Next Gen Retail: Vol. 1

Younger people have stronger demands for retailers than any other generation in history, expecting both lower prices and top-class customer service. For retail businesses to future proof their business models for the next generation, there are some key considerations to take into account, writes Niall Savage, Retail and Manufacturing Lead at KPMG in Ireland.

We should always be cautious when it comes to declaring a tipping point. History is littered with false dawns and supposed game-changing innovations which proved to be damp squibs. 3-D TV and movie technology being a case in point.

That said, the accumulated evidence of the past two years does point to a profound and irrevocable shift in consumer behaviour. Online shopping had been growing slowly but steadily up until the advent of the COVID-19 pandemic, but it received a quite dramatic boost as a result of lockdowns around the world.

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Next Generation Retail - a survey of Irish consumers

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The acceleration of online shopping

It was only natural for consumers to switch to online channels when bricks and mortar stores had their doors closed, but the lingering question was how enduring the changed behaviour would prove. A Red C consumer survey carried out on behalf of KPMG towards the end of 2021 suggests that the shift to online shift will persist and indeed grow in the longer term.

Unsurprisingly, 56% of survey respondents said they were making more purchases online since the start of the pandemic. More to the point, however, was the 83% who said they were either more likely or as likely to buy products from websites which do not have any physical stores.

And, most tellingly, 90% of the respondents who had shopped online during the pandemic said they were likely to continue doing so.

Bricks and mortar isn't going away

There are some quite obvious messages for retailers in these survey results. But it is perhaps better to begin with what they aren’t telling us. Shopping habits may have changed but this is certainly not a precursor to the end of bricks and mortar retailing. On the contrary, there is still very much a place for traditional shops, but their role is changing.

Take grocery shopping, for example. While clothes shopping is now almost as popular online as it is in physical stores, the great majority of people (88%) still do more of their grocery shopping in person.

Considering that the grocery chains were among the first into the online retail space back in the dotcom boom, its failure to gather traction may be appear somewhat unexpected. However, when it is set against the finding that two-thirds of respondents still like to touch and feel a product before buying it is not all that surprising.

Anecdotal evidence certainly points to quite high levels of dissatisfaction relating to product substitution among online grocery shoppers. Other issues such as the fresh produce choices made by the in-store pickers also come up for discussion.

This does not mean that the grocery trade is immune to online shopping trends, however. What it does point to is an opportunity for those grocery retailers who get their online channels right. An example of one Irish firm exploiting that opportunity is Buymie which has teamed up with Aldi and Dunnes to run an online shopping service on their behalf. Buymie prides itself on the high standards of its product pickers and it will be interesting to see how shoppers respond.

There is also an interesting finding in terms of age. The cohort which is using the online grocery channel most is the 35–44-year-old group. This suggests that people with young families who may be quite time poor are more willing to embrace the channel and they may well stick with it if they grow accustomed to it.

Price and convenience remain key

But grocery retailers will need to ensure they offer the quality of product and experience expected by their customers if they want to maintain their current position. When it came to the top four reasons of where they chose to shop, a large majority (80%) of survey respondents rated price and convenience in the top two.

There is also a clear perception that in-store shopping is more expensive would only 20% saying it was easier and cheaper to shop there. And price sensitivity was much more pronounced in the younger cohort. This was possibly to be expected as this is also the group likely to be least well off, but these are the shoppers of the future and if they form online shopping habits early on it will be very difficult for bricks and mortar retailers to change them.

Those views are reflected in the findings relating to fashion and gift shopping. People are much more comfortable with the online experience for those items. The online channel for those categories has shown growth of 30% since the beginning of the pandemic while clothes shopping is now almost as popular online as it is in physical stores.

It is clear that people are growing more familiar with the channel, and this is helping them choose the right size and so on. They also like the fact that the items they are looking for are much less likely to be out of stock. Furthermore, the convenience of being able to do the shopping from the comfort of an armchair late at night has obvious appeal.

Of even greater concern in that light, perhaps, is the fact that just 20% of respondents ranked buying Irish or supporting local retailers among their top two. The green card would appear to be a waning force when it comes to influencing buyer behaviour.

Shops as showrooms

It’s not all bad news for traditional retailers, however. Those two thirds of people who still like to touch and feel products before buying is a good starting point. The high-end global retail brands understand this point all too well and their flagship stores tend to be found in the highest cost locations and have even higher losses.

These are not sales outlets in the traditional sense, they are showrooms for products which people will purchase online later through a bricks and clicks retail model.

The challenge for bricks and mortar retailers is to offer good value and product choice as well as that something extra...

Niall Savage

Partner, Head of Private Enterprise, National Chairperson of Audit Committee Institute

KPMG in Ireland

Next generation customer experience

That is the clear way forward for retailers who find they are losing sales to their online competitors. The need to build on their proven strengths in areas like customer service by adding a quality online channel.

But that is not as simple as just setting up a website with an ordering facility. It must be highly interactive, dynamic, engaging, and user friendly. Payment processing systems must be top of the line – transaction abandonment rates among people who find they are required to re-enter personal and payment details time and again are frighteningly high.

Customer service expectations

Customer service levels must also be of the highest order. Younger people are now more demanding of brands than ever before. They expect to be able to contact and interact with customer service representatives 24/7 on any channel including phone, webchat and social media. Telling people there is no service outside normal office hours just won’t cut it.

Of course, smaller scale retailers will not have the resources to compete with global brands in terms of always-on customer service, but they can leverage their personal touch by responding to out of hours requests with things like call back options which enable the customer to specify when they would like to receive a call.

Hybrid shopping model

Online retailers can’t afford to be complacent though. We are seeing the physical retail experience moving from self-scan to no-scan and beyond. It will soon be possible to walk into an Amazon store and fill a bag or a basket and leave without ever interacting with a till or any member of staff if you don’t want to. A frictionless shopping experience like that may well start to win customers back from the online channel.

It is generally accepted that some form of hybrid working will be the way of the future and it now looks as if consumers are voting with their mice and their wallets for a hybrid shopping experience. The winners in the battle between the high street and information superhighway will be those retailers who merge the best of both.

Download our survey results

Next Generation Retail - a survey of Irish consumers

Download

Get in touch

The pace of change is challenging leaders like never before. To find out more about how KPMG perspectives and fresh thinking can help you focus on what’s next for your business or organisation, please get in touch with Niall Savage, Retail and Manufacturing Lead. We’d be delighted to hear from you.

Niall Savage

Partner, Head of Private Enterprise, National Chairperson of Audit Committee Institute

KPMG in Ireland

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