Natalie discusses the launch of Amazon Haul, the retailer’s new Temu-like storefront where most items are under $10 and delivery takes up to two weeks. She also unpacks the reasons behind Vinted’s success – what consumer needs is it tapping into and what are the implications for the wider retail sector? And, finally, Natalie shares her thoughts on the explosion of advent calendars. What is driving the trend and what can retailers learn from it?
[4:20] Is Amazon terminating its online grocery service in Germany?
[6:08] Amazon Haul launch
[9:00] Vinted and the rise of pre-loved
[15:10] Advent calendars – history and why retailers of all varieties are jumping on the advent calendar bandwagon
Links:
Episode 45: Amazon Must Disrupt Itself, July 2024. Natalie and Miya explore whether Amazon and Temu can co-exist and thoughts on the (then) rumoured plans to launch an ultra-low price storefront.
Find out more about the Retail Disrupted Podcast by visiting retaildisrupted.com
Retail Disrupted
Amazon Haul, What Makes Vinted Special, Advent Calendar Fever
byNatalie Berg
Natalie discusses the launch of Amazon Haul, the retailer’s new Temu-like storefront where most items are under $10 and delivery takes up to two weeks. She also unpacks the reasons behind Vinted’s success – what consumer needs is it tapping into and what are the implications for the wider retail sector? And, finally, Natalie shares her thoughts on the explosion of advent calendars. What is driving the trend and what can retailers learn from it?
[4:20] Is Amazon terminating its online grocery service in Germany?
[6:08] Amazon Haul launch
[9:00] Vinted and the rise of pre-loved
[15:10] Advent calendars – history and why retailers of all varieties are jumping on the advent calendar bandwagon
Links:
Episode 45: Amazon Must Disrupt Itself, July 2024. Natalie and Miya explore whether Amazon and Temu can co-exist and thoughts on the (then) rumoured plans to launch an ultra-low price storefront.
Falling consumer demand combined with a barrage of rising costs is set to create a challenging six months ahead for the retail sector – according to the latest assessment by KPMG/RetailNext Retail Think Tank (RTT) members.
With early indications of a disappointing Christmas trading period for some retailers, particularly in non-food categories, and food retailers resorting to increasing the level of promotions in order to drive sales this year, there will be very little respite for the retail sector as it enters 2024, according to the latest KPMG/RetailNext Retail Health Index (RHI).
Setting the scene for the challenges that lie ahead, the RHI, which assesses the state of health of the UK retail sector by considering the three key drivers of demand, margin, and cost, concluded that beleaguered consumers will hit the pause button on spending even further in the opening months of 2024. Despite having more money in their pockets than they did in Q1 23 due to reductions in National Insurance Contributions, wage growth outstripping inflation and lower fuel bills which has helped to boost household income slightly year on year, consumer sentiment is likely to remain low as the mood music around an ailing economy impacts their willingness to spend, the RTT concluded.
The RHI has recorded a deterioration of retail health every quarter since Spring 2022 and this is predicted to continue in the first half of 2024, hitting 66 points by the close of Q1 24, a figure last seen in the height of the pandemic in 2020 when the UK was in lockdown. While the opening months of 2024 are likely to see a continued downturn in consumer demand, especially in non-food categories, it is just the calm before the storm as Q2 24 will see the sector hit by rising costs, including a hike in the minimum wage and a 6.7% business rate increase for most retailers. While demand is likely to pick up in Spring 2024 (Q2 24) as consumer confidence builds, rising costs will hit retailers, particularly those whose finances are not stabilised RTT members concluded, signaling potentially higher insolvency rates for small retailers and a boost in M&A activity – particularly in fashion and pure online retail, where there will be pressure on consolidation.
Highlights from the KPMG/RetailNext Retail Health Index included :
With household financial assets outweighing financial liabilities by £4 billion, the ability to spend will be polarised between households.
Savers enjoying higher interest rates are unlikely to be tempted to spend savings in early 2024.
Health and beauty are expected to be the only non-food category to see growth in the opening months of 2024.
Luxury retail and big-ticket categories will continue to experience a downturn in sales.
Sales growth for the big supermarkets in 2024 is likely to be more subdued, with the boost from grocery price inflation dropping away and pressure on volumes continuing.
Growth in 2024 will come from the discount and value retail channels.
London retailers face a ‘double whammy’ of rising business rates given the bulk of London’s retailers are multiples, and the fact that business rates in London are significantly higher than in the rest of the UK.
Further promotional activity is expected as retailers look to clear down excess stock and react to falling consumer demand.
