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Jan 30, 2019

Summary:
In today's topic we're going to discuss the very interesting year of 2018 in the retail industry and we'll talk about what's to come in the new year.

Resources:

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How Self-Service is transforming Fast Fashion and In-Store Retail Experiences

Our Mobile Shopping Innovations are headed to EuroCIS

COMMERCE NOW (Diebold Nixdorf Podcast)
 

Transcription:

Amy Lombardo:                00:00                     Hello and welcome to COMMERCE NOW, your source for emerging trends in the banking and retail industries. I'm your host Amy Lombardo, and in today's topic we're going to discuss the very interesting year of 2018 in the retail industry and we'll talk about what's to come in the new year. I've got a special guest joining me today. It's Andrew Busby, one of the UK's most influential retail analysts. Hey Andrew, thanks for joining us.

Andrew Busby:                 00:27                     Hi, Amy. It's great to be here.

Amy Lombardo:                00:29                     Good. Let's talk a little bit about your background first. You have a 20 year plus career in the retail space. How did you get started? And talk to us a little bit about your passion?

Andrew Busby:                 00:40                     Amy, my career, I guess started about 20 years ago. I joined Kingfisher, one of the major retailers in the UK, and I was working there for a number of years. Retail I think, is really one of those things where you either love it or you're not so keen on it. And I just love the sector. It's so relevant to all of us. Unlike some of the others, we have relationships with our favorite retailers or brands that we don't necessarily have with utilities or telcos or whatever. So, they become part of our lives, and I think that for me is one of the great things about retail. And also particularly now as I'm sure we'll talk about, there are just so many things that are happening right now in retail, and lot of things which will common both in the US market and here in the UK and Europe, and I think a lot of the retailers are going through the same issues and challenges.

Amy Lombardo:                01:36                     Very good. Talk to us a little bit about those challenges. 2018 was a pretty interesting year here. You saw so many different store models go digital, offering different convenience options for consumers. With that said, how would you define the 2018 year for retail?

Andrew Busby:                 01:59                     I think that what we're witnessing ... and it is happening. I think this is a real watershed moment in retail that we're going to look back on. I think 2018 and going into 2019, what we're witnessing in front of our eyes is a transition from what I refer to as old retail into new retail. What I mean by that is that the old model, the more traditional retail models are quite hierarchical. They're commanded and controlled from the center, they're top down in a way that they're organized.

Andrew Busby:                 02:31                     And of course they were founded long, long before the Internet was ever around, let alone this online shopping and e-commerce that we see today. They've had to adapt. And of course then you get the new retail that doesn't have all the burgage, if you like, and the old and out of-date infrastructure that old retail has. They can build their systems, which are absolutely ... and also their structures, which absolutely fit for purpose around what they want to do. I'm thinking in particular of the pure play online brands, which have a ... I guess have a sense of purpose about what they are in business to do that some of the others perhaps don't, if that makes sense.

Andrew Busby:                 03:17                     I think that we're really seeing this transition, and it will continue over the next couple of years. I don't normally like to look too far than two or three years out, because I think the pace of change is so rapid that it's almost impossible to look further than three years out. We simply don't know quite what's going to happen or what's going to be adopted by the consumer. In one word, I would say that it's change, and in five words, I'd say it's change, change, change and more change. That's what we're seeing at the moment.

Amy Lombardo:                03:51                     It's interesting that you say you can't predict that far out because there are so many storylines that hit the new cycle this year that you never anticipated. We have everything from smart fridges and locker concepts and then you think, "Okay, well what's possibly next?" And have we created this society that it's almost become so convenience based. Will we ever go back to a simplistic retail model? I don't know.

Andrew Busby:                 04:20                     I don't think we will. I think we've got so used to the ease and convenience, which we're seeing right now. But of course the thing to remember there, which I think you were alluding to, is that that's getting even more convenience. Take payments for example, which is in some ways the most exciting part the retail landscape, but also its scenario, which is developing quite rapidly. And we'll get the point within the next few years where we'll see far more invisible payments. Whether you'd be filling your car up with gas, you'll just fill up and you'll drive off because it's automatically been ... payment's been taken.

Andrew Busby:                 04:57                     We're seeing far more frictionless experiences. Of course there's Amazon Go, which we know about, and we'll see more of that. I think ease and convenience in whatever way and forms that it takes is going to continue. And of course online and having deliveries to not just at home but to wherever we want, that will rapidly become the norm. And I think for ... one of the biggest challenges for retailers is having the supply chain and logistics capability to deliver very, very quickly to pretty much ... and by very, very quickly, I mean almost within the hour to almost any location.

