By the time you’re reading this, the annual orgy of consumerism leading up to December 25th should have passed. Whether you’re an enthusiastic participant or just among the multitude of more or less acquiescent observers, the past few weeks cannot failed to have made an impact. Mindless musak everywhere; the sudden appearance of mountains of mince pies, chocolates and cakes; the increasingly crowded aisles and lengthening checkout lines.
Every Christmas shopping season seems more or less like the last. Yet think back five years — or a decade if you’re old enough — and you may recognize the gradual but radical changes revolutionizing how we shop, transforming the global retail industry along the way.
There’s a good chance, for example, that you did some research on your smartphone before going to the stores; maybe you planned to buy a GoPro after reading an ad for the gadget, but switched to a rival product that was rated higher in an online survey; or during a break from shopping, you used your phone to see what local products were on offer, dropping into a nearby shop to make an unplanned purchase. Or maybe gifts were off the menu this year and you spent the money saved on a mindfulness retreat in Bhutan. (You’ll still have spent a small fortune on the kids, though. You can’t get away from that.)
These are some of the incremental ways that technology and e-commerce are altering consumer behavior: negating advertising, shortening decision times and giving smaller vendors a chance to compete with bigger, richer rivals.
Technology gets companies closer to customers, letting them pitch new designs and ideas with shorter life cycles; but it also lets customers escape the High Street in search of that new Holy Grail of consumerism: the Authentic Experience. And of course, Xmas sees a spike in the biggest technological disruption of all: more and more of us are skipping the crowds and queues altogether, doing all our shopping online. As delivery times and costs shrink and convenience and reliability rise, that’s only going to continue.
- 66% of US shoppers research online before buying at a physical store
- 50% visit a shop first before buying online at the best price
- 43% buy online but visit a store to collect their purchases Source: Deloitte
Perhaps the big surprise is that people bother to go shopping at all. But there they are, the hordes who thrill at the ritual, dragging their forlorn bag carriers behind them for days on end.
E-commerce, then, won’t be an inescapable linear progression from bricks & mortar to an all-clicks world of virtual carts and drone deliveries. Digital disruption in retail — as in so many other industries — has become a process of continual fragmentation and recombination. Throw it in the blender, whizz it up. You never quite know what will emerge from the gloop — another short-lived supernova, a superbly adapted survivor, an evolutionary dead-end?
At the moment, it’s safe to say that the long-term decline in foot traffic to shopping centers will continue. Retail store visits in the US fell from 35 billion in 2009 to 17 billion in 2013, according to PwC. That is piling pressure on big-footprint players in developed markets. Consider that in 2014 the US had about 4.7 square meters of retail space for every man, woman and child, more than four times the amount in China.
Many of the world’s retail giants are struggling to cope with the pressure to adapt their business models. Sports Authority, once America’s biggest sporting goods chain, filed for bankruptcy protection in May, 2016. Sears Holdings was among seven companies with a high risk of failing within two years, Fitch Ratings said in an October report. Macy’s, Kohl’s, JC Penny and KMart are all shuttering stores.
Survivors are investing heavily in their online and mobile platforms to defend sales — Wall-Mart paid a record US$3 billion for Jet, a disruptive e-commerce delivery startup. But they’re competing against a host of digital-only startups with no legacy infrastructure costs and that are funded by private investors, allowing them to continue burning through cash for longer as they eat into the incumbents’ market share.
The incumbents are also up against Amazon, which is set to pass Macy’s as the biggest seller of apparel next year. Amazon is also invading the bricks & mortar world with its first small-format grocery store, Amazon Go, opening on December 5. Using an eponymous app, shoppers grab the products they want and leave the store. No checkout line hassles. And Amazon is piling more pain on retailers with free, faster shipping.
Own-merchandise stores have been another big loser in the shakeout over recent years: American Apparel and Aeropostale being the latest high profile failures. Nine West Holdings and Gap are both struggling. They haven’t been nimble enough to compete with the turnaround of fast fashion outfits like Zara and H&M.
Being close to the market ought to help, by allowing apparel makers to adapt to rapidly changing fashions, keeping supply lines tight and inventory low.
Still, American Apparel put Made in America at the core of its brand, appealing to the supposed preference of millennials for quality, ethically sound clothes. Only it turns out millennials don’t really care which Bangladeshi child laborer stitched their cotton micro-shorts. They just want them cheap, now and preferably so, like, just in. “Same-day delivery, pop-up stores and self-service centers (such as those being offered by Amazon) are becoming necessary to stay relevant,” Bloomberg Intelligence says.
Millennials now comprise the largest demographic group in the US. Connecting with them is vital: the 71.2 million 18- 34-year-olds in America spend US$600 billion a year, which may reach US$1.4 trillion by 2020, Accenture estimates. If they’re going to part with their money at all, this group of shoppers doesn’t like to traipse round malls. Convenience, innovation, to stand out from the crowd: they want it all. Physical shops are becoming more a social venue to meet friends and try out online purchases.
“Market power will flow to consumer goods manufacturers that have the most direct relationships with the end customer,” John Maxwell and John Sviokla, from PwC’s Strategy & unit, wrote in a December report. “Stores are offered as an experience alternative to restaurants, coffee shops, and movie theaters … in a more digital economy, you still must consider offering attention-grabbing retail outlets that give shoppers the tangible, sensory experience.”
A worrying trend picked out by Bloomberg Intelligence is that consumers are increasingly unmoved by new fashions, preferring to spend their money on experiences. Sales at US clothing and accessory stores fell in most of the 12 quarters to June 30, while spending gained fastest in the travel and home-improvement sectors. One can never have too many shoes, hard hats or hammers, don’t you agree?