Commenting on the RHI, Paul Martin, UK Head of Retail at KPMG, said:
“Despite Black Friday sales going deeper and lasting longer than last year, indicators so far are that Christmas trading this year has been one of the worst since the pandemic hit, and although there is still all to play for in the final weeks of December, it is looking as if it’s too late turn fortunes around. Whilst food retailing sales growth has been weaker than seen over Christmas last year, sales of non-essential goods have been deteriorating rapidly and will continue to do so as consumers keep an even tighter grip on the household purse strings.
“It has taken a long time for the economic challenges to feed through to consumer resilience, but it looks as if it’s happening now, and is set to stay with us, at least until spring. The UK retail sector will likely continue to see significant downward pressures on demand, and margin, for the early part of 2024 but this could turn a corner by April, just as hefty increases in minimum wage and business rates hit the bottom line. Retailers will be holding their breath for some good news in the Chancellor’s Budget in March.
“Retailers have been remarkably resilient over the last few years and are now well versed in being agile to cope with economic shocks and changing consumer demands. Pressures on consumers from high inflation may be easing, but the economy faces headwinds from the lagged impact of monetary policy tightening and rigid fiscal policy settings. For the next few months, we expect the retail sector to continue to tread water as it moves from dealing with one shock to another.”
What the RTT members said:
Jonathan De Mello, Founder & CEO, JDM Retail Ltd:
“Moving into 2024, with residential rents continuing to increase, more and more fixed-rate mortgages running out and inflation staying relatively high, the first two quarters of 2024 at least will likely see lower consumer demand and a concurrent impact on retail sales and margins.”
James Sawley, Head of Retail & Leisure, HSBC UK:
“We’ll see less distress in 2024, as many small businesses gave into the conditions of 2023, characterised by high inventory levels (low cash), peak inflation, peak energy cost and the rising cost of capital. We now have normalised inventory, low freight costs, falling inflation, and a clearer idea of where interest rates are settling, as well as an extension in business rates relief. We are likely to see consolidation in some segments of the sector where high costs, intense competition, and softening of demand will make it a compelling or necessary move”.
Nick Bubb, Retailing Consultant, Bubb Retail Consultancy Ltd:
“Q4 23 saw a lacklustre performance with volume pressure in non-food categories and the real sense that consumers are tightening their belts. Whilst a lot depends on what we see happen over the next few weeks, there has already been a lot of discounting and this is likely to continue after Christmas as well. As for the outlook for the retail sector in general, much will depend on when the Bank of England feels able to start to lower interest rates, to relieve the pressure on “big ticket” spending, although this is unlikely to be before the second half of 2024.”
Maureen Hinton, Retail Consultant:
“With costs rising and consumers remaining selective in their spending, retailers will need to deliver compelling offers, backed by strong finances, to succeed in 2024.”
Mike Watkins, Head of Retailer and Business InsightNIQ UK:
“After two years of falling volumes in food retailing, there is likely to be a return to volume growth in 2024. For many supermarkets, the quest to gain shopper loyalty – frequency of visits and total shopper spend – will intensify. The extension of loyalty schemes has helped pull back some spend lost to discounters. NIQ research shows that 54% of shoppers said that price discounts via loyalty cards were the promotional mechanic most likely to encourage them to spend with everyday low prices a close second (34%). This reinforces the need for the supermarkets to maintain transparent price strategies, price locks, and price matching.”
Miya Knights, Retail Technology Magazine, Publisher and Consultant:
“With stagnant demand, 2024 will be a year of two halves in terms of retail health. Competition is fierce and retailers will need a differentiator. Technology investments will continue to help separate retail winners from losers throughout the year, just as it has increasingly done for over 25 years now, and at an accelerated pace ever since the pandemic. However, where it may have previously been enough to adopt and deploy technologies that allowed operators to catch up to their competitors, those who genuinely innovate using IT and digital will succeed next year.”
Natalie Berg, Retail Analyst and Founder of NBK Retail:
“As we look ahead to 2024, it’s worth calling out that whatever is thrown at retailers, they will be far better equipped to handle it than they might have been just a few short years ago. I wouldn’t suggest that 2024 will be uneventful, but I think retailers can certainly welcome more stability. The worst of the cost-of-living crisis is behind us, and although consumers have been surprisingly resilient thus far, we’re certainly not out of the woods just yet. Consumers will continue to exercise caution and restraint, leaving retailers to contend with somewhat muted demand, heightened expectations and cost pressures of their own – from business rates to hefty increases in minimum wage requirements from April 2024.”
Charles Burton, Director, Oxford Economics:
“Despite further falls in inflation and, from the middle of the year, the Bank of England potentially starting to reduce interest rates, we expect the UK economy will struggle to gain momentum in 2024. Household spending generally will only grow slowly, and likewise retail sales. There will be some variation across the UK, with the south (London, South East and South West) performing better than average, with the Midlands, North East, and Scotland faring less well. This is very much a reflection of job losses in the industrial sectors feeding into overall regional performance.”
