Bridgepoint   |   The Point   |   March 2022   |   Issue 40
In focus
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Channel
hopping

Online shopping has come into its own through the coronavirus pandemic, but not all digital offers succeed and not every physical store is a waste of space. Savvy retailers are mixing and matching to derive maximum benefit as their industry undergoes rapid change. 

R  etail revolutions only come around every once in a while. Back in the 1950s and 1960s, consumer buying habits changed dramatically as shopping centres sprouted up across suburbia. We are in the throes of a similar upheaval today, as shoppers increasingly choose to make their purchases without bothering to leave home.  

 

Online retail sales in the UK recorded five years’ worth of growth in 2020, accelerating the shift away from physical stores that had begun a decade earlier. Surveys and sales data suggest that shopping habits have changed permanently.

 

A survey of more than 16,000 consumers from 21 countries by consultancy EY found that 45 per cent were visiting shops less frequently, 37 per cent were shopping online for products previously bought in stores, and 26 per cent expected to shop online and pick up in store more often. Such trends have created opportunities for both established retailers and new entrants.

 

Access to infrastructure

Italian spirits maker Campari, for example, is best known as a wholesale brand. But the group has tapped into a rise in online alcohol sales by investing in Tannico, an online wine and spirits retailer founded in 2013, which saw revenue grow by 82 per cent in 2020. Campari underlined its commitment to the company by funding its purchase of French wine retailer ventealapropriete.com last May.

 

Some established retailers have capitalised on increased demand for e-commerce by offering less mature brands access to their digital infrastructure.

Minding the Gap

UK-based fashion retailer Next is a case in point. Having launched a home-shopping catalogue in the 1980s, the group has used its multi-decade expertise in the field to launch its “Total Platform”. This offers everything a brand needs to sell online, from warehousing and data management to customer support staff and translations for overseas websites.

 

US fashion retailer Gap, which announced plans to close all its UK stores last year, has signed up for the Total Platform through a joint-venture deal that is set to go live this year. Other clients include children’s outfitter Childsplay Clothing and fashion retailer Reiss, and Next is hopeful that many more retailers in the UK and overseas will follow suit.

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Some of the largest and best-known retailers have capitalised on increased demand for e-commerce by offering less mature brands access to their digital infrastructure

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Genius move

Marks & Spencer is also using its online platform to serve other brands, such as lifestyle retailers Joules and White Stuff, as well as responsible fashion group Nobody’s Child. M&S chief executive Steve Rowe believes these deals have clear potential. Well-chosen third-party brands “enhance the overall offer in areas where we don’t have expertise”, he says. Nobody’s Child, for instance, has become M&S’s most popular guest brand online, and the retail chain acquired a 25 per cent stake in the women’s clothing group in November.

 

As Kien Tan, director of retail strategy at consultancy PwC in the UK, explains: “Notwithstanding current logistic pressures, the fact that it all comes to one delivery that you can ‘click and collect’ from a Next or M&S store means these businesses are using their infrastructure to serve their own customers better. To me, that’s a genius way of monetising the infrastructure they have put in place for deliveries.”

 

Exciting time

Smart thinking is in evidence in multiple jurisdictions. In Germany, online fashion retailer About You increased its revenues by 57 per cent to €1.17 billion in the year to February 2021, even as a decline in socialising led consumers to spend less on clothes. The Hamburg-based group used the pandemic as an opportunity to launch in 15 countries from Ireland to Estonia, and it is now developing a business product that allows third-party brands to use its technology and run their own online shops.

 

Silvia Rindone, a partner for consumer products and retail at accountancy giant EY, believes it is an exciting time for retailers to drive online sales growth, as multiple operators show they are prepared to collaborate with companies seeking to try out new strategies. “Organisations that are really clear on their value proposition and are really under the skin of the target consumer move with the times – they don’t see change as a threat,” she says.

 

Rindone recommends that online retailers give themselves time to experiment and be courageous. “Be honest and say when you didn’t get it right, and consumers will go on the journey with you,” she suggests.

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Many of the most successful operators believe that a physical presence complements their online offering

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A different planet

Forward-thinking European retailers are looking to China for inspiration. There, social media influencers can rapidly make products go viral. Li Jiaqi, a 29-year-old livestream salesman, is known as the “lipstick brother” because he once shifted 15,000 lipsticks in five minutes. In October, he sold goods worth $1.9 billion on the first day of an annual shopping festival run by Chinese online giant Alibaba.

