Depending on which papers you read, and when you read them, this year's holiday trading period was either retailing's salvation or damnation. However, a recent Ernst & Young report suggested that high-street discounts were at record levels with 30% below the pre-Christmas norm, and mark-downs of up to 80% in the January sales that followed. While retail sales volumes may have held up, or even grown year-on-year, it seems highly unlikely that the same can be said for profitability.
Underneath the contradictory trading figures from the vital pre-Christmas period and the January sales lies a seismic shift of the tec-tonic plates in retailing.
I think we have reached a tipping point, which means we need to redefine 'home shopping' as 'home retailing'. This may look like wordplay for the sake of it, but in fact it represents a shift in perspective from that of the customer to that of the company.
HOME SHOPPING AND HOME RETAILING
'Home shopping' is one of the longest established retailing channels but it has its roots in customers' geographical distance from shopping centres and their need for credit, unavailable elsewhere. 'Home retailing' is the emerging skill required by companies who are finding that customer behaviour is changing radically as a result of the internet and other digital media. Increasing numbers of companies have to manage these multiple channels for 'home retailing' on top of their traditional ones.
Customer touch-points for home retailing include catalogues and web-sites, as well as agents, with orders made by post, email, telephone, mobile phone call, SMS text and via the iTV 'red button' (see Figure 1). These new routes to market share the qualities of low cost and convenience, and provide an array of opportunities to present merchandise and services to the customer whenever and wherever they're wanted.
Google has become ever more powerful (and controversial), so depending on which top ten list you read, it is the first or second most visited site in the UK, and more and more small businesses have come to rely on webbased, paid-for-search for their customer orders. The story from The Search by John Battelle about a Googledependent specialist in outsize shoes whose customer enquiries disappeared overnight when Google changed its algorithm, is a salutary one.
But the impact of digital interactive communications is not just a threat to these small entrepreneurial operations that have grown up in a symbiotic relationship with the net. Indeed, some very big players are feeling the squeeze and not just those in digital media, such as the music business – look at the pressure on HMV – and high-street bookselling where the massive inventory required and the relative value/weight ratio makes home delivery such a threat.
THE INTERNET IS CHANGING CUSTOMER SHOPPING PATTERNS
This is because customers' shopping patterns are changing with a particular impact on higher value, relatively infrequent, considered purchases. Car marques such as Honda report that the average number of test drives in the new car buying process has fallen from an average of five or six to one or two. Today, many prospective purchasers do all their research on the internet, decide on the make and model and then go straight to the dealer.
Of course this places an enormous premium on the quality of service that the buyer encounters at the dealership, but an even greater one on ensuring that the brand is sufficiently attractive to pass muster and generate the traffic in the first place.
This culling of the shortlist before a physical contact is ever made has intensified competition in the car market. The result has been an increased focus on brand communications, both at the 'broadcast' and the 'narrowcast' ends of the spectrum.
But what is increasingly disconcerting retailers of other sorts of consumer durables is the relegation of their expensive high-street shops to the status of showrooms. It's just too easy nowadays to research a DVD player on the internet, make all the price and quality comparisons, delivery charge included, and then go into a retail outlet just to make sure that the look and feel are right, before returning home to make the actual purchase online. An acute in-store assistant may be able to rescue the sale, but often at the cost of reducing margin to match the online price.
It's no surprise then to read that DSG (Dixons Store Group) is to experiment with much larger out-of-town Dixons Warehouse formats, (it already offers price compatibility with web prices through its PC World stores), where the sheer range on offer and 8% lower pricing, can perhaps offset this new buying pattern. At the time of writing DSG is also reported to be in negotiations to acquire the internet retailer DABs.com, a full circle back to the success its Freeserve innovation might have become for DSG.
In this context, it will be interesting to see how Dixons' online presence works in harness with its physical outlets in delivering a comprehensive and competitive 'home retailing' offer.
Meanwhile, in another high-ticket market, there's been retail carnage. Customers are finding it easy and enjoyable to search for possible holiday destinations online, and are quite happy to make the purchase there too. As interactive TV really gets under way, travel customers will also be able to buy on channels such as Thomas Cook TV. With an intangible such as a holiday, where there is nothing to touch and feel until you get there, the added value to be obtained in a travel shop is negligible in the mass-market package sector.
As a result, I suspect all the major travel companies would get shot of most, if not all, of their high-street leases if they possibly could and this represents a very significant and threatening 'overhang' for the commercial property market. The issue of supermarkets destroying the high street will look like a minor skirmish compared to the situation landlords will face as the 'new' web-driven businesses desert their bricks and mortar.
But is there still an opportunity for advisory services in the travel market? Could these be provided as part of a 'home retailing' approach using a combination of website and call centre, with perhaps even visiting consultants at the top end of the market? I think so.
