Today’s retail landscape has never been more competitive as retailers across the globe strive to keep pace with shoppers’ changing expectations. To get a current perspective on the state of the UK retail industry, we talked with Diana Parker, Microsoft’s sector director for retail, consumer goods, travel & transport in the United Kingdom.
Q: What do you consider the biggest challenges UK retailers face regarding the future of their business, and why?
We have the perfect storm in the UK. The uncertainty over Brexit, much publicised in terms of its impact on consumer confidence and the wider economy, brings further challenges to retailers in the area of employment. There is already a marked decline in the number of people from mainland Europe seeking work in the UK, not helped by the lack of clarity over freedom of movement. The imperative to pay minimum wage, whilst doubtless a necessity, has put pressure on margins which were already pretty squeezed.
Add to this the disruption caused by customers who are increasingly demanding services tailored to their specific wants and needs, and the difficulty providing that from the legacy systems traditional retailers are working with, and it becomes clear that the competition from digital native retailers will be keenly felt. Achieving the right balance between bricks-and-mortar and online channels with squeezed margins and shifting buying patterns presents a significant challenge.
Q: There’s been a lot of discussion about the future of the store. How valuable do you think brick-and-mortar will be?
Over the last couple of years, online retailing across Europe has grown by around 32% whilst overall retail sales have only grown by 3.4%.* Traditional retailers run the risk of shifting customers from store to online but still having to pay for both channels, leaving pure play online retailers with a competitive advantage. The bricks-and-mortar store owners have not fully embraced customer insight yet either, and this is an area where born in the cloud retailers have another advantage.
The recent fall of Toys R Us UK and Maplin shows the danger of failing to adapt to changing customer behaviours and could be attributed solely to online competitors providing a quicker and cheaper service. But that wouldn’t explain how other store retailers are still surviving.
At Microsoft, we do not believe that traditional brick and mortar is dying. Instead, we believe that the traditional brick and mortar model is dying. Technology solutions – and data solutions in particular – play a huge role as brands look to better understand what’s next; from the next trend in shopping, to the next consumer demand and more.
There are definite advantages to having a store estate in that it offers a place for great experiences to build brand loyalty with customers. We are seeing an increasing trend towards breaking away from the traditional customer journey and experimenting with different interactions, making stores an experiential destination. The story for Toys R Us may have been entirely different if its stores offered amazing play areas and product demonstrations. This is where understanding your customers is key and ensuring that when they do come to your store, whether to collect an online order, complete an instore purchase after researching online or for a more traditional store-only experience, that you are meeting their increasingly fluid expectations.
Q: What opportunities do you think exist for the UK retail industry? What’s the role of technology innovation?
While the retail environment is undoubtedly challenging, there are also many success stories in the UK with different approaches. For example, the market share success of Aldi with a format that would have been unthinkable 10 years ago. We are also seeing more traditional retailers like Marks & Spencer reinvent themselves and take a digital-first approach.
Successful retailers will tap into the shopper’s desire to be served on their terms in a personalised way that meets their needs whether that is speed, simplicity, personalised recommendations or cost. Technology will be at the heart of these successes. Knowing your customers and your stock and being able to effectively manage both will mark out the winners and losers – data will be key but using it to create the right experience will make the difference.
Q: Where can these technologies drive the most impact?
I believe that data is the critical element around which success will pivot, but crucially having data is not enough. Gaining insight and then taking effective action from it is what will be key.
Knowing your stock levels is only useful if you do something as a result – like providing much quicker access to items that are not in store through alternate locations or home delivery, or ensuring greater access and speed in picking large grocery orders. Knowing your customer is only useful once you can make relevant recommendations or localize your product assortment to the right demographic. Knowing both of these and combining that knowledge with, for example, weather data to predict when you might need extra stock of dry shampoo (due to drought) or of snow shovels is effective if your supply chain then reacts to this with enough agility to put you ahead of the competition.
Consumers are starting to become far more savvy about the value of their data, and GDPR means that retailers must be more intentional in how they manage and use data. But used well, they can create positive impacts on customer service and experience. Look at fashion retailer Burberry who is implementing a strong digital focus. Its transformation plan includes strengthening brand proposition by changing the approach to customer communication and in-store experience. It recently announced a refocus on the luxury customer, saying it would invest in digital innovation and in refurbishing its stores, connecting them through true omnichannel services. In doing so, it intends to woo a luxury consumer, who demands “innovation, curation and excitement from brands and creativity at every turn.”
Consumers are also more informed than ever, so retailers need to empower their staff with product information at their fingertips to deliver a truly personalised service to every customer, together with anecdotes on perhaps produce or fashion trends to drive a meaningful conversation. There’s also convenience. A future where we can take products from the shelf, put them in our bag and be charged for them as we exit the shop, without any interaction with another human being, is already here.
Q: What technology innovations are you most excited about?
Keeping with the data theme, next generation technologies, in particular artificial intelligence (AI), are starting to find their home in retail, including grocery, fashion and general merchandising. Not least because the significant business value that AI can deliver to retailers of all sizes and shapes is quickly moving beyond the hype and getting the recognition it deserves.
Stock replenishment and price optimisation are two of the most critical areas in which AI is being effectively applied. For example, Morrisons is using AI to accurately predict customer demand and order the right level of stock. This replaces their traditional stock replenishment model, which was done mostly through manual processes performed by in-store teams. These processes are time consuming and inaccurate, leading to high waste or out-of-stock rates. AI has enabled Morrisons to profitably respond on a daily basis to demand factors across the supply chain, inventory and pricing to drive competitive advantage. Machine learning solutions translate the business strategy of the retailer into thousands of daily replenishment and pricing decisions. This has enabled Morrisons to reduce shelf gaps in its stores by 30 percent and a two to three day decrease in stockholding in-store.
There’s also innovation which makes use of your existing infrastructure. For example, you can use your security cameras to show how customers move around your store – giving you valuable insight on queue management and the optimum positioning for in-store promotions.
But I think one of the most exciting areas is in mixed reality. Being able to offer an immersive experience, so you see the outfit you’re considering in the environment for which its meant – holiday clothes on holiday, hiking gear up a mountain – or being able to give access to your Pinterest board to a kitchen design store so they can then build your perfect virtual kitchen, which you can change on the fly until you find just the combination you want. These are all experiences which can be done now and will delight customers and drive success and market share.
*Centre for Retail Research, Online Retailing: Britain, Europe, US and Canada 2017, 28 March 2017
For more intelligent retail insights and findings, download Microsoft’s AI Retail Playbook.
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