Three quarters of retailers believe their model needs to change for them to remain relevantTuesday, May 14, 2019 | Press release
- A further 21% of retailers doubt the sustainability of their models, according to new research by World Retail Congress, OC&C Strategy Consultants and eShopWorld
- In today’s fast changing retail world, unless retailers can plot a path to the strategic higher ground quickly, they are doomed to fail
- Retailers and brands need to consider cross-border ecommerce in order to appeal to a younger generation
- To enable retailers to plot this path, this exclusive research identifies six crucial fundamentals and four winning business models to succeed in a high velocity world
Findings from new research, launched at the World Retail Congress today, provide further evidence that retailers are struggling to cope with the pace of evolution in the industry. 76% of the world’s leading retailers believe their model needs to change for them to remain relevant in the next five years.
A further 21% said they have doubts about the sustainability of their models. Only 3% of retailers believe their current proposition will remain sustainable in the next five years.
James George, International Managing Partner at OC&C, said:
“For retailers, a good business model is no longer enough: being great achieves enviable success, but being average is punished hard. Retailers are recognising this: three quarters said they need to change their business models in order to be relevant in the future.”
The research, titled ‘High Velocity Retail’ echoing this year’s World Retail Congress theme, was created together with OC&C and eShopWorld. Drawing insights from interviews with the world’s leading retailers as well as analysis of financial performance and customer ratings data of 800 retailers, the research identifies the path to success for retailers in a world where the speed of change is unprecedented.
Ian McGarrigle, Chairman, World Retail Congress, commented:
“Trying to understand today’s fast-changing retail world was core to the build-up for this year’s World Retail Congress. Our High Velocity Retail report provides a clear overview of how the old retail business model is no longer fit for purpose and identifies new models and their key success factors. The report will form an important platform for discussion and debate when the leaders of the world’s most important retailers meet in Amsterdam.”
Crucial rules for winning in a high velocity world revealed by the research are:
- Winning retailers pick their battles: A considered strategic positioning remains vital, especially as the investment required to compete on all fronts is excessive. Amazon spend over $20bn annually on technology. Walmart spend over $5bn in capex on ecommerce and technology. It is just not possible for many to play this game. Retailers are therefore being thoughtful about where to invest and where to follow. In fact, the retailers that are most highly rated by consumers globally are ones that have distinctive strategic positions.
- Being at the frontier of speed is not always necessary: Retailers should be making clear trade-offs about where they operate at the frontier, and where they can afford to follow the leader. For example, while there is much written about speed of delivery, it is still the case that 40% of ecommerce delivery in the UK, which is one of the world’s more developed ecommerce markets, remains slower than next day. Another example is SHEIN, a Chinese retail brand, which has developed a fast fashion proposition for millennial and Gen Z consumers that emphasises rapid production cycles, but slow fulfilment times, and has used this fast/slow model to rapidly scale in a range of international markets. The crucial point is to provide a solution for your customer’s specific needs, not to try and deliver everywhere.
- Go beyond borders to build your tribe: As the demand for online shopping grows around the world, retailers need to consider their strategy for attracting cross-border consumers. It is worth noting that younger generations (Millennials and Gen Zers) across the globe are resembling each other in their attitudes towards shopping and spending more than any other generation. This suggests a homogenising effect driven by technology – the internet and social channels make it ever easier for these generations to share ideas and access the same information and media. Brands providing access to the same products and services across markets and the power of truly global celebrities and influencers appear to be playing their part in this trend too. As a result, retailers should look to target these cross-border tribes and segment their customer base by similar attitudes rather than – or as well as – traditional demographics.
James George, International Managing Partner at OC&C, said:
“Retail has been speeding up for a long time. But in the present High Velocity world, it is not just about speed, but about combining it with meaningful direction. Winners are focussing on being the best at something that matters to customers: they avoid the pitfalls of going nowhere fast or trying to do everything badly.
“Crucially, speed will not cover up flaws or inconsistency in the underlying proposition. As the world speeds up and barriers to entry fall, the challenge for retailers is to translate this clarity of focus into prioritised investment decisions that develop the things that really matter to your target customer.”
eShopWorld’s US President, Cynthia Hollen, added:
“Excellence in cross-border ecommerce is an essential part of being a high velocity retailer today. Leading retailers know that building their brand and expanding their customer base around the world is the best way to achieve significant and lasting growth in today’s competitive landscape.”
Through analysis of the performance of leading retailers, the research also identifies four winning High Velocity Retail models that are succeeding in their own distinctive manner. Taken together retailers operating one of four High Velocity models are growing profit 5x faster than the rest.
High Velocity Retail models: