The internet has disrupted, transformed and revolutionised the business of retail. Mamy mighty behemoths of retail have fallen by the wayside over the last 15 years or so as they failed to adapt and embrace the opportunities the internet has brought, along with addressing the challenges it poses.
This narrative can become overwhelming – everything needs to be online, physical retail is dead etc., this hyperbolic perspective can distort both modern reality but also predictions of the future trend.
In reality there are still many retail businesses doing well in physical retail, albeit most probably alongside an equally well managed online business. People still like to try & buy products, sometimes we need customer service or advice, sometimes we need to touch and feel a product and other times we visit stores for something to do.
Physical retail is far from dead, but to succeed in this space you need to be capable of adapting your approach and to be constantly pushing forward and ruthlessly managing your in store environment, customer experience, stock holding and marketing activity. The days of chucking some boxes out onto a shop floor and leaving them there and presuming customers will flock are definitely gone (if they ever existed).
Much has been written of failed retailers in the last decade and a half as mass market adoption of the internet has made its mark, in our case most notably (and painfully) the failure of Toys R Us looms largest and most recently.
But before we lament too strongly let’s take a look back to take a look forward. When I entered the toy industry at the turn of the millennium, Woolworths was one of two major toy retailers in the UK. Woolworths demise over ten years ago sent shockwaves through the UK toy industry. Yet a decade later, the UK toy retail market has in some ways never been healthier, despite the impact and growth of online shopping in the same period. The UK has two great examples of toy specialists who have thrived in a tough trading climate, from the global financial crisis through to the erosion of physical retail market share.
Smyths Toys Superstores – when I first joined the toy industry, Smyths was a small retail chain on the island of Ireland, with (if my dusty memory is right) about 5 or 6 stores. I remember our Irish sales team at the time being very insistent that we take the meetings with their biggest customer very seriously, although we generally paid far more notice to Woolworths and Argos who had (again from memory) in the vicinity of 500-600 stores each at that time. Fast forward to today, and Smyths have positively flourished in the vacuum created by Woolworths failure and by the failure of Toys R Us to modernise and adapt in the UK market. Smyths are now a major player in the UK market and perhaps more ominously for their competition are growing across Europe, having taken on a number of stores from Toys R Us in mainland Europe.
The Entertainer – perhaps the biggest direct gainer from the demise of Woolworths, The Entertainer has gone from strength to strength in the UK, providing a high street option for those wanting to buy toys. Again, despite the growth of online retail, The Entertainer’s store count has significantly increased over just the same amount of time as it has taken other business to fail to adapt and to fall by the wayside. The Entertainer’s smaller store formats allow them to vary their product mix to allow them to blend hot must have items as well as higher margin items, versus having a vast warehouse which needs to be filled with stock much of which mostly sells in just a few months of the year.
Both The Entertainer and Smyths also have successful online businesses we should note.
So in order to predict the future of retail, we can first look at these two examples of success in tough times, and extrapolate that forward. There are some fundamental principles of retail which haven’t changed in principle, only in how successful retailers execute them:
RETAIL IS DETAILS – fundamentally retail is about selling many individual items, and so each transaction needs to be supported by a thoroughly managed environment and consumer shopping experience. For instance, if you go into a Smyths store you will find in most instances perfectly merchandised shelves. On the flip side, if you ever go into a store and you can’t find prices for the products routinely that’s often an example of a poorly managed store with poor attention to detail because if a customer doesn’t know how much something will cost they generally won’t buy it. The same applies online e.g. if product images are missing or are unflattering you won’t sell the product.
CUSTOMERS NEED TO BE MOTIVATED TO COME INTO STORE – one of the things that has really contributed to the demise of some retail stores is the failure to effectively draw footfall into stores, because in the end the store needs footfall and it needs sales conversion from that footfall, if you don’t get the footfall you definitely won’t get the sales. The most perfectly merchandised store will not get success unless a). visitors leave feeling satisfied and wishing to come again and b). new customers are attracted or pushed in on an ongoing basis. (The same point applies to online e.g. you still have to drive traffic to the online store).
PRODUCT SELECTION – increasingly we’re seeing physical retail stores seeking point of difference in terms of product on offer. Some of the mass market box shifting retailers are happy to play the game of selling the same as everybody else but just cheaper, but for specialists or for those who can’t rely on footfall driven by the necessity of a weekly grocery shop for instance, product differentiation gives a different offer which can be intriguing and motivating for customers. (Again the same applies to online retailers).
