Retail trends 2021: Preparing for the future of retail after a seismic shift in the landscape

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Retail trends 2021

Preparing for the future of retail after a seismic shift in the landscape

2020 proved to be a tough year for all of us, but the retail sector certainly suffered one of the most severe blows. New trends emerged and the pace of pre-existing changes accelerated, impacting the high street even more than in previous years. For some, the pace of change might be too much to bear. Is it possible to turn the tide? How to respond and prepare for the future of retail?

Unprecedented challenges and an increase of pre-existing changes

Much has been said about 2020 already. Retailers were suddenly facing unprecedented challenges, from lockdowns and reduced consumer mobility to disrupted supply chains. The velocity of pre-existing developments suddenly increased dramatically, creating a seismic shift in the retail landscape. In the UK, more and more legends of retail – or actually, their brands - are being acquired by online pure players, leading to record numbers of stores closures and job losses1. It is likely that this could also be the near future of many Dutch retailers, particularly after government support measures are eventually withdrawn.

Retail Trends 2021

New consumer behaviours

The sector is especially impacted by the overarching trend to online, from predominantly physical to digital retail. This shift was already taking place before 2020, but the pandemic has definitely accelerated it, impacting demand and increasing costs. One of the reasons behind this development is that new consumer behaviours have emerged since last year. As consumers were asked to work from home, the lines between home and office became blurred, which in turn led to an increased demand for furniture, garden products and home gym equipment – and a decreased demand for clothing. The impact of the decreased demand for clothing has been particularly strong on the high street, since many consumers switched to online clothing stores. In the UK and the Netherlands, clothing online penetration is now close to 60%. Shopping for food online is increasing as well. Across Europe, 1 in 10 consumers intend to shop for food online more often2. In the words of Marit van Egmond, CEO Albert Heijn: ‘It is a fact that the online channel will continue to grow3.

Turning the tide

Traditional store-based retailers that do not have a digital-first integrated customer experience are already facing the consequences, and our view is that the days of the incrementally small steps evolution, in line with year-on-year incremental improvements, are over. The reality is that retail is now reaching a tipping point, whereby in order to safeguard a role in consumers’ lives 5-7 years from now, retailers need to think bigger, and start taking much bigger steps that start from where they want to get to instead of from where they are now. We have recognised four key domains that will require a bigger and faster shift than more retailers have made in recent years.

Engagement

First of all, it takes engagement. Winning back market share starts with identifying your potential customers, approaching them, making sure that your company or brand is on their mind, and ensuring that they end up in your store. TV commercials, advertising and folders are rapidly losing relevance, and hence there needs to be an accelerated shifts towards data-drive targetted marketing wherever consumers live their digital lives, and a shift towards a more balanced mix of bought and earned digital media. Consumers are also increasingly expecting loyalty propositions that feel more human to them, as they no longer believe the points-based programs. The leading grocers are tying these programs to a sense of purpose and identity.

Channels

The store is not dead, nor will it ever be completely dead. But the reality is that too many physical stores look and feel like they’re from 1997. This too is a domain where bigger steps, more risks, and more innovation is needed, and fast. Many retailers understand the theory of omnichannel but struggle with the reality, due to the complexity of technology and data landscapes that are decades old. This is thus also a matter where big and painful (and costly) decisions need to be made, and fast. Critically, some of the best retailers today, with the best stores, also understand that our employees need to be part of the differentiating destinational nature of our stores, and not a costs item that needs to be reduced every year. As retailers talk of being tech companies, this instinct of seeing people as costs needs to change. In most global ‘best places to work’ research, retailers do not take this into account. This is not sustainable as an industry.

Fulfilment

What is incredibly challenging in all of this is clearly the so-called “online paradox” – the need to shift to digital and to online because that’s were consumers are, but leaving behind profitability in doing so. Retail has always been low margin, and hence operationally focussed on sending big volumes of products to stores in an industrialised manner. This model breaks when shipping small basket to consumers’ homes… In our view, the only way to potentially resolve this is with targetted investments and smart thinking around the key cost drivers (warehouse and logistics), combined with commercial propositions that incentivise the least expensive behaviours. A true case of combining art and science, but it is the only way.

Commerce

However, in this new digital world, as the fulfilment costs become untenable, there is significant potential to offset (some of) these costs by monetising some of a retailer’s assets. The increasingly common trick is to start monetising / selling data, with a more advanced version of this being the use of this data to sell e.g. advertising – no one knows your customers better than you do (you hope) and there is monetary value within this. Yet we are also increasingly speaking with retailers who are also looking at monetising certain capabilities that could be differentiating, e.g. sourcing and logistics.

Digital retail: digital talent is key

We alluded to it earlier in this article but one of the key battlegrounds for retailers in this era will be the battleground for talent. The skills and mindset in the average store has too long been focussed on operational excellence and on minimising costs, and not enough on becoming a reason to visit a store. We believe this holds significant potential. The skills and mindset in head offices is slowly but surely evolving in the right direction, but for many retailers this shift is not moving fast enough. In tomorrow’s digital-first world, why would a digitech talent start working for a retailer, when they could join a wide array of technology firms, services firms or start-ups? This is not an easy question, but one that HR Directors and CEOs should be asking themselves with an increasing sense of urgency.

Retail matters, now more than ever. Retail defines our high streets and our city centres, it employs our citizens, and contributes to our tax incomes as a society. Retail has gone through huge levels of change in the past 15 years but the reality is that COVID-19 has set the scene for the next 5 years becoming even more critically important.

Retail Trends 2021

Please find more information in Deloitte’s Retail Trends 2021. This is an annual report exploring the trends taking place across the retail industry. We look at the need to take a digital first approach, as well as customer experience, destination versus local shopping, and many other topics. Or contact us for more detailed information.

 

See e.g. https://www.bbc.com/news/business-54572668, https://www.independent.co.uk/news/business/uk-retail-sales-fall-2020-official-b1791089.html, https://www.business-live.co.uk/retail-consumer/list-shops-fallen-administration-2020-18177619, https://www.statista.com/statistics/1109128/retail-job-losses-and-store-closures-in-the-uk/

2 Data from Deloitte’s Global Consumer Tracker  https://www2.deloitte.com/global/en/insights/industry/retail-distribution/consumer-behavior-trends-state-of-the-consumer-tracker.html

3 https://www.trouw.nl/verdieping/marit-van-egmond-ceo-albert-heijn-er-is-meer-liefde-om-het-thuis-gezellig-te-maken~b6f97655/?referrer=https%3A%2F%2Fwww.bing.com%2F

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