The new mantra is: »Right here and straight away!«
For many, strolling around shopping centres continues to be a popular activity. however, more and more consumers are embracing the subscription economy, which offers more comfort, better time performance, and customised products and services.
Are the times when consumers would dart from shop to shop, scattered around town, or visit shopping centres on the outskirts en masse, doomed to be forgotten? Are we witnessing the end of the »brick and mortar« shop era, and the accompanying way of shopping?
Physical stores will most likely never be completely erased from the face of the Earth, since 90 percent of all transactions between buyers and sellers still take place there. The younger generations have not forgotten them yet, and continue to enjoy visiting them. According to a survey by Accenture, 82 percent of millennials supposedly still like going to a physical shop, as long as it’s fun enough.
Consumers, especially millennials, no longer see a clear line between their personal and professional selves, which is why they want their business interactions to be more personalised. Growing up in an online world, they are characterised by something else – impatience.
The resilience of physical stores is further confirmed by a study of consumer habits performed by the audit and consulting firm PricewaterhouseCoopers (PwC), which shows that weekly visits to the »classic« stores are on the rise again, despite the fact that the trend was negative just a few years ago. Between 2013 and 2015, the future of physical stores seemed bleak, since the share of consumers who visited weekly fell from 42 to 36 percent; but in the last few years, the trend has turned. Today, 44 percent of a little over 22,000 consumers who participated in the PwC study, visit physical stores every week.
At the same time, the use of alternatives such as online shopping channels is also increasing. Since 2013, the share of consumers who shop on their tablets has increased by half, to a total of 12 percent. Smartphones are even more popular; they have become the window to the world of weekly shopping for 17 percent of consumers, which is an increase of almost 2.5 percent from five years ago.
On the Path of Change
The trend of changes will continue in the future. It is visible at home – the Slovenian Chamber of Commerce has repeatedly stressed that »Slovenian buyers want only the best for their money, are more prudent and less impulsive than in the past« – as well as abroad. We can take the findings from the trend studies even further. Modern consumers want more, and they want it now. They want a tailored experience, preferably one they can find from the comfort of their living rooms.
How Well do You Know the Champions of the Subscription Economy?
When trying to determine the upcoming changes, it is best to turn to the past. The rapid and pronounced changes in consumer habits and the technological world, and the entire retail industry along with them, become evident, if we take a look at the past decade.
In 2007, before the most recent global crisis, we saw the rise of Facebook, the social network which was then battling for users with the now obscure MySpace. From the hands of Steve Jobs, the first smartphone entered the pockets of enthusiastic users, while the online retailer Amazon was mostly known as the seller of popular books. Today, Facebook is a treasure trove of information for over a billion and a half users, smartphones are becoming one of the most important sales channels, and Amazon has become the largest online retailer in the world (not counting China), generating 178 billion dollars in profit last year.
This all happened in the time it takes a young person to finish primary school. Today, 59 percent of consumers made at least one purchase at Amazon or one of the Chinese giants JD and TMall, which are owned by Alibaba, according to PwC. The share of global customers who buy exclusively online from Amazon, has risen from 10 to 14 percent. But consumers want more.
Who is the Customer of the Future?
Consumers, especially millennials, no longer see a clear line between their personal and professional selves, which is why they want their business interactions to be more personalised. Growing up in an online world, they are characterised by something else – impatience. They want experiences that bring instant gratification. Online shopping can already partially accomplish this; some retailers offer same day delivery, and other models are being developed that the retailers will continue to perfect in the future.
McKinsey predicts that by 2030, retailers will rely more and more on big data, analytics, and other digital tools. A key factor in this will naturally be the fact that, of the 8.5 billion people who will live on Earth by then, 75 percent are predicted to have internet access.
In the ever-faster tempo of life, consumers increasingly take into account the opportunity cost of shopping, most often measured in lost time, which clearly favours online retailers and those who know how to replace their existing sales models with subscriptions.
»Consumers themselves are changing, from what they buy to how they want to buy it«, James Bacos, Global Leader of the Retail and Consumer Goods at Oliver Wyman told the Financial Times. It’s not just about online stores. Retailers who want to keep their edge, need to find new business models. The Economist already discovered this in 2014 through a research group that found that even then, four fifths of buyers demanded and expected retailers to introduce new consumer models, including the sharing economy, renting options, and subscription economy.
Some have already realised this fact, some not quite yet. Walmart, who used to easily dominate over the global retail industry, through its network of big shopping centres employing over two million people, is starting to lose the battle with technologically more advanced and innovative competition, such as Amazon. But even Amazon is fighting a hard battle for consumers, and is always on the lookout for new ways to attract new buyers or subscribers.
An anecdote says that the head of the online retailer, Jeff Bezos, once found an advertisement for Netflix in one of the packages, and berated his employees out of fear that people will stop buying Amazon DVDs because of the video content provider. He was right: sales of DVD and BlueRay disks are falling sharply, and Amazon responded by adjusting their business model. Today, subscribers to Amazon Prime can enjoy video content as well as fast delivery. By 2020, Netflix and Amazon in the UK, are predicted to earn more through subscriptions to video content on demand, than the film industry earns by selling cinema tickets.
Modern consumers want more, and they want it now. They want a tailored experience, preferably one they can find from the comfort of their living rooms.
The shift from ownership to subscriptions or renting is one of the most important trends in the past five years. Many companies are seeking opportunities in the trend, from luxury vehicle manufacturer Porsche, which for a reasonable price allows its subscribers to constantly swap vehicles, to the American retail giant for DIY, Home Depot, which rents various tools and even scaffolding to its customers.
An interesting study done by Westfield, the owner of numerous shopping centres across the globe, comes from the UK, where a fifth of consumers would be willing to give up owning clothes in exchange for renting them. This practice is common in work clothes, but it’s something completely new in mass fashion. Consumers were found to be willing to pay up to 200 pounds per month to subscribe to an »all you can wear« package.
It is clear that the consumer world is drastically changing. The most recent crisis was a shock to consumers, influencing them to become masters of sensible and affordable shopping. In the ever-faster tempo of life, more and more value is placed on the opportunity cost of shopping, most often measured in lost time, which clearly favours online retailers and those who know how to replace their existing sales models with subscriptions.
Future technological developments will only further destabilise the power relations on the market. Much like Amazon’s online breakthrough into the book market caused the bankruptcy of Borders, one of the leading bookstores, the most successful actors, equipped with new business models, will sweep away anyone who will not be able to adapt to the wishes of the consumers.
Published in Futurlist,
the magazine to uncover the future