I hope you all enjoyed your time off over the festive period and had a great end to 2018! It certainly seems that some retailers, such as John Lewis and Next did with a late surge in sales towards the end of December. Let us kick off 2019 with a look back at the retail predictions we made at the start of last year– just how right were we?
For those of you who are new to this series of articles, we asked a group of our retail experts within Capgemini Invent a series of questions at the end of 2017 to predict what they thought would be the key trends within the industry over the following 12 months – here’s how they answered our questions:
What will be the biggest challenge for retailers in 2018?
Our experts came up with a wide variety of responses to this, however, one underlying theme was cost. How can retailers manage their costs, but also innovate and find their strategic response to the likes of Amazon, Aldi or Lidl?
It seems like our experts were on point! At times in 2018, the retail news appeared to be an endless feed of doom and gloom with key topics such as the CVA, job cuts and store closures frequently hitting the headlines with retailers such as Mothercare, New Look and Debenhams seeking to reduce their costs.
Some retailers did however manage to avoid the trend of store closures. Tesco opened a new discount brand Jack’s, named after their founder Jack Cohen, in what seems as a direct response to the discounters. Asda and Sainsbury’s also hit the news with the announcement that they would be merging in an attempt to bulk up against the competition – a merger that is still yet to be approved.
What is the big question retailers will be challenging in 2018?
In a similar vein, many of our experts focused again on cost here, however, one interesting response was; should I invest in my store estate?
In 2018, we saw a variety of approaches to this challenge by the retail market, including the aforementioned consolidation of the physical store estate and store closures. Interestingly, in defiance to this we saw Amazon, traditionally a pureplay online retailer, venturing into the world of bricks and mortar with a fashion pop up on Baker Street – perhaps something we should be watching closely in 2019?
What will be the breakthrough technology during 2018?
Moving away from the cost discussion, our experts were well aligned in their response to this question. The themes for 2018 centred around three main technologies; Artificial intelligence (AI), Blockchain and retailers experimenting with Augmented Reality (AR) or Virtual Reality (VR).
Outside of the cryptocurrencies, we’re yet to see blockchain technology hit the mainstream aside from few different use cases. However, during 2018 we’ve seen several retailers implement both AI and AR; Shop Direct started to use AI to detect fraud on phone calls, and both IKEA and ASOS have implemented AR within the consumer apps.
What will be the technology that will come of age during 2018?
The majority of our experts seemed unanimous with their view that it would be automation which would start to become mainstream during 2018. However, one individual looked at this through a consumer lens and suggested that alternative payment methods would prevail.
It is here that we’ve seen a large uptake by consumers with different ways to pay. ASOS launched the Klarna ‘pay later’ service and a number of retailers, including Tesco and Sainsburys, trialed payment through their apps. Another interesting take on the alternative payments is Costa Coffee who, during 2018, partnered with Barclaycard to launch a ‘smart cup’ with embedded contactless payment technology.
What technology will not live up to the hype during 2018?
At the other end of the spectrum, we put it to the team on which technology did they predict would not live up to the hype during 2018? All but one individual declared the drone to be this and largely they were correct – I’m still yet to have my pizza order land on my balcony.
One individual did however call out that the Amazon Go model would still not emerge, given the complex combination of both technology and support systems this would require.
This has largely remained true. The model has not drastically moved forward over the past 12 months and remains a tantalising proof of concept. We’re watching this space carefully – American retailer Kroger has recently teamed up with Microsoft to develop its own technology and analysts are predicting that Amazon Go could be a $4 billion business by 2021.
Which retailers will you be watching in 2018?
Whilst no one was willing to nail their colours to the mast on this one and provide a definitive name, three distinct groups of retailers appeared in the discussion; consumer goods companies selling direct to customers; new business models such as Deliveroo or subscription-based retailers; and a follow on to the mergers that occurred towards the backend of 2017.
Whilst a lot space in the retail columns during 2018 was dedicated towards the merger between Asda and Sainsbury’s, one distinct group of retailers emerged as the hot topic of 2018 – the department store. House of Fraser entered into administration, Debenhams issued profit warnings and John Lewis’ profits slumped 99% in ‘challenging times’. Many have begun to question whether this operating model is still relevant and if during 2018 we start to see the ‘death of the department store’.
Will we see any mergers occurring during 2018?
With the number of mergers that occurred towards the end of 2017, we asked our panel if they foresaw this trend continuing into 2018? Responses to this were mixed, and predictions varied from mergers between complimentary channels to private equity hoovering up corporate debt and embarking on store closures.
During 2018 we saw Mike Ashley again save some of our high street brands. He purchased House of Fraser for £90 million, Evans Cycles for £8 million and even offered Debenhams a £40 million loan. Does he have a grand vision that we are yet to see, or is he a simply the saviour of the British high street? With ownership of brands such as French Connection and Four Square Marketing (the umbrella company of Agent Provocateur and many others) could we see him adopt a vertical integration model of brands into his recent acquisitions, similar to model employed in Sports Direct?
I think it is reasonable enough to say our experts were not too far from the mark with their predictions for 2018. The past 12 months have demonstrated that the retail landscape continues to evolve and shows no sign of stabilising any time soon with plenty of disruptors entering into the marketplace. Whilst for some retailers 2018 was a struggle for survival, others continued to experiment with new technologies and innovate.
During 2018 I came across a the key phrase called out in the press; the death of the department store’. Perhaps a more appropriate phrase that should be coined is the ‘evolution of the department store’. If 2018 has taught us anything, those retailers which can adapt and change in response to the demand of the future retail landscape will remain, however, those retailers who cannot evolve will quickly find themselves joining Toys ‘R’ Us or Maplin in the retailer graveyard.