Subscriptions have become the holy grail for retailers as the sector moves away from competing purely on product and increasingly on service. Recurring revenue and driving loyalty with your most important shoppers—what’s not to like?
Tesco has become the latest retailer to jump on the subscription bandwagon. Britain’s biggest supermarket plans to bundle its grocery, mobile and bank offerings under a new scheme called Clubcard Plus. Here’s how it works: shoppers pay a £7.99 monthly fee in exchange for a 10% discount on two big shops in-store; 10% discount on select private label products; double data from Tesco Mobile and a Tesco Bank credit card with no foreign exchange fees abroad.
As lucrative as subscription models might be, they only work if customers see the value in them. Just ask Jeff Bezos. The aim of Amazon Prime, he says, is to provide so much value that shoppers would be “irresponsible” not to join. A scary thought for any competitor.
With Prime, the value is clear—sheer, unrivaled convenience layered with increasingly indispensable entertainment perks. With Clubcard Plus, the value exchange is a bit murkier. Firstly, if customers want low prices, they’ll head to Aldi or Lidl. They don’t need to fork over £8 a month and jump through a bunch of hoops.
Note: this is an excerpt. Continue reading Natalie’s full article on Forbes.
To be relevant in retail today, you have to acknowledge that stores are no longer purely about selling. I believe most high street retailers are on board with this concept, but few are comfortable implementing it. And that’s because for decades, we as an industry have obsessed over metrics such as like-for-like sales growth whereby success is confined to a shop’s four walls. But it’s 2019 and we all know that’s not reflective of actual consumer behaviour.
Next is one of the retailers that gets it. They have hundreds of stores with a presence on most high streets – yet the bulk of their sales take place online. They’ve accepted that stores are never going be as productive as they were before the advent of e-commerce, and while there is certainly a need to redress the balance through select closures there is an opportunity to redefine the very purpose of bricks & mortar stores.
Next understands that, as contradictory as it might sound, shops now play a critical role in growing online sales. If you don’t believe me, just look at the tsunami of online retailers now opening physical stores. Having a bricks & mortar presence means online retailers can offer shoppers additional choice in fulfilment while reducing customer acquisition costs, generating that elusive halo effect.
Customers want to shop on their terms, they want the best of both physical and digital worlds. They want to marry the ease of buying online with the convenience of collecting or returning items instore. It’s no surprise that half of Next’s online orders are collected instore, while stores also process over 80% of e-commerce returns.
Another example of online and offline working in harmony at Next is through same-day click & collect. Shoppers can now view and reserve local store inventory for collection in under one hour. This might not be a gamechanger (I can’t imagine many Next orders are that time-sensitive) but it shows how retailers can leverage their stores in a digital era.
Lastly, Next is rethinking the role of its stores by doing something most wouldn’t dream of – teaming up with Amazon. Six months ago, Next became Amazon’s UK partner for its launch of Counter, a service that lets shoppers collect their Amazon parcels from staffed pick-up points in Next stores. Again, this is about the following the customer: according to Mintel, 90% of UK shoppers use Amazon and I would estimate that Amazon accounts for just under half of e-commerce sales in the UK. The partnership is a win-in. No one can do fast delivery like Amazon, but often it’s predictability over speed that consumers are after and this is where stores come in. Meanwhile, Next benefits from the additional footfall and opportunity for incremental spend.
Retailers can take inspiration from Next’s strategy, understanding that stores are an essential component to facilitating e-commerce sales. We have to stop treating e-commerce as the death knell for the high street. We have to ditch those metrics that pigeonhole retailers and start valuing our stores based on their ability to enable digital purchases.
‘The Amazon Effect’ is one of the most widely used phrases in retail today. High street shops closing? It’s the Amazon Effect. Retailers investing online? The Amazon Effect. Acquisitions, CVAs, redundancies… These days, we can find a way to link, however tenuously, most retail developments to the Seattle-based behemoth.
And for good reason. Amazon continues to spread its tentacles, diversifying into new categories and even sectors. It has its sights set on food and fashion, but also entertainment, shipping, healthcare and banking. It doesn’t just go after share of wallet. It goes after share of life.
This is why the Sainsbury’s-Asda merger is happening now. It’s a pre-emptive move against Amazon. It’s about generating scale and ultimately ensuring survival before Amazon gets serious about UK grocery. Today, despite the acquisition of Whole Foods Market and supply agreements with Morrisons and Booths, Amazon still isn’t a food destination. The infrastructure is in place, but it lacks a compelling range. That will change. It will differentiate in grocery just as it does in non-food: through product choice and convenience. Despite its negligible share of the UK grocery market, Amazon has already been a phenomenal catalyst for change in areas like delivery speed, voice technology and checkout. Its relentless dissatisfaction with the status quo is leading supermarkets to raise their game, all to the benefit of the consumer.
Amazon will revolutionise the way we shop for groceries. Within the next five years, it will have acquired a UK retailer (we can now rule out two) and considerably enhanced the in-store experience. I believe entire product categories will be removed as Amazon looks to make auto-replenishment a reality. If shoppers run out of bleach or toilet paper, they can press a Dash button or ask Alexa. In the future, this will go even further by being automatically replenished. This will test brand loyalty in a way we’ve never seen before, while also freeing up space to focus on what can’t be done online – fresh food halls, cookery classes, cafés and restaurants. The experience will be highly personalised and utterly frictionless.