As more and more people shop online, and more and more businesses get into home delivery, a virtuous circle will be created whereby efficiency and reliability will increase dramatically, further encouraging this shopping pattern.
Appointments on Demand
This new trend coincides with the deregulation of the Royal Mail and the entry into the market of competitors such as Deutsche Post and TNT alongside existing delivery companies such as UPS, FedEx and DHL, to say nothing of Tesco, Sainsbury's and Ocado. Two-hourly reliable appointments for home delivery are already offered by Ocado and Topshop (within two hours of London), and hourly ones are just around the corner. People will no longer have to take time off work to wait in for half a day for their goods, as was the case up until quite recently.
More Men Shopping, More Women Online
While women are catching up fast, it's still the case that men are the dominant users of the internet – 54% of men versus 46% of women, according to New Media Age – and are likely to remain so for a few years to come. We have seen the impact that this has had on online transactions, especially in the case of eBay and the phenomenal growth this company enjoys – every third UK internet user now visits eBay.
This site has engaged men in the shopping process like never before. In the hard-copy, off-line world, trading publications like Exchange & Mart, Auto Trader and Dalton's Weekly have always been male-dominated and this has been transferred online in a massive way. Deals done on eBay are now a major topic of pub conversation and have given men confidence to shop online for many other things, and not just sex, (drugs) and rock 'n' roll! Indeed, research by Nielsen shows how important male purchasing is online (with 40% making a purchase once a month) and this represents a big opportunity for a well-organised 'home retailing' strategy targeted at men.
Meanwhile, there's enormous potential to engage more women in online shopping. The supermarkets and the top national department stores are already doing a frighteningly good job of this, but perhaps the leisure and entertainment sectors could benefit too. We might expect cinemas, theatres, clubs, casinos, bingo halls and other venues to exploit the 'social organiser' talents of women (who organises your weekend?!) by taking a more integrated approach and delivering an engaging 'home retailing' package.
A NEW WORLD OF HOME RETAILING EVOLVES
It's too soon to say which of these 'home retailing' platforms will emerge as the dominant mix, but it seems very likely that ordering from a website accessed via a PC or a TV is going to feature strongly. According to MORI, 35% of the UK population is connected to broadband and the penetration of personal video recorder (PVR) is 10% and rapidly increasing. As a result, the utility of websites will engage the mass market and become an integral part of the shopping process.
The challenge for companies is to ensure that they integrate customer interactions across all these contact points and avoid the build-up of silos of customer data on the company side, which do not communicate with each other and prevent the construction of a holistic view of the relationship with their buyers. (see Figure 2)
But what has been less discussed is the need for far better integration on the customer side of the equation, in terms of the communications channels being employed, and the range and pricing being deployed therein.
In other words the 'home retailing' presence for the individual customer.
What is clear to me is that this article simply scratches the surface of the issues surrounding the most dramatic change in our shopping culture and habits since shopping-time began. But what really are the implications?
- From a commercial point of view I expect to see enormous repercussions on the commercial property market, which will have knock on effects on domestic property and ultimately our pension funds.
- I expect to see Royal Mail home delivery make huge profits and other new entrants do very well.
- I expect to see our retailers shedding staff in ever increasing numbers, and re-training those left to be experts in their field and help customers in store place orders on the net.
- I know travel will never be the same again. If my wife can plan and book a three-week tour of Canada on the net without leaving home or talking to a travel shop, I am pretty sure I can book a weekend in the Cotswolds.
- Database management companies that can link legacy systems to new ones and integrate all the customer databases to enable true relationship management will add enormous value.
The best of these will challenge traditional agencies as they build marcoms campaigns off the back of intimate customer understanding.
Companies need to put themselves in the customers' shoes and create a new, holistic 'home retailing' offer that marshals all the key touch-points to deliver the optimum brand experience.
In summary, if communicators do not reach out more effectively to home shoppers with all the accumulated intelligence and skills we have used to attract customers to 'normal' retailing, then huge and costly mistakes will be made and immense opportunities lost.
'Home shopping' is far too simplistic a term for a retailing sea change that has finally achieved the impossible – after all, now even men think that shopping (online) is fun.
NOTES & EXHIBITS
FIGURE 1: THE RANGE OF CUSTOMER TOUCHPOINTS
FIGURE 2: IMPROVED SERVICES IN HOME DELIVERY AND COMPETITION IN THE MAIL INDUSTRY ARE FACTORS IN THE RISE OF HOME RETAILING. TOP: AN OCADO DELIVERY VAN. ABOVE: TNT NOW DELIVERS REGULAR MAIL AS WELL AS PARCELS.
This article featured in Market Leader, Spring 2006.