By Thomas Hill
With giants such as Debenhams plc and House of Fraser posting challenging results in 2017, you would be forgiven for thinking that the high street is failing multi-brand retailers. But those that are adapting quickly to the digital revolution continue to thrive. John Lewis continued to post strong sales figures, whilst Next plc also delivered double digit online growth over Christmas.
The KX Retail Innovation Index (KX RII) reveals that the UK major high street retailers continuing to innovate are succeeding. Those being recognized by consumers for their innovation to drive customer experience are winning. Download the full report to read more: 2018 KX Retail Innovation Index.
In the current climate, retail remains simple: Deliver the right product, at the right price, with an easy and fast shopping experience. How you deliver this is evolving driven by two key elements, data and technology. As technology moves at pace, retailers are struggling to identify where to start, and what investments will have the biggest impact on their business.
Based on shopper feedback from our inaugural report on how technology is shaping retail, we review the key innovation trends that will help retailers thrive in 2018.
1. Direct to consumer
Brands recognizing the market dominance of Amazon and Alibaba are facing the reality that the retail model is changing. Brands are now looking to reach a wider global audience directly and cut out the middlemen. Digital channels are enabling global retailers to sell to local markets, and big brands such as Nike have been quick to spot this opportunity. With 28% of their revenue already generated by D2C in 2017, they are targeting aggressive growth.
In the same announcement, Mark Parker, Chairman, President and CEO of NIKE, Inc. said:
The future of sport will be decided by the company that obsesses the needs of the evolving consumer… Through the Consumer Direct Offense, we’re getting even more aggressive in the digital marketplace, targeting key markets and delivering product faster than ever.
2. Personalization is key
Personalization is the second most important driver of the KX RII. In a digital age, and especially in high-frequency sectors such as grocery, customers expect you to know their preferences and interact with them accordingly. As the D2C model grows, so does the need to ensure that your products are in front of shoppers when they are in the market to buy. Range personalization to the individual will be key. The next-generation merchant needs to adapt to this change and leverage data to deliver consumer-centric assortments. This is especially true in fashion and beauty, where supplier integration is exploding assortment and making it harder for shoppers to find what they need.
Unilever’s Chief Marketing Officer Keith Weed recognizes this and talks about delivering brand segments of one:
It’s important to communicate with consumers one on one. And that means getting to know them pretty well.
Digital channels will be critical to delivering personalized assortments to individuals, helping them find what they want quickly, at a price they want to pay.
3. Dynamic Pricing
Did someone mention price? Price continues to be a critical reason to innovate for brands, with our RII revealing that 76% of UK consumers use technology to help them find value when shopping.
In a retail world where price transparency is growing and marketplace supplier integration is spiraling, the competition to win a share of wallet is increasing. When products are sat side by side and easy to compare, price becomes even more critical.
Dynamic pricing had seen a slight decline in 2017, as retailers quite rightly approached with caution due to consumers often being critical of the practice. However, range personalization will also mean that product pricing will ultimately become one-to-one, where retailers deliver individual offers based on your personal shopping patterns. Whilst we won’t quite reach this point in 2018, expect more retailers to be changing prices intra-day in order to manage waste and availability, and to stay ahead of the competition.
Dynamic pricing will really have a benefit where it enables consumers to access products at lower prices than the competition, whilst enabling retailers to better manage availability and markdown. Retailers that adopt this practice to deliver better value to shoppers will ultimately succeed, as discussed in this article about personalized pricing in the Guardian.
4. Machines taking strain
Machine learning and AI are officially voted (well, by me) as the most annoying retail buzz terms of 2017, but there is no denying that they have a huge role to play in delivering a personalized shopper experience and optimizing supply chains.
The explosion in data-driven by connected devices, mobile and digital channels means it is no longer is it possible for an analytical function to churn out targeting models in order to keep up with the changing consumer habits. Test and learn has to be instant, and computers will take the strain in order to meet shoppers expectations.
It’s not just sexy product marketing grabbing the headlines in the machine learning arena, it will be crucial to all elements of retail optimization where data is generated and used. Product availability is critical to retailers, and the second biggest driver of ease and convenience in our index. The delicate balance of managing waste and availability is one area that machines can really drive value to retailers. Waste and markdown remain one of the biggest costs, especially in FMCG where fresh food waste remains a significant challenge.
UK Grocery retailer Morrisons has recognized this and adopted an automated ordering system to ensure they improve availability and shopper satisfaction.
Simply ensuring that sales and inventory data are connected enables supply chain optimization algorithms to be executed. With the simplicity of deploying this solution, allowing machines to carry out these tasks will help retailers improve availability and customer satisfaction in 2018.
5. Frictionless Checkout
Innovation for a smooth checkout is one of the five key drivers of the KX RII. Speeding up the checkout process is critical to delivering customer experience and loyalty. A consumer surveyed for the RII said:
I really like technology for things like contactless payment or stored payment details to make my whole shopping experience quicker and easier.
The cost of physical checkouts in-store, and the frustration of queuing, or repeatedly clicking to purchase your goods online means that advancements in this space have been growing rapidly over recent years. It’s a win-win for both retailers and consumers. 1-Click from Amazon and contactless payments in-store have been welcomed by consumers.
There is plenty more space for innovation in this area as the Amazon Go model suggests. Checkout and payment methods will continue to be critical in 2018. All for the same single reason – make it as quick and simple for a shopper to check-out, whether in-store or online. Amazon has shone a spotlight on the frictionless checkout experience, and the big retailers are clamoring to deliver this better than their rivals. Expect to see plenty more innovation in and around checkout in 2018. Whilst not yet giving details, it is clear that Tesco is looking at checkout-free technology.
Fast and flexible fulfilment options are also a crucial factor in driving shopper loyalty according to the KX RII. Connected supply chains, IoT and individually traceable products will all be critical to streamlining the supply chain in order to meet shopper demand for instant gratification. Expect the window between checkout and delivery/collection to shorten again in 2018.
Convenience remains king!
Whilst not an innovation in itself, convenience remains critical and is by far the largest driver of the KX RII. The reason to deliver all of the above should have one goal: be the easiest retailer or brand to shop with. Of the thousands surveyed in the KX Retail Innovation Index, the majority of respondents were influenced by ease and convenience when choosing a retail brand. It’s not rocket science, the basics in retail have remained the same, but how you deliver them is changing.
Brands need to keep up with the latest technology in order to deliver these better than the competition. The easiest brand to shop with will be the most successful, which is reflected in the key drivers:
- Range and choice to suit individual needs
- Good availability of products consumers want to buy
- Finding products easily and efficiently
Retailers that leverage data and technology in 2018 to deliver an easy and frictionless shopping experience on the products customers want to buy will succeed. Multi-brand, multichannel retailers should especially focus on this, alongside their core brand proposition to survive the digital revolution.
If you’d like to learn more about the KX Retail Innovation Index and how we can help meet the technology needs of your business, please get in touch at www.kx.com. For general inquiries, write to info@kx.com.
