By Peter Smedley
The consumer sector is probably the area of the economy that has seen the most disruption from new business models and been the subject of most speculation regarding its health due to economic uncertainty. Yet consumer spending and confidence have remained robust, largely due to rising real wages and record low levels of unemployment, which is helping to dampen the impact of more negative factors such as concerns around Brexit. Sector transformation is set to accelerate, as companies continue to try and keep up with fast-changing consumer demand. The rapid rise of e-commerce – though physical stores will still have a role to play – and the exponential growth of socially conscious consumption habits are likely to be two of the dominant trends shaping the landscape in recent years and will result in the emergence of a very different consumer sector.
UK consumer confidence remains robust
Consumer confidence stabilised in H1 2019, but remains considerably below its two year average as consumers remain unsettled by political and economic uncertainty, with many shoppers stalling their spending. That being said, falling inflation, rising real wages, and record employment levels are strengthening consumers’ finances, partially countering Brexit fears. At the end of 2018 the spending power of British workers had increased to its highest level in two years, following the biggest rise in real pay since September 2016.
Rapid rise of e-commerce set to accelerate
The seemingly unstoppable rise of e-commerce in recent years it set to accelerate as consumers constantly look online as opposed to the high street.Recent industry reports estimate that between 2020 and 2030, half of the UK’s existing brick and mortar shop premises will be gone, with 100,000 store closures, leaving only 120,000 premises left on the UK high street. In this same period, e-commerce is predicted to account for 40% of UK retail sales.[i]
The UK is certainly a market leader in global e-commerce, with 95% of UK consumers shopping online at some point. Amazon is now the fifth biggest retailer in the UK accounting for £4 in every £100 spent in retail in the UK last year. [ii]At the same time,independent UK retailers are taking advantage of this trend through their own online sites. Some 25% of John Lewis’ sales now come through its website while some £2.9bn of Tesco’s revenue is online, which is second only to Amazon.
Physical stores still have a role to play
There is no doubt that an online presence is vital for retailers.Yet this does not mean that physical stores should be abandoned or neglected. Brands that invest in their in-store experiences reaping the benefits on their bottom line. For example, a key mistake made by Toys R US was to position the company’s stores as locations to ‘go and buy toys’ as opposed to shops to experience toys and fun activities, which consequently led to the company losing out to online competitors. Virgin Holidays provides an example of a company offering an immersive in-store experience with customers being able to try upper-class seats that have been set-up in shop as well as use virtual reality goggles to preview their potential holiday experience.[iii]Acquisitions of physical store operations by e-commerce giants Amazon, JD.com and Alibaba show that they still value a physical presence and that this is still important. Online is definitely the way forward, but retailers are not rushing to simply abandon the high-street, rather many are realising that if they use their physical outlets to offer unique customer experiences it will help draw customers in and boost sales.
Conscious consumerism and healthy eating are key drivers
Alongside e-commerce, the other significant trend driving consumer spending is the rise of the socially conscious consumer alongside a focus on healthy produce. Some 75% of the British public say that they modify their consumption due to social concerns and have become more conscious about their use of consumer items including plastic, non-recyclable materials, dairy, meat, sugar, salt, gluten, palm oil, travel, clothes and products that have been tested on animals.[iv]
Plastic concerns the UK public the most with 46% actively reducing their plastic usage. It’s not just the younger generations that are driving this this with 65% of 75+ year olds consciously trying to reduce their plastic waste. Brands have already begun to take advantage of these trends. Key examples include: Iceland with its stance against palm oil and promise to go plastic-free by 2023, Tesco launching its own brand vegan range and PretA Manger boosting its veggie Pret offering through its acquisition of EAT. Brands which don’t take this quickly growing trend into account will see their market share erode quickly going forward.
A very different consumer sector is emerging
A more ethical, value driven approach by consumers, raised expectations around customer experience and the disruption caused by digitally native businesses is fashioning a very different consumer sector. It is a sector where customers’ buying decisions are more than ever swayed by the values displayed by companies and where trust is increasingly hard to foster as customers expect transparency, authenticity and ethics. Consumers also expect contextualsied, tailored engagements cross multiple touch points. These may appear tough metrics to meet, but those consumer businesses that match or surpass them will be the companies that survive and thrive in the new era of retail.