Future high street retailing

Retailers are complaining afresh about their high street shops being finely balanced between survival and closure: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8358028/Retail-chiefs-warn-Treasury-over-wave-of-shop-closures.html.

It is hard not to feel some sympathy with them, but I also feel a degree of annoyance at their lack of vision. They look like yet another British industry group whose managers can seemingly only understand two tools – cost reduction and price increases. I guess they could get jobs with government if they are made redundant, they are obviously a good match for those who are seemingly only able to tweak tax and interest rates (I feel another blog entry coming on).

In brief, many people have much less money due to the recession, and petrol and food prices have risen a lot, so they have consequently reduced their spending on clothes to help balance their budgets. Like many people, I buy almost everything online or in out of town superstores, and only ever go into town if I need clothes. But the clothes I buy do come from the high street, apart from basic stuff that you can easily pick up at Tescos. (I did notice that my favourite men’s shop in Ipswich has now gone. I have often joked that Ipswich used to be a one-horse town, but then the horse died. So my joke has become a personal reality. Anyway, back to the point).

The retail industry leaders want less financial and administrative pressure on them from government (fair enough) and the ability to pay less to young people (not so sure here). They argue that being able to reduce wages for young workers would let them employ more, thus increasing employment and leading to a retail-led recovery. There is some truth in the argument of course. Reducing the cost of labour allows prices to be reduced, increasing sales. Extra sales stimulates more manufacturing, more supporting services, more R&D, new ideas, and some of all that might be suitable for export. So the argument is not without merit, but economics is very complex, and it is very easy to trip up and invest too much in policies with poor returns. For example, retailers could simply abuse wage reduction to increase profit margins, without either creating  increased jobs or reducing customer prices. Also, many clothes are imported so much of the associated economic benefit from increasing sales would go elsewhere. So, even though allowing retailers to pay lower wages might yield a little economic benefit for the UK as a whole, I think other policies might prove better.

There are many factors in costs of running a high street shop, and many that affect the overall cost of a shopping trip other than the price of the goods. Some have a natural feedback loop. If lots of high street shops close, and there is insufficient demand for yet more coffee shops, the rents demanded by the property developers will fall – they make nothing at all if they charge so much that their building is left vacant. If town centres are left sufficiently empty, the amount that councils can demand for car parking will fall.

There are also lower limits on how far demand will fall. Not everyone is severely affected by recession. A high proportion of the workforce is still in jobs with high job security, especially in the public sector. Some have just as much money as ever, and if anything, have benefited from reducing prices and interest rates. Most are not facing any likely redundancy that might make them unwilling to spend. Others have seen only small reductions in income, via reductions in pay rises or overtime. This bulk of the population guarantees a continued demand for products and services, even in luxury sectors. They will still want clothes, regardless of price reductions, so some stores will certainly be able to stay in business.

So although reducing wages and using the savings to lower prices or increase jobs a bit might help a little, what we really need is the development and deployment of new manufacturing and services that can be sold elsewhere as well as internally. Moving wealth around inside the economy doesn’t help nearly as much, and only yields slow growth. If the retailers focused less on cost reduction and more on other ways to stimulate sales, the benefits would be greater. This is actually true throughout the UK economy, in every sector. UK managers have generally been far to focused on cost reductions instead of looking at ways to improve revenues.

During the 1990s, many retailers introduced coffee shops and restaurants into their high street stores. Since then, there has been little change. The next decade will have to be a bit more imaginative. There are many areas where shops should be innovating and many new areas will be opening in the next few years. High street shopping could and should be much more exciting, and retail revenues could be increased. Some of the services and technologies required would be well suited to exports, so the UK economy as a whole would grow. It is developing these that should be the priority, not wage reductions. So what are they? I looked at some upcoming retail trends in my blog last summer, slightly more nicely packaged in http://futurizon.com/articles/retailing.pdf, but I’ll cut and paste the more relevant bits now to save you having to click, and maybe update a bit.

Since the iPhone and iPad became popular, followed by numerous competitive offerings, mobile internet access is now much more useful and accessible. People can now access the net to compare products and prices, or get information, or add value to almost every activity. But the underlying, less conspicuous trend here is that people are getting much more used to accessing all kinds of data all the time, and that ultimately is what will drive retail futures. With mobile access increasing in power, speed and scope, the incentives to create sites aimed at mobile people is increasing, and the tools for doing so are getting better. For example, people will be able to shop around more easily, to compare offerings in other shops even while they remain in the same one. Looking at a suit in M&S, I’ll also be able to see what comparable suits Next has across the street, and make a sensible decision whether it is worth going to try it on.

