Welcome back to another edition of This Week in Retail!
Once more, we bring to you a great selection of stories from across the world of retail, with our theme this week focussing on the whole spectrum of digitisation journeys. These range from ASOS’s plunging profits despite of IT difficulties, Dixon’s Carphone’s digital transformation utilising AI as well as Superdrug looking at new initiatives to strike a healthy balance between digital and physical channels.
We start this week with news of Harrod’s profits falling 2.1% faced by a difficult decision for modern retailers – that of choosing to invest in store operations as opposed to digital operations. Harrods has focussed on their in-store operations having introduced beauty halls and skincare emporiums, with the majority of their £64m capital expenditure being spent on luxury boutiques within the flagship Knightsbridge store. This has ultimately led for calls for the luxury retailer to increase spending online to encourage tourists to spend on repeat purchases after visiting the store, particularly given their reliance on the flagship store and smaller travel locations. Digitising retail is not only expensive, but also complex, raising the question as to what extent retailers should be investing in specific parts of their operation. How clear cut is the advantage offered to retailers for digitising their business? Is there still room for success through in store retail operations? Perhaps the answer is to invest in solutions that can genuinely bring channels closer together.
In a mvie to alter its distribution strategy, Nike has decided to take a bold move of ending its supply agreements with third party retailers over the next two years in a bid to curb the issue. This distribution strategy helps the brand to focus more on growing direct to consumer sales and touchpoints. . Primark has been forced to issue a statement to consumers reaffirming that they have no online store and no partnership with Amazon, warning them not to purchase from these sources – which has ultimately in turn led to calls from consumers for Primark to open an online store. Elsewhere, despite ASOS being an excellent example of the success of digitisation in fashion retail, their profits have fallen 68% with IT problems in their third party managed warehouses being seen as the main culprit, causing higher costs and an inefficient supply chain. This is despite sales increasing by 13% in a year, with ASOS themselves attributing the fall to competitors such as BooHoo flourishing through heavy discounting.
Despite these examples of the struggles that digitisation can lead companies to encounter, the success stories are arguably much more convincing – especially so for the high street stalwarts. Dixons Carphone was struggling to keep up with the pace of change in the retail landscape, with endless discounts becoming a core theme. Instead, they put digital innovation and a customer centric approach at the heart of their retail operations through aspects such as AI being developing to aid with writing the best performing e-mail subject lines and developing tools to optimize processes, personalisation and content automation.
It could be seen however, that there is a balance to be struck for these retailers in digitising. Superdrug, for example, has found a balance through launching a 30 minute click and collect service. In the opposite direction, stores ultimately possess the power to drive sales to online channels, acting as a marketing channel that makes use of existing operations. AI chatbots can answer consumer queries faster and with greater consistency, however they do not completely replace humans – with a balance between human and bot being integral for modern, digital retailers. Influencers are an example of a softer side to digitising, particularly around organic marketing. 73% of people aged 18-24 believe they are at least partly responsible for the rise in fast fashion. Combine this with a popular theme of innovation for retailers this year, that of pop-up stores, and you get Rihanna’s brand Fenty making an appearance for a limited time in the UK at Selfridges.
It is not just possible, but it is crucial, for retailers to make the most of both the offline and online worlds in order to stay competitive in an increasingly multi-channel environment.
Thanks for reading and have a great weekend!
Grade: Associate Consultant
Strategy and Operating Model, Innovation and Strategy
Area of speciality: Luxury / Fashion Retail