You have possibly ended up right here from reading our article about the changes we are experiencing in the retail landscape and why we are talking about a new way of framing how we manage this. The concept of adaptive retail.
To navigate retail, you have to have your finger on the pulse and the pulse has changed irrevocably. Today’s shoppers want things to be personal, easy, and all connected across different ways of shopping. Workers want more flexibility at their jobs, and in a market where there's more stuff to buy than people buying it, we're seeing a big change in models of distribution. But investors still want to make money, so leaders in the retail world are changing jobs a lot, and what counts as “retail,” keeps getting less clear. Did I cut to the chase too quickly? It's a pretty raw summary but you also need to add a splash of technology and digitisation pace, which means everything feels amplified at warp speed.
As an industry we need a more flexible approach to navigate all the changes happening and set up retailers to do well in the future. These next few years are super important because what we do now will basically decide where the industry goes for the next couple of decades. So, we might need to shake things up and rethink how we've always done things. By being open to new ways of thinking and embracing a flexible mindset in retail, businesses can tap into fresh energy, positivity, and a different viewpoint to drive real change. This is where Adaptive Retail comes in as a new framework for growth.
But to understand the answer, we need to know what test we are studying for in 2024 and beyond.
The Emergence of the "Zero Consumer"
Introducing the "zero consumer" – quite simply are consumers that are omni-channel, impatient (to get their order), seeks out value, demand sustainability, value authenticity but display little loyalty. Oh and they have heightened expectations and largely have higher disposable incomes. This presents somewhat of a challenge for retailers. Some research has found that these consumers are also more ‘visual’ than ever before, which makes sense if they do most of their research online. That means viewing products from different perspectives, high-quality images, videos and other ways they can ‘visualise’ themselves wearing it or using it.
Boundary-Less Browsing: Traditionally, in-store browsing was the primary catalyst for product discovery. However, the modern purchase journey has become fragmented, with nearly half of consumers relying on social media influencers, celebrities, and digital content for inspiration. Grocery shopping; order online and click and collect. Get a top-up delivered to work through Milkrun. Pop in for some bits and bobs from Four Square or be inspired to get more out of your day by using Hello Fresh for meal preparation. Want that new hair-styling solution. Use the influencer good and shop out of insta.
Polarised Spending Patterns: Consumers are gravitating towards the extremes of the market, either scrimping or splurging. We see in the sales numbers consumers trading down to lower-priced options (including Shein and Temu) with our most successful retailer being Briscoes and one of our most socially popular being Kmart. Simultaneously, higher end beauty remains buoyant with customers blending their spend by introducing dupe products like MCo Beauty to stretch their dollar. Spending less on restaurants and takeaways but still jetting off overseas for an annual holiday.
Brand Promiscuity: Brand loyalty is waning, with research studies indicating more about consumers switching brands and consumers stating their intention to continue this brand-hopping behaviour, underscoring the imperative for retailers to offer truly differentiated, exclusive offerings to retain customers.
Impatience and Immediacy: Consumers have become increasingly intolerant of delays (I can’t even wait 5 mins for a coffee anymore without tapping my foot), with free standard shipping no longer a perk but an expectation. The rise of express delivery services and "buy online, pick up in-store" options have reset expectations, with recent research considering three-day shipping as the maximum acceptable wait time before seeking alternative retailers.
Sustainability as a Buying Factor: Sustainability and social responsibility are no longer mere buzzwords; they have become tangible buying factors.Lower incomes, a cost-of-living crisis and house prices have pushed the zero consumer into the used market. Preloved, vintage, second-hand and pre-owned are exponentially growing to match shrinking disposable incomes. Since these tend to be disruptive business models, such as Designer Wardrobe and Depop, don't need to comply to the norms and as a result they can ‘develop-in’ seamless journeys, authentic imagery solutions (to build trust and control) and provide the "rules of engagement" from the get-go.
Suppliers Become Customers
The traditional retailer-supplier dynamic is undergoing a significant change, blurring the lines between buyer and seller. As retailers tap into new revenue pools beyond omnichannel retail, such as third-party marketplaces and retail media networks (RMNs), suppliers are becoming customers, purchasing access to consumer data and insights. The likes of third-party marketplaces, enable low-risk experimentation opportunities with new merchandise, categories, or products before onboarding them for first-party selling.
