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Will digitalisation save the High Street?

By Chris Long, Managing Consultant at Capgemini

High Street retail sales have been at an all-time low for the past few years. Accountancy firm BDO recently confirmed that September recorded the worst consumer spending in eight years, and yet business rates continue to rise, and the slide of the Sterling is pushing up costs. All of this makes bleak reading for retailers…

Nevertheless, we shouldn’t write off brick-and-mortar just yet! Recent innovations like Amazon’s Go concept stores, Virgin Holidays opening a new chain of stores allowing customers to try out holiday experiences, and Action for Children opening a pop-up store to drive more participation for their Secret Santa campaign, shows that mortar isn’t heading the way of the dodo anytime soon. In fact, far from shying away from the high street, digital-native brands such as Warby Parker and Casper are actually moving from online-only to having a physical presence.

So, what is causing this renewed focus on brick-and-mortar and how can retailers create an in-store experience that can compete against the ever-growing popularity of online retail?

Thinking omni-channel

Customer expectations are constantly growing, with demand focused on convenience, speed, and the ability to choose where and which channel to shop through. In order to fulfil these criteria, retailers need to ensure they have both a physical and digital presence.

The main issue is that most retailers have been far too slow to adapt to this new shopping experience, resulting in sub-par service as customers move between the two. To solve this, retailers are attempting to leverage their stores to balance out the discrepancies between the in and-out-of-store experience; transforming their business to an ‘omni-channel’ experience.

However, many retailers tend to mistake ‘omni-channel’ with ‘multi-channel’.  Whereas multi-channel relates to providing customers with the ability to shop and complete a purchase with a brand through more than one channel, omni-channel provides more of a comprehensive and integrated approach to retailing. Customers can start and stop their customer journey in one channel then pick up and complete it in another.

While customers still have a single view of a brand through an omni-channel experience, behind the scenes the picture is far more complex, with master data management required to piece together the jigsaw of  orders, payments, products and inventory into a single view of the customer to offer a seamless cross-channel experience.

It is an ongoing battle and challenge that retailers are facing – but one that will allow retailers to derive real value. True omni-channel transformation will enable stores to act as fulfilment centres, creating hassle-free shopping for customers, whilst also increasing footfall and reducing the cost to serve.

Immersing yourself in the in-store experience

Omni-channel transformation provides retailers with the foundations and capabilities to transform their customer experience. But what does great customer experience mean and look like in the digital age?

Firstly, it should be centred on breaking down the barriers between a retailer’s online and offline offering through delivering an inspirational, immersive and interconnected experience for customers. At the moment, for example, consumers are increasingly shifting from wanting to buy individual products, to buying into the types of experiences and lifestyles that they view on online platforms like Instagram and Pinterest. Retailers must take advantage of this and reimagine both the in-store and online experience to showcase products that inspire and surprise, rather than stacking them in aisles or on traditional displays. Stores should also be trialling more immersive initiatives, such as 360-degree displays or product-testing areas in-store, to create a hybrid physical-digital experience that draws customers into the store and makes them want to connect with a brand.

The omni-channel also enables retailers to connect customers through technology, augmenting the store experience and empowering customers with all the information they need at their fingertips. Asking a chatbot which aisle the milk can be found in a sprawling supermarket, where the nearest store is that stocks your size of shoe, where to find your favourite store in a busy shopping centre; all these possibilities enable the customer to engage in a 1:1 conversation with a brand and help maintain and drive customer engagement.

So far so good, but the key to great customer experience isn’t just to offer each of these elements in isolation – it is to tie them together into an interconnected digital and physical experience that has been genuinely personalised for each customer.

The retail industry is in the midst of one of the biggest disruptions it has ever faced, and many businesses are at risk of reacting too late. Retailers must seek change now and address the barriers between their in and out-of-store experience by using omni-channel and customer experience transformation to rethink the store’s role.

The benefits of a balanced and optimised channel strategy will be the increased recruitment of customers across channels. This ‘omni-channel recruitment’ will be central for bricks and clicks retailers in the digital age. Store conversion rates can be up to 14x higher in-store than online, highlighting that if retailers are able to develop a compelling channel strategy that drives customers into key stores and retail locations, they can boost sales and growth.

ANALYSIS: Why was H1 2019 online growth the lowest recorded?

A boost in June wasn’t enough to save online retail in the first half of 2019, with records showing that sales slumped to their lowest ever growth rate of just +5.4% Year-on-Year (YOY), according to the latest IMRG Capgemini eRetail Sales Index.

The Index tracks the online sales performance of over 200 retailers with a combined annual spend of £28bnComparatively, the same time period in 2018 saw results of +16.9% YoY, with consumer spending buoyed by events like the Royal wedding, World Cup and the Spring heatwave.

This slowdown in growth was also broadly reflected across the sectors, with all but three recording reduced but still positive increases. Health & beauty (+13.0%), home & garden (+9.3%), and clothing (+7.3%) saw the strongest growth, with clothing in particular having a substantially better Q2 (+11.2% YoY growth) than Q1 (+2.6% YoY), due to the hot weather and retailers starting their summer sales early. 

Looked at individually, one of the largest YoY declines in growth was seen in garden (-34.4%), although this reflected a fall from a particularly high growth rate in H1 last year thanks to the standout weather from April onwards.

