Gateley : UK retail – is the perfect storm brewing? Part two. Retail trends that will dominate 2018.

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In the first instalment of our three-part series looking at the current state of the UK retail sector, we considered the challenges that our retailers are facing. We now turn to look at how those external pressures are shaping trends in the sector, as we look to the year ahead.

E-commerce driven by millennials

Much of the future growth in e-commerce will be driven by the millennial generation. Millennials now make up around two billion of the world's total population and are seen as the emerging key consumer segment, so understanding their purchasing habits and preferences is vital.

Three of the top five online products (as measured by online sales as a percentage of total sales) include media (books and music), electronics and apparel. Whilst revenue generated from media online will continue to grow, expect to see a downward trend in conventional 'sales', with millennials preferring to stream rather than purchase.

The rise of M-commerce

According to the latest research from PwC, more than half of all e-commerce transactions by volume took place on a mobile device in the UK in 2016. Consumers are showing a strong preference for shopping via websites optimised for mobile devices, rather than in retailers' own apps, which hold consumers captive and prevent them from shopping around. Even for those not buying on their phones, over two thirds of consumers admit to using their phones to research a product they are looking at in a shop, whilst in the shop - most commonly, to compare prices, look up specifications or check reviews. For retailers, investing in getting a mobile site right is now more important than ever.

Augmented Rcutoeality/Virtual Reality

Predominantly consumers go to shops because they want to see/touch/try the product before purchasing. The increased use of augmented reality (think Pokémon Go!) and virtual reality technologies can enhance customer experience and encourage purchases, by helping customers to visualise purchases. Much of this technology is still in its relative infancy, allowing considerable scope for improvements in user experience.

The power of reviews

The customer journey is no longer simple. Customers go through a cycle of awareness, research, purchasing strategy (where and when to buy) then evaluation of the product, which they are increasingly happy to comment on publicly via online reviews. Consumers are increasingly placing a reliance on peer review when going through the consideration phase, so getting customer experience right for as many customers as possible is essential. The younger generation of shoppers are far more likely to engage and leave reviews, an attitude that is likely to continue as they grow up. The willingness of consumers to be far more vocal about satisfaction is a powerful tool for those retailers that manage to garner and exploit positive feedback.

Predictive analytics

Retailers with sophisticated data strategies are increasingly able to use circumstantial data (demographic position), situational data (geographical location and common movement patterns) and demonstrated behaviour data (how customers have behaved in previous scenarios) to predict customer requirements and shape supply chains and infrastructure accordingly. Doing this well will allow them to reduce costs and enhance customer experience.

Focus on personalisation and the rise of 'Big Data'

Excellent customer service is no longer enough to ensure customer loyalty. Millennials seek a more personalised service, responding positively to highly customised promotions and one-on-one engagement. Whilst retailers race to capture as much data as possible about their customers and target markets to try and meet these aspirations, consumers grow increasingly concerned about how much data is being wittingly, or unwittingly, collected about them and fears of invasion of privacy are growing.

Rise of the robots

The wider retail supply and logistics chain already makes extensive use of robots in warehousing and as robotics technology continues to improve, this trend will only accelerate. The cost of introducing new infrastructure can be prohibitive but failing to do so can result in a business failing to keep pace. Traditional supply chain models may not cope with rapidly changing (and fickle) consumer demands, as they demand ever more flexibility around collections and returns, which introduces further cost and complexity around stock management. For purchasers of fashion items, the seller's stock availability and returns policy are also key factors in the final purchasing decision.

The delivery battleground

The battleground is now around same-day delivery. The better this gets, the less incentive there is for shoppers to leave their homes. This has a significant, adverse knock-on effect for the High Street and the out-of-town retailer alike. Getting delivery wrong puts retailers at a considerable competitive disadvantage, but working towards getting it right can be a significant driver of cost, further squeezing margins.

Part-three of this series will follow next week and will consider the restructuring options for distressed retailers.