Next-generation retailers: how to survive in the age of ultra-competition
The retail landscape has transformed almost beyond recognition in the past few years. The ever-increasing migration of customers online and the penetration of mobile, powered by the rise of the smartphone, has completely shifted the rules of engagement when it comes to selling to consumers. The battle is no longer just about who has the best brand, or even the best products, but rather who can also deliver the most seamless start-to-finish user experience, 24/7, across an increasing number of devices and channels.
This shift has ushered in an age of ultra-competition in which behemoth marketplaces such as Amazon and streamlined pureplay e-tailers, unencumbered by physical stores and powered by tech, are well-adapted to thrive and win.
Recent research from Barclays identifies the following four pillars as winning business traits in today’s online retail environment:
1. Identity (low friction, payments and personalisation)
2. Distribution (scale across a large volume of customers)
3. Store (seamless UX across a broad range of categories or a narrow niche)
4. Logistics (high service through strong in-bound and out-bound logistics)
In addition to these four, I would add ‘Technology’ as a fifth pillar. Investment in technology is the transformative factor that turns a bookseller into an Amazon, or distinguishes an innovator like Spotify from HMV. As Technology Products Editor for CNBC, Todd Haselton, eloquently puts it:
“Efficiency is the beating heart of business. Technology is what businesses use to become more efficient. It’s like electricity, or air. That’s why larger companies that may have dominated their sector for decades are now looking to invest in or swallow tech start-ups as a sort of heart transplant.”
Without investing in tech and automated retail solutions, your business simply will not survive. As well as increasing efficiency, tech enables a shift towards a leaner, more flexible organisational structure. Pureplays such as Boohoo or Farfetch already possess a natural advantage in this regard, simply by not having to deal with legacy organisational structures, physical stores and their associated fixed overheads.
So, how can established bricks-and-mortar retailers boost efficiency to compete with this new breed of agile, fast-growth competitors?
1. Don’t do everything in-house
Many retailers are reluctant to outsource certain business functions, whether because of understandable reservations about service levels, governance and loss of centralised control, or simply due to inertia and a ‘that’s the way we’ve always done it’ attitude. However, in some cases, it simply makes good business sense to outsource non-core competencies to a trusted, specialist partner. After all, you’re not going to be best-in-class at everything – and the fast-growth pureplays get this.
For example, the majority of online retailers (with the notable exception of Net-a-Porter, whose early stated mission was to ‘redefine magazines’ – not retail) are not set up to produce high volumes of quality content in-house, at the speed and scale demanded by the internet consumer. They are set up to manufacture, buy and sell products.
But the reality of today’s ecommerce environment, as I learned during my time as Global Marketing Director at Figleaves.com, is that high-quality content is a non-negotiable requirement for selling – whether that content takes the form of product photography, product and data feed descriptions, buying guides or even product videos. To create all of that content in-house would require appropriating all of the competencies of a publisher – with enabling technology, a huge editorial team and all the associated recruitment, salary, equipment and office space costs.
On the other hand, by outsourcing a non-core competency like content production (and others), you can massively increase internal efficiency while reducing fixed costs and managing spend variably throughout the year, which has a material positive impact on margin.
2. Get your priorities right (using data)
One of the reasons why Boohoo has been so successful (they reported a 97% profit increase in 2016) is their shrewd use of data. Thanks to their agile, data-driven ‘test and repeat’ strategy, Boohoo are leading the way in the fast fashion stakes – producing affordable, on-trend pieces, putting them online, meticulously monitoring which items are selling out, then ordering and stocking more, while phasing out lower-performing lines.
They apply the same focused approach to their marketing, prioritising their mobile channels (because that’s where their millennial customers are) and forging strategic partnerships with key influencers to reach their core audiences.
Other retailers need to take a similarly data-driven approach to their marketing, channels and budgets. If spend on ‘hero’ content such as TV or online display ads isn’t translating into conversions, stop wasting money on it and focus on the channels that do perform or the levers that can make a difference, like website and mobile optimisation. It might not win the CMO an award at Cannes, but it will deliver revenue. Which brings me on to the next point…
3. Go back to basics
As mentioned earlier, the true battle for ecommerce dominance comes down to the quality of the overall user experience, from browsing, to basket, to delivery. Even if you spend millions on a flashy advertising campaign, this simply won’t translate into conversions if, when a customer lands on your website, the shopping experience is shoddy – and our Quill Quality Score analysis shows that, all too frequently, it is.
This means that the real fundamentals should take precedence: a convenient delivery and returns policy, mobile optimisation, easy-to-use on-site search, localised content for international markets, logical navigation and category structures, quality product photography, unique and detailed product descriptions, helpful buying guides and videos, authentic customer reviews, simple checkout.
And with Amazon now enjoying a 55% share of ‘first product search’ traffic as consumers increasingly sidestep Google, it also means that SEO is all the more critical for acquiring as much direct organic traffic as possible. That means having properly optimised, unique description copy, particularly on category pages – a relatively easy step, but something only 15% of online retailers are currently doing. This constitutes a massive missed revenue opportunity.
4. Be ready for the future
The ecommerce landscape is constantly evolving and the companies that survive will be those that seek to innovate, invest and proactively prepare for future digital and shopping trends. With advances like conversational commerce, augmented reality and beacon technology all picking up steam, keeping up with the pace of change – whilst doing the basics well, or better than everyone else – will be key to avoiding extinction.