Elsewhere, the sectors which fared worst were electricals (-22.7%), gifts (-22.8%) and lingerie (-8.9%), all of which have experienced a continuous decline in sales over the past six months.

Bhavesh Unadkat, Principal Consultant in Retail Customer Engagement at Capgemini, said: “The year started with a lot of gloom in the retail sector following the drop off in performance in H2 2018 and consumer confidence also fell to all-time lows. During the first half, consumer confidence settled in negative territory, on average 5.5points below 2018 and growth was lowest recorded 5.4%, a third of last year.

“In addition to this, consumers are cutting back on non-essential according to a Barclaycard survey, and sectors such as electricals are taking a hit online (-23%).

“If this year continues to mirror performance of last year, we can hope for a stronger second half.  However, with Brexit happening just before peak period and still uncertainty around what it will bring, we cannot know whether the index will recover or growth under 10% will be the new norm, at least for this year.  Caution and volatility within the market remain for the foreseeable.”

Andy Mulcahy, Strategy and Insight Director at IMRG, said: “In this country we have a tendency to regard online retail and physical retail (high streets) as being completely separate; an idea that has been feed over the past few years by the consistent growth in online even as the high street struggled. What we are now seeing is that they are not separate at all, but in fact deeply interconnected – hence growth in the first half of 2019 was the lowest yet recorded.

“With so much media coverage of well-known retailers announcing profit warnings and store closures, customer confidence in shopping with them is low. This forces them into heavy discounting to drive sales and their competitors get dragged into it too. It has now become so widespread that shoppers are used to the wide availability of discounts and many retailers – whether online-only or with a store portfolio – seem a bit stuck in it even before we reach the Black Friday peak.

“That said, from an online sales growth perspective it is the multichannel retailers (+5.2% for Jan-Jun 2019) who are currently experiencing lower growth than the online-only retailers (+7.4%). It may be that the old perception of getting better value online still persists, and that shoppers associate high street retailers with the highest chance of falling into administration, so they are having to work even harder than their online-only competitors to build sales.”

UK online retail on the rise, boosted by the World Cup and beating the weather

Online retail has enjoyed a 16.8% (YoY) growth during the first half of 2018, defying extreme weather events like the Beast of the East and various heatwaves to record strong sales results every month so far, according to the Capgemini IMRG eRetail Sales Index.

This sits in stark contrast to the sustained downturn recorded on the high-street so far this year (Feb-Jun). H1 2018 e-retail has in fact seen the highest average H1 year-on-year growth since 2011, above the 5-year-average of 14.1%. The H1 average basket value was also at its highest for the decade at £94, and again outshines the 5-year-average of £85.

Despite the UK being hit by freak cold weather moving into Spring, online retail grew by 15.3% (YoY) between January and March, with the reduced high street footfall driving shoppers to home spending. However as the weather picked up and the UK experienced some unseasonably hot weather in April, online retail sales went from strength-to-strength, with a 18.2% (YoY) growth between April and June.

Some sectors appeared to particularly benefit from the unpredictable weather. Garden enjoyed a YoY growth of 24.9% overall, its strongest first half since 2014, with a 33.7% growth in the warm months of April – June. Clothing has enjoyed consistent growth during the year so far, recording 16.3% growth (YoY) in Q1 and 17.8% (YoY) in Q2 for an average of 17.1%. Health & Beauty experienced its best growth during the wintry months of Q1, with 18.6% growth (YoY). It was also strong during Q2 (16.8% YoY) to give it an overall growth of 17.7% (YoY) for 2018 so far (Jan-Jun).

Despite the impressive growth of online retail, conversion rates for online retailers actually decreased overall every month other than May. This could be accredited to the continued trend of online shopping via smartphone devices, which are accounting for a larger share of total online sales but feature lower (albeit increasing) conversion rates. Indeed, spending via smartphone devices was up 39% against last year during Q2, although growth rates are inevitably starting to slow as this channel reaches maturity.

Andy Mulcahy, Strategy and Insight Director at IMRG, said: “The performance for online sales in the first half of the year has been a lot stronger than anticipated. There are a number of factors that may be influencing that – the extreme weather events (both hot and cold), the Royal Wedding, World Cup etc – and it might be possible that the feelgood elements associated with some of those events has encouraged people to spend a bit beyond their means.

“This could mean that we see a pinch on shopper spend as we move through Q3 – though the weather in July has been incredibly hot – which may lead to an imbalance in online retail growth between the first and second halves of the year.”

Bhavesh Unadkat, Principal Consultant in Retail Customer Engagement at Capgemini, said: “The year started with a lot of doom and gloom and uncertainty around retail. What has been encouraging is how well online retail has performed in H1, particularly in seasonal categories like Clothing and Garden. These two sectors have delivered higher basket values (38.0% and 19.6% YoY respectively), with consumers becoming impulsive in their purchases as they refreshed summer wardrobes and prepared for more time spent outside.

“Despite that online-only retailers outperformed multichannel retailers during most of H1, with average growth at 18.6% and 14.7% respectively, multichannel actually closed the gap on last year’s YOY growth. Basket value growth was also stronger for multichannel retailers, with a 4% (YoY) increase in average basket value to £100.77, compared to only 2% (YoY) for online only retailers at £87.77. It demonstrates the continued importance of an omnichannel presence for retailers – a focus on connected retail will help ensure that the ecommerce sales performance outlasts the good weather.”