Andrew Busby:                 05:36                     In order to be able to do that, they have to have in real time 100 percent, or as near to that visibility of their inventory, which almost without exception, none of them currently do. Some may come reasonably close to that, but ... so I think that's an area that we're going to see a lot of development going into.

Amy Lombardo:                05:55                     It's interesting, we were talking Christmas time, and I think one, two years back, whereby at the beginning of December, you get the messages that say, "Okay, if you haven't placed your order, it's not going to arrive to you by Christmas." Well, that's not the case today. You probably could still get an order on the 24th. I'm sorry for that delivery man or woman who's bringing it to you, but you can still get that delivered in time, right?

Andrew Busby:                 06:22                     Absolutely. Yeah. Yeah, but actually one of the other aspects that, which we're already starting to see has come forward is ... and we don't notice it over here, but I understand that the 19th of December for the first time this year, was the national returns day where the volume of returns for the year peaks. It used to be I think one or two days into the new year. That is a reflection on the amounts of trading that happened over Black Friday, Cyber Monday and so forth.

Andrew Busby:                 06:50                     But also, it's a really interesting thing for me because that sets quite an insight into us as consumers and our behavior. Returns are increasing, and that puts a huge strain on retailers. I personally happen to think that it's not a good thing, but the problem is it's a question of who blinks first. And of course nobody's going to. In other words, everybody wants ... they want to offer free returns, free shipping, et cetera, et cetera, but it is driving a level of consumer behavior which is quite alien. We're treating our own bedrooms and our living rooms as our changing rooms, and ordering ... and I've spoken to people who order quite regularly up to 20 items and they'll return 18 of them.

Amy Lombardo:                07:30                     That's so fascinating that you are saying that, because I know I've adapted to that style here in my own home. I'm over buying things because I'm like, "Well, it's really easy to return it. I don't have to go to a store.", Or for Amazon, I can just drop it off here at their local UPS station." But I wonder what the facts are. Do you have any information on that? Is it more advantageous to the retailer when consumers are overbuying, or does that shipping just totally negate that overbuy?

Andrew Busby:                 08:01                     For retailers, it's a complete nightmare for them because a journey of a returned item can be quite torturous, and it can go through up to seven touch points and can take not hours or days, but sometimes weeks to get back to where it should be, if you like, depending on how it's returned. And that volume, that peak that I referred to from my understanding, in the US I think it was 1.5 million parcels were expected to be returned, and during December, a million per day, which is huge.

Andrew Busby:                 08:32                     And as I say, for retailers what it means is that their inventory is all over the place, but they're still expected to be able to know where that inventory is to be able to make those commitments to next day delivery when people are purchasing. It becomes a vicious circle for them. But you think of it as a roundabout, and it's spinning ever faster. But it's going too quickly now for anybody to jump off. So yeah, you just got to hang on. It's an interesting one.

Andrew Busby:                 09:01                     And as you said from your own experience, yes, it is far too easy, too many ways to return because that's being seen as part of the overall customer experience. It has to be easy to return. You mentioned Amazon. In the summer, they launched their Prime Wardrobe, so you order three or more items and it's delivered free, and it comes in a box, and it comes with a returns delivery label already there. You try on, and you keep what you want at, then you pay for it, and you return what you don't and you just leave the box outside your front door. So yeah, very easy, very convenient. And that's what people expect.

Amy Lombardo:                09:37                     Right. One of my favorite case studies right now is Rent the Runway. Because if you think about things, "Okay, I've got to then dryclean an outfit", or "Oh, now I have to think about return timeframes and such." This is an all-in-one experience of pick the clothes, pick the style, look at the reviews, and your purchase includes everything. It comes to you clean, you're sending it back clean, you have a certain timeframe to do it. It's such an easy, frictionless, seamless experience. That buzzword that we said earlier.

Amy Lombardo:                10:09                     That's where I want to dive a little deeper into here, because frictionless, seamless, moving transactions into meaningful connections. Those have been such some strong words that retailers and even vendor partners have been using over the last year. Can you give some recommendations here on how a retailer can still maintain that customer, that consumer experience, but still introduce these types of digital and frictionless transaction sets?

Andrew Busby:                 10:44                     It's interesting because just a word on frictionless. I think the majority of transactions, we welcome that, and particularly the type of transaction. In other words, there'll be certain types. For example, throwing a dinner party, but you haven't got one particular item, whatever. Dash out, because you need it there and then, to the grocery store. You want that to be as frictionless as possible. You want to get in and get out as quickly as possible because you've got a deadline of when your guests arriving and that sort of thing.

