Products of Change


Tue 29 Jun 2021 | by Sue Marks

SILC21: The Changing Economic Landscape Of Retail

“Consumers’ awareness and their expectations of responsible and ethical practices from retail brands and governments are driving change,” Richard Lim, ceo of Retail Economics told SILC attendees. On the second day of SILC (June 25), Richard Lim, ceo of Retail Economics, (an independent research consultancy focused on the consumer and retail industry), shared his views on the major impacts of Covid-19 on the retail sector, and how they have translated to the sustainability agenda for retail boards around the UK, with Richard revealing how the pandemic has had an enormous impact on retail. “It has had a huge impact on digital and the customer journey right from the very beginning, from awareness right through to service and returns,” he emphasised. The company’s research has revealed that around 40% of consumers bought something online for a category that they had previously only ever looked for in store. “This was a huge wave of new customers getting over those barriers of setting up online accounts, entering payment details, overcoming the issues of trust, and it has created a wave of disruption across the retail sector in a way that retailers need to operate, and in the way that they source products, but also in the relationships that they have with their customers.” He said that early in the pandemic, it felt as though concerns around sustainability were at risk of falling down the priority list as retailers went into survival mode to protect their businesses. “But as the shock of the pandemic began to recede, companies and governments have been starting to look back, looking at ways to build back better, putting sustainability at the heart of their plans. In fact, I think that retail is in the middle of a paradigm shift, and part of this is, because the true extent of the pandemic, is still to emerge. Government supported measures are still in place, backed by loans, and the furlough scheme is still running. But as the government starts to withdraw some of those supportive measures, it’s inevitable that retailers will face issues re continuing to trade.” He said that one of the major and critical factors that will affect the retail trade going forward is when the true cost of online begins to be revealed. “This is about the huge shift towards the digital space that will create challenges around profitability, and the challenge for many retailers will be how to maintain that balance between profitability while also maintaining their pledges around ESG,” he pointed out. “There’s nothing new about the balance between companies wanting to do the right thing in terms of sustainability, and a commercial reality of remaining profitable, so I think the pandemic is going to put much more pressure on balancing this equation, at least during the transitionary period.” Richard’s view is that many retailers will be caught up in having to deal with the shift to online, exposing cost structures that are overly weighted towards a physical presence. While those fixed costs remain, related to expansive store estates, retailers will also have to deal with a rise in variable costs associated with a greater proportion of their sales moving online. Meanwhile, the crisis had highlighted that the globally diverse and complex, but fragile, supply chain was only as strong as the weakest link, and that new supply chain sectors that emerge to try to build more resilience into these supply chains will also be looking at how they can keep their sustainability pledges. “For example, strategies are likely to involve shorter and more flexible, resilient supply chains that are better in dealing with these shocks. Often that will mean bringing them closer to home with things like near-shoring and long-shoring. But some of the key things will be around simplification, to include near-shoring, on-shoring and potentially re-shoring, diversifying the number of countries supplying.” He highlighted that retailers are therefore looking at not being over reliant on one country, with China being the obvious example. He forecasts a China + 1 and a China + 2 model. Richard also anticipated re-thinking inventories to establish other supplier routes and looking at how to fast track some of those volumes and deliver better capabilities and capacity, as well as understanding the costs to serve, with supply chains potentially shifting towards more on-shoring and near-shoring. “There will be an impact on the cost base, and it’s therefore important for retailers to recognise what kind of impact that’s going to have on things like pricing strategies,” he commented. Focusing on the apparel market, his company’s research had shown that 64% of consumers believe that retailers and brands should take the responsibility for sustainable practices in the fashion industry, with only 19% of consumers stating that the responsibility lies with the consumer. Over three quarters of those surveyed (77%) said that they would shop with brands showing strong environmental and ethical values, but with only 39% willing to pay more for this sustainability assurance. Richard believes the challenge to be a growing acceptance among consumers, especially Generation Z, to have more responsibility over their own actions in terms of the way that they consume. “But there is also a big gap between intentions and behaviours, where the best laid plans of consumers are not always met by their behaviour. An element of this is definitely true when it comes to sustainability," says Richard. “Retailers need to play a more proactive role to help consumers make the environmentally-friendly decisions, and also to nudge them to make the decision, because retailers play a crucial role in driving change. The underlying principles that retailers can adopt, and which some of them have already adopted, is that we can not only help to save the planet, but that we can use sustainability as an effective point of differentiation that is so desperately needed in today’s fiercely competitive market. For example, consumers need to default their delivery choices, offsetting their carbon emissions by choosing to wait for deliveries.” He also highlighted the role of peers and social norms. “There is an enormous gap for retailers and brands to engage in sustainability-driven influencers. They need to promote the right behaviours and make sustainability behaviour a salient goal for consumers which is an area that can really deliver huge benefits.” Summing up, Richard concluded: “Overall, I’m optimistic about the way that retailers can adapt, and about the challenges they are facing, while also keeping sustainability at the heart of what they are trying to do. The opportunity is there for retailers to gain that competitive edge and to put forward that point of differentiation to do the right thing while also delivering their commercial objectives.” If you were unable to attend SILC 2021, the great news is that you can still buy a ticket and gain access to the entire conference until 1 August 2021. Tickets are available from Products of Change members can get 20% off ticket prices.