Transformative trends and disruption in retail space

Ridhima Sharma
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Transformative trends and disruption in retail space

It is the season for giving – or so we are reminded by the struggling retail sector looking to close the year in the black. Given many shoppers enter the season undecided, retailers attempt to influence purchase decisions with the right offerings and incentives. Take for example Black Friday; retailers have learnt to exploit this phenomenon by launching discounts weeks in advance to manage demand and sustain momentum during the busiest shopping period of the year.

However, the concept of physically visiting a department store or buying a plane ticket from traditional retail travel agencies is alien to the new generation of millennials and instead they tend to browse on their laptops or smartphones for a bargain; one of the explanations for why online spending is expected to account for 57% of all purchases over this year’s holiday period.

In order to benefit from this change in consumer behaviour, traditional retailers are adapting their business strategies to align more with the convenience of online retailers. Technology is disrupting the consumer experience and vendors are investing in innovative offerings such as seamless checkout, voice-assisted shopping and virtual reality. The challenge for investors is to identify retail companies capable of harnessing the power of digital disruption to create innovative new products and services for the next generation of consumers.

As clicks rise for high-street brands, it would be easy to assume that this trend is reserved for purchases that don’t require careful consideration, however technological innovation and changing consumer patterns have even forced the high-end market to re-evaluate traditional growth strategies.

Richemont’s bid to take full control of Net-a-Porter signals a strategic shift in the way the luxury sector operates.

Luxury brands have been accelerating the development of their e-commerce operations, inspired by the success of multi-brand platforms such as Farfetch andMatchesfashion.com who focus primarily on internet sales.

Yet, despite the development of digital, physical stores remain important, particularly for the grocery market where the online demand for food has yet to be a big success. Even Amazon turned toward a multi-channel offering, expanding from e-commerce to investing in brick-and-mortar stores with its acquisition of Whole Foods Market in 2017. Through this deal, Amazon has access to 450 physical stores which could be used as distribution centres going forward, allowing close proximity to the consumer.

So, the question begs how can investors benefit from these transformative trends in the retail industry? It makes sense to think hard about where human demand will be strongest in the years ahead and consumer behavior over the festive period, particularly the five days between Black Friday and Cyber Monday provides a unique insight.

Adobe Systems tracked activity on thousands of websites from this year’s Black Friday weekend and reported a 26.4% surge in internet sales compared to the same period last year. Amazon recently announced an unprecedented holiday shopping weekend and this Cyber Monday became the biggest shopping day in the company’s history. The fact that Cyber Monday now outstrips Black Friday in spending terms only re-enforces the influence companies such as Amazon and Alibaba, who look beyond short-term profitability and focus on sustainable growth through customer acquisition and retention rates, have on consumer behavior.

Investors need to focus their attention on companies who understand the difference between incremental digital innovation and those capable of fundamentally changing our approach to consumption. However, at the heart of this trend is the fact that today’s ecommerce disruptors will become tomorrow’s disrupted. A failure from retailers to anticipate and indeed influence demographic trends will no doubt mean they themselves will end up in the bargain bin.

Anne Le Borgne from CPR

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