One of the industries that was impacted the most by the Covid-19 Pandemic has been the retail industry. First, the industry had to deal with significant lockdowns that were imposed to deal with the worst impacts of the Pandemic. Retailers now have to manage the worsening impacts of the global supply chain crisis which is showing no signs of abating. What does this mean for the future of retail?
Nick Taylor, Senior MD at Gordon Brothers, and Dr Andreas Kemper, MD of Gordon Brothers spoke to the Turnaround Management Association and shared their thoughts in the Jan/Feb edition of the Journal of Corporate Renewal. They believe that four trends will shape the future of retail. The trends from the JCR article are replicated below.
Clean’ retail will win big and grow market share
The pandemic has acted as a catalyst for change, with retail corporations reviewing their environmental, social, and governance (ESG) policies and their purpose, and has given retailers an opportunity to improve brand perception by demonstrating how they serve a greater purpose than pure profit generation.
For example, Inditex and H&M were praised for giving over their supply chains and producing personal protection equipment. Meanwhile, Leon and Pret a Manger delivered surplus food to the UK’s National Health Service workers.
Increasingly, conscious consumerism is at the forefront of consumers’ minds:
• 73% of global consumers say they would or probably would change their consumption habits to reduce their impact on the environment;
• 51% of US consumers agree a product sourced from a socially responsible company is worth paying more for; and
• 70% of customers would pay up to 5% more and change their buying habits to brands that align with their own personal values.
Consumers will move away from ‘dirty’ retail, which may lose market share
The November 2021 United Nations (UN) Climate Change Conference and the Intergovernmental Panel Climate Change August report, which UN Secretary-General António Guterres called “a code red for humanity,” has put climate change in the forefront of consumers’ minds.
Swedish environmental activist Greta Thunberg has previously addressed fashion retailers and posted to Twitter stating the fashion industry is a “huge contributor to the climate and ecological emergency,” adding that workers and communities are being exploited for “some to enjoy fast fashion.”
Consumer activism and boycotting of certain brands is on the rise; and whilst not new, groups of Reddit users cost certain hedge funds billions when they attempted to short GameStop shares in 2021. It is increasingly easy for consumers to voice their dislike. Boycotts have the potential to gain steam without anyone ever meeting face-to face and now regularly spread virally through social networks worldwide. Consumers can also find out the politics and philosophies behind brands and corporations through apps such as Buycott.
Conscious consumerism is becoming a standard consumer expectation. Even more importantly, brands must develop and execute a clear communication strategy regarding their values and develop sustainable relationships with their customers, or they may lose market share if they fall out of favour with consumers for unsustainable practices.
Photo By: Canva
The retail circular economy could explode and is already changing shopping habits
The circular economy market grew twenty-five times faster than the wider retail market globally in 2020, and most recent projections forecast a global market volume of $600 billion by 2025. The popularity of the circular economy will continue to grow, highlighting the increased importance of sustainability. The circular economy has already created a significant shift in consumer behaviour from ownership to usership with the rise in three key routes to market: retail rental, resale, and peer to peer.
The rental market is estimated to grow to $3.2 billion globally by 2029. The fashion sector benefits from rentals, as they provide an affordable opportunity to continuously introduce new, and often luxurious, collections to customers’ wardrobes.
In the UK, the temple of high fashion, Harrods, partnered with My Wardrobe HQ to provide consumers with the opportunity to rent a £10,000 ($13,200) dress for £134 ($178) a day. UK fashion retailer Hurr offers consumers Selfridges’ collections for rent online and in stores. Meanwhile, Selfridges launched its own resale website, Resellfridges. com, allowing customers to buy and sell luxury second-hand items.
Additionally, the development of the rental market coincides with the growth of the resale market, since together they provide true conscious consumerism. Accordingly, John Lewis is on its way to becoming the AirBnB for furniture rentals in partnership with FatLlama, offering 500 lines of furniture for rent, 86% of which were rented in the first 48 hours.
In fashion, H&M’s resale arm, Sellpy, collects bags of unwanted clothes from customers in twenty-four countries and sorts and resells the items, giving customers 40% of the proceeds. Since 2014, 9 million garments have been resold. Levi’s also launched a resale platform allowing customers to sell their old jeans back at a discount, which are then recycled and again sold on the resale market.
Beyond furniture and fashion, MusicMagpie is now the UK’s biggest mobile phone recycler, having experienced enormous growth during recent years. Experts estimate £16 billion worth of old electronics are sitting in drawers in the UK alone, an average of eleven devices per house.
Lastly, the peer-to-peer market also grew exponentially during the pandemic, as consumers were increasingly looking to buy second-hand. Generation Z and millennials are adopting second-hand clothing 2½ times faster than other age groups, and companies such as Vinted and Depop cater to this growing market.
Vinted lists 300 million second-hand items and has a market capitalization of €3.5 billion ($3.9 billion) and 45 million users worldwide. Depop estimates its model extends the life of a piece of clothing by an extra nine months, reducing global carbon emissions.
Smart and innovative retailers benefit from these shifts in consumer values by entering new markets, retaining existing customers, and increasing market share. Increasingly, consumers view the circular economy as better than new.
Photo By: Canva
The circular economy will challenge and change the dynamics of the apparel sector
According to McKinsey, the fashion industry is responsible for 4% of global carbon emissions, which is more than all international flights and shipping combined. Fashion consumes 120 million trees and uses 93 billion cubic meters of water per annum.
Consumers are savvier to consumption of energy and resources and increasingly value sustainability when making purchasing decisions. According to Mintel, 60% of consumers think sustainability is important as a buying decision.
Innovative retailers have seen an opportunity to develop ethical and highly lucrative new concepts. Footwear and apparel retailer Allbirds uniquely uses carbon labelling on its products, informing consumers how many kilograms of carbon were emitted in producing each item it retails. Recently, it expanded its natural range options by introducing flipflops made from sugarcane, shoes made from eucalyptus trees, and shoelaces made from recycled bottles.
In contrast, the fast fashion sector often uses cheap labour and fabrics to mass-produce garments at low prices. The prices are so low that some consumers view the garments as disposable and discard them after one use or wear, which is not sustainable. Zalando CEO Robert Gertz recently said the global fashion industry “needs to abandon the fast fashion model within the next 10 years.”
Observers foresee strong growth ahead in the “slow fashion” sector, as it is a priority spend among millennials and Generation Z consumers.
Final thoughts
It will be interesting to keep an eye on the future of retail and how the retail revolution pans out.
For companies who rely solely on brick-and-mortar stores, they may find themselves snookered behind the eight ball as digital innovation will drive the industry going forward. A hybrid approach is most likely where retailers can maximise conventional and online profits equally.
Investment in digital technologies is significant and is something that needs to be rolled out over a long period of time. While there is urgency, retailers run the risk of creating a negative customer experience by rushing a digitisation roll out. This needs to be planned carefully with turnaround professionals who have worked with retailers before.
The Mystery Practitioner is an industry commentator that focuses on the shifting dynamics and innovative thinking that BRPs and turnaround professionals will need to embrace in order to achieve success in their businesses.