This will be accelerated by the arrival of head-up displays – video visors and eventually active contact lenses. The progress in 3d TV over the next few years will result in convergence of computer games and broadcast media, and this will eventually converge nicely into retailing too, especially if we add in things like store positioning systems, gesture recognition and artificial intelligence (AI) based profile and context engines. These are all coming quickly. Add all this in to augmented reality, and we have a highly versatile and powerfully immersive environment merged with the real world. It will take years for marketers and customers to work out the full scope of the resultant opportunities. Think of it this way: when computing and telecoms converged, we got the whole of the web, fixed and mobile. This time it isn’t just two industries converging – it is the whole of cyberspace converging with the whole of the real world. And while technology will be the main driver, it will also stimulate a great deal of innovation and progress in the human sides of retailing.

So we should expect decades of fruitful development, it won’t all happen overnight. Lots of companies will emerge, lots of fortunes will be made, and lost, and there will also be lots of opportunities for sluggish companies to be wiped out by new ones or those more willing and able to adapt. Companies that only look at cost reductions will be among the losers. The greatest certainty is that every company in every industry will face new challenges, balanced by new opportunities. Never has there been a better time for a good vision, backed up by energy and enthusiasm. All companies can use the web and any company can use high street outlets if they so desire. It is a free choice of business model. Nevertheless, not all parts of the playing field are equal. Occupying different parts requires different business models. If a store has good service but high prices and no reason someone should not just buy the product on-line after getting all the good advice, then many shoppers will do just that.

An obvious response is to make good use of exclusive designs. A better and longer lasting response is to captivate the customer by ongoing good service, not just pre-sale but after-sale too. A well cared for customer is more likely to buy from the company providing the good care. If staff build personal relationships and get to know their customers, those customers are highly unlikely to buy elsewhere after using their services. Augmented reality isn’t just a toy for technophiles. We’ll all be using it, just as we all now use the web and mobiles. Augmented reality provides a service platform where companies can have an ongoing relationship with the customer. Relationships are about human skills, technology is just a tool-kit.

As we go further down the road of automation, the physical costs of materials and manufacturing will generally fall for any particular specification. Of course, better materials will emerge and these will certainly cost more at first, but that doesn’t alter the general cost-reduction trend. As costs fall, more and more of the product value will move into the world of intangibles. Brand image, trust, care, loyalty, quality of service and so on – these will account for an increasing proportion of the sale price. So when this is factored in, the threat of customers going elsewhere lessens.

AI will play a big role in customer support in future retail, extending the scope of every transaction. Recognising when a customer wants attention, understanding who they are and offering them appropriate service will all fall within the scope of future AI. While that might at first seem to compete with humans, it will actually augment the overall experience, enabling humans to concentrate on the emotional side of the service. Computers will deal with some of the routine everyday stuff and the information intensive stuff, while humans look after the human aspects. When staff are no longer just cogs in a machine, they will be happier, and of course customers get the best of both worlds too. So everyone wins.

Adding gaming will be one of the more fun improvements. If a customer’s companions don’t want to just stand idly and get bored while the customer is served, playing games in the shop might be a pleasant distraction for them. But actually games technology presents the kind of interface that will work well too for customers wanting to explore how products will look or work in the various environments in which they are likely to be used. They can do so with a high degree of realism. All the AI, positioning, augmented reality and so on all add together, making the store IT systems a very powerful part of the sales experience for shopper and staff alike.

Positioning systems exist already, via GPS and mobile phone networks, with Galileo also maybe coming soon. Indoors, some of these systems don’t work, so there is a potential niche for city positioning systems that extend fully inside buildings. With accurate positioning, and adding profiling and AI, retailers can offer very advanced personalised services.

Social networking will change shopping regardless of what retailers do, but if the retailers are proactively engaged in social networking, adding appropriate services in their stores, and capitalising on the various social networks fads, that is surely better than being helpless victims.

Virtual goods have a significant market – online gaming and social networking has created a large market for virtual things, and some of these overlap with stuff sold in high street shops – clothing, cards, novelties, even foods. People in games spend real money buying virtual goods for their characters or their friends. There is no reason why this can’t happen in the high street. Someone playing a fantasy character in World of Warcraft may well be open to trying on a magic cloak in a high tech changing room in a high street clothes store, or drinking something in a coffee shop based on a potion their character is drinking. In fact, the good on offer in a shop could extend to vastly more than are currently on display. With augmented reality, a shopper might walk around a physical store where the entire display area is full of goods customised to them personally. The physically present items that are not suited to them might be digitally replaced in their visors by others that are. This increases the effective sales area dramatically. The goods need not be entirely virtual of course. They might well be real physical products available online, or form a larger store, or from associates. We may see companies like Amazon using real high street shops to sell goods from their stores – they’ve effectively been doing that with bookshops for years without even having the consent of the bookshops, so why not extend it using proper business alliances, implemented professionally, instead of simply digitally trespassing?

