Which retailers will make it through 2014?

6 December 2013

Barry Moles

Barry Moles

Consultant

The high street we have grown up with is changing in front of our eyes, with many retailers either having gone into or about to enter a state of closure. What does 2014 have in store for them?  Which ones may continue to struggle and which are role models of success?

Despite the excellent campaign led by Bill Grimsey, David Cameron isn’t able to help turn the tide. He can’t change the way people shop – and people are choosing to buy more online than in-store.

However, it’s not all bad news.

The retail industry, the UK’s largest employer, does have success stories.  Yet, it’s those retailers that have embraced technology that are outpacing peers.    They are using (often new) technology to solve age old challenges of knowing more about their customers, offering personalised deals based on previous behaviour and improving operational efficiencies and much more.

The big elephant in the room question is can technology turnaround struggling retailers?   I believe technology is one of the biggest contributors of success, but only if executives change the way their organisations think and act in order to get closer to customers.

What’s going to happen in the high street?

The Centre for Retail Research predicts that one in five high street shops will close by 2018.  This look into the future is based on the fact that 22% of shopping will be conducted online by 2018, compared to just 12.7 percent today.

Retail Futures, a report by Professor Joshua Bamfield, predicts that 164 companies will go bust by 2018, taking 22,600 stores and 140,000 employees with them.  It’s worth pointing that the author believes retailers with the highest risk of failing will be pharmacies, health and beauty stores, and outlets selling music, books, cards, stationery and gifts.

What retailers are at risk of closing in 2014?

BHS

Currently:  BHS has a found an excellent niche market selling lighting. However, the retailer has failed to maximise its initial success. Instead, the CEO plans to diversify its product offer by selling food when I believe it should focus on its key strengths:  No one does lighting better than BHS.  The company could have real market dominance but it has not promoted this enough; lighting seems to be a department that is hidden away within its other offerings.

So far BHS has failed to fully invest in technology such as big data analytics, which would enable its sales and marketing team to grow market share and customers by running truly personalised campaigns to new and existing customers.  Instead, BHS is looking to expand into other product areas which are a risky, unproven and potentially costly endeavour.

Recomendation: BHS should invest in technology rather than food.  Business Intelligence (BI) is the core technology investment required in order to enable better use customer data.  Just imagine BHS with its store portfolio using customer data to drive footfall into the stores with targeted offers in their restaurants.  Every time a customer buys a product he/she receives a special deal such as a discount or recommendations on complementary products.

Actionable insight drives loyalty and repeat business through smarter communication with existing customers.   This will ensure BHS’s core customer base is fully engaged to maximise its strengths rather than to diversify its offer.  The option of using dynamic pricing through personalised marketing should be a serious but possibly radical consideration to enhance sales and footfall during quite periods.   

Matalan

Currently:  Matalan has been suffering from low-margin competitors such as Primark.  The company’s sales fell 0.4% last year and it issued a profit warning in August.  Matalan is struggling to control its rising costs and, coupled with a massive debt, the company is in a very difficult financial position because it can’t raise prices due to fierce competition.

Matalan, as a membership retailer, captures a lot customer data from every transaction.  However, because it has not invested enough in technology such as business intelligence, it hasn’t been able to take full advantage of its most valuable asset – customer insight.

Furthermore, with more than 200 stores nationwide, many of them outside of major cities, in destination retail parks, Matalan carries a financial burden. It doesn’t need that many stories (70 should suffice) especially if Matalan develops an omni-channel business model that is fully integrated with an online operation, supported by personalised customer interactions and a large number of small “click and collect” sites managed by partners.

Recomendation: Matalan needs to leverage its customer data. One option is to upgrade its customer relationship management (CRM) system so employees across the business can access it from mobile tablets in-store to support clienteling, run online-triggered personalsied campaigns and in call-centres to augment customer service.

Matalan knows what every customer purchases through its membership scheme.  Good business intelligence will allow Matalan to do a number of different things.  Decision-makers will be able to segment its customers to accurately target market their most profitable shoppers, right through to personalised targeted marketing like Amazon does based upon the customer’s previous purchasing history.  In simple terms, this means investing in modernising its CRM platform.

