The retail industry today is faced with multiple challenges. On the one hand, consumers have become more price conscious post the recession, while on the other there is increased competition, not just in terms of the number of players, but also from new channels.
In such a scenario, is the traditional brick-and-mortar retail format destined for extinction? Do retailers need to relook at their business models in order to survive and compete? And how can retailers engage better with customers, so as to drive loyalty.
In a 2011 thought piece titled ‘The Changing Face of Retail”, Deloitte highlighted some of the challenges facing the industry in developed markets and steps that retailers need to take in order to remain competitive. Some aspects that would also be relevant to the retail industry in the GCC are as follows.
Make the store a destination: In today’s world, where consumer choices are getting increasingly fragmented, the store needs to be much more than a place to browse and buy products. It needs to be an engaging destination by itself, so that it can add to the brand experience.
Also, consumers nowadays want to be “connected” wherever they are. Hence, retailers need to address this, for instance many retailers in developed markets now offer free Wi-Fi to their customers. This enhances customer experience as they are able to share their shopping experiences instantly on social media.
Reassess store portfolios: The rise of e-tailing has been well documented, but that does not mean that brick-and-mortar outlets will cease to exist. However, retailers in developed markets have been forced to take a hard look at their store portfolios in terms of size and number of stores.
Even in the GCC, where Big Box formats are quite popular, retailers will need to consider an optimal mix of store size and spread, given the inevitable move towards online. Also, with consumers being increasingly time-poor, community shopping has become a rising phenomenon, which again points towards smaller, more conveniently located stores growing in popularity (Spinneys Market Store and Carrefour Express seem to be steps in the right direction).
Traditional and online channels must complement each other: While online retail is growing in the GCC, the level of evolution is still not as high as developed markets, or even Asian markets like China, Korea or India. Many large retailers in GCC still do not have online content that supports their traditional formats (in many cases, even online catalogues are non-existent or poorly designed).
Online needs to act as an enabler to purchase from the traditional format, especially in categories like consumer electronics, and also as a means of providing convenience to customers.
Tesco in Korea has created virtual stores in metro stations, where consumers can browse for grocery on a screen and order it to be delivered home on their way back from work.
Make stores mobile friendly: The mobile phone is increasingly used by consumers to scan ads, look up product information and also to make payments. This trend will only increase in the GCC. Hence, stores need to be mobile-enabled, so that consumers can scan product information from barcodes and make payments via their mobiles.
Keep up with evolving consumer values: In many Western countries, a company’s environmental and CSR policies play as important a role as its business processes in creating its corporate reputation. Giving back to society is an integral part of the Arab ethos, and with consumer also getting increasingly environmentally conscious, GCC retailers also need to demonstrate good CSR practices.
As per forecasts, the GCC retail industry will be worth more than $220 billion by 2015. However, keeping the above trends in mind, each player will need to carefully consider its strategy in terms of channels, size of portfolio and customer experience offered in order to compete effectively in the market.
CREDIT: The writer is CEO of AMRB, a Dubai-based research consultancy.
