The Big Shift is a set of fundamental macroeconomic and technological trends that are reshaping the global business landscape giving consumers more power through greater access to digital information that is decoupled from the physical store. The technology revolution has also drastically lowered the barriers to entry for new, niche, smaller retailers to enter the market and resulted in increased competition for both traditional and non-traditional retailers, leaving many scale-based, efficiency-driven retailers struggling to create value in a world where consumers enjoy almost infinite variety and demand instant gratification.
"The explosion of small, niche retailers that often operate with innovative and unique business models is shaking up the traditional retail industry," said Francis McDonald, Senior Manager: Consumer Business & Manufacturing of Deloitte. The resulting proliferation of product choices, coupled with the fact that consumers can source almost anything they want online or check in-store inventory availability, means consumers can hold off a purchase until they find exactly what they want and then satisfy that want with the click of a button or limit their interaction with the store to obtaining already-selected items."
"In Africa, technology is playing the biggest role in reshaping the consumer landscape as its evolution is far quicker than the changes in public policy on the continent," said Johan Scholtz, Associate Director of Deloitte. "What's important to note, though, is that these changes are taking place with a lagged effect in South Africa and the rest of the continent, but they are still happening at an exponential rate. In South Africa, we have gone from the personal computer, to email, to the Web, to cellphone, to smartphone, to apps, to mobile payments, to social media and to wearables in just over two decades. How will the retail landscape look in next five years if we project this change forward at an exponential rate?"
Deloitte's research shows that the exponential improvements in the cost-to-performance ratio of technology has led to widespread innovation in how digital infrastructure is applied to other industries across the world. For example, the cost of computing power has decreased from $222 per million transistors in 1992 to $0.06 per million transistors in 2012; data storage costs have fallen from $569 per gigabyte in 1992 to $0.03 per gigabyte in 2012; while internet bandwidth costs have dropped from $1245 per 1000 Mbps in 1999 to $23 per 1000 Mbps in 2012.
"Considering that a lot of retail activity in Africa still happens in the informal economy, coupled with the rapid adoption of mobile payment solutions on the continent, there is a high probability that the continent could leapfrog some of the formal retail evolution," said McDonald. "This means the African retail landscape could be a relatively quick adopter of the trends currently happening around the world."
This could have significant implications for retailers with high fixed-cost structures (due to significant brick-and-mortar assets and inventory costs), which compete using only inventory and scale. They could lose out to more flexible, niche competitors with lower fixed-cost structures and an extensive range of niche product assortments that meet consumers' ever-changing needs. "Existing big-box retailers need to respond with both an agile business model and strategy and by increasing the agility of their supply chains. The static five-year plan is no longer sufficient," said Scholtz.
Deloitte says that the impact of the 'Big Shift' on the retail sector is manifesting itself in four ways:
A concrete example of how technology is changing consumer demand is provided by Amazon, the online retail giant. In 1998 Amazon began recommending an out-of-print mountaineering memoir called Touching the Void to customers who were purchasing or viewing the best seller Into Thin Air. The result was that Touching the Void began to outsell Into Thin Air by two to one. Today, over half of Amazon's book sales come from outside its top 130,000 titles.
Another example comes from 2008 when Yokoo Gibran, a copy centre employee with a passion for knitting, began selling her knitwear on Etsy, a peer-to-peer e-commerce website focused on handmade or vintage items. Within a year, she was making enough to quit her day job and by December 2009 she was earning more than $140,000 a year from her Etsy sales alone.
These examples show how reduced barriers to entry, coupled with fulfilment strategies, enable innovative manufacturers and new retail players to bypass traditional brick-and-mortar retailers entirely. The impact of the 'Big Shift' trends will differ by product category with some being especially susceptible to disruptive movements in the industry. In 2014, 52% of US online shoppers visited brand and manufacturer websites with the intent to buy rather than visiting a traditional brick-and-mortar retail centre.
The implications of these shifts in consumer behaviour and new entrants to the market are massive. By 2000, seven of the eight largest US retailers that existed in 1980 had filed for bankruptcy, been acquired, or lost their positions as major industry players. Today, the top 25 retailers enjoy 2% less market share than they did in 2009-a shift of $64 billion.
"International trends suggest that consumers are purchasing more and more online, and South Africa is no different, with the 2014 Deloitte Year-end Holiday Survey finding that 51% of South African shoppers reported having used a smartphone during the shopping process - a major increase from only 38% in 2013. If retailers don't adapt in a way that keeps them relevant in the eyes of consumers, their current business models risk being exposed by the newer, more nimble retailers that are exploding across the global retail landscape," said Scholtz.
The retail landscape described in the Retail Transformation report challenges established retailers to alter both their mindsets and their business models dramatically. Retailers will need increased focus on enhancing and imbedding the customer experience as part of their offering, and adjust their viewpoint of the typical consumer for whom the distinction between online and offline shopping is becoming increasingly blurred if not entirely irrelevant.
How to adapt? Learn from global trends and be prepared: compete for the requirements of tomorrow and invest in the future.
Deloitte refers to the 'scaling edges' approach that is based on identifying a promising 'edge' for the organisation, then growing that edge until it becomes the business' new core. Such an approach can help make it possible for retailers to reinvent themselves and their business models while minimising potential risks and maximising impact. It is about timing and scalability just as much as it is about innovation and prototyping.
