An emerging global middle class will increase from 2 to 5 billion by 2030. This represents future global retail growth that will see emerging markets equal to developed markets in terms of retail spend with USD30 trillion. With these sheer numbers, what is the most common denominator that all retailers should be able to exploit to grow rapidly? Data.
Trends in the growth explosion
Global middle class growth will come primarily from Asia and this is a sweet spot for retailers as consumer spending expands to meet new middle class expectations. This is further boosted by the rapid shift from traditional trade to modern trade. Branded retailers in mature markets increasingly view the growth markets as attractive investments as well as consider online sales models for opportunity.
That being said, the global super and hypermarket operators are increasingly wary of investments due to lack of profitability in the region, and the need for focus and investment at home due to underperformance. Some are pulling out altogether, and more will follow.
Local players are increasingly dominant in their home markets, but with the low concentration of retailers in countries like China, consolidation is not far off. Local retailers are leveraging their intimate knowledge of the market, customers, and local tastes to compete successfully. However, they increasingly need to focus on increasing efficiencies throughout the organization, and increasing effectiveness in many areas, from ranging and promotions, to talent management.
Data everywhere
So what does it take it generate growth that is sustainable? Data.
Mobile devices, social media, and the consumerization of IT – these changed the relationships we have and maintain both personally and in business. With more mobile devices than people around the world coupled with transparency in pricing, product information, user reviews and ratings, immediate feedback on social media platforms, retailers now possess a wealth of information that will allow them to redefine their relationships with customers.
The key is in the exploitation of data.
As multichannel becomes a reality and not an intellectual concept, your customer no longer cares about how he or she began the buying journey – at the store, in a catalog, online or otherwise – and will navigate multiple sites to make up his or her mind. What that means is the customer of today is no longer a shopper by channel. To “own the customer”, retailers must make it as easy and convenient as possible for their customers to shop, navigate, and make a purchase whether on a mobile optimized site, via apps or online partners.
The online upsurge – Globally and in Asia
The importance of redefining problem-solving with data is underscored by the proliferation of connectedness both globally and in Asia, leading to how a retailer can understand and engage the customer from the touch points he or she generates.
Today, online sales are growing two to five times faster than traditional retailing. The key question is not one of whether you should be going traditional or online but how to meet the consumer wherever and whenever he or she shops.
Started in 1997, Amazon has tripled their annual sales over the last four years. The way retailers must sell to their customers has changed forever, and this is certainly the case in Asia. In fact, in parts of Asia is leapfrogging the developed world with China online spend already as large as the US. An online-only supermarket in China started in 2008 with nearly USD1 billion in sales is having a “slow” year with 250 percent year on year growth.
Clearly, the future is a hybrid model that tears down traditional channel-thinking and internal organizational silos.
The Millennial’s rise in spending power and engagement on social networks
The significance of the retail data explosion will be intensified by the rise and rise in spending power of the Millennial Generation as they reach their late 30’s in 2020 and overtake Baby Boomers in numbers and spending power.
Born between 1981 and early 2000’s, Millennials grew up with the Internet and expect a merging of online and physical world experiences. With early and wide access to information, Millennials are also more predisposed to pursue social causes, care about the planet and sustainability. They prefer quality over quantity. They value speed, convenience, and ease of use. They use social media as an integral part of their lives, to broadcast their thoughts and experiences, and generate user feedback. Furthermore, they have greater confidence in peer reviews than expert reviews.
To meaningfully engage a Millennial customer, the retailer is expected to understand him or her and provide personalized service. The upside is – there are over 1 billion people engaged on social networks around the world and Asia is on the leader board. Asia has over a trillion social media users and such usage generates data.
In countries such as Indonesia and Malaysia, smartphone usage penetration is 90 percent. Weibo in China claims to have 500 million registered users with 50 million making active use of it. Wechat owned by Tencent is taking over as the preferred social platform in China, and also gaining usage outside of China.
Millennials grew up with Internet, social media, mobile everything – they are redefining the engagement between brands and retailers and themselves.
The transformation imperative
Against this backdrop of unprecedented change, technology-enabled agility in your organization becomes a critical characteristic to remain competitive.
First and foremost, we see a need for retailers to put in place a foundation, to standardize operational processes in finance, corporate services, and merchandising across formats and regions, in order to increase efficiencies, reduce costs, and run better.
Secondly, to gain a competitive edge, retailers must focus on advancing their internal processes and practices in the areas of planning, supply chain, range management, and talent management.
Lastly, true differentiation is achieved by focusing on the customer. The changes in the industry are taking place where the bricks-and-mortar store still accounts for most of the transactions, even though increasingly a customer’s journey starts elsewhere. Innovative retailers are taking the lead to turn these storefronts to an integration hub of mobile, social, and digital retailing trends.
Furthermore, the store experience must evolve to attract and keep customers. A fresh view of connected customer engagement is necessary to create differentiated value.
Not the last words
In this moment, in the midst of an industry reset moment, to stand still is to fall behind. Rapidly, the consumer is maturing and demanding bespoke service.
The foundation needs to be in place. The technology and people are there to support you. It is a journey retailers must be willing to make.
First, you need to find those you trust to go on this journey together.
Merijn Helle is a senior director in SAP’s Industry Strategy Group, responsible for the go-to-market and business development of SAP into the Retail industry across Asia-Pacific and Japan. His teams in the region focuses on helping retailers build unified channels, create consumer-driven supply networks, drive consumer insights and build integrated merchandising and marketing environments.