Former Game chief executive Ian Shepherd, author of Reinventing Retail: The New rules that Drive Sales and Grow Profits, defines six rules for retailers to abide by to navigate the new normal of our industry

Over the last few years, we’ve seen an increasing polarisation of retailers’ performance with some stellar players growing at eye-watering rates but many other brands disappearing altogether.

What is it that separates one set from the other? Simply, the world has changed. Changes in technology have revolutionised not just how consumers buy things but how they decide what to buy in the first place.

In my new book, I define six rules of the ‘new normal’ to capture this seismic change. How brands respond to these rules will determine whether they will sit in the winner’s enclosure or struggle to adapt to the new reality.

Rule 1: Someone is going to sell your product at cost, or less

Many specialist retailers face this challenge. One I know tells a story of accidentally repricing a product to £1 instead of £10, only to find that Amazon was selling the product for 80p a couple of hours later.

There are strategies for combatting low-price competition that rely on a detailed analysis of margin and clever use of pricing.

But one of the most interesting retailers on the high street today is WHSmith, whose approach to exiting categories where they can’t compete and squeezing margin out of any local competitive advantage they can find has driven share price growth that most of us secretly envy.

Many other retailers should ask whether they are taking every opportunity to vary pricing with customer demand or product scarcity to deliver margin.

Rule 2: Everyone knows everything

In the ‘new normal’, customers can share experiences at the click of a button and start or join a vocal campaign simply by using a hashtag.

This surge in customer knowledge challenges many established business models. As car insurers that routinely give their worst deals to their most loyal customers are finding out, there is a big difference between “this is a great business model” and “this is something we can get away with as long as no one notices”.

As retailers, we want to take away customer pain points, but that is tough when those pain points are a big source of margin.

“What really matters is having the will to take a long-term and customer-oriented perspective”

Bundling in the hugely profitable extended warranty rather than charging for it, for example, looks on the face of it like a big loss of upfront profit. John Lewis, however, has done so for many years.

Too many other retailers consider margin only on an individual sale. Instead, we should be considering it across the lifetime of a customer. This ‘customer lifetime value’ (CLV) perspective makes it easier to see when a short-term pain is really a long-term win and in the book, we review how to implement a CLV approach across a business.

The hardest part is often bringing along shareholders who might be more focused on the short term than the long term.

For all the discussion recently about the merits of private equity or public ownership for retailers, what really matters is having the will to take a long-term and customer-oriented perspective.

Rule 3: Reputation matters

It always has of course, but the change in the new normal is the ease with which your reputation is built, evolves and is destroyed online when you aren’t even looking.

Even the most online-oriented brands can come unstuck in this area – just look at the backlash to Lush’s perceived anti-police campaign last year.

Reinventing Retail by Ian Shepherd

There are various approaches to ensuring your brand and reputation is built on an authentic voice expressed by your teams online and in store. 

One is to ensure you build your brand on solid ground by making sure it is rooted in truth – too many businesses try to create an image that their reality simply doesn’t live up to.

Another is to empower your frontline employees to represent your brand, online and off.

Some of the best Waterstones store social media feeds represent terrific examples of linking the online and store experiences.

I was once asked how a business could entrust its Twitter feed to a “twenty-something employee”. My answer was simple: any retailer worried about putting its brand into the hands of young employees is already in big trouble since those are exactly the people interacting with its customers every day. The trick is to enthuse and inspire them to represent your brand with passion and authenticity.

Rule 4: Location matters

In the new normal the number, location and type of stores you need is very different than it was two decades ago.

Once, it was difficult for customers to shop around and therefore they tended to buy from the nearest store. In that environment, it paid to make sure that the nearest store was yours.

Now, the value of a store is different.

“Many retail CEOs would proudly describe their stores as ‘experiential showcases’. In only a few cases is that aspiration really delivered”

In some sectors, it still pays to have lots of stores for customers to stumble upon when they need a product ‘right now’. But in many others, the role of the store is to showcase products that might then be bought through other channels. The right number, location and design for that type of store is likely to be very different.

How many do you need and what should they look like? Are the stores you have today really delivering on their purpose?

This is a tough area where serious introspection is necessary. I’ve spoken to many retail CEOs who would proudly describe their stores “experiential showcases”.

In only a few cases, though, is that aspiration really delivered on the high street. Look at the brilliant interactive store experiences delivered by Games Workshop or Lush and ask yourself if your brand is executing as well as them?

Rule 5: Knowing your customer is key

One brand I worked with found 40% of its revenue came from 10% of its customers. That may well be true for your business too, but if you don’t know which 10% of customers are your most valuable, you are incredibly vulnerable to them being poached by a rival.

The obvious tool for gathering data about your customers is the loyalty card, as brilliantly demonstrated by the Boots Advantage card or the Tesco Clubcard.

In Reinventing Retail, we discuss some less obvious and potentially cheaper solutions too.

Can you gather email addresses at the till, for example, in order to connect those sales to online ones? What role does your in-store WiFi play in capturing data about who visits which stores?

With the right data you can understand that all-important ‘lifetime value’ of each of your customers and target your marketing accordingly. And guess what – your online-only competitors already can.

One thing is for sure – flying blind isn’t going to end well.

Rule 6: If a product can be simplified, it will be

Do you still buy package holidays? I’d guess not. We are too used now to finding a hotel online, booking flights directly and piecing other bits of our experience together ourselves as well.

What is the equivalent in your retail business? What aspects of your business might end up getting disintermediated in the same way? Perhaps the high-margin accessories you sell with your main product might become a target for an online specialist?

“Each rule of the new normal is an opportunity too”

This change in how consumers ‘glue’ products together into solutions need not be a disaster, however. There are elements of the package holiday market that are thriving. They just need to offer the consumer something over and above the basic.

The same is true in other retail sectors, where carefully curated combinations of products and services still have a place. In the varying fortunes of department stores, for example, we can see the upside and the downside of trying to ‘curate’ collections of products. There is a fine line between ‘this is a lovely and inspiring collection of products that inspires me’ and ’what a hodge-podge of stuff thrown together in a poorly lit shop’.

The fact that there are department store chains such as Selfridges that perform well even as we see the struggles of Debenhams or House of Fraser clearly demonstrates this point.

Rising to the challenge

The new normal has changed the way consumers decide what to buy and from whom.

That creates a profound challenge for retailers. Realising you have hundreds more stores than you need, seeing your price points destroyed by online warehouses and seeing your most-valuable customers jump ship without even knowing who they are can feel overwhelming.

But in fact, each rule of the new normal is an opportunity too. Bringing your store colleagues, your leadership teams, your suppliers and your shareholders with you is the key.

Get Reinventing Retail (published by Pearson Business) for £12.99 (RRP £16.99) with discount code REINVENT19 from WHSmith.co.uk.

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