Reasons to be cheerful: Opportunities for retail in 2018

The lipstick factor

It may be difficult for young people to get on the housing market, but that does mean there’s more disposable income to spend on feel-good items.

This plays into the lipstick effect, the theory that when facing an economic crisis, shoppers are more willing to buy small luxuries such as lipstick.

PwC director Kien Tan says beauty and fashion should benefit from this. “The under-25s are still feeling relatively positive. The housing crisis might make it tricky for big-ticket retailers but young people without mortgages still have disposable income to spend on treats,” he says.

Wellbeing

Health and wellness is one of the world’s largest and fastest-growing industries. This growth shows no signs of stopping as fitness bloggers and influencers promote the merits of a healthy lifestyle via social media.

Mintel forecasts that the number of Brits using private health and fitness clubs will grow by 20% to reach 6.5 million by 2020.

This trend is spurring growth across retail, from the rise of athleisure to the popularity of super-foods such as avocado, the favoured breakfast of the millennial. Retailers across the board should look to cater to this new health-conscious consumer.

The sharing economy

Consumers are becoming less pre-occupied with owning products and are now happy to use things rather than buy them, says PwC consumer markets leader Lisa Hooker.

This trend is evident across many industries. We no longer buy movies, we watch them once via streaming services such as Netflix. We’re sharing everything from cars to people’s homes – for many, Airbnb has become the first port of call for accommodation while travelling.

Rather than sounding the death knell for retail, an industry built on the premise of buying products outright, there is an opportunity for businesses to harness the power of the sharing economy.

Dixons Carphone chief executive Seb James wants to introduce a monthly subscription package for shoppers to buy bundles of electricals and services – such as a TV complete with a Netflix package, installation, repairs and upgrades.

The subscription model would mean that shoppers would not own the TV, fridge or washing machine outright, but pay a monthly fee instead.

Meanwhile, there is a throng of up-and-coming retailers that have built their model around rental, including fashion specialists Girl Meets Dress and Rent the Runway.

Secure better property deals

“Never waste a good crisis,” says KPMG head of retail Paul Martin, who believes retailers should use the volatile macro-environment as a reason to renegotiate one of their biggest overheads – rent.

Meanwhile, CBRE head of A&T occupier services Graham Barr says it will be possible to negotiate shorter leases next year.

“Average retail lease lengths have been shortening and we could see leases shorten further. This will mean that there is much more opportunity for retailers to experiment with their formats on both short- and medium-term leases.

“Landlords are actively seeking different offerings and are now far more flexible about shorter lease terms to allow the right operators and brands to launch a new line or service.”

Marketplaces

‘If you can’t beat em, join em’, the old saying goes, which is exactly how some retailers are approaching retail giant Amazon.

Rather than cower as Amazon eats their lunch, many retailers are harnessing its vast customer base and selling on its platform.

Retailers big and small are selling via not just Amazon but its international marketplace rivals such as China’s Alibaba, Germany’s Zalando and Southeast Asian marketplace Lazada.

Analysts predict that marketplaces will account for 40% of the global online retail market come 2020 and Tien believes selling on these platforms can drive growth for many retail brands.

Collaboration

Fulfilment has been a key battleground in retail for the past few years and the speed, cost and variety of delivery options provided can sway consumers’ shopping decisions. However, providing a delivery offer that competes with the likes of Amazon or Argos is an expensive business.

Hooker believes that we will see more collaboration between retailers in the year ahead to share operating costs.

Asda has established itself as a partner of choice with its To You service, which allows shoppers to collect and return products from other retailers, such as Asos, Ao.com and Sports Direct, to its stores.

Hooker believes this collaboration between retailers will extend beyond the supply chain. There is already evidence of retailers that would be viewed as competitors, partnering and selling on each other’s websites and stores.

Tesco is trialling selling Next clothing next to its F&F brand in-store and fashion specialist N Brown is selling via Tesco’s website. Hooker believes we will see more retailers collaborate in 2018.

2018 will no doubt bring twists and turns, but following key technology and consumer trends can lead to unexpected opportunities for the stalwarts of the high street.