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Is the Multichannel Retail Model More Crucial Now Than Ever Before?


Richard Lim, CEO of consumer insights company Retail Economics, says before the pandemic most UK online sales were made by pure online retailers, but fast forward to today and there’s a competitive advantage to multichannel retailers, such as Next and Marks & Spencer selling online.

He explains: “Most online sales pertain to multichannel retailers – we’re seeing the online and physical retail channels coming together for those that have a sophisticated digital proposition but understand the value of their store and the purpose of it leveraging the customer journey online.”

During his presentation on the outlook of UK retail at the Retail Technology Show, he named UK retailer Next as a good success story for multichannel retailing.

“Over 50% of [Next’s] total sales are online but it still has over 500 stores and over 80% of its returns go back into stores.”

Lim points out that UK fashion retailer Marks & Spencer has also made an impressive transition as it’s understood the importance of digitalising its entire supply chain.

Customer journey focuses on browsing and research

Lim highlights that consumers are adopting a more considered customer journey, which is why the multichannel model is so crucial.

He reveals that 60% of people are spending more time browsing and 50% are using online price comparison sites.

This more considered customer journey means consumers are browsing for deals and ensuring the products they’re consuming are the ones they really want. For a quarter of shoppers (25%) the reason behind the extended browsing is due to a lifestyle change since the pandemic where they are at home more often for instance so have time to conduct a more considered customer journey.

But, Lim notes as the shift to online is focused on the browsing element of shopping – it hasn’t translated into additional sales.

“If you look at the number of products being sold – it hasn’t translated to the volume of products sold.

“We’ve seen the steepest decline across online – online volumes compared to the previous year are down by 15.9% – we’re spending more time online browsing but it’s not translating to higher volumes of sales.”

Lim explains the pandemic and lockdowns were always going to lead to an online shift but he argues the cost of living crisis has accelerated that decline and it’s happened faster and deeper than anyone expected.

Changing consumer behaviours

However, Lim is confident the UK’s economic environment is in a much stronger place today than at the end of last year. He states: “We had inflation that peaked at over 11% and consumer confidence had fallen to an all time low. Interest rates were rising significantly and people were feeling pessimistic.”

He continues: “It was only back in November the Bank of England thought we’d be in a recession for two years, but now it says we will avoid a technical recession.”

In terms of retail sales, Lim says the retail sector has held up relatively well and over 2022 retail sales rose by about 3.8% compared to the previous year.

But, he notes, it’s important to understand the difference between values and volumes as the 3.8% value growth has been driven by inflation.

In terms of volume – that’s been declining as people are paying more and getting less in return so are adjusting behaviours accordingly.

In fact, he says some research work conducted last year showed a framework of consumer values:

  • Where do consumers shop?
  • Who do consumers shop with?
  • What are consumers’ price points?

The research revealed it’s driven by price, quality and convenience versus emotions such as experience and sustainability and given the current economic environment consumers are adapting their behaviours and making trade-offs – such as opting for lower prices and lower quality.

Lim explains: “It’s putting value and lower prices at the heart of decision making,” and says we’re seeing four distinctive cohorts of shoppers emerge.

The four types of shopper

  1. Two-fifths (40%) are necessity shoppers. This group is generally under financial distress and feeling the pinch with wages not keeping in line with inflation so these shoppers are adopting their behaviours across the board. This cohort is typically less affluent and younger.
  2. Almost a quarter (22%) are labelled postponers. This group is looking to stretch out the replacement cycle of products and are waiting for discounts so need to be enticed to drive their shopping.
  3. Meanwhile, 10% are value hunters who are motivated by trading down and switching to cheaper brands and retailers. This group is also more likely to switch channels such as embracing going back into the store as opposed to shopping online.
  4. Finally, there are 28% who are carry-on spenders. This group will spend as normal. Lim says it’s worth understanding that 20% of the most affluent households are responsible for 40% of consumer spending so this is an important group and it’s usually focused towards the luxury end of the market.

Biggest challenge for fashion retailers and multichannel retail

The biggest challenge retailers face right now is profitability, states Lim. He says retailers face increasing costs for logistics, utilities and labour as well as intense competition within the labour market itself with many companies having to increase their labour rates to attract talent.

“It means if you look at the largest 150 UK retailers – there’s a 9% fall in pre-tax profit margins from 2016 to 4.6% in 2022.”

Overall, he remains optimistic that there’s an opportunity for retailers to use data to understand who their customers are and technology to lean into making the supply chain leaner and more agile with multichannel retailing able to play a big part of that success.

Source from Just-style.com

Disclaimer: The information set forth above is provided by Just-style.com independently of Alibaba.com. Alibaba.com makes no representation and warranties as to the quality and reliability of the seller and products.

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