With the retail industry facing continued pressures of uncertainty and weak consumer confidence, now is the time to re-examine your business model and your relevance, argues Matt Clark, EMEA Retail Lead, AlixPartners and a World Retail Congress Knowledge Partner.
There is only one constant in the world of retail – change.
The market pressures that have loomed for some time are now coming into effect and we see a direct impact on consumers' ability to spend and their purchasing habits. In our latest research, The Critical Consumer, an average of 39% of consumers in EMEA plan on spending less across all non-essential categories in 2024.
With seismic shifts in sentiment, coupled with continued wallet squeeze, how can retailers adapt to stay relevant and ensure they remain competitive?
One critical success factor is to adjust business models to stay relevant. Learning from disruptors in the market is key. Retailers can learn from, adopt, or better compete with these disruptive business models by taking a deeper look at the emerging themes. Some of the key disruptive trends are summarised below.
THE EVOLUTION OF DISCOUNT AND NEW MARKET
PROPOSITIONS
Discounters have evolved massively. Food and non-food discounters
alike have accelerated the tailoring of their proposition to suit
the consumer and have moved more mainstream, dramatically
increasing market share as consumers seek value. In non-food,
further consolidation has resulted, with likely more to follow as
only the strongest will survive. In grocery, the discounter price
matching and discount loyalty schemes prevail, squeezing margins
ever more tightly and making consolidation in the grocery sector a
real prospect.
REAL-TIME RETAIL AND STORE SELL-THROUGH
OPTIMISATION
With technologies like AI and IoT, retailers can track inventory
levels, customer preferences, and purchasing patterns in real-time.
This datadriven approach allows for immediate adjustments in
merchandising and promotions, from store level and throughout the
supply chain, significantly
reducing the incidence of overstock or stockouts. The integration
of online and offline data also enables a seamless omnichannel
experience, enhancing personalisation, customer engagement and
sales.
IPCO/OPCO MODELS: HARNESSING VALUE FROM
BRANDS
The division of a retail business into intellectual property
company (IpCo) and operating company (OpCo) models allows firms to
manage and monetise their intellectual property (brand value,
copyright, etc.) separately from their day-to-day operations. Such
a structure can lead to more efficient capital allocation, focused
brand development, and potentially higher valuations. It can also
have a huge impact on the structure and capability of the vendor
base as they take on more operational accountability. Lastly, these
changes can benefit more traditional retailers and brands seeking
more capable partners providing potentially better margin
structures and lower inventory risk.
PRELOVED AND CIRCULAR ECONOMY: EMBRACING
SUSTAINABILITY
Standalone platforms for preowned goods and retailer extensions
into this space signal a move towards sustainable consumerism. By
incorporating these models, retailers not only cater to the
environmentally-conscious consumer, but also create new revenue
streams. The challenge lies in
seamlessly integrating these models into existing retail
propositions and operations to provide a cohesive customer
experience while avoiding expensive complexity.
RETAIL MEDIA IN A COOKIE-LESS WORLD: DATA
MONETISATION
With the impending end of third-party cookies, retailers are
exploring new ways to monetise their data. Retail media networks
offer a solution, allowing retailers to leverage their customer
data to provide targeted advertising opportunities within their own
ecosystems. This model not only
creates a new revenue stream, but also enhances the shopping
experience by offering more relevant product suggestions to
consumers.
SOCIAL MEDIA AND D2C INNOVATIONS: INFLUENCER
COLLABORATION AND CONSUMER ENGAGEMENT
Influencer collaborations on social media are crucial for reaching
broader audiences and leveraging followers' trust, which
enhances customer engagement and product promotion. This synergy,
especially through shoppable posts, allows brands to bypass
traditional channels and offers more control over brand messaging,
customer relationships, and data. Innovations like personalised
products, exclusive content, and unique experiences are further
transforming how consumers discover, interact with, and purchase
products, fostering greater brand loyalty and differentiation.
The retail sector is experiencing huge change as a result of macro market shifts. Adopting or learning from these disruptive business models is becoming a core competency. These models are not just responses to current market challenges, but are shaping the future of retail. Companies that can effectively integrate new models that complement their strategy will likely lead the charge in this new retail landscape, while those unable to adapt may find themselves left behind.
We're looking forward to exploring this topic further at World Retail Congress in 2024.
You'll hear from the innovators disrupting their business
models in a World Retail Congress podcast series supported by
AlixPartners launching early next year. Our full report will be
released at the
Congress in April.
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This article was published as part of World Retail Congress' End Of Year Review. If you're interested in WRC's other insights, you can access the complete report here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.