Retailing business models – The role of the store

In today’s climate it is remiss of retailers to rely on a traditional business model; diversification and holistic thinking are required.  Whilst powerhouses such as Primark don’t play in the e-commerce space, they have evolved their business model by readdressing how they use their bricks & mortar estate. This demonstrates that an evolution of a retail business doesn’t always have to point to e-commerce, and that not every business model and route to market is fit for every customer or retailer. The question that needs to drive business model decisions is not how customers want to shop, but how do they want to live? Kathryn Gill, a Consultant in Berwick Partners’ Retail and Leisure Practice, explains.

The role of the store is central to this question and has unequivocally evolved. The question mark lies around what its role has evolved into. For the last three years reports of a collapsing high street have been rife, with online retailing shouldering most of the blame. According to the latest ONS figures, non-store retailing accounted for 50.7% of total UK retail sales in August 2019 and, whilst Primark continues to thrive, it is pertinent that retailers reconsider this. The store absolutely has a place, but that place has changed. What to varies, depending on what your brand stands for and who your customer is.

Online roots

For fledgling online retailers, standing out from the expensive first page of Google’s shop window is vital to succeeding. To do so, brand awareness must be increased quickly and occupying space in high-profile retailing locations that are graced with the highest levels of footfall can achieve this. This requires significant upfront investment and a long-term approach, which can be difficult depending on ownership – brand awareness is the short-term ROI, with a view to long term monetary ROI.

Take Missguided’s approach to brand awareness as an example.  Initially, the retailer opened several flagship stores in high-profile locations, but the costs did not stack up against the brand awareness gained. Their target customer is more easily accessed via online channels, and therefore online acquisition costs yield a greater ROI. The business has taken the decision to retain just 1 flagship store at Bluewater shopping centre. Its role? Increase brand awareness in a prime location whilst controlling costs.

Fledgling brands

However, ‘prime’ doesn’t necessarily need to equate to large spaces. A concession or shop-in-shop model can be just as effective in controlling costs and increasing awareness. Take Monpurse as an illustration of this. The Australian handbag brand knew that brand awareness was the first ‘box to tick’ in penetrating the UK market and did so via a concession model with Selfridges.  This put the brand in high-profile, high-footfall prime retailing locations, without the complexities of property rates and large teams. Hammerson – operator of Birmingham’s Bullring – seems to support this type of strategy and is of the view that ‘the very best stores in prime locations are proving more important for brands seeking to stand out’.

Value

This does depend, however, on your definition of ‘prime’. For value-led retailers, it differs significantly. Typically, these brands do not benefit from occupying flagship space. For them, prime location means something very different. Several value retailers such as EWM and Seasalt benefit from their stores being in, and serving, a local and/or remote market. This sort of localisation strategy means they can forge strong community relationships and capitalise on being a convenience to local customers or seasonal tourists.

Middle-market retailers

The role of the store is perhaps most difficult to distil for the middle-market, long-standing bricks & mortar retailers. They are competing in an overcrowded market and fretting over ecommerce revenue as a percentage of sales.

Next is an excellent example of being on the front-foot with proposition evolution.  By truly adapting its business model, Next has transitioned from its catalogue heritage into the world of online platforms and redefined store space. Focussing on how the customer lives and spends their time, not just their money, has allowed Next to think laterally about how best to use store space. Along with Primark, this shows the need to rethink how we look at revenue per square foot, because the typical retail offering of yesterday will not maximise this.

Consistent customer experience transcending all channels and comms

Regardless of the retailer, thinking about any sales channel in isolation is the most detrimental way of evolving the business model. The most successful retailers have ensured all sales channels are complementary and weave together to create a consistent customer experience.

A consistent customer experience across all sales channels requires connectivity – an ability to identify a customer, utilise insight gained from their shopping habits and brand interaction, and tailor the service provided; a personalised approach both in store and online.

Takeaway…

1. Connect and control the conversation:
   Ensure there is a seamless connection across all channels, resulting in one conversation with the customer and the ability to maximise data
2. Do not stop short at simply defining how your customer shops:
   This will yield short term results, but will not provide business longevity in today’s volatile world
3. Take the time to map out how your customer lives, both now and in the future:
   This will yield longer term results and ensure a more robust and agile business mode

For more information on anything we have disucssed in this blog, please contact Kathryn Gill. Kathryn is a Consultant within the Retail and Leisure Practice, specialising in health, beauty, fashion and travel. With a UK-wide remit, she specialises in senior appointments across commercial, marketing, buying & merchandising, operations and general management roles.