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The Future of Retail

by Ata Victor January 16, 2020

​Despite social trends stating a move towards the end of the spend; Retail remains the single largest private-sector employer in the UK. The beginning of the decade sees one in 10 people in the UK working in retail and with retail sales totalling £358bn as of 2019, it is clear that it is a sector here to stay.

Over the last few years, reports of the demise of the British high street in favour of big online stores have dominated the conversations about retail in the UK. However, with digital sales still only accounting for 17% of the overall retail sales in the UK - according to the Office for National Statistics – it is clear that future of retail is more complicated than previously reported.

Department stores such as John Lewis and larger supermarkets like Tesco and Sainsbury’s remain stable as both household names and on the market, closely followed by Dixons Carphone who also make up the top 10 the UK retails, alongside Boots, according to market research firm Global Data. Online giant Amazon whose profit is now fuelled by £4 in every £100 spent in the UK, pushing it in the top five this year, is a clear demonstration of the future of retail. However, it still falls behind the major supermarket reiterating a common theme – retail is still the game; it’s only the rules that have changed. Over the last decade, there have been fundamental changes across retail. Success within the industry used to rely on the size of your business in comparison to your immediate competitors — more extensive spread operation such as the big three supermarkets succeeded in both stature and profit margins.

Nevertheless, the constant changes in consumer demands and digital advances, have forced these retailers to adapt to compete within the retail space successfully as well as to solidify their place in future markets.Innovations in the way retailers communicate with consumers have led to the creation of distinctive products (Apple), seamless service levels (Amazon) and now with the rising demand for sustainable and humanised commerce, retailers also have to curate ways to innovate at a much faster speed than ever before.

The key to this, much like kingpins like Amazon have discovered, is the mastering of data analytics. The future of retail now depends on the consumer as much as suppliers so understanding what ticks the boxes for customers who have become more demanding and harder to categorise is crucial. Utilising these data skills have also become vital in internal cost-reduction for retailers as well. The use of programs for areas like labour-cost management, supplier negotiations and reduction of inventory shrinkage can strongly benefit retailers looking to make up the cost difference created by new-age
consumers. Mastering analytics is also imperative in the fight to win and retain traffic, both online and in-store.

These are the four critical retail models that are predicted to shape the future of retail.

 Ecosystem Players

The future of retail most definitely belongs to “ecosystem players.” These for the layman are necessarily department stores; they are the companies working to build one-stop shops for consumers—places to browse, buy, read, chat, play and more. Amazon and Apple’s 2019 move to money with credit cards are a clear demonstration of how these ‘all-in-one solution’ vendors operate. For the future of retail within this business model, supplying access to both customers and services, such as logistics, advertising, analytics and payments, is vital. As pioneers in this field, Amazon has almost a century
extending its ecosystem from retailing to entertainment (e-books, streaming of music, video and games), logistics, cloud computing, marketplaces, payments and other areas. Less well known ventures include an ocean freight shipping arm, digital educational content-sharing for teachers (Amazon Inspire) and crucially - government supplies. Companies operating with this model will undoubtedly mark out the new rules for retail in the future.

Scale Fighters

Although ecosystem players are scheduled to corner the market, today’s big retailers also can carve their own space in the progression of the industry. Companies such as Tesco are destined to become “scale fighters.” Retailers’ following this model means utilising their scale as well their local relative market share leadership. The physical presence of these names within consumer minds and environment will involve a large proportion of industry profit will remain at their checkouts. Bain research suggests that the UK’s Tesco and France’s Carrefour succeed in pursuing virtual scale with their 2018 strategic purchasing alliances.  For Scale fighters like this, instead of chasing the online oligarch’s, they have pressed into their potential expansion for the future through organic growth as well as M&A. Size, however, is not their only defining characteristic they are also competent in deft and fast-moving innovation despite having to achieve this at mass. Their vast investments aid them in IT. Maintaining their strong position however, will require them to sustain this creative edge while managing traffic—both online and in physical stores—while diversifying into new profit pools.

Legacies and The New Kids on the Block

The retailers that don’t fit either of these models are also vital in understanding the future of retail. ‘Legacy’ companies are predicted to struggle in the fight to meet the strategic demands of the future. Legacy retailers can be categories into two groups – Stores like Toy“R” Us and Debenhams that were once-mighty businesses then struggled to adapt to market changes and therefore fell short in the race to future. To meet short-term profit targets, stores like these resorted to closing stores, selling real estate to lower overall expenditure. Likely, reliance on incremental improvements rather than innovation based on the exploitation of data analysis is ultimately what drove these big names into bankruptcy or insolvency proceedings.

The new kids on the block make up the other threatened group of retailers.  Paradoxically, these businesses are often generating positive headlines today, unlike the legacy retailer, these businesses run on an ‘excitingly innovative but unsustainable model’.Openly pioneering and often digitally powered business models that pull in themodern consumer. Nevertheless, the easy access to capital often masks their position as subscale as well as usually – a lack of operating profit needed to support their future investments. If they are lucky, some of these companies within this small group will be acquired before they can reach sustained profitability. For others, financial backing eventually halts so; exciting but unsustainable innovators could stay in the game if they outline clear routes to profitability. An example of this is Ocado. Their failure to adequately upscale as an online grocery operator caused them to pivot towards selling the underlying software to other grocers—necessarily into a B2B company that had enough capital to thrive.

The future of retail will be dominated by the ecosystem players and scale fighters who will continue to capture the new strategic priorities of a sector in flux. However, much like the ‘demise of the high street’ the realities of this pathway are far from concrete. These big companies may choose to diversify again by assisting with asset management and restructuring for smaller retailers.

To win within this sector in the future, it is vital that you:

1 – Nurture your individuality. Think strategically beyond quarters to anticipate future disruption.

2. Focus on the customer experience. Tapping into individuality will mean being able to optimise your use of distinctive marketing to boost traffic.

3- Invest in technology at all any cost. Take care to not cut from the consumer side but actively consider the liquidation of everything internally. Buy or borrow scale through M&A or partnerships. Join an ecosystem—or like Amazon, build one yourself.

4- Utilise data. Work to develop your company’s knowledge of master data analytics. Rely on tech for things like basic assortment, replenishment and pricing and refocus your finest minds to complex challenges.

5 – Full speed ahead on innovation. Learn to embrace principles like cross-functional teams and rapid prototyping. Use increasingly dynamic approaches to capital expenditure by copying notable venture capital techniques.

 No matter what model businesses of today utilise, the ever-changing retail landscape means No retailer can afford to sit still.

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