Key Points from Deloitte’s Retail Industry Outlook 2019

Ups and downs in the retail industry have always been there, since the beginning perhaps. But it is also true that time changes and it also changes the way people do business. Talking specifically about the retail industry, things are not as normal as they seem in the current Digital era.

Retail is colliding with other consumer-focused sectors and is getting disrupted in between. Consumers are becoming more and more aware of making the right choice of the products or services they need.

For the retail businesses, the next twelve to eighteen months is more of an uncertain time which is challenging their ability to thrive in the modern, digital world. To be on the right side of the tipping point means luring the consumer to their side. To see the face of success in the time ahead, it is essential for them to make the right bold moves to beat the challenges.

Here are some key insights derived from the detailed research done by Deloitte about the shape of Retail Industry in 2019

Changes That Are Causing Disruption in The Retail Industry

What had once worked in the retail industry does not work anymore. Norms and principles of retailing are getting changed. Such disruptions are not just creating challenges for the existing retail businesses, but also creating business opportunities for innovative entrants.

Here are some key concerns that retail business owners are most likely to be worried about in 2019–

1. Awareness Amongst End Consumers

In today’s time, retail consumers have easy access to information about things that they need to buy. They want the businesses to fulfill all their demands in almost no time. They want personalized products and services. Without fulfilling their demands, businesses cannot be made to run profitably. But if things are to be changed as per consumer’s demands, business models and policies must be revamped.

2. Higher Competition

Even the competitive structure in the retail industry is changing with time. One can easily witness tech-enabled businesses paving their way into the industry to compete with the mainstream brands. As a result of higher competition, marketplaces have been developed wherein more, and more brands are getting the required exposure.

3. Supply Chain Re-configuration

To stay in business, various small and big retail businesses are pacing up their merchandise cycle, keeping supply chains closer to the target consumers and adapting to advanced technologies to stay ahead of their competitors.

With time, the cost of increasing the market share of a business in the retail industry has grown considerably. This is why a lot of businesses find themselves being near to collapse.

Decline in Return on Assets (ROA) For Retailers

To measure their profitability and efficiency, retailers use ‘Return on Assets (ROA)’ as a solid parameter. Clearly, a reduction in ROA means lower profitability. As of 2017, median ROA in retail is at points lower than the dips that happened during the Great Recession of 2008 and 2009. This is because of increasing competition that has its effect on the profit model followed.

Even though retail sales are at an all-time high, it also costs more to make a sale when compared to the past. Other challenges include online-only retailers and marketplaces having more consumer-friendly offers and deals, newer business models such as subscriptions, memberships, etc.

Ways to Acquire Growth in Retail Industry

Given the set of challenges in the retail industry, it is important for retailers to follow a well-defined investment strategy in 2019. They need to think and focus more on their core business models and market their USPs.

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Winning customers by offering a more convenient sale cycle can attract them towards the products. Similarly, business expansion can be done in the adjacent sectors of the market to offer value to loyal customers.

Loyalty Programs Enhancements – Why Is It Needed?

To beat the competition, one common way chosen by the retailers is to offer loyalty programs or memberships to their customers. More than forty percent of loyalty memberships are offered in the retail sector alone. But these days, customers are smart, and they play with the retailers by opting for several loyalty programs at the same time.  On average, one consumer is found to be a member of more than six loyalty programs.

But reward points, discounts, gifts, etc. it all caters to transactional loyalty. For emotional loyalty to exist alongside, loyalty programs need to be optimized for customers. They should be tailored for every customer as per his or her needs or preferences.

Similarly, the process to redeem a reward should be made easier for a user.

Startups in The Retail Industry

Retail startups that are selling products digitally are addressing important issues through their innovative offerings. In 2017, digitally native brands grew faster than the broader eCommerce market players in the U.S. They are crafting their brand values by focusing more on building simplified customer experience. They want to offer an extreme level of convenience to their customers, giving them what they specifically want.

With retail tech startups getting funding from external sources, they are competing with established players.

Technological Advancements to Adapt

To make the mark in the industry, retailers should look for innovative solutions. They need first to understand what they need to change and then adopt technologies to fulfill their brand promise.

Here are some innovative ideas that retailers can follow –

1. Personalization

Retailers can bucket their customers into different segments, and then personalize the products offered for each of these segments. Similarly, they can opt for an ultra-personalization state with the use of automation and AI technology. This will help them understand their end consumers more clearly and customize their offerings accordingly.

2. Interconnection

No digital retail business is completely digital. Physical stores, warehouses, logistics, supply chain, etc., it all needs to be interconnected for things to work. To give the end consumers satisfying shopping experience, this interconnection is very important.

3. Super-Efficient

These days, consumers are looking for more, and they want the chosen products to get delivered timely. So, the retailers should work upon becoming highly efficient to match up the pace in the market with the help of technology.

It has become very important for retailers to plan about scaling their offerings with the help of technologies. For that, analyzing the customer-related data is important to deliver what is promised to their end consumers. The approach of doing business should also be changed with time.

Significant Lessons and Facts from China’s Retail Market

China’s retail market has skipped a generation of technology while going forward. It is growing in more than one dimensions, giving the world some interesting facts to write about China’s growing economy.

• Chinese companies like Alibaba, JD.com, Tencent, etc. are helping retail consumers to go beyond their peers in the U.S.
• By 2019, China’s growth in the eCommerce segment is estimated to reach more than 50 percent the share of the global eCommerce market.
• With the use of certain platforms like WeChat etc., the entire shopping experience has been integrated on a single platform. This is way ahead than the US markets, wherein a consumer jumps from one platform to other before making a purchase decision.
• Total mobile payment transactions in China reached $13 trillion in 2017.

Retailers can learn from China’s market leaders about how to compete in this market and minimize friction in the consumer’s journey.

Importance of Consumer’s Privacy for Retailers

In the digital environment, consumers’ privacy is a big concern. This is because it includes safeguarding against unauthorized access to their social media, browsing history, customer service chats, etc. In fact, every physical and digital touchpoint create a user’s data, which is to be protected. Use of data in the right ways needs to be pre-defined.

So, retailers should be proactive in protecting consumers’ data and responding to data subject rights. Alongside, having privacy compliance policies restructured in place is equally important for them.

Supply Chain Improvements for Retailers

Diverse businesses are getting their supply chain transformed to offer a differentiated service to their end consumers. Making it fast, predictable and equally cheap all at the same time is difficult for retailers, while also maintaining profitability.

To make the supply chain a differentiator, it is important for the retailers to reassess sources of profitability, reset profit margins and look for ways to limit expenses.

Profitability challenge can also be addressed in the following ways –

• Supply chain automation to save on cost
• Investment in autonomous delivery solutions, such as self-driving vehicles to tackle increasing distribution cost and labor shortage
• Reverse logistics plan in action to allocate returns and improve customer experience
• Smart packaging
• Unification of inventory amongst manufacturers, vendors, distributors, and stores
• On-demand supply chain improvements

For retailers, supply chain improvements can be a significant growth factor. With median industry ROA, retailers should focus more on supply chain investments. Alongside, they should also think about long term supply chain strategies.

Conclusion

Market disruption, competition, and economic uncertainty may increase in 2019. So, it is important for retailers to make the required transition to a safer side in the market by investing in the growth in the right ways possible. It will shape up the future of retail.