Try-on outlets are another obvious development. People mostly want to try clothes on before purchasing them (I am one of the many men who lets their wives buy most of their clothes, so am not sure how much of a ‘mostly’ it is). But not everyone is a standard shape or size, in fact very few people are. So although an item might fit perfectly, usually it won’t. Having a body scan to determine your precise shape and size, and having a garment custom manufactured would be a big improvement. With advanced technology and logistics, this wouldn’t add very much to the purchase price. A shopper in a future high street outlet might try on a garment, and if they like it, they would take it to the checkout, or more likely, just scan the price tag with their mobile. Their size and shape would be documented on a loyalty card, mobile device, store computer, or more likely just out there somewhere on the cloud. The garment then goes back on the shelf. A custom garment (the customer may be able to choose many personalisation options at this stage) would then be manufactured and delivered to the person’s home or the store, and this process could well be as fast as overnight. The customer gets a garment perfectly suited to them, that fits perfectly. The shop also gains because only one item of each size needs to be stocked, so they can store more varieties. The store evolves into a try-on outlet, selling from a greatly increased range of products. Their revenue increases greatly, and their costs are reduced too, with less risk of being left with stuff that won’t sell. Local manufacturing benefits, because the fast response prohibits long distance outsourcing. If the services and technologies required for all of these advances are developed in the UK, there may well be large export potential too. From a UK perspective, everyone wins. None of this would happen simply by trying to cut costs.

Clothes and accessories stores will obviously benefit greatly from such technology, allowing customers to choose more easily. But technology can also add to the product itself. Some customers will be uninterested in adding technology whereas for others it will be a big bonus having the extra features. Today, social networking is just starting to make the transition to mobile devices. In a few years’ time, many items of accessories or clothes will have built in IT functionality,enabling them to play a leading role in the wearer’s social networking, broadcasting personal data into surrounding space or coming with a virtual aura, loaded with avatars that appear differently to each viewer. Glasses can do this, and also provide displays, change colour using thin film coatings, and even record what the wearer sees and hears. They might even recognise some emotional reactions via pupil dilation, identifying people that the user appears interested in, for example. Health is another are obviously suited to jewellery and accessories, many of which are in direct contact with skin. Accessories can monitor health, act as a communications device to a clinic, even control the release of medicines in smart capsule.

But the biggest change in retailing is certainly the human one, adding human-based customer service. Technology is quickly available to everyone and eventually ceases to be a big differentiator, whereas human needs will persist, and always offer a means to genuine value add. This effect will run throughout every sector and will bring in the care economy, wherehuman skills dominate and computers look after routine transactions at low cost. Robots and computers will play an important part in the future, but humans will dominate in adding value, simply because people will always value people above machines – or indeed any other organic species. Focusing on human value-add is therefore a good strategy to future proof businesses. The more value that can be derived from the human element, the less vulnerable a business will be from technology development. The key here is to distinguish between genuine human skills and those where the human is really just acting as part of a machine.Putting all this together, we can see a more pleasant future of retailing. As we recover from the often sterile harshness of web shopping and start to concentrate more on our quality of life, value will shift from the actual physical product itself towards the whole value of the role it plays in our lives, and the value of associated services provided by the retailer. As the relationship grows and extends outside the store, retailing will regain the importance it used to have as a full human experience. Retailers used to be the hub of a community and they can be again if the human side is balanced with technology.Sure, we will still shop on-line much of the time, but even here, the ease and quality of that will depend to some degree on the relationship we already have with the retailer. Companies will be more responsive to the needs of the community and more integrated into them. And when we once again know the staff and know they care about us, shopping can resume its place as a fun and emotionally rewarding part of our lives.In the end it is all about engaging with the customer, making them excited, empowering them and showing them you care. When you look after them, they will keep coming back. And it is quite nice to think that the more advanced the technology becomes, the more it humanises us.

So, retailing, and even in the high street, has a potential very bright future. There is lots of competition, but good companies will thrive. Cost cutting is the wrong approach, even during recession. Investing in advanced technologies and improved services increases revenue, increase profits, leads to real economic growth, maintains potentially high wages, stimulates lots of new jobs in many sectors, and improves quality of life for all concerned. It really should be a no-brainer. Retailers should stop moaning and get on with it.

One response to “Future high street retailing

  1. Pingback: Out of town centres are the most viable future for physical shops | The more accurate guide to the future

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