What’s in store for 2017? Our retail predictions

Posted by Dr Hassan Hajji

Despite the uncertainty that has overshadowed much of the last twelve months, 2016 has been a good year for retail. Disruptive technologies and evolving consumer demand have continued to revolutionise retail, bringing greater convenience, choice and a more personalised customer experience. These will continue to be the key drivers of change over the next year, as retailers compete for the attention and wallets of increasingly savvy shoppers.

As ever, the winners will be those that can provide a quick, hassle-free experience whilst understanding and pre-empting individual customers’ desires to deliver what they want, when they want it. With that in mind, here are our top 5 retail predictions for 2017:

1. Excitement in-store: From showroom to immersive shopping experience

The rise of online shopping, particularly through mobile devices, will continue apace in 2017, putting yet more pressure on stores to do more to drive store traffic and tempt customers through their doors. Bricks and mortar retailers will need to fend off increasing competition from online retailers, many of whom are set to be planning further enhancements to their websites, optimising speed, efficiency and convenience. This is set to be compounded by the planned increase to UK business rates in 2017, which may force some retailers to raise their prices.

But we’re beginning to see stores fighting back, by investing in innovative formats and deploying strategies to help them stand out from the crowd. We predict a big increase in brands investing in creating compelling, unforgettable in-store experiences that will set them apart from their competitors. Physical stores bring a brand to life and produce an emotional connection with shoppers that a website simply cannot do.

Recent examples include John Lewis’ smart home ‘retail experience’, which showcases the retailer’s smart home products. John Lewis’ Johnathan Marsh buying director for electricals and home technology said “In-store experiences are now key as we’ve seen customer demand for physical experiences before committing to purchase increase.”

In the US, customer experience is the focus of Nike’s recently-opened store in New York. With exclusive trial spaces, product customisation stations and personalised services, the retailer has turned the store from a showroom into an active and immersive experience. The technology showcased within the store isn’t meant to be the main attraction, but instead designed to make the shopping experience even more personal and build brand loyalty at the same time.

Further afield, Hunter, the British footwear brand, has recently opened its second global flagship store in Japan, creating ‘the ultimate retail experience’. While browsing the store for the perfect pair of wellies, shoppers are surrounded by multi-sensorial experiences, from digital displays to custom soundscapes, including the sounds of heavy rain and thunderstorms. Regular weather updates from around the UK are also displayed along to reinforce the brand’s British roots, to keep people engaged and develop a connection with the brand that simply wouldn’t be possible through a website.

2. Digital tipping point

It’s not just loyalty that is abandoning analogue: money, receipts and tickets may also become a thing of the past in 2017. With smartphones now ubiquitous, and with ever-increasing capabilities to pay, record and store, we predict that next year will be the beginning of the end for paper. Trees around the world, rejoice!

Over recent years, digital receipts have become a regular fixture of the high-street, with more and more customers opting for the convenience of an electronic version of their receipt at the checkout. Following reports that Tesco is trialling digital receipts we expect we’ll see more widespread adoption across the retail sector. Grocery has long been a driving force for change in the market (think click and collect, home delivery or loyalty cards), and Tesco’s adoption of e-receipts will likely spurn the wider industry into similar action. This will be compounded by changing demographics and retailers’ increasing focus on obtaining a single view of the customer.

2016 was also the year that mobile payments went mainstream as Android Pay launched in May, nearly a year after Apple had launched its own service. With more and more retailers, restaurants and railway stations now adopting contactless payment systems, and Transport Secretary Chris Grayling calling for smart-card adoption across the UK’s transport network, we expect consumers’ wallets next year to be a lot lighter than usual, but for all the right reasons.

3. Loyalty 2.0

Loyalty has long lagged behind the rest of retail in embracing the opportunities of online and digital platforms, but we predict that 2017 will be the year it finally does. Further advances in personalisation will mean loyalty rewards that are truly targeted. Improvements in how customers access their rewards and interact with loyalty schemes will create a convenient, ‘frictionless’ experience saving time, not just money. Will this mean the end of the loyalty card for a quicker, easier experience? We certainly wouldn’t bet against it….

