The Digital Tipping Point: 2019 Retail Report

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A new age of retail has emerged over the last decade. This age is characterised by a richly textured digital landscape, buzzing with new technologies, devices and online communities which has gradually overshadowed analogue consumerism.

This report published by Retail Economics (partnered with Womble Bond Dickinson) unearths unique insights concerning the causative forces driving the digital customer journey and reveals stark differences across consumer segments. The digital retail revolution is only just getting started,  but ultimately – a tipping point will emerge.  It looks at the possibility of onlline retail sales accounting for the majority of retail sales in the next 10 years. The research framework identifies 10 overarching themes as to why this might be so:

1. Customer Journey evolution
2. The evolution of online
3. Importance of age for category penetration
4. Increased pace and spend of online
5. Increasing significance of Gen Z and millennials
6. Faster, cheaper in-home deliveries
7. Fewer stores drives consumers online
8. Better connectivity and more powerful devices
9. New retail business models
10. The rise of AI

Introduction

Seismic shifts have fundamentally changed the way in which consumers research, purchase and consume products from retailers of all sizes, types and  cross all channels. An array of varied touch-points influence, enhance and intelligently ‘nudge’ shoppers through an ever-expanding number of paths to  purchase, from increasingly personalised social media campaigns to stockless stores where merchandise is viewed through augmented reality apps.

Successful retailers have always had to reinvent themselves throughout history; the most successful listen to their customers, embrace change and invest  isely for the future. However, the race to digital transformation is occurring at such a pace, many retailers are struggling to keep up with disruptive  frontrunners.

Those retailers enjoying success appear to be those adopting new technologies at pace in order to leverage new opportunities. Nevertheless,  new risks are emerging too. Consumers are increasingly conscious, even defensive, over their data protection rights and seek an equitable exchange of value in favour of data relinquishment. With this backdrop, the impact of future technologies and consumer acceptance is highly uncertain.

Advancements in technology will power speedier and cheaper online fulfilment, which will increasingly be delivered in-home. Emerging subscription  models, autoreplenishment and the shift towards fewer (but more experiential) stores will facilitate aggressive online migration.

The burning question for  any retailers is whether they can pivot swiftly enough while swimming against unpredictable tides of digitisation. Retailers must embrace change, have a  unique proposition and continue to innovate in order to survive.

With digital natives expected to form the majority of the adult population in the next ten  years, we forecast that online will account for more than 50% of all retail sales by 2028.

The majority of retail spending to be online within 10 years

Today’s customer journey is truly unrecognisable from the analogue path observed just a decade ago. In the next 10 years, we expect to see the rate of change accelerate as innovative technology shifts the balance of power in favour of the consumer. Powered by technology, changes in the property  market, improvements in connectivity, new business models and generational shifts, the physical and online channels will meld together, but online will drive the majority of retail sales within the next 10 years. 

This will create significant challenges for the retail industry. The role of the store will evolve from mere product distribution hubs to meaningful customer  experience environments, offering discovery, entertainment and escapism. The consumer experience will be embroidered with digital touchpoints that  distort the boundaries between what’s physical and digital. Nevertheless, online will become the main driving force behind retail sales. We forecast that online sales will overtake store-based sales within 8-10 years, with online accounting for 53% of total retail sales by 2028.

The digital revolution: Past, present and future

As part of a necessary framework to explain the projected future impact of online; from our 10 key reasons, the first four touch upon past and present factors providing historical context. This is followed by six subsequent reasons which focus more on future impacts.

Reason 1: Customer journey evolution

The impact of digital technology has irreversibly changed the way we shop. The explosion of consumer choice is predicated on: the penetration of b roadband, improved connectivity, more powerful devices, the emergence of new services and the vast investment in digital platforms. It has clearly  affected how shoppers research, communicate, consume content, seek information and purchase products throughout the customer journey. Meanwhile,  both physical and digital experiences have become of utmost importance to consumers whose expectations are more demanding than ever. 

The growing impact of thesmartphone cannot be understated. Following the launch of the first iPhone in 2008, it took less than 10 years for the majority of  time consumers spent online to occur on mobile devices (62%1). In March 2019, 55%2 of visits to retailer websites were on smartphones, with categories such as Health and Beauty seeing this proportion exceed two in every three visits. Almost half of consumers suggested that smartphones are the most 
important device to connect to the internet, this figure rising to 72% for those aged between 16-34. These shifts have torn apart the analogue customer journey and replaced it with an almost endless array of digital and physical alternatives. 

Our digitally-integrated lives mean that competition for shoppers’ attentions has become much more fiercely contested; giving rise to the attention economy. Retailers compete with a digital kaleidoscope of other  distractions’, thus intensely focus on reducing friction throughout the customer journey. 

The emerging challenge is to connect with customers in the right  way. This means in the right manner, with the right content, on the right device, at the right time – in the ‘moments’ that matter most. Moments of inspiration, moments of desire and moments of action. New technologies have helped to enable smoother and speedier transactions, but consumer references have become much more fragmented as the range of available options have exploded. 

One reason for this fragmentation is that consumers  are now exposed to more influences for inspiration (e.g social media, celebrity endorsement, online communities, bloggers and influencers who spot new products and trends). For Gen Z and millennials, this occurs most frequently on smartphones.  

Our research revealed that the majority (53%) of younger shoppers (aged 16-24) think that smartphones are the most useful device when making them aware of new products and brands. This is in stark contrast to consumers aged 65 and over, of whom only 3% agreed with their younger counterparts. 
Such differences are partially driven by variance in smartphone ownership, but younger shoppers spend significantly more time on smartphones than any  other age group. On average, 18-24 year old females spent 3hrs 40 minutes per day on their smartphones, more than twice the duration of men aged over 55 (01:42mins).

This state of near constant connectivity has occurred at an exceptional pace, with significant consequences to physical destinations throughout the UK; arguably leading to lower levels of footfall across high streets, retail parks and particularly shopping centres. 

Primary locations in large city centres and key regions continue to deliver sustainable levels of footfall, but many secondary locations that are burdened with excess capacity and dwindling levels of footfall are expected to remain. 

Indeed, our research shows that online now accounts for around one in four shopping occasions and although high streets showed the greatest penetration across all age groups, their prominence as the main shopping channel is dwindling. 

Over one in ten consumers suggested that they will shop less frequently in physical shops in the next 12 months, outweighing those who suggested they will shop more frequently. Consumers pinpointed high streets as the main physical channel that they are intending to shy away from in the future, but the results were not clear-cut. Gen Zs (aged under 25) suggested that they are likely to do more shopping in physical locations in the coming 12 months, with the importance of physical retailing being a consistent theme throughout our research for this age group. 

Download the full report to gain deeper insights into the other nine overarching themes that are driving the online retail revolution towards the tipping point...