Andrew Busby:                 11:12                     Then there'll be other transactions. Let's say that you're buying ... I don't know, a watch or jewelry or something like that, where you actually welcome an element of friction in ... and I mean friction by fact that the whole transaction can be slowed down. You're wanting, you're expecting to have more engagement with the store associates, those sorts of things. But from an experience point of view, it's interesting. What I would say in answer to your question, my recommendation so forth is don't let the technology lead in itself because we're all human and we're all driven by emotion, and we make because we are able to have emotions.

Andrew Busby:                 11:56                     What I say to people is first of all, think about and understand your brand and what it stands for and what are the brand values, if you like. Once that's very, very, very clear, then and only then when it's understood, can you then make the sorts of decisions you want about what technology you want to deploy, and what perhaps isn't quite so appropriate for your brand. Because there'll be some which would be absolutely lend themselves perhaps to augmented reality, virtual, mobile and so on and so forth, but there may be others which lend themselves more to much more of a human interaction.

Andrew Busby:                 12:34                     But having said that, I think that ultimately, as I said, we're all human. We all want to have a relationship with retail brands on an emotional level, which is why I said at the beginning that retail is an exciting sector to work in. I would say always human first, technology second.

Amy Lombardo:                12:53                     Right. It's such an interesting way to position it. The emotion and the relationship side of a retail purchase, or say your favorite store closes in your neighborhood. That is such a letdown because it becomes part of your norm. And yeah, I just think that's a fascinating concept to think about. The emotion tied to it.

Andrew Busby:                 13:12                     I think so, because in some ways we're creatures of habit, but in other ways we're not. We're not as loyal as our parents' generations that have gone before us. We do behave for more promiscuously when we're shopping. We jump from brand to brand. But at the same time ... I know it myself. I probably navigate the supermarket when I do my shopping in pretty much an identical fashion every time I go in, and I will go for the same brands of whether it be ... I don't know, shampoo or washing powder or whatever. I'll go to the same, and I wouldn't be drawn to other ones.

Andrew Busby:                 13:49                     With a store closing down, you suddenly then are taking away parts of our lives, and we might have to travel a bit further, or we don't go to that particular retailer any longer. So yeah, it is an emotion driven sector in that way.

Amy Lombardo:                14:05                     With the traditional brick and mortar branch and that style changing, whether it's hybrid type locations, smaller footprints, specialty shops. Are there opportunities then when retailers can actually partner with other verticals within retail to be able to offer this ultimate consumer experience? Like, "Hey, you can get the two in one now. I can offer you this and that." Are you seeing that there over in the UK?

Andrew Busby:                 14:35                     Yeah. I do get what you're saying, and I think that we could well start to see that. But what I am starting to see evidence of is people are starting ... and this is talking about the in-store experience and the role of the store. We know there's all the pressure from online, and that the percentage of their sales is only getting greater and greater. None of us really know where it will plateau out, but we do know that it's continuing to grow at the moment. The role of the store is under the fiercest scrutiny. But what I am starting to detect is that people are rethinking the role.

Andrew Busby:                 15:09                     In other words, the traditional role of the store is very obvious. You've got a building and you fill it with stock, put products on the shelves et cetera, et cetera. And you expect people to walk in and buy stuff, and that's the role of the store. We've refined that, but that's basically how it is. They're beginning to have some examples where people actually don't think of a store as selling first. It's a place for people to commune, to socialize.

Andrew Busby:                 15:36                     I quite often use the example of Selfridges because as we know, that was ... Harry Selfridge in 1909 opened that store on Oxford Street in London. Of course Harry Selfridge was an american who came over here. But if you read some of his quotes and some of his writing, he was incredibly so far ahead of his time because he could come out with those ... you can quote him now, and it is incredibly relevant. That's exactly what he wanted Selfridges to be. He wanted it to be somewhere where people could gather. If they bought something, so much the better.

Andrew Busby:                 16:12                     An example of that is ... and we've seen this more in some of these specialty retailers. Rapha is an up market chain. Not too many of them, but they refer to their stores as clubhouses, and they'll all have a coffee bar, and they just encourage their ... I don't think they refer to them as members. Some people refer to their customers as guests, so it's a reimagining or rethinking if you like, of the relationship. They encourage people to go in and if they want to buy on that particular occasion, okay, that's fine, that's great, but if they don't, it doesn't matter.

Andrew Busby:                 16:44                     Lululemon, the yoga and gym gear and so forth, they have yoga classes in store, and they organize events where like minded people can come along, and if they're into yoga classes, if they're into running or as I said with Rapha it's cycling ... it's a completely different approach to the role of a store, and I think that we're going to see a lot more of that, which is really exciting because it will mean we view them in a completely different way, where we gather there, we can exchange views and ideas, we socialize and that's an incredibly exciting development that we're just seeing.

