From sq ft to IP: How should retailers measure success in the digital age?

The transformation of the high street continues apace, with  news that 4.2m square feet of retail space was lost in England and Wales over the course of the last year (equivalent to 55 football pitches apparently for those of you interested in that sort of thing), confirming a rising trend of retailers shedding unprofitable store space and investing in opportunities in the faster growing online space. Another large contributing factor is of course the rather more alarming trend of stores lost from retailers sliding into insolvency or receivership. The most recent high-profile collapse at Thomas Cook will likely see the shutters go down on 600 stores across the country. On a smaller scale, Jack Wills have announced the closure of another 5 stores as part of the now familiar radical cost-cutting measures typical of the Mike Ashley acquisition model.

Now, although this may sound a bit like one-way traffic, there is a faint but promising trickle of clicks-to-bricks store openings coming the other way. Chinese online retail giant Alibaba recently opened its first European store in Madrid, to add to 150 stores in China, operating under the delightfully named Hippo Fresh brand; an ultra-convenient store model highly integrated to Alibaba’s mobile browsing and payment platforms. In the coming years I expect the likes of Alibaba and Amazon to take up some of the square footage being made vacant by traditional bricks-and-mortar retailers. The technology to support the Amazon Go vision is almost there or thereabouts – whether customers are ready and willing to adapt their behaviour and habits is another question. China, where mobile payments are the norm – even outstripping card and cash ,is clearly leading the way in digital store innovation. The failure of the recent scan-and-go trial at Sainsbury’s may be a small indication that the UK still has a way to go before our very own clicks-to-brick revolution.

A far less inventive store concept was the Tesco Jack’s format; the discount brand launched a year ago but has never really got off the ground. In fact, the very first Jack’s store is being re-rebranded as a standard Tesco store, apparently in response to local customer feedback. It seems the brand has made little impression with consumers and failed to make a dent in the growing Aldi-Lidl discount grocery duopoly. Coupled with the announcement last week of Aldi’s aggressive store footprint expansion plans in the UK, particularly in the South East, Jack’s struggles serve as a reminder that the Big Four have still not come up with an effective market response to the insurgent German discounters. Withdrawing from the discount battleground may be the most sensible option for Tesco, allowing them to turn their attention elsewhere – the vegan market for instance.

M&S are slashing prices across its food range in preparation for the launch of its joint venture with Ocado. M&S has for many years been able to pursue a premium pricing strategy thanks to a reliable and not particularly price-discerning customer base, with price points significantly above market average on basic items such as milk and bread. Pricing strategy will be key to the success of the move to online, given the higher visibility of competitor pricing through price comparison websites and the like. The retailer’s recent slide out of the FTSE 100 for the first time in its history will also no doubt heap extra pressure on the food arm of the business to make a success of the Ocado tie-up. Ocado meanwhile are involved in a dispute with one of their co-founders Jonathan Faiman regarding intellectual property.  He left Ocado in 2010 and is building a grocery delivery venture called Today Development Partners. Faiman denies any wrongdoing, but I wonder if this is an interesting sign of things to come. For a company like Ocado, whose business model is dependent on a self-developed fulfilment platform and innovative robotic technology, protecting the integrity of its IP is absolutely critical to securing collaborative partnerships with retailers based on exclusivity and competitive advantage.

The most successful retailers of the future could be those with the most secure IP. Amazon has nearly 10,000 patents, just saying. As a supply chain consultant, I want to help retailers recognise the benefits of the end-to-end digital supply chain vision. Sharing data across an integrated system landscape is the key to achieving this, so I am hoping the growing importance of data integrity and protecting IP does not lead to increased reluctance from retailers to open up and share platforms with suppliers, competitors and customers.

Author

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Ed Jobson

Consultant, Retail Supply Chain (Operations Transformation)

Ed has a proven track record of helping multiple major international retailers through large scale business transformation programmes, with a strong interest and recognised expertise in Business Process Design, across Grocery and GM.