RMNs, too, are gaining traction, generating new revenue streams and providing valuable consumer insights. These growing businesses hold promise for retailers but necessitate a re-evaluation of supplier partnerships and the introduction of new "currencies" to mutually trade.
The Evolving Workforce
The retail workforce is undergoing a profound transformation, both on the front line and in corporate offices. Job openings outpace workforce availability globally, putting pressure on wages and prompting employees to demand more from their employers. In addition, even at the frontline flexibility emerged as the top reason for frontline retail employees to leave a job.
Career development opportunities are also a significant factor in frontline retention. Recognising the positive correlation between frontline employee satisfaction and consumer experience, we must find creative ways to offer flexibility and make frontline work more engaging, such as experimenting with gig work, shift bidding, and "instant pay" options.
Growth and Profitability Expectations
Shareholders have grown accustomed to YOY growth in the retail sector but that formula of short-term vs long-term sustainable growth is being challenged. The formula to success is a pragmatic balance that includes investment for growth. In our rapidly changing environment, the value of financial agility and flexibility has increased exponentially, making the CFO skill set more critical than ever for the sector.
To navigate this complex landscape and thrive, retailers must embrace a playbook that reinvents their relationships with customers, suppliers, employees, and investors.
The following three areas should be at the top of every retail executive's agenda
Own the Consumer Relationship and get intimate
Strong consumer relationships are the currency of the modern retailer. Successful retailers cultivate a massive and massively loyal customer base, as other companies will pay for access to this valuable asset.
To gauge the strength of consumer relationships, retailers should pursue and measure "customer lifetime value" (CLV) instead of just share of wallet. This drives innovative and different ways to become indispensable in as many aspects of people's lives as possible, while continually creating and communicating savings that are invested back into the customer, reinforcing the loyalty loop.
Physical stores will play a pivotal role in capturing CLV of life, serving as showrooms, service centres, and hubs for speedy fulfilment. Retail store networks will encompass traditional stores, distribution centres, "dark" stores, e-commerce-first stores with smaller selling floors and large back rooms, and even shared fulfilment centres via alliances across retailers.
Overhaul Your Employee Value Proposition
Attracting and retaining top talent, both on the front line and in corporate offices, will be a hallmark of winning retailers. For frontline staff, creative solutions like gig work, shift bidding, and "instant pay" options can enhance flexibility and engagement. Investing in comprehensive training programs to equip staff with product knowledge, communication skills, and the ability to address customer queries will be paramount.
In corporate support offices, building data science capabilities will be critical.
Leading retailers are up-skilling employees with analytics backgrounds, aggressively recruiting early-tenure data scientists, and developing tailored retention, promotion, and review processes for analytical talent. These people will be like gold dust.
Embrace the Enablers: AI and Analytics
Retailers must embed digital capabilities and advanced analytics throughout their operations. Recent research has indicated that digital leaders deliver over 2.5 times the total shareholder return (TSR) performance of their peers, underscoring the significance.
Leading retailers are leveraging AI and analytics across customer-facing and back-end operations.
Merchants are employing these technologies to inform and partially automate decisions on assortment, pricing, promotions, and more. Merchandise Financial Planning solutions is having quite the moment and transforming the ability for the business to get a line of sight unlike ever before.
Marketers are harnessing new levels of customer insight to personalise experiences and offers in real-time. Generative AI is aiding in creating compelling copy, visual assets, and even virtual personal-stylist services.
On the back-end, AI is optimising complex omnichannel supply chains, managing a "gig-ified" workforce, and automating repetitive tasks.
Commercially available AI solutions can halve the time spent on store tasks in some retail sectors.
As we've explored the critical areas that should be at the forefront of every retailer's agenda, one thing becomes abundantly clear: adaptation is not just a buzzword—it's the lifeline of modern retail. The retailers poised for success are those demonstrating a commitment to evolving not just their own companies, but the retail industry as a whole.
In this rapidly changing landscape, the potential for value creation is truly limitless. By embracing the principles of adaptive retail, retailers can chart a course towards unprecedented growth and customer loyalty. However, this journey requires more than just acknowledgment—it demands action.
Now is the time to reconsider your strategy. Are you merely keeping pace, or are you actively shaping the future of retail? We invite you to take the next step in your retail evolution journey. Subscribe to our newsletter for regular insights, trend analyses, and expert advice that will help you stay ahead of the curve and transform challenges into opportunities. The future of retail is being written now—make sure you're holding the pen.
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