At Summit, we have been at the forefront of digital transformation in retail for 20 years. Whether it was being part of the team that took Argos from being a catalogue business to a retailer that has half of its sales coming online, or helping Reckitt Benckiser be one of the first FMCG brands to sell direct to consumer in the UK & USA, we’ve helped hundreds of brands & retailers increase their ability to connect with their customers online.
In 2020, these skills have never been more important. The Covid-19 pandemic has turbo-charged many existing trends in retail, meaning transformation plans around people, technology, partnerships and many other areas need to be accelerated to avoid being left behind. For example, online retail sales in the UK have increased by 60% YoY over the last 3 months and now account for 27% of all UK retail sales, compared to 18% last year; investing in e-commerce capability is no longer optional. Indeed, thanks to the increase in e-commerce usage, savvy retailers are using this as an opportunity to accelerate plans to develop new digital & omni-channel capability.
Source: ONS Retail Sales Index Internet Sales Aug 2020
This is why we are launching a series of webinars under the theme “Change is Now” where we’ll bring together industry experts and retail insights to provide guidance in navigating current & future challenges facing the world of retail. The first of these webinars is on 15th October and will focus on the potential importance of the peak Christmas trading period in shaping the longer-term future for your business.
Peak in a pandemic: A platform for change
The accelerated nature of change in 2020 is coming into increased focus right now, as we are about to enter what is usually the most important trading period of the year for most retailers, the Christmas peak. The relative importance of peak this year to a business, and the degree of stress it is causing, is likely to depend on how robust the business has been thus far in responding to coronavirus. There are certain retail verticals and categories that have seen demand and sales maintain, especially for essential items such as groceries, but also for categories such as home improvement which have been boosted with customers spending more time at home. There are even some categories, such as bikes, that have failed to meet demand, in part due to supply challenges.
Source: ONS Retail Sales Index August 2020
However, in categories such as fashion sales have yet to recover, online or in-store, and as such excess stock levels and growing cash flow concerns will put more pressure than ever on having a successful peak in 2020.
There will be further polarisation in the discretionary spend available to customers. With recent news suggesting over 1,500 firms planned more than 300,000 redundancies in June & July, with no doubt more to follow as the British Government wind up their furlough scheme, there will be some customers needing to be far more careful with their household expenditure. Whereas those of us fortunate enough to have livelihoods unaffected could potentially just carry on as normal. The challenge this presents is identifying and targeting these customers, with jobs impacted across small & large business, in blue- & white-collar trades, it is not a case of expecting behaviours to change unanimously across ABC1 or C2DE demographics.
The challenges facing retailers at Christmas this year are not just important for managing short term business results, but also to set themselves up for longer-term success. Customers are habitual, so if they shift their spend from one retailer to another that is better able to meet their needs during peak, this can be very difficult to recover from. And better results = more cashflow to invest in new capabilities once the economy starts to recover, so what strategic moves should retailers be taking to avoid becoming the next big victim of Covid-19?
Drive efficiency & joint value through partnerships
The constraints put in place by Covid-19 have meant that retailers have had to think outside the box for new ways to serve their customers. According to KPMG, “Retailers will need to reconsider their business models and consider partnerships to stay relevant” with one example being food retailers teaming up with Deliveroo & Uber Eats to have more groceries delivered to customers during lockdown.
The right partnerships can be a quick & effective way for retailers to expand their offering, rather than trying to go it alone and build new capabilities from scratch. Take the example of Tesco trying to compete with the discounters, Aldi & Lidl, through the launch of Jacks – two years after the launch they are still only operating in 13 stores, despite significant investment. Compare that to Next, who have announced a joint venture to take over the UK arm of Victoria Secret, leveraging their considerable distribution capabilities and benefitting from an established brand that is ready to go to market. Next CEO Lord Wolfson, recently in interview with Retail Week, said that they and potential partners are “being more open minded about the kind of collaborations that we can do” and that any new ideas “must create value for customers and clients; play to its strengths, assets and expertise; make a margin commensurate with the risk; and make a healthy return on capital”. Whilst the constraints under which retailers serve their customers have changed, their underlying needs & motivations have not shifted, therefore any new innovations or partnerships should still be aligned to a long-term strategy, rather than just short-term tactics. With supply chain & logistics challenges expected in the run up to Xmas, and retailers needing to clearly communicate their last delivery date, establishing some new strategic partnerships in the next month or two could make all the difference.
