Responding to the audience of monied young twenty-somethings and a crop of MBA students with witty and thoughtful answers, she left no clues of her late-night shopping excursion. She had been up all night surfing the web for retail deals.
“My daughter was sick last night,” says Sarah, who graduated from Cranfield School of Management’s MBA program in 2003.
“I did all the pet food shopping online; I ordered new toothbrush heads for the kids. I had my shopping list out from about seven or eight different stores. I did so much shopping – and all at four o’clock in the morning.”
Her buying habits this week have been extreme, but the ease with which she splashed her cash through technology-enabled platforms will interest anyone trying to adapt to the new retail sector.
Many businesses are struggling to understand a younger customer base. They have grown up in a smartphone era when recession has been pulling at their purse strings.
But the gradual fall of some established high-street brands has opened the way for new start-ups, which channel ecommerce and social networking platforms. Their use of new technology has lured many young consumers, which big brands have failed to entice. Many also turn to niche products and develop unique brand concepts.
“It’s such a transparent market – there’s no case for mediocrity,” says Sarah, the former CEO of the Bombay Bicycle Club (BBC) eatery. She grew the BBC into the largest and most successful chain of Indian restaurants in the UK. Restaurant group Clapham House, which Sarah was board director of at the time, sold the business for £4.4 million in 2008. Two years later, chicken chain Nando's bought Clapham House in a deal worth £30 million. BBC’s speciality was part of its success.
“Who goes into a restaurant now and there's everything on the menu?” Sarah says. “I think retail is no different. You’ve got to be the best at what you do… There’s no place for average in a very transparent market,” she adds.
Yet Sarah may have sold the chain at the right time. Bricks and mortar shops are losing their lustre. The biggest ecommerce upstarts such as Wanelo and Modcloth are no longer promising pretenders. For niche brands like the Cambridge Satchel Company, which has raised more than $21 million in funding, selling in the cyber world has proved lucrative.
“Online would be the way to go because of the niche aspect,” says Neil Ashworth, CEO of Collect+, the UK's leading store-based parcel service, which works with more than 5,000 shops. “A physical presence is softly-softly,” he adds.
Their success is driven by young shoppers who typically spend less than older demographics but are prized by the retail industry because they offer hints as to how changing technology is affecting both online and offline retailers.
The struggles of leading fashion chains such as Jane Norman, which last month went into its second administration in three years, are compounded by customers – who were hit by the financial crisis and are attracted to the rise of the internet – continue to shun the high-street. Underwear chain La Senza, which has 55 stores across the UK, this week went bust for the second time in two years, after suffering a pre-tax loss of £26 million.
Instead, these young consumers are on their smartphones and tablets using retailers’ apps. Most high-profile companies today are known for their ability to adapt to changes in how younger consumers operate.
“Five years ago if you said fashion online was going to work, people would’ve laughed at you; they’d say it’s a touchie-feelie product,” says Daniel Rowles, CEO of Target Internet, the leading digital marketing agency. He adds: “It [technology] can be used to enhance the experience, and we're at the early stages of that.”
Cass Business School MBA Bronwyn Lowenthal set-up fashion retailer Lowie in 2002. The ethical women’s clothing brand has since bloomed into a sprawling ecommerce site, and is worn by fashionistas including Fearne Cotton and supermodel Lily Cole. The business operates a shop front in London and is sold in boutiques across the UK. It produces clever editorial on its website and has an active social media presence. Lowie has just signed up to a new click and collect portal called StreetHub.
“Digital is constantly changing, so it's important to keep up with trends and new developments in both social media and e-tail,” says Bronwyn. “Click and collect is a strong trend... I think it's going to be big.” Sales are equally dispersed between web and shop front, but at Christmas Lowie expects to do almost five times’ more sales through the web than in-store.
To combat a potential drop in footfall, Bronwyn plans to introduce in-store yoga classes in the evenings. “Shops need to provide an experience that makes customers come back for more,” she says.
London-based fashion entrepreneur Nicolai Schümann runs start-up label Alice’s Pig. The business is small, with less than a dozen employees, but a digital offering has allowed them to reach out to global markets. The site brings together a look-book of images worn in trendy locations in London, where their target customers are likely to be.
Nicolai has had to adapt to a changing, tech-savvy consumer base. He says: “It is imperative that you target through a mix of social media channels which convey a coherent brand image. People buy what they trust. You have to make your brand their best friend.”
Direct selling has some businesses back in profit. In countries where social media does not share the same presence as the UK or United States, peer-to-peer recommendation becomes essential for retail survival.
“Direct selling is about to have a real resurgence. Retailing is fundamentally a social thing and direct selling is a social activity,” says Neil. “There’s something really important in that that you don’t get online,” he adds.
But the rise in discount store fronts has confounded many analysts and brand specialists. Some retail supermarkets have entered into a price war, and are threatened by the leading discounters such as Aldi and Lidl, which have had huge success in Europe. Giant UK supermarket chain Tesco has seen profit drop £1.25 billion since 2011-12. Its market share dropped nearly 2% in the 12 weeks to late-June, and its share price has slipped 14% this year.
Neil reckons that customers still crave a social interaction in retail environments: “We're creating a culture that really bleeds into the retail spaces the engagement [that] you want to try and achieve with the consumer.”
Although younger consumers are seen as the future of retail, tech-savvy twenty-somethings spend little, according to research by Forrester. In the US, the average is just $300 online every three months, lower than the $550 spent by people in their late 20s and early 30s.
Vicky Redwood of Capital Economics points out that by 2030, those aged 65 and over are projected to hit 15.5 million in the UK, growing faster than the population as a whole. She adds that the main challenge facing retailers will be to adapt to an ageing population.
Richard Lowe, head of retail and wholesale at Barclays, says: “I expect not just the face but the role of the high street to evolve to meet the needs of this ageing population.”
Even the ecommerce upstarters have had trouble capitalizing on the technological revolution that is changing retail. Restaurant entrepreneur Sarah remains unconvinced: “The high-street isn’t going to die. We still like to go into a shop, and we still like to fill a basket.”
Student Reviews
Bayes Business School
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