Retail is a word that has been discussed a lot in recent years, and one that has taken a bit of a battering.
First came the financial crises, then the arrival of digital channels, and finally the pandemic, which led to long closures and the need for creative solutions to maintain communication with customers. It always seems like there is no respite for retail, with a constant stream of new challenges on the horizon ready to challenge retail managers and individual shopkeepers alike.
In spite of all this, however, retail always survives – but it has to evolve. And this is what I will explore in this article, answering two important questions for anyone who deals with or manages a business based on bricks-and-mortar outlets:
- What are the main challenges facing retail today?
- What guidelines can we draw up to ensure retail grows and prospers in the coming months?
When I talk generically about retail, I am referring to the classification made by Enrico Verga in an article published in the newspaper Il Sole 24 Ore [in Italian].
The retail world I describe below therefore includes all large-scale retailers, often incorporated (physically speaking) in shopping centres, plus fashion outlets, individual chains of shops/brands (fashion and luxury goods) and independent retailers.
Is retail really going extinct?
Retail and distribution are one of the main elements of trade, and therefore the economy as a whole. So let’s get one thing straight: dramatic statements like ‘retail is dead’ or RIP retail, which we have all heard at one time or another, are false. I’ll say it again: retail rethinks, reassesses the ways it connects and stays in touch with customers, and redesigns its approach to marketing, but it never disappears.
The Americans, who have a knack for using words to label and shape current phenomena, have called the current situation the Retail Apocalypse: since 2010, over 12,000 shops have closed in the USA alone. The most serious example of this occurred in 2018 with the bankruptcy of Toys R Us, a major toy brand known all over the world and a dream destination for millions of young customers.
It’s all down to the products, I imagine you’re thinking: with children now glued to their smartphones 24/7 more or less as soon as they enter the world, who cares about toys?
Now let’s take a small jump forward in time – two years – but a big leap in terms of sector, and look at the report for the first quarter of 2020 drawn up by Inditex, the group containing Zara as well as the brands Pull&Bear, Stradivarius, Bershka, Oysho, Zara Home, Massimo Dutti and Uterque. A brand that quickly became part of everyone’s daily lives, beginning with aggressive pricing, riding the wave of fast fashion, before offering expensive products inside stores that could often pass for the most exclusive fashion boutiques.
However, in the first quarter of 2020 (so the blame can’t be pinned exclusively on the pandemic), the group announced that it was closing 1,200 stores. Does this constitute a crisis? Probably: we have so many Zara shirts in our houses we no longer know where to put them, and the hangover effect is starting to be felt. However, Inditex also announced that it was focusing its strategy on two commercial and marketing areas:
- Opening new retail outlets (around 450 in the coming months) that differ greatly from those that are closing – more spacious, experience-based and multi-channel, more like the large, iconic flagship stores found in the world’s major capitals.
- A strong focus on digital, with online shopping predicted to represent a quarter of sales by the end of 2022 (it currently accounts for around one-seventh of the group’s turnover).
The impact of the pandemic on retail
Talking of digital, as well as the numerous problems the Coronavirus has thrown up, it has also driven an extraordinary rise in online purchasing, with online shopping in Italy up by as much as 350%, and 75% of Italians who used it during lockdown never having used it before. Indeed, analysts are divided: some say that the pandemic has fast-forwarded our digital mindset by five years, others by ten. Either way, it has been a quantum leap, and those who did not take the plunge have lost out.
Basically, digital is here to stay, and it is a powerful driver not only of business (as shown by the Inditex Group) but also marketing. For example, have you ever considered how to integrate it into the next trade show you attend?
According to an analysis of the American population conducted by the consulting firm McKinsey, as well as digital technology taking centre stage, the pandemic has cemented four other habits in our minds, which (at least in the short term) consumers will find difficult to shake off.
- Focusing on the essentials: we prefer (and will continue to prefer) shopping that keeps things simple: we want things to be logical, accurate and straight to the point, with no unnecessary frills.
- Reduction in loyalty towards single companies or brands: digital technology is constantly pushing us to try new solutions and products, without us ever being satisfied.
- The importance of protective measures: when customers decide to go into a shop, the first thing they notice is whether it is fitted with adequate protective measures to contain the pandemic and protect people’s health.
- Rediscovery of the homebody economy: we have brought numerous activities we used to do away from the house – like going to the gym or enjoying frequent restaurant meals – inside the walls of our homes, finding alternative solutions that avoid the need to go out.
Basically, Covid-19 has changed us, and we’ll remain like this for a while.
“Who put the beer next to the nappies?”
“Who put the beer next to the nappies?” That’s the question Michela Danieli asked in an article published in the Italian management magazine Senza Filtro, entitled People, algorithms and purchases: who controls who? [in Italian], citing a typical example of a positioning decision made in various supermarkets. So why are beer and nappies often placed next to each other?
The logic is that husbands, sent by their wives to buy nappies for their son or daughter, can’t help noticing the beer next to it, remember the eagerly anticipated event they want to watch on TV, and buy the beer they hadn’t even planned to get.
