"A sea change is clearly taking place in the retail market with major upheaval, but it is surely not the retail apocalypse. In our view, the retail industry is strong, but it is undergoing a major renaissance, a renewal akin to the renaissance that took place between the 15th and 17th centuries." - Deloitte, The Great Retail Bifurcation, 2018
New research and the continuous digital disruption of retail inspired this re-examination of the retail success formulas published in a post late last year. Discussed in the original blog, I remain an advocate of the McKinsey consumer personalization value equation.
"Customers see value as a function of how relevant and timely a message is in relation to how much it "costs", meaning how much personal information has to be shared and how much personal effort it takes to get it. Importantly, trust in the brand will boost overall value, though that can grow or recede over time, depending on the customer’s satisfaction with various interactions with the brand."
Time is not Your Friend
The unfortunate side effect of increased connectivity is that we are all becoming time starved. "Evidence from the past decade shows that while our overall leisure time is increasing, we are spending more of it using screen-based devices. Smartphone users interact with their devices an average of 85 times a day, and 46% report they could not live without them." In 2017, we spent an amazing 47% of our leisure time looking at a screen.
The same time challenge exists in retail. A favorite statistic that I have re-used in multiple presentations appeared in the Wall Street Journal on October 16, 2017:
Technology to the Time Rescue
Screens are not the end-all technology that will drive retail success. New solutions such as augmented and virtual reality will be added to the innovation mix. Here is a sample of how they can contribute to saving time for the consumer.
The Retail Success Spectrum
The global retail industry models have evolved and been shaped by five forces: branding, experience, relevance, convenience, and low price. These forces are on a spectrum. Today's most successful business models are at the extreme end of either side of the spectrum.
Note that these five forces are on a scale. Achieving exceptional performance on either end is a delicate balance. Core business approaches can be modified, but if the actions are unbalanced, they will have a negative impact on the market perception and value of the brand for the consumer.
The Unbalanced Retail Challenge
Great new Deloitte research which was not available when the original post was published last year substantially reinforces the new retail success formula. You do not want to be stuck in the middle of above spectrum.
Revenue growth is diverging with sales growing at faster rates for price based retailers and for the premium retailers that are typically focused on branding.
For the "balanced" retailers stuck in the middle, note the low growth over five years, the negative growth trend for the last year, and the net negative store openings. Winning retailers focus on Branding (premier) or price in driving their definitive success formula.
Re-visiting the Retail Success Formula
McKinsey tells us that that we need to gain the trust of the consumer by delivering a personalized value equation that balances relevancy, timeless, privacy, and trust. Value delivery is the most critical component in creating consumer brand ambassadors.
The retail model has been shaped by five balancing forces from branding to low price. Deloitte confirms that success lies on either end of the spectrum.
Differentiation is possible at either end of the retail spectrum. Time starved consumers will continue to increase technology usage and reward retailers for value creation through unified customer experiences. Summarizing all of the above on one chart:
Agree with Deloitte, retail is on the threshold of a new renaissance with technology its redesign canvas. Akin to Michelangelo, DaVinci, or Galileo, the next generation masters are upending legacy models and building a disruptive prosperous future of retail.