ANALYSIS: Why the retail world is in flux - Alexandra Jardine reports from The Marketing Society retail forum on the rising influence of consumers on the way the high street conducts its trade

'The Changing World of Shopping' proved an apt title for The Marketing Society's retail forum last week. It certainly is: the day immediately after the conference, one of the speakers, Michael de Kare Silver of GUS, resigned from his job as the company disbanded the internet business development unit he was running.

'The Changing World of Shopping' proved an apt title for The Marketing Society's retail forum last week. It certainly is: the day immediately after the conference, one of the speakers, Michael de Kare Silver of GUS, resigned from his job as the company disbanded the internet business development unit he was running.

De Kare Silver's departure is just one of many in the rollercoaster world of UK retail. As Tim Mason, Tesco's marketing director and chair of the conference, pointed out, the past 12 months alone has seen new chiefs at Sainsbury's, Safeway, M&S and Somerfield. In addition, Allan Leighton and Archie Norman have left Asda and Michelle Jobling left Liberty.

The retail environment has never been more turbulent and with the Competition Commission's enquiry into grocery due any day, the picture could be about to change again.

In the next five years, retail, which has traditionally focused on the younger consumer, must adapt to a demographically ageing population which spends more of its cash outside of the retail market on areas such as holidays, eating out, private healthcare and education, according to retail analyst Richard Hyman, chairman of Verdict Research.

Verdict forecasts that retail's share of consumer spend will have dropped to below 30% by 2005, while globalisation, resulting in the increased power of giants such as new Asda owner Wal-Mart, will continue to put downward pressure on prices and margins.

Admitting he painted a gloomy scene, Hyman concluded: 'All the evidence suggests that things are going to get tougher.'



Consumer power

So how are UK retailers responding to this hostile environment? Speakers at the forum came from backgrounds as diverse as Bluewater, Yahoo! and Marks & Spencer. But if there was one key issue, it was that whatever the medium or format, recognising the power of the consumer will be the key to retail success in the future.

As Charles Dunstone, managing director of Carphone Warehouse - one of today's few retail success stories - pointed out at the forum, consumers are replacing the resource owners, retailers and wholesalers of the past as the most powerful force in the economy.

Carphone Warehouse works on the principle that it wants its customers to love it, said Dunstone. In-store, Dunstone believes staff need to be dedicated to their customers and nothing else. 'It might sound obvious, but in how many stores do you feel like you're an inconvenience, and simply spoiling the staff's day?'

It now runs a service offering customers the chance to have phones fixed while they wait - a first in the mobile retail market. If the cost is less than pounds 30, it doesn't charge. As Dunstone said: 'At Bluewater, I've heard of cases of customers from other mobile stores being directed to ours to get their phones fixed. Who is that customer going to buy their next phone from?'



Experiential shopping

According to Dunstone, Carphone Warehouse's aim is to combine a rational proposition - offering a range of products and a high level of knowledge - with an emotional proposition - acting as the consumer's champion, with a young and friendly touch. 'We sell attitude and experience, not just a product,' he said.

Not only do Carphone Warehouse store staff undergo a rigorous training scheme, including passing exams, they are ranked, graded and constantly measured against their fellow employees.

Salaries aim to beat the market. Dunstone said that Carphone Warehouse pays a salesperson up to pounds 10,000 more than their equivalents in high street rivals such as Dixons. It also tries to inject a sense of community and fun into its workforce by holding company events and even running a 'dating programme' for its staff

Troubled Marks & Spencer could learn a lot from Carphone Warehouse. Alan McWalter, its first marketing director, admitted that in the past, the company has failed to respond to customer demand. 'The problem lay in the assumption and arrogance that we knew what was best for our customers. For all our strengths we have failed to engage with our customers and our competition,' he said.

McWalter added that M&S is addressing its problems by going 'back to basics' with its marketing. It is using data properly to steer product design to customer needs and improving its stores and emotionally engaging with customers through its new ad campaign. 'Get the basics right and only then can you embrace the fundamental principles of marketing in the modern world,' he said.

Interestingly, 41% of the audience at the forum thought that M&S' new strategy would revive its sales.



Rise of e-commerce

E-commerce is one of the key issues facing retailers today, and several speakers shared some of their e-commerce experience.

Carolyn Bradley, chief operating officer of Tesco.com, claimed that most of the myths about online shopping aren't true. 'Seven out of ten top lines sold on the net are fresh food,' she said. 'And brand loyalty does exist online - 30% of our shoppers shop nowhere else on the net and sales of own label are higher than in-store.'