The way goods are displayed on shelves has been the subject of meticulous, in-depth study for years, and this has expanded further as time has gone by with the advances in technology and algorithms, which have reduced the time required for market research, allowing an efficient rotation of products on the shelves and the use of a contextual approach to the design of the layout of the aisles.
Customers therefore pass through the shop and find the products laid out in a logical order that matches the way their brain works.
Which variables are considered by algorithms and artificial intelligence in retail design?
Massimo Cesaretti, an expert in marketing and market research interviewed by Michela Danieli, mentions a few:
- Consumer rationality. Only 40% of purchasers, for example, enter with a shopping list. Those without one are easier to influence.
- Decision-makers and nutritional gatekeepers. A growing number of women work, and so there are many more men in shops than in the past.
- The ageing population, a phenomenon that certainly applies to the UK.
- Past purchases tracked by a loyalty card – algorithms can analyse the full contents of a shopping trolley and save the data using the items’ codes.
The really striking thing is that the system improves with every action we take. All you have to do is like an image, vote for something, search for a word or make a movement, and the machine learns. This means it becomes capable not only of meeting our needs (feedback), but also increasingly anticipating them (feed-forward). One notable example of this is Amazon’s anticipatory shopping: thanks to the enormous quantity of data left or collected in the purchases we make, the online shopping giant now has a very good idea not only what we like, but also when we are likely to run out of it – for example, we might buy a pack of 30 coffee pods every 27 days. Amazon is therefore testing a proactive service that sends the products to our homes before we realise our supplies are running low.
Possibly even using drones…
Towards a new retail normal
If at the beginning of this article you had some doubts about the future of retail, I imagine they have now doubled. But hopefully you’ve also gained some extra understanding, or picked up some new ideas.
To try to reduce your fears and turn something negative into a positive, I’ll leave you with five guidelines and helpful tips for devising an approach to retail that can deal with whatever the near future throws at it.
- Embrace digital, but in a balanced way: digital technology is no longer just a fashion, but an essential tool for the majority of customers. You don’t need to become a fully fledged ‘digital retailer’: it’s enough just to have WhatsApp Business, or offer flexible payment solutions like Satispay, to meet the needs of those coming into the store. However, you also need to think about it from the other side: a multi-channel approach (as the name suggests!) means giving the right importance and weighting to all channels, not just digital or digitalised ones. So go digital, but do it right.
- Always be transparent, no matter what: digital technology and newly rational customers, who have not gone away but simply prefer to stay on the sofa rather than coming into store, are forcing everyone into a major transparency operation. Communicate prices clearly, provide the best offers on your website and be polite in your interactions. Price comparison websites are just a few clicks away, and if you don’t serve someone, you can be sure your competitor will. Basically, the attitude of take the money and run, typical of a world of plenty, no longer applies.
- Rethink your brand (or build one from scratch). The plethora of offers and options could have a paradoxical, opposite effect on the customer, making them ‘shut up like a clam’, focusing more on you to shut out the noise created by your competitors and the vast number of promotions. Essentially, it’s time to rethink your brand, or to create one from scratch if you’ve never done it before. You don’t need to invest huge sums of money; you just need an idea. Like the managers of the Italian supermarket Esselunga, who came up with the idea of a yellow bag after a trip to China. You can read Giuseppe Caprotti’s story here [in Italian]. The bag might not be to everyone’s taste, but you can’t help but notice it, and it immediately recalls the brand. There are definitely higher-quality, more graphically interesting and better-looking items out there, but the Esselunga bag remains iconic in any situation, and can withstand any innovation.
- Show empathy and remain close, even at a distance. We have also discovered that empathy and closeness do not necessarily have to be linked to geographical proximity: on the contrary, very often all it takes is good communication or a simple yet well-designed service to make the customer feel loved. Don’t believe us? Consider Burger King’s Safe Order Masks. The idea came immediately, and cost virtually nothing, apart from the logical thinking required to come up with it. As conversation is one of the activities most likely to spread the virus, and at the same time it is very difficult to make yourself understood in a mask, they reasoned, why not let customers write suitable questions, or even their orders, on specially designed masks, to avoid having to speak (and so risk spreading the virus) to staff? I don’t know whether it was convenient and effective for those taking orders at Drive-Thru windows, but it was certainly a good marketing ploy.
- Get inspired. Finally, I’m going to borrow the excellent name of the section of the Pixartprinting blog that houses my thoughts on marketing, communication and advertising and turn it into a piece of advice. Don’t be satisfied with what you can see: stay alert to things happening a long way off too, as they could end up being highly relevant in no time at all. I mentioned Amazon before: regardless of your sector or the size of your company, it is worth keeping a close eye on what they are up to, because they are not just a company, they are a vision of the future. I recommend my friend Alessandro Giaume’s LinkedIn series AmazonToDoList, where he explains what the online retail colossus is working on in a style accessible for non experts.