Amy Lombardo:                17:20                     Yeah. Alright. Let's look ahead now. Pretend you're holding your magic eight ball, you're shaking it up, what's it going to say for the changes that we're going to see for 2019?

Andrew Busby:                 17:31                     To sum it up in a word, well, we're going to continue to see change. That's the first. But then to expand on that, for a lot it's going to be quite troubled and challenging. There are lots of pressures. Obviously we've over here decided to implode ourselves. We've decided to get out of the EU, which hasn't really added too much to anything. But it is having quite an impact now because what it's doing is affecting consumer confidence, and that will go well into 2019, so that's that backdrop.

Andrew Busby:                 18:01                     But I think what we're going to see is that retailers are going to develop and cultivate relationships with their customers far more. They are going to understand more about us. They're going to deploy artificial intelligence and machine learning so that they can deliver far more personalized experiences. That's going to be one major trend that we're going to see. Hyper personalization in 2019. Because at the moment, most personalization is fairly basic and fairly crude. It's usually retrospective. It is not in the moment, and it's not relevant to us because we've perhaps already made that purchase.

Andrew Busby:                 18:37                     We're going to see that develop, which again, is incredibly exciting because I think that once people get over the feeling of intrusiveness, and when brands deliver real value to them, then I think we're going to welcome them. We'll welcome them into our lives in a far greater way than we do now. That's going to be the main trend for 2019. Another one which I touched on earlier which is going to happen is the final mile delivery. I think brands will come to be defined not by the price of their product, but their ability to deliver to us pretty much whenever and wherever. It will be quite normal that we suddenly find that we need something, maybe we're at a conference, or we're at a sports event, or we're at a music concert or whatever it happens to be and we need a particular item. We just grab our smartphone, and with a few clicks we've got something on order and it's delivered to us within the hour.

Andrew Busby:                 19:29                     We'll be prepared to pay a premium for that, but that will become the expectation. Of course as soon as one person starts doing that, then all the others have to follow because it becomes the expectation. The bar is continually being set higher and higher. Another one I think will be the internet of things. Everything is going to be connected to everything, which again is going to lead to more convenience. And all those utility items that we purchase, that will all just be automated as well. I think we're going to start to see that in 2019.

Amy Lombardo:                20:03                     That was a lot of answer there. That was a big magic eight ball you were shaking there. Alright. My final question for you today, Andrew is, based on those trends, those predictions, the idea of the hyper personalization, the last mile, execution, the internet of things. Say you're sitting in front of a retailer and they come to you and they say, "Andrew, where do I start here on my transformation? Give me some pointers on at least how to create my roadmap here." Where would you tell them to begin?

Andrew Busby:                 20:34                     Depends on the challenges that they're facing, but I think that ... the way that I look at it is every retailer is on the same journey, but they're all at different parts of that journey. I would say that if they haven't ... if it's not on their roadmap already, they need to put artificial intelligence on there, and do that as quickly as they possibly can because all the while that they're not, they're missing out. They will never catch up to their competition. From a technology perspective, that would be one where ... possibly to contradict what I said earlier, but the reason for that is that that drives ... without that, you cannot drive the personalization that I referred to. That's just one point.

Andrew Busby:                 21:18                     The other point I think is that as we know, is most retail brands have well over spaced. They got far too many stores. I would say to them, ask yourselves, "What do I want to be famous for?" Is it having a huge store estate? I know that a lot would like to reduce that, but they simply can't because they're locked into long term leases and so forth. But I would say be famous for something. Going a little bit back to what I said about brands and understanding your brand, understand what you want to be famous for, what do you want to be known for.

Andrew Busby:                 21:54                     I've mentioned a couple of brands, Rapha and Lululemon, and they're very clear about what they want to be famous for. Another one that's a different end of the spectrum if you like, is fashion retailer Primark, and they're famous for having much, much lower cost items, but offering real, real value to people. And so everybody knows, they understand when you mention that brands to them, that they know what they stand for. I think that applies to all, whether it'd be much, much smaller artists and retailers or far larger. Everybody knows what you mean when you talk about Amazon. You know what that brand stands for. That will be the start point. Understand what you want to be famous for and build from there.

Amy Lombardo:                22:33                     Got it. Well, I think that's a good way to close the discussion here, Andrew. It was a pleasure having you join us here as a guest, and thanks to our listeners for tuning into this episode of Commerce Now. To find out more about the future of retail, go to dieboldnixdorf.com, or click on the link in the podcast show notes. Until next time, keep checking back on iTunes for new topics from COMMERCE NOW.