Retail: The six trends that could make or break the year

With changing consumer behaviours and maturing technologies both having significant influence on the retail sector in the last 12 months, the playing field continues to evolve. And while there was doom and gloom in 2016, some retailers still posted strong results, while Christmas trading surpassed expectations at some of the major retailers/supermarkets.

That said, 2017 promises to be a turbulent one for the retail sector, set against a backdrop of growing inflation and economic and political uncertainty. With this in mind, MyCustomer examines some of the trends and technologies that could make or break your year if you’re a retailer.

1. Delivery as a key battleground

Delivery has become a key differentiator for retailers in recent years.  Research by Metapack found that 66% of shoppers bought goods from one retailer in preference to another because the delivery services on offer were more appealing. Furthermore, over half (51%) said they had failed to complete an online order because of poor delivery choices.

The trend of delivery being a key battleground for retailers will become more significant in 2017.

“53% of consumers say that free shipping is an important factor when figuring out where to buy,” says Mike Shapaker, managing director EMEA at ChannelAdvisor. “Many of those consumers will no doubt turn to Amazon, which has set the bar high when it comes to delivery. Ordering via the site means consumers can now opt to receive their order on the same day as making a purchase. This Amazon Prime option comes with a fee, yet the marketplace’s one- and two-day delivery options are in many cases free of charge. The ‘Cyber Five’ shopping days over Black Friday weekend, for example, saw 80% of marketplace orders shipped for free.

“This has established the dual consumer expectation for fast and free delivery. Amazon’s free shipping may have begun as a novelty, but with free shipping now commonplace, in 2017 it will be those retailers who fail to offer this that will be considered the odd ones out.

“In addition to free shipping, consumers will demand greater control over the time and date of their delivery. Having to stay in for a delivery with a broad time window, or missing a delivery and having to pick it up elsewhere present barriers to buying. It is therefore those retailers who extend the personalisation of the shopping experience to the options for delivery who will stand out in 2017.”

2. The rise and rise of marketplaces

In recent years, marketplaces have become a second home for retailers. This is unsurprising when over a third of consumers now begin their online shopping search on Amazon, and you take into consideration the size and scope of the marketplace – representing 51% of all retail growth in the US in Q4 2016. And there are no signs of this slowing in 2017.

“Many smaller retailers have in the past viewed this as a challenge, however, the growth of marketplaces like Amazon and the convenience they offer the consumer means that they should be embraced by retailers as another way to drive sales,” says Shapaker.

“In 2017 more retailers will take advantage of the popularity of marketplaces and form new partnerships.  By paying for Fulfilment by Amazon, retailers stand to make use of its huge distribution and logistics services, and access a wider pool of consumers who may not have headed directly to a retailer’s own platform.

As a challenge to this, 2017 will likely see the creation of more niche marketplace platforms which offer a select range of products. These may benefit high-end retailers, but those looking to boost profits next year should regard Amazon and other major players as friends, not foe.”

3. The further decline of the department store

However, as marketplaces continue to grow in influence, so the department store is of dwindling importance.

“Marketplaces are conquering the retail sector at an alarming rate. The juggernauts Amazon, Alibaba and eBay are posing a threat to mass merchants, and the bad news for them is that marketplaces are here to stay,” predicts Craig Smith, VP of solutions and customer success, at Amplience.

“It is anticipated that global marketplaces will own 39% of the online retail market in 2020. Once their key differentiator, department stores are no longer able to compete on range, and many have forgotten the art of curating and bespoke service.”

4. Department store reinvention

With their backs against the walls in 2017, department stores will have to find ways to reinvent themselves and their customer experience if they are to avoid slipping into obsolescence. Department stores have been exploring how to reinvent the in-store experience for some time, leading to an increase in pop-up bars and experiments such as Macy’s basement. But retailers have had bigger success when focusing on how to simplify and socialise their experiences. And department stores are likely to explore these avenues further in the coming year.

