Four transformative business models for retail and consumer goods

29 August 2017 Consultancy.uk

Consumers are increasingly demanding a better shopping experience from retailers. Chris Donnelly, global retail lead at Accenture Strategy, reflects on how traditional retailers are under pressure to transform as UK consumers demand new shopping experiences.

Consumers have never had it so good. The rise of digital means that they now have more channels, choice, purchasing control and market influence than ever before. Where customer loyalty exists, it is now underpinned by a tacit understanding that retailers and consumer goods companies must provide ever more personalised, convenient and compelling digital experiences. 

The problem is that many consumers are not getting these type of experiences from industry incumbents. Instead, they are going elsewhere – and traditional players have reason to be concerned. The most exciting growth in consumer industries is not coming from the traditional high-street players that have historically been the bedrock of local communities, but from smaller, agile companies offering experiences that often blend technology and human interaction in compelling ways. And the gap between those who ‘get it’ and those who don’t is widening.

The tell-tale signs of change are here; store closures and liquidations have become commonplace for traditional retailers that have failed to move to digital’s drumbeat. Online disruptors continue to steal market share by introducing innovative new services and experiences designed to surprise and delight customers. And they’re being well received. Take Amazon’s latest launch of the shoppable social network ‘Amazon Spark’, or its smart home device ‘Amazon Echo’. Consumers are being taken on a journey from inspiration to consumption, and it is working.

Recent research also found that UK consumers have a strong appetite to try innovative new services – even some that are not in existence today. For instance, 34% of UK consumers are already open to allowing intelligent devices in their homes to ‘think for them’ and make purchasing decisions on their behalf. Another 39% would allow companies to collect their personal data via intelligent devices in return for a better experience or financial reward.

Four business models shaping the future of digital commerce

The growing sophistication of consumer demands will challenge traditional retailers and consumer goods companies to evolve and innovate, driving huge growth in digital commerce. For incumbents to secure their future relevance, now is the time to rethink their purpose and adopt an innovation-led strategy. 

An analysis by Accenture for the World Economic Forum found that companies operating in consumer industries could unlock enormous value over the next decade by accelerating digital transformation. The key to success will be the adoption of new, digitally-driven business models that will enable companies to offer consumers the shopping experiences they crave. 

The following four transformative business models have the strongest potential to transform digital commerce, and are already being welcomed by UK consumers:  

Sharing economy

This is essentially the next-generation rental market where consumers use a product as needed rather than actually owning it. For instance, 36% of UK consumers said they would rent a fashion item for an occasion and then return it, instead of purchasing it outright. ThredUp is a US player which allows consumers to send clothing they want to sell in a sealable bag. They then run those items through an algorithm and are ultimately able to resell 50% of the items with the rest going to charity. For those who worry this will reduce demand for new products, it appears these models enhance ‘closet velocity’ in houses who embrace them. 

Personalisation economy

Think of this as ‘surprise me subscriptions’, where experts curate products tailored to an individual and automatically deliver it to their door. 29% of UK consumers said they’d use this subscription for clothing, where an expert selects items on their behalf based on previous shopping preferences and purchases. Companies like Stitchfix use a mix of highly developed analytics and style consultants to create very specific recommendations to their consumers. Their return rates are falling by the day. All these innovations are likely to become widespread in the UK in the next few years.

Replenishment economy

Automatic replenishment is when smart sensors detect when a consumer goods product is running low and automatically reorders and delivers it to your door. Over half (52%) of UK consumers would be interested in subscribing to services that replenish items like laundry detergent. Another 46% might use it to reorder fresh food items. These services are giving consumers the convenience they crave while removing the mundanity out of household shopping. 

Services economy

Also known as ‘do it for me’ services. This is when consumers outsource the heavy lifting of household chores to others – 37% of UK consumers would consider this sort of service for their laundry, by getting someone else to do the ironing and folding. 

Consumer demand will ultimately influence the market, and we’re likely to see a transformation in both the high-street and the last mile space – on how goods are delivered to consumers – which has the potential to create ever broader ranges of goods and services. 

With growing UK consumer appetite for new purchasing experiences and enormous market value at stake, that might very well be the motivation that incumbent organisations need to get going.

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Lack of high street openings sees UK retail in precarious state

11 March 2019 Consultancy.uk

Changes in consumer behaviour, particularly in favour of online shopping, are starting to take their toll on shop-fronts in the UK, while stagnant wages are hitting peoples’ willingness to go out for food and drink. As a result, the rate of closures is more than four times that for the same period in 2017, although largely reflecting of a lack of new openings.

The retail market has fallen under a cloud of uncertainty in the UK; consumer confidence has dipped, while wages have continued to malinger in negative territory. Retailers are also under pressure from disruptive technology, as consumer sentiment shifts to more online shopping and at-home leisure. While retailers have been able to weather the storm for the past years, transformations, low consumer spending and technology have begun to take their toll.

New analysis from PwC explores the current market conditions in the UK for retail shops, focused on net openings and closings. The market changes in the UK have seen the net closures to date hit 1,123 in H1 2018 across the UK’s top 500 high-streets. The rate of closures was considerably above openings for the first half of 2018, at 1,569 openings and 2,692 closures. Compared to H1 2017, more than four times as many shops closed than opened.

Openings and closures for retail industry

The study considered the most prominent areas to see a reduction in openings and net closures across the retail landscape. Overall, fashion stores were the hardest hit in absolute terms, with a total of 104 closures for H1 2018, followed by public houses and inns, which saw 99 closures in the same period. Electrical goods stores saw a net -44 decline, with a total of 8 openings for the period. Meanwhile charity shops were in a state of relative flux, with 80 openings to 117 closures. The firm notes that service sector shops, including estate agent, banks, recruitment agencies and travel agents, among others, too have begun the process of moving online.

Not all areas of retail saw closures, with coffee and ice cream shops seeing a small net increase in openings over all. Book stores – predictions of their total obliteration appear to have waned – saw a net 18 openings, while supermarkets drew the highest overall growth relative to closures, at 18 opened and 6 closed.

Regional figures for the UK

Not all areas have seen the same level of closures, with the Greater London area and the South East the hardest hit by the current wave of closures, at -268 and -197 net change, respectively, compared to -23 and -25 closures for the same period in 2017. The middle of England too saw considerable closures, with the West Midlands clocking a net -89, and Yorkshire and the Humber down -117 stores overall.

Commenting on the figures, Lisa Hooker, consumer markets leader at PwC, said, “Openings simply aren’t replacing closures at a fast-enough rate. Specifically, the openings across ‘experiential’ chains, such as ice cream parlours, beauty salons and vape shops, haven’t been enough to offset closures in the more traditional categories. Looking ahead, the turmoil facing the sector is unlikely to abate. Store closures already announced in the second half of the year due to administrations and CVAs already will further intensify the situation.”

Related: Artificial Intelligence offers $340 billion opportunity to retail sector.