But the changes won’t stop there. We also expect to see more brands move away from traditional points-based schemes and embrace alternative rewards – from exclusive products and experiences to early access to sales or exclusive customer events. This is in part due to a change in retailers’ motivation for loyalty schemes, away from rewarding (and trying to win-over) their most promiscuous shoppers to a renewed focus on keeping their best – and most profitable – customers happy, and building long-term brand loyalty.

We expect the loyalty landscape to change dramatically over the year ahead – not least because consumers are becoming more demanding. Our own research into the UK loyalty landscape found that three-quarters (74%) of shoppers want to see more personalisation in the loyalty schemes they participate in, two-thirds (66%) want rewards other than points and nearly half (49%) want schemes that are cardless.

4. Delivery demands: Smaller shops, click and collect…drones?

We’re already seeing both store estates and stores themselves shrink in size as retailers strategically re-evaluate their physical footprint and adapt their product offering to suit local markets and logistics infrastructure. This has in part been driven by demands on delivery – with online shoppers wanting more frequent and convenient locations to collect items purchased online.

Ikea is trialling smaller-site ‘Order and Collection’ stores in the UK, where customers order online and then collect from the physical store. These new collection points offer only a fraction of the retailer’s full product range, but make them accessible to more of the population without the need to invest in expensive superstores. Both M&S and US retailer Target are opening smaller stores – and closing some of their larger ones – with a more localised product mix that fits with the demographics of the area. This more attractive, more relevant product mix look set to be an effective strategy.

But what’s next? Click and collect has proved to be convenient, but as shoppers become increasingly demanding, next day delivery is no longer good enough. Same day shipping is now seen as the new competitive offering for many retailers. A surge in demand means it’s likely to become the norm in 2017 – for those who are willing to pay for the privilege.

Morrisons recently extended its relationship with Amazon, to enable Prime Now members to order their weekly grocery shop for delivery within an hour in London and Hertfordshire. In a similar move, Sainsbury’s has launched a one-hour grocery delivery service, through its Chop Chop app, whereby shoppers can order up to 20 items to be delivered from a local store within an hour although this is only available in certain areas of London currently.

Drones have long been heralded as the next obvious step. In 2016, Amazon reported that it would partner with the British government to run tests exploring the viability of delivery of small parcels by drone – the first time such tests have been run in the UK. But JD.com, China’s second largest online retail services provider by sales, may already have beaten them to it. In November 2016. JD.com launched what is seen as the world’s first commercial drone delivery programme for e-commerce in remote locations in China. With a fleet of more than 30 custom-built drones, they can transport and deliver packages weighing between five to fifteen kilos and cover distances of up to 50 km. By the end of 2017, JD.com hopes to have 100 drone routes in operation.

We’re definitely going to see more retailers exploring the possibilities of drone delivery in 2017 and perhaps this is the year we’ll see this dream finally become a reality.

5. Location, location, geo-location

With the massive success of location-based games like Pokemon ‘GO’, it’s no surprise that retailers are also capitalising on similar technologies that enhance the retail experience. These present an opportunity for businesses to understand, connect with and engage with customers while they are in-store. Whether it is beacon technology that identifies customers collecting online orders so that they can be ready and waiting on arrival, to receiving targeted, personalised messages, information or adverts that depend on what you’re looking at, location-linked retail will become more visible in 2017.

American Eagle was an early adopter, having previously worked with Shopkick to bring personalised messaging to shoppers in-store. Customers receive a welcome message when they enter an American Eagle branch, as well as deals, discounts and product recommendations when in specific areas of the shop. Likewise, shoppers using the Barneys New York app receive push notifications with personalised content recommendations including look books and designer videos, as they move around the store. But with retailers looking for increasingly convenient, targeted and personalised ways to interact with customers, we predict that location-linked retail will be one obvious area for growth.

2017 looks set to be another interesting year for retail and as consumers, we’re excited to see how it develops. One thing we know for sure and that it’s a great time to be a consumer. We’ll be the ones who will benefit most from retailers’ investments, as they do their best to elevate and personalise our shopping experiences, whilst making them even more convenient.

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