Embed omni-channel thinking across your organisation
Whilst organisational designs will differ based on a retailer’s business model, we should expect “digital” to follow a similar trend to data science & analytics skills over the last decade. Ten years ago, data science & analytics was usually a siloed function working on specific projects but advances in data processing technology & cloud solutions have democratised data insights across many organisations, so that data-based decision making is now commonplace. Similarly, digital and e-commerce teams tend to be focused purely on the growth of that channel, but given customers jump seamlessly between online & offline, so too should retailers. This means digital shifting from a function to a capability and that capability should be widespread across an organisation & across teams; marketing & operations teams should have shared KPIs focused on customer growth, not channel growth. The more people you have thinking about the omni-channel journey heading into peak, the more likely you are to be successful.
Performance marketing needs to be on point
With the rise in e-commerce sales, there has never been more opportunity to communicate with customers in such close proximity to the point of purchase; search, social, display, affiliates, marketplaces and many more channels now have addressable audiences just a click away from your website.
This presents several challenges. Firstly, which of these channels should you invest in? Based on research from experts such as Analytic Partners, which suggests that even spreading budget across five different channels you still have not reached the point of diminishing returns, the answer is usually “all of them”.
Source: Analytic Partners, 2016; Analysis based on over 3,200 campaigns from 2010-2015
Rather than a “channel strategy”, what is really needed is an “audience strategy”, capturing customers when they’re in the market for your products in the places that are most convenient for them.
The next challenge is how to split your budget across these channels. Aggregated data across Summit’s client base suggests that search is an incredibly important channel, accounting for nearly half of all sales, with organic search the most common route to a purchase. Organic social does not appear to be the viral silver-bullet that many expected it may be following the Oreo Superbowl “Lights Out” tweet that captured the hearts of many marketers at the time (if not quite the extensive reach of customers claimed), but that doesn’t mean an integrated content plan relevant to your brand, amplified by paid activity can’t drive upwards of 5% of your sales.
Source: Summit clients, March-August 2020
Obviously the optimal breakdown across channels will be different for each retailer depending on their objectives, and a last-click attribution model doesn’t reflect the role of channels building brand awareness higher up the funnel, but performance marketing budget should be spread across multiple channels to drive immediate sales returns.
This will then present a final challenge around optimisation. You can set your budgets and targeting at the beginning of the campaign, but these need to be optimised as you learn about what is more successful to ensure maximum efficiency. This optimisation is depending on what you choose to optimise too. With more of this optimisation being done through AI, it is vitally important that you are clear on your objectives and the outcomes you wish to drive. A basic focus on the biggest ROI possible will lead to minimising budget and focusing only on those customers most likely to convert and can actually result in shrinking sales & market share, as you’re not targeting lighter & repertoire users. Instead you should be optimising to more tangible objectives linked to overall business performance, such as profit, revenue or customer volume.
Invest in technology that drives genuine benefit for the customer
The rate of technological development & change was already going at breakneck speed prior to the pandemic, but there may have been a shift in retailers’ willingness to adopt new technology; people are naturally more open to new ideas when performance is struggling. However, there are pitfalls that are easy to fall into when confronted with the plethora of technology companies prepared to pitch their version of the next big thing. When considering whether to adopt a new piece of technology, it is important to ask whether it a) has a benefit to the customers and makes their shopping experience better and b) whether it will help you achieve your strategic objectives. The question leaders should be asking themselves is “what should we do?” not “what could we do?”.
Whilst there are examples such as the likes of Amazon & Argos offering same day delivery thanks to the use of AI in their supply chain, there are ample examples of Augmented Reality (AR) being used purely because it was possible, rather than adding a tangible benefit for the customer. For every Ikea using AR to superimpose potential new furniture purchases into a room at home are the exception that proves the rule, there is a supermarket trying to encourage customers to use AR to have Marvel superheroes appear in their aisles. A great example of customer-centric thinking with new tech is & Other Stories launching beauty product vending machines in Galeries Lafayette, allowing customers access to their products in a completely socially distanced way, avoiding any human interaction!
Implementing new tech platforms can often be an expensive and time-consuming task, so another recommendation is to trial, test & learn with new innovations prior to scaling across the full business. Most retailers would usually be more conservative at peak and reticent to trial new ideas, however recent research has suggested customers are more open to trying new products & services during lockdown. For example Social Media Link showed that more than half of consumers tried new brands in the first month of lockdown, so peak could potentially be the ideal time to put some new ideas to the test.
Of course, these are only a few of the potential things retailers should be thinking about heading into the peak trading period. On 15th October, we’ll have guest speakers from the retail industry sharing their views and plenty of opportunity to ask questions and debate the issues of the day. Follow the link below to sign up!