However, Joseph Wan, chief executive of Harvey Nichols, the luxury department store which has taken a deliberate decision not to sell over the net, does not feel that an online experience can equal in-store shopping.

'Our customers want to touch and feel the goods, and the internet can't deliver this,' he pointed out, adding that customers also expect a level of personal service which would be difficult to replicate on the net.

He believes the net offers limited potential for a global upmarket business, as different import structures across the world would make global pricing an impossibility.

'Customers won't be entranced by the new economy hype unless it meets the old economy experience. To sell upmarket clothes via the internet, the retailer has to come up with an added value offer. Upmarket retailers should not be pressurised to get on the bandwagon,' he added.

Virgin, which is currently converting its Our Price chain into a new retail brand, V Shop, has chosen instead to reinvent the bricks-and-mortar model.



Interactive high street

In the face of a climate that says traditional music retailers have no future, Virgin is attempting to combine the benefits of new technology such as MP3 music downloads with a high street retail format that aims to be exciting and interactive.

Simon Wright, chief executive of Virgin Entertainment, said: 'We are in an experience economy, where consumers react against dullness unless driven by price and experience.

'Customers have a very high experience of the Virgin brand, but with threats of new technology and competition, we have to be careful about what we stand for.'

Virgin, Carphone Warehouse and others are proving that not all bricks and mortar retailing is doomed.

Shopping malls such as Bluewater in Kent are also bucking the trend - its like-for-like sales are up 35% on last year. Bluewater's formula included placing a high emphasis on service, and asking each individual shop to present its most innovative store design yet, said managing director Adrian Wright. Its 'owner lend lease' policy also creates a consumer-focused brand for the shopping centre itself, via a strongly branded advertising campaign.

So it's not all bad news for UK retailers - even for those retail chiefs who have become casualties of the new ruthless environment, there is hope.

Fru Hazlitt, European sales director of Yahoo!, believes e-tailers need to know how hard it is to teach a shopper how to buy online, and recommends that all e-tailers have an old world retailer on their management board.

DELEGATES''VIEWS ON THE RETAIL LANDSCAPE

Online shopping will come to represent the majority of retail business

Strongly Agree %              Agree      Disagree    Strongly      Don''t

                                  %             %   Disagree%       know

3                                 9            61          23          4

Online shopping works for commodity purchases, but not for fashion or

luxury goods

Strongly Agree %              Agree      Disagree    Strongly      Don''t

                                  %             %   Disagree%       know

13                               51            28           3          5

It is impossible to successfully recreate a retail brand experience on

the internet

Strongly Agree %              Agree      Disagree    Strongly      Don''t

                                  %             %   Disagree%       know

4                                23            56          14          3

Growth in online shopping will fundamentally alter the in-store

experience

Strongly Agree %              Agree      Disagree    Strongly      Don''t

                                  %             %   Disagree%       know

10                               53            32           4          1

Fulfilment and delivery difficulties will hold back successful e-tailing

for the foreseeable future

Strongly Agree %              Agree      Disagree    Strongly      Don''t

                                  %             %   Disagree%       know

9                                51            32           5          3

Marks & Spencer''s new strategy will retain its sales and status on the

high street

Strongly Agree %              Agree      Disagree    Strongly      Don''t

                                  %             %   Disagree%       know

4                                41            31           5         19

DELEGATES'' VIEWS ON THE RETAIL LANDSCAPE

It''s all about price; ''premium'' retailers have had their day

Strongly Agree %              Agree      Disagree    Strongly      Don''t

                                  %             %   Disagree%       know

2                                 2            53          40          3

There is a clear competitive advantage to introducing or maintaining a

loyalty card scheme

Strongly Agree %              Agree      Disagree    Strongly      Don''t

                                  %             %   Disagree%       know

14                               50            20           8          8

Loyalty card schemes should be used to benefit the consumer, not as a

sales promotion tool

Strongly Agree %              Agree      Disagree    Strongly      Don''t

                                  %             %   Disagree%       know

29                               46            19           3          3

Organic food will remain a niche sector with a price premium

Strongly Agree %              Agree      Disagree    Strongly      Don''t

                                  %             %   Disagree%       know

4                                36            38          20          2

I have/have not shopped on the internet myself. If yes, please say which

item you bought.

70% (69) of respondents had shopped before, 30% (29) had not

Of the 69 who had shopped:

45 had bought books                              65%

28 had bought music/CDs                          41%

30 had bought holidays/travel                    43%

30 had bought clothing                           43%

19 had bought food                               27%

Nine had bought a computer or software           13%

Six had bought financial services                 9%

One person had bought a car                       1%





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