging year for the retail industry," said Craig Sears-Black, UK managing director at Manhattan Associates. "At the same time, the opportunities for retailers to serve consumers better will be greater than ever before thanks to the use of new technologies, smart devices and social media. We've already seen tech-savvy consumers emerging in growing numbers over recent years, and 2012 will be the year of tech-savvy retailers, giving rise to a new and successful consumer-retailer relationship."
Manhattan Associates has identified nine top trends that are set to influence the UK retail scene in 2012:
1) All Kinds of Commerce
The future lies in enabling customers to purchase when and where they want to, while getting the same overall experience. This includes traditional (in-store) commerce, e-commerce, m-commerce (mobile), f-commerce (Facebook), s-commerce (social) and v-commerce (video-enabled). Not embracing multiple channels is simply not an option. The challenge for retailers will be to offer a consistent shopping experience across all channels and allow consumers to research, buy and collect wherever they want, while optimising inventory, order management and fulfilment across all channels. Being able to do all of this profitably is the key to long-term success.
2012 will see more consumers visiting physical stores to personally collect goods ordered online and more retailers embracing the 'click-and-collect' model for up-sell and cross-sell opportunities. In the UK, there was a significant rise in the percentage of click & collect e-retail sales in the third retail quarter of 2011, accounting for 10.4% of all e-retail sales in the period, up from 7.4% in the previous quarter . Sites like www.clickandcollect.org will only serve to accelerate this trend. In addition, retailers will consider greater incentives for customers to use the channels with the lowest total cost to serve.
2) Optimisation becomes critical
Online sales in the UK grew by 18% in 2010 and are expected to show strong annual growth for the year just ended. As the percentage of overall trade being conducted through new sales channels increases, the complexities of retailing increase however if retailers don't address the optimisation challenge then their very survival is at risk. The starting point for multi-channel retailers is avoiding profit-erosion. Those that are able to optimise inventory deployment will not only be able to maintain margins but improve them. Having pan-supply chain inventory visibility and the ability to fulfil customer orders from anywhere, no matter which channel the consumer makes the final 'purchase' through, allows retailers to minimise product markdowns by connecting available products with customers willing to pay full price for an item. And by embedding save-the-sale capabilities in all customer touch-points, inventory optimisation can improve retailers' top-line sales by allowing them to capture shadow demand that would otherwise have been lost to competitors.
3) Stores as Experience Centres
Despite the fact that the point of purchase is now highly mobile, retailers will find that the physical store still needs significant investment. To compete with e-tailers selling via 'pop-up' and 'product-less' shops, traditional bricks and mortar retailers will need to offer self-checkouts and move to a more mobile sales-force armed with hand-held devices to check stock availability and price-match when necessary. Retailers will invest more in creating experience centres, which are high-touch, high-tech and designed to get talked about.
4) Changing face of physical stores
The traditional 80/20 retail rule of thumb says that 20 percent of a store's stock-keeping units (SKUs) deliver 80 percent of sales. That rule will be turned on its head. In a digital world with almost infinite choice, shoppers will be drawn to stores with a personalised focus. Physical store concepts will become smaller, better executed and highly tailored. Private labels, localised sourcing and cultural influences will be further differentiators, as shoppers demand simplicity, convenience and closeness. Many British high streets are already dominated by coffee shops and eateries, and the high street shopping experience will transform even further in 2012 with food and beverages and other service offerings such as collection points for goods ordered online featuring within many types of retail outlet. More and more retailers will look to make their high street presence more experiential to cater to the changing tastes of shoppers.
5) High Street consolidation
To address the consumer desire for one-stop shops and to stave off recessionary concerns, high street shops are joining forces either on a brand or back-office level. PC World and Curry's are a clear merger example. Tesco and Sainsbury's are examples of chains that have significantly expanded their product ranges in recent years. Over the course of the coming 12 months, we expect to see similar moves by other retailers on many British high streets. The hopes for many a high street retailer in 2012 may depend on their ability to capitalise on the one-off promotional opportunities presented by the summer Olympics and the Diamond Jubilee. Not being able to make the most of these potentially huge sales opportunities could prove to be the undoing of some retailers, particularly in the food and electronics sectors.
6) International expansion
Retailers in the West are finding little growth in their domestic markets and are looking towards the BRIC markets and the Middle East. Whilst disposable income in the UK for example is set to decrease from 38.4 per cent in 2009 to 35.1 per cent by 2013 , disposable income in the BRIC markets is increasing consistently with Russia leading the way and expecting to see its per capita disposable income growing at an average rate of 6 per cent per annum for the coming years . These markets have been familiar territories in the far-sourcing of manufactured goods but are new consumers of Western brands, pushing retailers to rethink their strategies for locating inventory and order fulfilment.
7) Rise of the impulse purchase
While technology has allowed consumers to become increasingly savvy, skilled and sophisticated shoppers, it also makes them susceptible to impulse purchases 34 per cent of American customers admit to purchasing 'Daily Deals' , which will only increase with the prevalence of location-aware smart devices. The trend has been formalised through programmes such as Groupon, where stores grant discounts if enough people sign up for them, and Foursquare and Gowalla, which offer price cuts to users who check in at specific locations using their smart devices. Together with flash sales, or time-limited offers via text or Twitter, these trends continue to trigger impulse buying and give shoppers the feeling of having scored a great deal but it will also put pressure on retailers to have stock ready when needed and to be prepared to handle returns.
8) Mobility driving consumer control
Mobile promises a shift to a customer relationship management model that lets retailers know exactly who their customers are, and allows customers to opt in and define how they interact with the retailer, including what brands, products and locations they want to have specific communications with. Despite the rapid adoption of digital technology, the majority of retailers have been slow to respond to the opportunity. The coming year will be one of catching up and reacting to the power shift first from manufacturers to retailers and now to consumers.
Technology is driving this trend and retailers will need to be prepared to react to price comparison apps, 'deal of the day' websites, overseas online purchases and buying via smart devices.
9) Using social media to enhance customer service
Social media can help bricks and mortar shops to reach out to customers and increase brand awareness, but also gauge customers' interest and shopping needs to help turn around shops at risk. In 2011, 52 per cent of organisations used Facebook for reacting to customer issues and inquiries compared to only 29 per cent the year before. Similarly, 50 per cent of companies now use Twitter for customer service, compared to only 35 per cent in 2010, while 51 per cent also use Facebook for gathering customer feedback, compared to 37 per cent the previous year . The involvement of social media in everyday operations is increasing significantly.
Facebook can serve as a focus group for a company to allow retailers to interactively learn about customers' interests. Group-buying websites bring awareness to a company's brand and products while taking advantage of a promotional activity.
Social media also empowers retailers: once they understand how to listen and what to monitor for, they can find the right target group and offer products/services for their exact needs. 2012 will see more social websites beyond the windows of traditional e-commerce, including fan pages on Facebook and Twitter, to engage customers better.
"The supply chain will have to support social media initiatives. If a customer is on a Facebook fan page and sees a special promotion running, then the product needs to be available online and in store," explained Sears-Black. "The retailer will need to know the inventory levels in real-time and have the ability to take an order form anywhere and fulfil that order via the channel requested by the customer."