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What is causing the retail apocalypse?

19th Jul 2017
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What’s causing the retail apocalypse – and what are CPG businesses doing about it?

The last few years have been devastating for many big retailers. In the US, there have already been nine retail bankruptcies in 2017— the same number as in all of 2016. Old favourites like J.C. Penney, RadioShack, Macy’s, and Sears have each announced more than 100 store closures. In the UK, BHS was the highest profile victim in a string of failures over the last two years. This seems at odds with economic performance in both of these markets and globally, which is performing better than in previous years.  

The biggest reason for this is the rise of e-commerce, which has changed the face of shopping. Thanksgiving and Black Friday in 2016 online sales saw a rise by 18% from 2015 in the US, amounting to $5.27 billion. In the UK, consumers were thought to have spent around £25 billion online.

What’s really going on in retail and what can CPG companies do in response?

Millennials are revolutionising consumer behavior

It has become a truism to say but millennials are revolutionising the world around them – and nowhere is this truer than in retail. They are highly tech-savvy and need information about the product on the go. They not only expect enhanced service levels, but also require personalised service. They expect an unfailing experience in this multichannel era. Gone are the days where businesses wanted to “satisfy” its consumers. The focus is now on “delighting” them. Consumers expect product availability through any channel, with the best choice at the right price, at any time and through their preferred mode of payment in the digital age.

Research by Boston Consulting Group describes likely behaviors and attitudes of millennials as:

  1. They want an exceptional output in terms of quality, low cost, high speed and efficiency and convenience in all their dealings.
  2. Their purchasing decisions include multiple sources from multiple channels. They trust their peers or friends more than a “professional” branding the product. Social media, reviews and close interactions have become the basis of their decision making process.
  3. They like to socialise both offline and online and 53% of millennials explore brands on social network.

What’s more, according to Pew Research, the millennial generation in the US grew to 75.4 million people in 2015, surpassing the 74.9 million Baby Boomers – brands have to adapt now to their tastes and behaviours now.

Amazon dominates

The rise of online sales combined with Amazon’s footprint in the market is creating turmoil in the CPG industry. Slice Intelligence analysed that 43% of all online retail sales in the US went through Amazon in 2016.  Amazon’s innovations in AI, automation, analytics and technology have revolutionised the industry from the way consumers shop to logistics and distribution. It has always focused on aligning business needs with the consumers’ needs and is now reaping the benefits.

However, Amazon has not limited itself to being just an online platform.  It has been focusing on consumers’ shopping needs and strategies to retain loyalty by being a part of the omnichannel revolution and integrating physical and digital commerce. Amazon is expanding itself into brick and mortar stores using the latest technology to reach customers in every possible way. Amazon Books and Amazon Go are examples where they are digging deep towards customer centricity by integrating the benefits of offline and online shopping. By using the data they have acquired through online channels, the company knows what consumers want to experience while shopping.

It’s clear that CPG manufacturers must work closely with Amazon to reduce operating and distribution costs, understand consumer behavior and optimise existing online and offline channels.  

Brick and click

Market research indicates that 40% of shoppers consult three or more channels before making a purchase. Historically, CPG companies have had a wealth of global consumer research data but have lacked insights on local customers. Brands that can harness consumer data and new technology can create personalised one-to-one selling experiences and products, which represents a significant competitive advantage. For these companies, e-commerce is often the easiest way to capture and analyse rich customer data than. However, as companies adopt in-store technology, it will increasingly make sense for companies to beef up their consumer analytics teams, get their feet wet online and then leverage the information in physical stores for higher sales.

For example, Procter and Gamble sees less than 1% of its sales through its online store, but it views the site as a valuable way to understand its consumers in a better way, not simply as a place to make sales.

Investment in the SMAC stack drives omnichannel

To build strong digital capabilities, it is imperative for CPG companies to adopt digital technologies by investing in the so-called ‘SMAC stack’ to improve their operational efficiencies. This means social, mobile, analytics and big data, and cloud technology. Rather than going entirely online, retailers must merge the online and the physical.

  • Online buying will allow consumers to have the product at their doorstep with one click, while physical stores will allow them to have the touch and feel of the merchandise
  • By capturing a single view of the customer and analysing their behaviour, companies can provide mobile coupons or discounts to the new-generation customers based on their activities across multiple channels, in turn allowing them to develop a stronger relationship with them
  • If a company provides its customers with the option to order online and get the item shipped from the nearest store or order online and let the customer pick from the nearest store, it will ensure higher efficiency through an increase in product availability and on-time deliveries.
  • Physical stores will be the new warehouses for businesses. This results in an improvement in delivery time, lead-time and reduced manual intervention, optimised inventory usage, lowering shipping cost, shipping time, easy returns, and hence higher conversion rates.

Many consumer companies like Nike have successfully created compelling and unique online shopping experiences that are capturing sales. For example, it has fully integrated its online and social media channels to deliver unique content and allow users to customize orders. Meanwhile, UK fashion retailer Oasis is blending its e-commerce site, mobile app and bricks-and-mortar stores into a seamless shopping experience. Salespeople are available with iPads to provide product information to the customer and in case any product is out of stock, the sales person can place an order to ship directly to your home. Both are examples of retailers that have invested in the so-called ‘SMAC stack’ to drive omnichannel.

Time to take the leap

Traditional big box retailers have been buffeted in the last few years, driven by waves of new technology, demographic trends and changing consumer taste. After the retail apocalypse, many CPG companies are undergoing a shift in their thinking as a result. In order to survive and thrive in this new retail environment and create high business value, they are looking to better understand (and adapt to) millennial consumer behavior, working with other big online retailers and investing in the SMAC stack to blend online and offline for a proper omnichannel experience.

By Surabhi Jain, Consultant – CPG, Domain Consulting Group, Wipro Limited and Sukarma Parimoo, Consultant– CPG, Domain Consulting Practice, Wipro Limited

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