Comment: Are we seeing the revival of the physical store?

2018 is an exciting, but daunting year for retailers. And in an increasingly crowded market, managing costs will be the biggest challenge for 2018. Unavoidable obstacles such as cost price inflation, the national living wage, apprenticeship levy and business rates will put pressure on the bottom line – while low consumer confidence and continued disruption from recent market entrants do little to help the top line. It’s not all doom and gloom however, and in 2018 the promise of technology will help struggling retailers drive efficiency, improve productivity and get closer to their customers. Here’s my roundup of retail predictions for 2018:

Physical store come-back

Amazon’s acquisition of Whole Foods in August triggered shockwaves throughout the retail industry. Suddenly, the impending death of the high street was halted, as retailers stopped to re-evaluate brick and mortar stores as critical vehicles for driving millennial loyalty. 2018 will see the return of the physical store, but not as we know them. Millennial audiences will demand new levels of customer experiences. Apple’s impending relocation to Battersea Power Station in London for example, will not only house three floors of retail space and restaurants, but 3,000 office staff. Stores of the future won’t just be selling products, but entire lifestyles.  

Retailers will battle the mega-brand monopoly

Sales of voice-activated devices in 2017 have rocketed. But with Amazon already controlling a majority of the market and quickly branching into more and more lines of its own products, what happens to smaller brands when big brands such as Amazon and Apple dominate the market? 2018 will see smaller brands and retailers explore new ways of driving customer loyalty, through experience and personalization as well as convenience.

Loyalty gets some new love

Loyalty programmes as we know them are disappearing and becoming ineffective – 2018 will see that trend accelerate. Whilst companies experienced uplifts in their financial performance, this was short-lived. Customers are evolving and want a deeper emotional connection with brands, meaning brand owners will need to take a more ‘human-centered’ approach to designing loyalty programs. Loyalty programmes of the future will be data-driven in a way that builds trust and long-standing personal relationships. The stakes are high, with 70% of emotionally connected customers willing to pay up to double for brands they are loyal to. 

Retailers will embrace emerging technologies

Artificial intelligence will make a big splash in retail, particularly for back office areas like ranging and managing processes like allocations. However, this relies on good quality data, and retailers tend to have quantity over quality. Blockchain promises much, especially for heavily regulated areas of the industry like payment, contractual and rebate management, and provenance traceability. Retailers will also experiment more with AR and VR to make the shopping experience more immersive and to put some theatre back in to stores.

Customer service will become predictive

According to Forrester, 77% of consumers have chosen, recommended, or even paid more for a brand that provides a personalised service or experience. And with AI helping automate a high number of customer-facing interactions, sales teams have a bigger opportunity that ever before to offer tailored, personalized services to customers. 2018 will be the year of predictive customer service. AI will help enhance contact centres to the point that organizations might be able to meet customer needs before customers even know what they need.

Logistics receives investment boost

2018 will see a boom in logistics investment as retailers attempt to keep up with growing consumer demand for next- and same-day delivery. Some of the big players are already jockeying for advantage. In October 2017, Alibaba announced an $807 million investment in logistics company Cainiao and a $15 billion investment over the next five years in its global logistics network. Amazon is also expected to test “Seller Flex”, a service that helps determine how packages will be delivered on behalf of sellers.  Established retail and consumer brands will have to look at similar investment strategies to compete with the native e-commerce organizations in 2018.

Digital retailers will challenge incumbents by going direct to customers

Firms like Deliveroo are creating services that distort the traditional boundaries of sectors, as do subscription model companies like Cornerstone. These companies will have a huge impact on the future of the market. I would also predict mergers between complimentary channels, where a brand like ASOS acquires smaller pure plays like Missguided.

Innovation will help keep costs down  

In an increasingly squeezed environment, innovation will be key to success. In such a resource intensive business, the key will be productivity in areas like the supply chain and stores. Smart retailers will use innovation to do more with less and help with headroom in the cash flow. Looking past cost, and continuing on the idea of differentiation, retailers will be looking at personalisation. Marketing will continue the journey it’s been on for a while here, but service, operations and product will need to follow to create that differentiated experience that will give a brand an identity.

Kees Jacobs is the consumer goods & retail lead, insights & data global practice at Capgemini.