The move into grocery is of huge strategic importance to Amazon. If it can convince UK shoppers it’s a credible alternative to the supermarkets, it will have cleared the final hurdle to becoming the ‘everything store’. Capturing that high frequency purchase makes it easier to cross-sell and bait shoppers into its ecosystem. And that is when things get ugly, not just for the supermarkets but all of retail: Amazon shoppers tend to be loyal, lifelong customers.
Joining forces won’t help Sainsbury’s and Asda solve the Amazon problem overnight, but it will certainly lead to better terms with suppliers and consequently lower prices for customers. Also, not to be overlooked in this deal is Argos. An unexpected gem, Argos can now deliver to 90% of the UK population in just four hours. Argos concessions will be rolled out across Asda stores, and possibly internationally through Walmart, giving the retailer an edge over supermarket rivals and more importantly an answer to the mighty Amazon.
Retailers have many “dog ate my homework” excuses for when trading is less than stellar, but when a late snowstorm forces you to temporarily shut over half your stores, it’s bound to impact the top line.
While it’s important to acknowledge the impact of the Beast from the East, it doesn’t take away from the fact that Debenhams, like many department stores today, is struggling to stay relevant.
Strategically, Debenhams is doing all the right things, but today’s results highlight the scale of the challenges confronting UK department stores. Not only are they facing a perfect storm of rising costs and subdued demand, but the original concept of a department store – one-stop shopping – has become completely eroded by online retail. Unfortunately for Debenhams, many stores are tethered to long-term leases so there is no quick fix for addressing the shift to online shopping.
Twenty-five stores will be reviewed as their leases come up for renewal over the next five years. In an ideal world, they’d be more bullish but with an average lease length of 18 years Debenhams doesn’t have the luxury of simply closing stores overnight. Instead, the focus will be on reinvention and rightsizing – they see potential for at least 30 stores to be downsized, in a similar vein to competitors like M&S and House of Fraser.
But make no mistake – the department store model is under threat. In the past, it made sense for retailers to dedicate 100,000-plus square feet to these ‘palaces of consumption’, aggregating lots of brands under one roof. But today, shoppers have access to millions of products at their fingertips, so the idea that a bricks and mortar retailer can still offer ‘everything under one roof’ becomes laughable. Department stores must reposition themselves to be less about product and more about experience. Winning in retail today means excelling where Amazon cannot.
Under Sergio Bucher (ex-Amazon), Debenhams is trying to do exactly that. They’ve embraced store reinvention, recognising that the department store of the future will be a place not only to buy stuff, but also to eat, discover, play and even work. Partnerships with brands like Swoon and Maisons du Monde create a point of differentiation, while the installation of gyms and beauty bars and potential collaboration with WeWork allow Debenhams to make better use of excess space while simultaneously driving footfall. Store reinvention’s not cheap but it’s better than standing still.
But amidst all this talk of transformation, it’s easy to lose focus on the basics of retail – price, product, service. This is where Debenhams shoppers have arguably been left feeling underwhelmed. Pricing must be sharper and more trustworthy, range must be simplified (though more compelling) and the overall proposition must become more experiential and service-led. Otherwise, they risk a lot of empty treadmills and brow bars.
A sad week for retail and a stark reminder of the dangers of complacency.
Toys R Us and Maplin ultimately collapsed because they failed to adapt to changing shopping habits. Let’s not ignore the elephant in the room. What would make a shopper choose Maplin over Amazon? The retail titan’s endless assortment, low prices and increasingly speedy delivery left Maplin with limited fighting power. The high street retailer was doing everything it could to distinguish itself from pure-play online rivals – focusing on customer service, product expertise and the instore experience – but clearly that wasn’t enough.
While Maplin may have been a victim of the Amazon effect, Toys R Us was simply a victim of complacency. The customer experience was, at best, underwhelming due to a lack of investment both in stores and online. They sat idly by as new competitive threats – from B&M to Smyths – chipped away at their business. In toy retailing, you need be either cheap, convenient or fun but Toys R Us failed to deliver in each of these areas, leaving them stuck in a retail no man’s land.
As a specialist, the Toys R Us experience should have been a magical one with instore events, dedicated play areas and product demonstrations. The reality was a soulless shed with very little innovation or technology to draw shoppers in. Saddled with debt, Toys R Us was unable to flaunt its specialist credentials and reposition its stores as genuine destinations.
The demise of Toys R Us should serve as a powerful reminder of the need to rejuvenate the instore experience. Bricks and mortar retailers can’t compete with Amazon’s breadth of assortment and delivery capabilities, so they must leverage physical assets and reconfigure stores to become proper destinations. As I say time and again, the future role of the bricks and mortar store will be less transactional and more experiential. But sadly, many more stores will need to close to reflect the shift in spending habits.
Meanwhile, the combination of rising prices and subdued demand is putting considerable pressure on retailers, and particularly exposing those with underlying issues. Burdened by debt, Toys R Us was simply unable to adapt to a changing retail environment.
You can hear me discuss more on Toys R Us on the BBC World Service here.