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The future of the high street retailer

Retail customer journeys are becoming more complex. Using Argos and H&M as examples, Stuart Higgins, partner for consumer goods and retail at BearingPoint, describes a future where the last mile changes, and retail stores will have to become local delivery hubs.

The rise of the digitally enabled consumer is challenging existing retail paradigms. Where the power once lay in the hands of the retailer, the customer is now the driving force in the relationship. Customers have more buying power than ever; they expect greater choice, available faster and at lower shipping costs. The internet is turning the globe into every consumer’s high street and competition is now on an international scale. If the high street is to survive then it must adapt to these new consumer shopping trends. 

It is a fact that in today’s connected world, customers are more likely to include online and mobile channels as a part of their purchase mission. What is not necessarily fully appreciated is that customers also continue to value the retail store as an important part of that journey. 

So, this leaves retailers with a series of conundrums: retail stores still have an important part to play in most retail customer journeys, yet the customer often chooses to buy online so store sales and profits are declining. Customers are demanding faster and faster fulfilment, meaning that stock needs to be close to the end customer to satisfy those demands for reduced lead time. More online sales mean more returns and the customer wants a convenient drop off point to return goods hassle-free. So, the role of the store needs to evolve to embrace more elements of the extended customer journey if they are to remain relevant. 

Digitally driven

A number of years ago, Argos embraced the future of retail to become a digitally driven retailer; transforming the in-store experience with tablet technology, fully integrating mobile into the customer journey, providing full stock file visibility and allowing the customer to select from a series of potential purchase journeys including buy online, click-and-collect and reserve-and-collect. They also introduced a national same day delivery offer, serviced from store stock, that beat Amazon at their own fulfilment game.  

Now it seems that H&M are following this lead in converting their ca. 5,000 store estate to become logistics hubs for last mile fulfilment. In doing this, the basic role of the store as a showroom and point of sale will not change. However, the store of the future will also embrace additional roles as part of a more complex and emerging customer purchase and fulfilment journey that includes using store stock to fulfil online orders and acting as a returns-point and returns re-processing facility. 

The advantages

There are many advantages that retailers can gain from such a strategy: overall selling space in store can be reduced, which means that less stock is required; store profitability can be enhanced from additional online income streams; a single pool of stock is created, enabling improved availability, increasing full price sales and reducing mark-down and clearance; lastly, returns processing lead times can be reduced, with returned product getting back on sale quicker to maximise resale in season. 

Many recent retail closures can be attributed to retailers failing to recognise the changing role of the store and adapting to the new retail paradigm; in addressing this face on, retailers like Argos and H&M are probably doing more than most to cement their future on the high street. Those retailers who fail to re-invent themselves will struggle to survive. 

Evolving formats

Recent research from CACI shows that more than half of all online spend ‘touched’ a physical store as part of the purchase journey – be that through pre-purchase research, try before you buy, click and collect or in-store ordering for home delivery. So, retailers do need to maintain a physical presence on the high street – but change is needed to existing store roles and formats to meet the needs of the digital customer. 

Motivating these changes will also require a different set of capabilities in store. Retailers need to have an accurate view of the stock in each store if they are to be able to confidently offer it for sale on their website. Many retailers have relatively poor stockfile accuracy and so can’t fulfil online orders from store stock with assurance that the stock is there. RFID tagging technology is a key enabler of future ‘omnichannel’ customer journeys as it enables wireless tracking of the precise number and location of all stock in a store – providing the retailer with the assurance needed to offer that stock for sale online. In addition, stores will have to become local delivery hubs, with the capability to pick, pack and dispatch parcels for home delivery on tight, same day, lead times. More store space will have to be set aside for collection and return of parcels, and store staff trained to fulfil new roles. 

At some point, packaging materials will need to be held in store, space created to pack the goods, labelling facilities to address the parcel and local courier services to make that last mile delivery. 

So, the high street is not dead yet. The question is: how many others will see the need to re-invent retail for the future and how many will simply fail to react and slowly wither and die? 

Stuart Higgins reports.

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