‘Permacrisis’ was declared the word of 2022, so what might 2023 bring?
There are reasons for cautious optimism, but first retailers are going to have to buckle up and brace themselves for more turbulence.
Spending more to buy less
Let’s briefly recap on retail’s Golden Quarter. Christmas was not the wipe-out that many of us had expected. After a bumpy couple of years with Covid cancelling Christmas, consumers were determined not to let illness, inflationary pressures or industrial action hamper their celebrations.
There are some caveats here: soft comparatives (remember Omicron?); supermarket success came at the expense of the hospitality sector; and perhaps most importantly much of the growth we saw was fuelled by inflation – in December retail sales were up in value terms but volumes continued to fall. In other words, consumers are spending more to buy less.
Inflation might be starting to ease, but consumers are still a long way from feeling the benefit. This ongoing erosion of spending power makes for a pretty gloomy outlook: consumer confidence tanked again in January, returning to a near 50-year low. Looking ahead, the deterioration in consumer sentiment is likely to persist throughout the first half of the year, at least. A reminder to retailers that value will remain firmly top of mind, purchases will continue to be incredibly considered, and big-ticket discretionary buys will be delayed.
Trimming the fat
The spending hangover is here and while there’s never a good time for subdued consumer demand, it’s especially painful when retailers are simultaneously grappling with their own cost inflation. No one is immune: this dangerous combination of soft demand and rising costs is impacting even the most bulletproof retailers. Amazon, for example, is laying off 6% of its global workforce, closing warehouses and putting the brakes on bricks & mortar expansion. 2023 will be a year of operational efficiencies for retailers, in many ways mirroring their own customers’ behaviour by trying to do more with less.
The other immediate challenge for retailers will be shifting excess stock, the result of over-ordering during the supply chain crisis and exacerbated by the current consumer weakness. With a glut of inventory and sluggish demand, retailers are left with little choice but to slash prices. But wait, haven’t they been doing that for the past four months? Aside from the obvious margin implications here, there is also the risk that shoppers are becoming desensitised as promotion fatigue sets in – or even worse, that they forget what it’s like to buy at full price.
2023 opportunities: bricks & mortar resurgence and immersive digital experiences
There’s no sugarcoating it: 2023 is going to be another year of instability and uncertainty. But the retail industry is nothing if not resilient and I believe there are reasons to be optimistic. Stores are back, they’re repurposed and better than ever. We’ve been thrust into the future thanks to the pandemic-induced digitization of bricks & mortar retail, levelling the playing field and shifting the industry’s perception. Stores were once considered liabilities in this digital era, but they’ve been reconfigured for 21st century shopping and are now essential assets.
When it comes to customer experience, I believe that ‘tech-enabled human touch’ will be the next battleground, as retailers recognise the many opportunities that come with equipping your staff with the right digital tools. Mediocre experiences have become a thing of the past. Meanwhile, automation will climb higher up the agenda as retailers look to achieve operational efficiencies, despite the initial outlay, while simultaneously addressing the current labour shortage. In 2023, we’ll see more trials of autonomous vehicles delivering our goods and robots working alongside humans in warehouses.
Shoppers will continue to abandon e-commerce in droves now that we have returned to some semblance of normality. Some categories like food, fashion and furniture will never transition online like the rest of retail has, but it’s clear that as an industry we have been propelled towards a more digital world. And over the next decade, new, immersive digital experiences will redefine our perception of e-commerce – this is going to be the next big thing in retail. I’m still a bit of a metaverse sceptic. I know barriers can be knocked down but right now how many of us really have a VR headset kicking around at home? However, it’s clear that e-commerce is ready to evolve. Sure, all of the friction has been sucked out and today the experience is wildly accessible, slick, effortless. But is it any fun? Not really. It’s still far too transactional, too one-dimensional. This will change.
The next stage of e-commerce is all about immersion, discovery, curation, hyper-personalisation and escapism. And it’s already happening with augmented reality, virtual showrooms, live shopping, social commerce, 3D product views/virtual try-ons, video shopping consultations, among others. In the future, we won’t know where the physical world ends and the digital one begins.
Our hybrid way of living is here to stay and while businesses may still be acclimatising to the consequent shifts in demand patterns, longer term this will present new and exciting customer engagement opportunities. Despite tight budgets, investment in sustainability will remain high on the agenda in 2023, while opportunities to tackle the often-neglected post-purchase experience and explore new revenue streams such as retail media and third-party marketplaces will accelerate. In summary, short-term volatility will persist while consumers batten down the hatches, but as always the future of retail is bright for those who are willing to evolve.
We went from Black Friday to Black November, but this year I’d say we’re having a Black Autumn. There has been a constant stream of discounts since September. This is particularly true in fashion, where a combination of unseasonably warm weather and cost-of-living pressures have really dampened demand. Yes, people are hungry for bargains, but they have to be genuine ones. Shoppers have become desensitised to all of the “20% off everything” sales. Blanket discounting is causing promotion fatigue.