BUSINESS MODEL – underlying every successful business is a clear business model encompassing margin mix, logistics & warehousing, success formula for stores including location, rent and footfall potential etc. One of the things which is very evident about Smyths & The Entertainer is that they both have a clear business model/strategy which has contributed to their ongoing success and growth.
SYSTEMS – Good systems are vital for retail – stock holding systems, replenishment systems, staff management and communication systems etc.
CUSTOMER SERVICE – effective customer service is critical, whether for physical or online retail.
So when we come to predict the future of retail, we can look at the fundamentals of retail listed above – these have arguably not changed and in our opinion won’t change for the foreseeable future, also the fundamental factors are the same in principle for physical or online retail. Well managed retail businesses with a sound and clear business model, great systems and good customer service will continue to be successful, poorly managed businesses without these fundamentals in place won’t!
Normally when predicting the future, writers of such articles focus on everything that is going to change, but ignore what is unlikely to change, hopefully we’ve avoided falling into that trap!
But now that’s out of the way we can get the crystal ball out & try to predict what will change. Here are the key areas where we see change on the horizon:
ARTIFICIAL INTELLIGENCE (AI) – already today when you order your groceries online, most retailers will offer you the same or similiar basket next time round i.e. will remember what you ordered before, but imagine if you could overlay advanced artifical intelligence e.g. let’s say you bought ice, cold drinks and salads last week because it was baking hot outside, will you want the same when the weather is cold, or should they be offering you hot soups etc. The same can apply to toy shopping, let’s say last Christmas you ordered toys for your 6 year old, then next Christmas the child will be a year older, in 3 years time maybe moved on beyond normal toys but maybe technical or outdoor toys may still be appropriate. AI can process and analyse all factors involved and recommend what you should buy this time round. As always with such technologies it starts out flawed and over time will be tweaked until it can spookily predict exactly what your child might want.
FROM KEYBOARD CONTROLLED TO VOICE CONTROLLED ONLINE RETAIL – Amazon’s Alexa has to date been the biggest landmark product in the space of voice recognition. Currently (at the time of writing) it has not had a huge impact on shopping habits, but that trend is developing and as the technology gets better and better inevitably more and more retail will be conducted without physical contact with a computer or device.
PLASTIC BACKLASH – today we are focused as a society on minimising use of plastic carrier bags and one use plastic items like drinks bottles. Looking forward this trend seems only likely to continue. At some point humankind will discover a different material to fulfil the same purposes/functionality. But in the meantime until that comes the lens is only going to get tighter and tighter on plastic, so we can expect more and more pressure on retailers and therefore from retailers to cut out plastic usage in packaging and products etc. wherever possible.
DELIVERY REVOLUTION – we can already order on Amazon and have the product delivered on the same day we buy. But currently this is delivered by hand by human. We’re already at the point where aerial drones can deliver shopping, and this aerial drone trend is only going to grow. This might affect the size and style of toys which sell the most going forward, which is not really a consideration currently.
AUTOMATION/ROBOTISATION – futurists are already predicting mass job losses in sectors such as manufacturing, customer service and retail due to cost savings resulting from automation/robotisation. This is going to take a while I believe, but in the end we will see a significant loss of (human) labour. On the positive side though, the same futurists are predicting that while basic manual jobs will be lost, the need for creative skills and inputs will grow, and that more of the human race should be working in such areas in the future. The great thing about this trend from the perspective of the toy industry is that playing with toys can have a large role to play in developing creativity in children.
SOCIAL MEDIA FOR KIDS – currently nobody has really cracked safe social media for kids. Over time this will become easier and better as technology advances and new methods of screening out inappropriate content/people will inevitably be developed as the cost of not doing so will be far worse. This will allow for more targeted marketing for toys, driving more targeted traffic to retail.
In summary then, change is inevitable, but some fundamental principles of retail are unlikely to change, the key to success is learning how to apply them in an ever changing environment.
Tune in soon for Part 4 in this ‘Future Of Toys’ series, in Part 4 we’ll look at toy manufacturing, how it changed and how it will continue to change going forward.
Steve Reece, the writer of this article, runs a toy industry consultancy which helps people get ahead in the toy business. The most popular service is our brand & product management service which supplies hands on, experienced resources to toy companies for brand, marketing and product development projects. Our Export Sales package can also be included. We’re normally booked for a few months in advance, but have one space just come free. More details can be found here: http://www.kidsbrandinsight.com/services/