Smith says: “If department stores want to reestablish themselves, they should think less about price and volume, and more about brand and customer engagement. Selfridges is a prime example of a department store fully embracing cutting-edge retail technology. In 2016, it debuted a shoppable app including a ‘shop-by-Instagram’ functionality, using self-generated content as a means to drive sales. In 2017 we’re likely to see other stores following Selfridges’ lead in providing variety in combination with a tailored experience.

“Missguided is an example of an online retailer fusing the online and in-store experience to create an immersive shopping experience. Its newly opened physical store encourages shoppers to Instagram and Snapchat their experience, placing reminders and hashtags throughout the shop floor to create a social buzz.”

5. Augmented/virtual reality increasingly adopted

A technology which will inevitably be leaned on by retailers to create an engaging experience is virtual reality (VR) and augmented reality (AR). Consumer VR is entering the mainstream with brands including Facebook (with Oculus), Sony and HTC all having VR offerings available. Meanwhile, 2016 was a breakout year for AR thanks to the phenomenal success of Pokémon Go, which introduced the general public to the possibilities of an AR experience.

Outdoor sports retailer The North Face has already experimented with VR, having fashioned a display that enabled customers to feel like they were in the middle of Yosemite National Park. A Nike store in Paris has added AR to enable customers to customise trainer colours and project them on their shoes. Elsewhere, Lowe’s has used Microsoft’s HoloLens to enable homeowners to virtually design their own dream kitchens.

Research from DigitalBridge predicts that the UK’s retail market could be boosted by as much as £1bn a year, if consumers were given access to visualisation technology to be able to preview what products would look like in their homes.

The study found that more than a third of consumers have walked away from making purchases in the last 12 months, just because they couldn’t imagine what products including furniture, wallpaper and new flooring would look like in their homes.

Some major retailers have already grasped the potential of this technology, investing in smaller start-ups that can help them bring augmented reality platforms to market.

High street giant John Lewis is one company looking to bring augmented reality technology on board as a business tool. Christine Kasoulis, buying director for home in John Lewis, says: "In areas like furniture and floor coverings we know that the majority of our customers shop across our website and our shops, and there is a long and considered journey to the point of purchase.

“Customers want to see how a product will look in their own home - both for style and to understand scale. There is a gap at this point in the customer journey at the moment and it is one that visualisation tools will fill in the near future, helping a considered purchase to feel less complex.”

6. The re-emergence of loyalty programmes

Traditional loyalty programmes are proving problematic for retailers, and there are signs that the traditional approach to customer loyalty and old-school currency-based loyalty programmes are posed for gradual decline.

Mateusz Skowronek, senior loyalty and customer experience consultant at Comarch, recently noted: “Facing continuous market share decline in the UK (due to discounters’ aggressive strategy), Tesco has been for some time receiving signals from market experts to abandon [Tesco Clubcard] and invest money in price cuts instead. Retail analysts claim the programme is too costly and this money can be invested better.

“Clouds are also hanging over one of Europe’s biggest coalition programmes. PAYBACK in Poland recently suffered from loss of big partners, like Allegro (the biggest ecommerce platform) or Empik (general merchandiser) and now BZ WBK (one of the biggest banks in Poland), considerably restricting its participation in the programme.”

Elsewhere, Nectar, the biggest coalition programme in UK, although still standing strong, is experiencing departure of their first major partner, DIY retailer Homebase.

Nonetheless, retailers are once again thinking about their loyalty programmes.

Shashi Subramanian, a management consultant with Capgemini, believes we could be about to witness the rebirth of loyalty, as retailers experiment with new membership programmes. He points to the Co-op will giving £100m a year back to its members and communities; Bed, Bath & Beyond testing an invitation only membership service (Beyond); and Walmart’s Savings Catcher app, which is a membership programme of sorts that drives additional spend from shoppers.

In a blog post, Subramanian notes: “Retailers are now more than ever thinking about how their schemes can be more sustainable and be built on a reciprocal value exchange with their customers that provides a reason to be loyal. The rebirth of loyalty will be about the ability for retailers to craft propositions which create and use a deeper understanding of customers, to engage and reward them at a more meaningful level.  Loyalty isn’t built in a moment, but over time, and it needs to be considered as a more holistic outcome, achieved through supporting, inspiring and engaging the segment of one customer.”