The appeal of Black Friday has also been diluted because shoppers have cottoned on to the fact that it is a manufactured event and prices are not always at their lowest. Black Friday is designed to drive impulse purchases and instil a sense of FOMO. But according to Which?, only one in seven Black Friday deals offer a genuine discount.
Electricals is typically an exception here, as retailers have more margin to play with, but this category is likely to underwhelm this year. Consumers spent the pandemic kitting out their home offices and entertainment spaces so demand for new technology will be much weaker than normal.
Meanwhile the World Cup – and particularly the timing of tonight’s England vs USA match – will also add to the Black Friday fizzle. Retailers are likely to extend the discounting into the weekend, as Friday night celebrations keep people from shopping.
I’d also like to think that there has been a deep societal shift, as more and more shoppers reject the idea of excess consumerism. Let’s face it, Black Friday is gluttonous. It’s wasteful. It drives up returns and millions of products ultimately end up in landfill.
Despite all of this, shoppers will be out in full force today, sussing out the deals but in a more restrained manner compared to previous years. Black Friday will be less frenzied, more focused. Big-ticket purchases will be more considered and this year, more than ever, shoppers will be utilising the technology in their back pockets to check prices and ensure they’re getting a bona fide bargain.
There will inevitably be those that get caught up in the adrenaline-filled rush of Black Friday shopping. Buyer’s remorse will be strong this year, and retailers should be preparing for a mountain of returns.
Tonight, I had the pleasure of attending the launch of Amazon UK’s latest bricks & mortar experiment – ‘The Home of Black Friday’ pop-up in Shoreditch.
This is the second year that Amazon has opened a temporary showroom in a bid to raise awareness of the 10-day discounting bonanza that is possibly now only trumped by the retailer’s very own artificially created shopping event – Prime Day in July. But I digress.
Love it or loathe it, Black Friday has become a permanent fixture on the UK shopping calendar and we have Amazon to thank for bringing it across the Atlantic back in 2010.
Three Black Friday observations for 2018:
1) More like Black November. Black Friday is getting longer: Amazon, Argos and Debenhams are just a handful of retailers running week-plus long events. Consolidating the bulk of your Christmas trade into 24 hours tests even the most advanced supply chains. Doug Gurr, MD of Amazon UK, mentioned tonight that one of the reasons Amazon has extended Black Friday in recent years is to “take out some of the pinch points”, operationally speaking. So, although spreading the event out over a couple of weeks might dilute the sense of urgency traditionally associated with Black Friday, it should ultimately result in a more streamlined experience for both retailer and consumer and, ideally, lead to lower returns rates. Previously, many shoppers who got caught up in the one-day frenzy would end up with buyer’s remorse and by the time the returned product made its way back onto the shelf (particularly for an online order) it would have to be further discounted.
2) Promotion fatigue/consumer scepticism. Consumer group Which? is warning shoppers not to get “duped by dodgy deals” since last year nearly 9 out of 10 Black Friday ‘bargains’ were cheaper at other times in the year. I’d like to think most consumers today are savvy enough to understand that Black Friday is mainly a lot of noise, with a few genuine bargains the mix. According to PWC, half of UK consumers are not interested in the event at all this year with 11% warning they would intentionally avoid shopping altogether.
3) But peer pressure… Despite the many harmful effects of Black Friday – erodes margins, pulls spending forward, dilutes trust and credibility, etc – it’s equally risky to shun it altogether. This is the only time of the year when retailers genuinely have a captive audience. There is an appetite to spend, a reason to loosen purse strings, and not many national retailers are brave enough to miss out on the potential sales. B&Q is the only genuine exception I can think of (even Next took part last year). On paper, M&S is shunning Black Friday again this year but they have been running 20% off sales for Sparks members. Limiting the deals to loyalty cardholders is a more subtle approach, but a blanket discount can be just as effective when it comes to driving footfall.
Amazon’s ‘The Home of Black Friday’ pop-up
As with most of Amazon’s bricks & mortar experiments, The Home of Black Friday pop-up has very little to do with shifting product. In fact, it would be a stretch to call this a shop (to be fair, Amazon doesn’t). It’s a showroom designed to humanize the Amazon brand, to tempt shoppers into the retailer’s very sticky ecosystem, get them engaging with the app and ultimately driving adoption of its various devices. If you’re interested in why Amazon is pushing so heavily into bricks & mortar retailing, there’s a whole chapter dedicated to exactly this in my upcoming book which launches in just six weeks!
The Home of Black Friday is located at 3-10 Shoreditch High Street, London, E1 6PG and will be open to the public from 22-25 November.