As a traditional retailer that has an online operation, I recommend Matalan urgently review its real estate and plan its medium- to long-term strategy with fewer stores.

What retailers are doing well?

The retailers that have fully embraced technology, irrespective of their business models are doing exceptionally well.  The UK's smartest retailers are proving that the web can in fact work to enhance their traditional retail channel and drive customer loyalty and sales.

John Lewis

Currently: Sales are going from strength  to strength as John Lewis builds a strong omni channel retail model with service and quality being key core propositions supported by a “we are never knowingly undersold” promise to customers.  John Lewis is utilising “click and collect” better than most retailers, through a wide-range of different outlets including Waitrose to enable customers to have goods delivered to a convenient location.   High quality service, high quality products and the effective use of technology resulting in a single view of products has really helped make John Lewis an omni channel retailer, although it’s still got some way to go to embrace personalisation.

Recomendation:  John Lewis should further develop its capability to offer customers personalised levels of service.  A good example of what John Lewis needs to do next is using targeted marketing to engage customers that have recently purchased a product. Personalised marketing is currently an opportunity missed.  Personally, I have bought a number of items where additional sales were possible in the future and not once I have received communication through any channel be it text, e-mail or post.  It’s a lost opportunity for John Lewis.

Burberry

Currently: Burberry achieved record sales despite its CEO moving to Apple.  I believe the retailer has come closest of its peers to develop an omni-channel business.  This has been possible because the company has fully utilised technology such as clienteling solutions in stores to personalise the customer experience.  It has one product - the iconic Burberry trench coat that accounts for a large chunk of its sales.

Recomendation:  Burberry mustn’t become complacent.  The retailer should and will continue to invest in its business including the further roll-out of clienteling to all its stores.  Burberry needs to continue to build on its product range leveraging the brand and its technology leadership in BI and CRM to build on its success, bringing to market  new products that excite its loyal shoppers.

Amazon

Currently: Amazon is achieving amazing sales growth as it continues to broaden its retail offer.  Its distribution and supply chain is low tech but its use of marketing through personalisation is sophisticated.  Happy to use loss leaders to grow sales, coupled with very tight margins, Amazon can out-compete traditional retailers on price.  My concern for Amazon is it has not modernised its technology, and could be threatened by the likes of Ocado, which could in the future offer retailers (and manufacturers) a better, end-to-end platform to reach new customers around the world at better revenue-making margins than Amazon.com.

Recomendation: Amazon needs to use leverage its competitive position as the go to online retailer for food and clothing.  This can be achieved by leveraging the strength of the Amazon brand, its current online platform and customer data.  Amazon can become the totally dominate online retailer.  To do this, Amazon must invest in robotic technology similar to what Ocado uses to improve efficiency in its warehousing and distribution.  This will enable a delivery service that is not only lowest in price but which delivers better customer service and value than traditional retailers.

Summary

The future for retailers lies in technology.  Some get it while others are putting their heads in the sand.   All the while, consumers continue to buy goods and services.  Inspiration can and should come from other industries.  For example, it’s not surprising that traditional software and hardware companies such as Apple and Microsoft have successfully opened retail stores. They understand how to use technology to manufacture and market products while giving customers the touch and feel experience only possible in-store.

The parting message for traditional retailers is to do things differently or face the consequences of not changing with the times.

The industry’s focus on the high street is a red herring.  Retailers just need to get closer to their customers, listening to and responding to what shoppers want, when they want it and how they want it.

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About the author

Barry Moles

Consultant

I am a retail expert, having spent more than 20 years in numerous managerial and operational roles including merchandise, supply chain, finance and marketing.

I bring a unique hands-on perspective to advising clients having worked in every retail category (food, electrical, clothing, telecoms, pharmacy, charity) across all consumer channels (out of town, online, shopping centres, department stores, concessions and outlet villages) for major retailers in the United Kingdom.

My passion, amongst many hot topics facing retailers, is helping senior executives and their teams plan and run omni-channel retail strategies.

When I am not with a client, I can either be found on the high street or travelling the world with my family.

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