 

According to Rindone, retail in China is “a different planet. We did some deep consumer surveys there about three or four years ago. Chinese consumers are different because they are not worried about sharing data at all, so they actually adopt certain behaviours faster than people would in the West.”

 

Know your customer

Rindone suggests, however, that marketing has becoming significantly more sophisticated among Western consumer goods companies as they have started to employ new, younger teams. “Digital natives are now old enough to work and they influence the way that social media is used to drive marketing activities,” she explains.

 

The use of social media influencers is definitely increasing, but retailers are advised to proceed with caution. “You really need to know your customer base. Younger consumers in particular are not forgiving. If you get the tone wrong, if you don’t get the influencer right, you’re gone, you’re out,” Rindone believes.

 

Get it right, however, and the rewards can be considerable for retailers and their influencers. Fans of fast-fashion brand Nasty Gal are lapping up photos of Amy Joseph, a Chicago-based influencer with 82,000 followers on Instagram. Joseph’s fan base is small compared with those of “mega influencers” – people with a million or more followers – but analysis of this world suggests that “micro influencers” often have greater traction when it comes to persuading consumers to buy. Armed with this knowledge, Nasty Gal has developed an affiliate programme offering people with an online following the chance to earn a seven per cent commission for sales generated.

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Nasty Gal has developed an affiliate programme offering people with an online following the chance to earn a seven per cent commission for sales generated

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Money to spend

Attracting visitors and converting those visits to sales has always been critical, but it is likely to become even more critical, as the pandemic eventually becomes less virulent, restrictions ease and consumers have more choice about where and how to shop.

 

“Generation Z women do shop online – they love Depop and all of these kinds of retailers. But if you ask them their preference, they actually prefer stores,” says Tan. “The two big segments that really like shopping online are younger, techie people, often male, and busy people, particularly parents. The good thing about these cohorts is they generally have a lot of money to spend, so if you want to serve them, you have to be online.”

Online retail also becomes a prerequisite for brands whose competitors are online. “You’ve got to be there to keep up with them and because you need to be in the same comparison shop,” Tan suggests.

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Li Jiaqi, a 29-year-old livestream salesman, is known as the ‘lipstick brother’ because he once shifted 15,000 lipsticks in five minutes. In October, sold goods $1.9 billion on the first day of an annual shopping festival

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Physical presence

Footfall in cities and shopping centres is still well below 2019 levels in many places, with a number of larger cities particularly hard hit as more people work from home, fewer tourists come to visit, and public transport continues to be viewed with caution.

 

However, even online-focused retailers are attracted to an element of physical space. Amazon spent nearly two decades as an online-only retailer, but launched its first store in Seattle in 2015 and has since opened hundreds more, acquiring the Whole Foods Market chain along the way.

 

More recently, online fashion retailer Boohoo acquired department store chain Debenhams out of administration in early 2021. Boohoo said at the time that it would keep the Debenhams website but close all of its stores. It subsequently spoke of opening one small Debenhams store to help secure deals with leading beauty brands and market the website.

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The two big segments that really like shopping online are younger, techie people, often male, and busy people, particularly parents. The good thing about these cohorts is they generally have a lot of money to spend

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Complementary role

Established out-of-town retailers can also see the allure of high-profile space. In October, Swedish furniture retailer Ikea took advantage of tough high-street conditions to acquire a flagship store on London’s Oxford Street that will sell products ranging from sofas and lampshades to meatballs.

With online specialists getting physical and out-of-town retailers gaining a foothold in city centres, it seems that well-located sites still have a role to play in 2020s retail, even if the larger store groups are reducing their estates. Many of the most successful operators believe that a physical presence complements their online offering, enabling them to offer click-and-collect services, convenience purchases, easier returns and an experience that cannot be recreated online.

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Shared space

“Some stores are turning into mini distribution centres. Retailers that have had a physical footprint over the pandemic have had an advantage in terms of being able to fulfil and ramp up their capability quite quickly.

 

Conversely, some pure online players that have been looking for a footprint in big metropolitan areas have really struggled to secure access to store space,” says Rindone. She predicts more sharing of store space between retailers in the future.

E-commerce clearly predates the coronavirus pandemic, but online shopping was given a once-in-a-generation uplift through successive lockdowns and Covid-inspired restrictions. Adaptations have been fast and furious, but many believe we are still in the foothills of change. The retail revolution almost certainly has a long way to go  n