June 22, 2017
Last week Squire Patton Boggs (SPB) ran their annual retail debate in Leeds. The morning’s discussion was based around a report that Richard Lim from Retail Economics had written for SPB. The full report can be downloaded HERE. In short, the research looked at how consumer spending has changed and from their consumer research they asked the following key question:
What do you think the most important aspect of a meaningful shopping experience is?
Figure 1: Percentage of people who chose each answer as the most important aspect of a meaningful shopping experience. (Source: Squire Patton Boggs ‘The Retail Experience Economy: The Behavioural Revolution).
Another important question against each of the above was whether the consumer would be prepared to pay more to have an immersive store experience (environment) or be captivated (entertainment). The percentage of people that answered with agree and strongly agree were:
Figure 2: Percentage of people who chose each answer what consumers would be willing to pay more for. (Source: Squire Patton Boggs ‘The Retail Experience Economy: The Behavioural Revolution’).
So, the research shows how much consumers value other aspects than just transacting based on price or perhaps service. This is clearly not appropriate to all sectors especially within daily consumables of food grocery as an example but is very applicable to luxury and gourmet food markets. This article is a combination of mine and the panel’s thoughts during the morning. The panelists were:
Mike Logue – Dreams
Peter Pritchard – Pets at Home
Darren Abbott – Joe Browns
Stephen Robertson – Timpson
James Prince – John Lewis
Richard Burke – LaRedoute
What has brought about this change in consumer spending?
There are several reasons and at the forefront is the fact that consumers are more informed than ever before. This is because of the internet acting as a knowledge portal, the growth of smartphones to a point where everyone has one, the growth of comparison sites that mine price data to enable easy comparisons and finally the growth of social media as a key peer review measure. News is everywhere, on every subject and as we all know bad news travels fast, so product recalls, defects or poor customer service are amplified at a level that has never existed before.
These changes have resulted in changes at operational, strategic and structural levels for all parties, retailers, landlords and councils. The data that the Local Data Company (LDC) publishes around the decline of comparison goods shops, the rise of service operators and food and beverage are evidence of these changes. The rise of the flagship store is another example where brands feel it important to connect with customers. Apple is a good example where twenty years ago it just sold through premium resellers, whereas now it is an example of one of the most effective and profitable retailers in the land (37 Apple stores in GB) and of course a state of the art transactional website and logistics infrastructure.
Image 1: Apple store, Westfield, London. (Source: LDC)
Locations are increasingly considered in terms of being convenience led or destination led, the latter being a place where the mix of retail and leisure units along with entertainment means consumers dwell for as long as 4-6 hours and sometimes overnight.
What do retailers need to do in order to succeed?
“Recruit for personality and train in skills’. People are fundamental in the new world and what we must never forget is that internal behaviours are mirrored externally. So, the combination of personality, talent and attitude are the fundamental building blocks.
Are staff incentives aligned to what you are trying to achieve with customers? The traditional sales model sees customers as a sales number and that is no longer acceptable in today’s world. People buy from people so it is important in any environment to build the personal relationship first before trying the professional one. Sales should be a result of a strong relationship and from approaching the world in this way you build customers who are loyal, communicative and will help you steer your business in the right direction. Customers are not just data points as rationality and irrationality is not normally something that data science can cope with let alone understand. Alignment of values, behaviours and remuneration is key and it was mentioned that Sofology are doing this as none of their staff are sales commission focussed.
If success is through relationships, then where does the journey start and end? The answer is that it should only end when the customer dies. Pets at Home cited a great example of where their staff asked customers the simple question of ‘Have you got everything you need today?’ and because of this simple human question they added 1% on their like for like sales. Simple, but plays to the fact that we are humans and value honest and transparent conversations.
Image 2: Pets at home, Border Retail Park, Wrexham. (Source: LDC)
This journey has been made massively complex with the ‘Omni-channel’ world that we now live in or ‘Total Retail’ as I think of it. The customer does not care about channel, as our use by channel will come down to convenience more than anything else so unless your business is aligned to the single customer, multiple entry points view, then you will not achieve the relationship that you need for success. The reality was well put by Mike Logue who told us that only seven retailers in the world are truly omni-channel. You will have to ask him who they are as we did not cover that!
Historically, the belief was that the internet competed with stores until their death. For the majority, this hypothesis is simply not true and members of the panel from Dreams, John Lewis (JLP) and Pets at Home confirmed this. The real growth in internet sales has come from click & collect where retailers can offer in-store add-ons or trade customers up. JLP sees exponential growth of online sales when there is a shop in the catchment with 60% of sales coming from instore and 40% online. On average JLP customers spend £38 more in store when they click & collect. Joe Browns will be hoping for the same as well as increasing their brand awareness when they open their first store in the Sheffield area (exact location must remain confidential at the time of writing).
From Location, Location, Location to Location & Format, Location & Format, Location & Format.
Numbers are often banded about as to the number of stores you need to cover the UK, but in my view this is false forecasting as it all depends on the type of business you are in as well as the locations you are in. Many say 80 stores, but in the new ‘Total Retail’ environment then that is more likely to be 200 if you have broad appeal to customers up and down the land.
Sales densities are key when looking at stores and so it is no surprise when a store is so high up on the list of costs that their format and purpose would change as the retail environment changes. For example, Dreams would typically have had stores of 14,000 sq. ft. five years ago but now their stores vary anywhere from 2,500 – 6,500 sq. ft. but they are achieving the same sales levels as with the larger format. As Mike Logue quite rightly said – how many mattresses and beds do customers need to choose from? - as often, more means less in sales and increases customer confusion. Their stores typically have 30 mattresses and 25 beds on display. JLP has similarly changed from stores of 180,000 sq. ft. with 250,000 items to 100,000 sq. ft. (new Oxford store) or even less in locations such as York and Exeter. JLP have no plans to open any more stores which means they will have less than 40 across the country. That said they have the reach via Waitrose for their click and collect service.
From selling stuff to servicing needs
The phrase above was made by Peter Pritchard and he is well versed in this from selling pet food et al to running hundreds of veterinary practices and pet grooming parlours. Those of you who follow LDC and my other blogs will have noted how health and beauty has bucked any recessionary pressures and the same is true of pet health and beauty.
Understanding customer needs and wants is important, as if you get it wrong you will find it difficult to win them back. Relevant information that builds the relationship from which the outcome is a sale is the way to approach this rather than find a sale and then try and build a relationship around it. For example, understanding the impact of month end in people’s spending habits could be key to knowing when customers want to engage with you or vice versa. Understanding frequency of need (this is what good customer data can show you) is key to building repeatable business and competitive advantage. You can see this clearly on Amazon with Subscribe & Save as well as in other businesses as diverse as razor blades, food, contact lenses and wine & beer.
The market is more competitive, the consumer more knowledgeable, discerning and savvy, retailers have more channels, more complexity and more costs than ever before and places are being determined functionally between convenience and destination.
Environment, experience, education and escapism are key purchasing drivers but one that needs to overlay these is time/convenience. Many people work harder than ever before, have a more complex family life than ever before with the increase in divorce rates, so time is at a premium and unless you make that customer time magical and valuable then the relationships you will build with customers will be short lived and purely value driven which is the race to the bottom.
Matthew Hopkinson is a director of The Local Data Company (LDC) and was on the panel at the SPB Retail Debate held in Leeds on 15th June 2017.