New technology and innovation are bringing a new type of disruption to retail

New technology and innovation are bringing a new type of disruption to retail

Disruption was the central theme at this year's World Retail Congress in Paris, covering everything from the innovation of new businesses to the latest generation of millennial shoppers. Indeed, it's an issue of key concern for global retailers, as Steve Sadove, chairman of the National Retail Federation and former Saks CEO, explains.

New technology and innovation are bringing a new type of disruption to both the digital and bricks and mortar shopping experience. This, more than ever, is putting the consumer in control.

The disruptive consumer can also be classed as the changing consumer, as some of the speakers at this year's Congress pointed out. While most retailers are confident they know what is going on inside the confines of their businesses, they now need to be aware, more than ever, of shoppers who know what they want and expect the retailer to understand and accommodate these needs.

"This is a period of the greatest change any of us have seen in retail," Sadove tells delegates. "There is more disruption...a time where the old rules aren't the same anymore and it requires different thinking and a different kind of leadership."

Sadove pointed to ten "disruptors" he has identified, from mobile communications and omni-channel to analytics/data and vertical integration.

"The important question to me is not whether this is the correct list but what are we doing as leaders to drive these ten disruptors into our organisations and making sure whether or not the organisation is embracing it," he told delegates.

  • Omni-channel retailing

"The single biggest disruptor is omni-channel retailing. It's no longer about the internet or bricks and mortar. The consumer wants product any time and when they want it. They want to buy online, or pick up in the store. There is a blurring of the channels taking place."

This, Sadove pointed out, leads to organisational implications, with retailers needing to understand the customers' view as well as their needs.

"No matter how all of this changes there are two reasons for a consumer shopping in store. It's for the product and the service provided. This is the biggest disruptor we're looking at because you have to think differently. It means mobile, web, all the facets of this."

  • Mobile communications

"Most people, in some form, whether it's communication from their friends, bloggers, from researchers, in some form or another are using their mobile device to affect the purchase. It's important to understand how well are you doing in this arena. How do you stack up in your capabilities in delivering against this?" Sadove asked delegates. "Are you providing the information to enable the consumer to operate with your company on a mobile basis?

"The consumer is already in this space and if you don't control it the customer will choose their own way."

  • Analytics/data

This disruptor, Sadove believes, is about understanding the needs and desires of the individual consumer and finding ways of being able to meet those needs on a one-on-one basis. "The winners versus the losers are the ones that are embracing this. There is so much of that data out there."

  • Vertical integration

"Vertical integration is another important trend, unless you have differentiated product of some sort. If you have a non-differentiated product, because of price transparency, you will have a low price. If you are vertical, that is going to help shape the future and that's why you have the luxury players becoming vertical to get the margin."

Sadove told delegates there is a desire by retailers to control their own destiny as well as the margin, the product and experience. "You will continue to see a differentiation in product using a creative means of sourcing."

  • Pricing transparency

The increasing importance of the internet means consumers can readily download apps that will compare prices for them. This, Sadove believes, is changing the retail model and in most markets is putting enormous pressure on gross margin.

"More in US, there is a downward pressure because of price competition driven by the promotional nature of the market. You have to think about how you can have more differentiated product."

  • Cyber security

"This is a real issue globally that, if not addressed as an industry, will have to be dealt with on the payment and data breach side."

He pointed to US retailer Target, which in December last year reported a data breach affecting up to 110m of its customers.

"Again, it's about leadership. This is what drives whether or not a company is paying attention in looking at this area. It's disrupting the consumer's attitude. Reputation is at risk. You've got to think this has long-term implications."

  • Changing demographics

"The millennial consumer is thinking differently. For the millennial customer, the idea of carbon footprint, social responsibility, that is a price of entry for them. What are we doing in terms of means of communication for that customer?" Sadove questioned.

  • Cross-border e-commerce

Sadove outlined the ease for consumers globally of buying a product in a different country. Price transparency, he suggested, has only fuelled this trend. "There is going to be much more in terms of shipping and buying products around the world. Convergence of pricing will have implications on margin."

  • Talent requirements

"Retail is one of the most complex businesses out there. We have more needs for engineers, marketers, every type of function globally. The requirements and capabilities we need are fundamentally different to what we needed in the past. I question whether or not we're doing the job we need to be doing given the degree of change that is happening in the industry."

  • Wearable technology

Sadove pointed to wearable technology as the last of the ten disruptors. An increase in the need and desire for more functional apparel items means there is a need for retailers to continue to innovate.

"All of this plays together in terms of fundamental changes in how these items are used and where they're sourced. Wearable technology plays an important part in this."

He concluded: "As you see, change is going on. The implications of this is that as leaders we have to embrace it in terms of investment and people and it will require more spending. Capex budgets will be higher in the future. Even if you don't compete with Amazon, the requirements of the customer service they deliver are what you need to. They are setting the tone."