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Comment: How the four As are changing retail

It is no secret that the retail market has changed significantly in the last few years. Today's consumers expect convenience, transparency and value for money. In addition you have to add the major disruptive factor of technology to this mix which is manifesting itself as the largest catalyst of change.

They compare prices and product reviews on their 4G phones, they search for the best deals in store and online, they shop anytime, anywhere and on any device.

When austerity hit the impact on consumers, and therefore retailers, was deep and remains to be long-lasting. Economic conditions are beginning to change for the better, but consumer behaviour is not expected to change back to the ways before the recent economic crisis.

Some aspects haven't changed though – the best performing retailers in this climate are those who have a rigorous focus on understanding their customer and apply that understanding through a differentiation on price, product or convenience. We have identified four retailers that are already winners and will continue to be so in the future based on these criteria. At first glance, they have little in common; each operates a fundamentally different business model. However, they all understand what their customers want, and that understanding applied in different ways has led each to grow significantly above the industry average.

Our four winners are Aldi, Amazon, Apple and Asos: the four As.

In a series of articles published over the next few months, we will examine what makes each so successful.

At the heart of all these successful businesses is a deep knowledge of the consumer. Each brand taps their market in different, but complementary ways. While consumers are increasingly price-conscious, they also remain very brand-conscious (to both national and retailer brands). In fact, with an ever-increasing choice of products, channels and purchase methods, a clear, relevant brand proposition is in many ways more important than ever and in this, our four As excel. A strong brand can also help to offset the ever-increasing pressure on margins – many customers are willing to pay more for a brand they trust than they would for a product they have little or no relationship with.

Consumers have become accustomed to 'austerity' pricing, along with much greater real-time visibility of prices. As a result, a structural change is occurring in the sector which will result in lower margins over the long term. More and more customers are changing their shopping habits and sticking to the change and public acceptance of the discount retailing phenomenon is growing. This has been the genesis of growth of one of our A brands in particular: Aldi.

It's no longer enough to compete on one facet only. Customers want the best price, but they also want convenience. They want the ability to purchase online, but they also want to touch and feel the product. They want quality, but they may not be prepared to pay as much of a premium for it as they used to. Purchase decisions often involve a complex series of trade-offs between each of these factors.

To succeed, businesses must touch all of these buttons. They will need to ensure that their business model can deliver sustainable returns while remaining relevant to their customers. They will need to offer customers a consistent and convenient experience right across the customer journey. And they will need to make sure they and their customers clearly understand what their brand stands for. Another of our As, Apple, particularly understands the value of touching and feeling premium products as their transition from pure manufacturer to retailer exemplifies.

The UK retail sector in 2014 continues the story of recovery from a very bleak previous five years with growth delivered across all sub-sectors. Last year, the overall sector grew by an estimated 2.5%.

The star performer, not surprisingly, was online (non-store retailing) which has increased its pace of growth and is predicted to continue at an even faster speed in the future. There is no doubt though that the online channel is increasingly cannibalising sales from the other channels. Especially as the Office for National Statistics (ONS) methodology incorporates sales from all sub-sectors in its definition. For that reason, Amazon is the third of our four As.

A further winner was definitely the apparel sector bouncing back from a disastrous 2012 posting 5.9% year-on-year growth in 2013. Although volatility remains high and innovation in delivering the right product at the right price at the right time remains imperative for retailers in this sector. We will highlight the achievements of Asos as our fourth A Grade achiever.

Taken together, Aldi, Apple, Asos and Amazon offer a compendium of insights into the mindset of the new consumer. There is much to learn from them and over the coming series we will examine each by looking in detail at what they've got that the competition don't and where they are heading next.

Paul Martin is managing director of Boxwood Insights at award winning management consulting firm Boxwood.

Click below to find out more:

Paul.martin@boxwood.com

Boxwood