UK: Is It Time For Retailers To Disrupt Their Business Model?

There is only one constant in the world of retail – change.

The market pressures that have loomed for some time are now coming into effect and we see a direct impact on consumers' ability to spend and their purchasing habits. In our latest research, The Critical Consumer, an average of 39% of consumers in EMEA plan on spending less across all non-essential categories in 2024.

With seismic shifts in sentiment, coupled with continued wallet squeeze, how can retailers adapt to stay relevant and ensure they remain competitive?

One critical success factor is to adjust business models to stay relevant. Learning from disruptors in the market is key. Retailers can learn from, adopt, or better compete with these disruptive business models by taking a deeper look at the emerging themes. Some of the key disruptive trends are summarised below.

THE EVOLUTION OF DISCOUNT AND NEW MARKET PROPOSITIONS
Discounters have evolved massively. Food and non-food discounters alike have accelerated the tailoring of their proposition to suit the consumer and have moved more mainstream, dramatically increasing market share as consumers seek value. In non-food, further consolidation has resulted, with likely more to follow as only the strongest will survive. In grocery, the discounter price matching and discount loyalty schemes prevail, squeezing margins ever more tightly and making consolidation in the grocery sector a real prospect.

REAL-TIME RETAIL AND STORE SELL-THROUGH OPTIMISATION
With technologies like AI and IoT, retailers can track inventory levels, customer preferences, and purchasing patterns in real-time. This datadriven approach allows for immediate adjustments in merchandising and promotions, from store level and throughout the supply chain, significantly
reducing the incidence of overstock or stockouts. The integration of online and offline data also enables a seamless omnichannel experience, enhancing personalisation, customer engagement and sales.

IPCO/OPCO MODELS: HARNESSING VALUE FROM BRANDS
The division of a retail business into intellectual property company (IpCo) and operating company (OpCo) models allows firms to manage and monetise their intellectual property (brand value, copyright, etc.) separately from their day-to-day operations. Such a structure can lead to more efficient capital allocation, focused brand development, and potentially higher valuations. It can also have a huge impact on the structure and capability of the vendor base as they take on more operational accountability. Lastly, these changes can benefit more traditional retailers and brands seeking more capable partners providing potentially better margin structures and lower inventory risk.

PRELOVED AND CIRCULAR ECONOMY: EMBRACING SUSTAINABILITY
Standalone platforms for preowned goods and retailer extensions into this space signal a move towards sustainable consumerism. By incorporating these models, retailers not only cater to the environmentally-conscious consumer, but also create new revenue streams. The challenge lies in
seamlessly integrating these models into existing retail propositions and operations to provide a cohesive customer experience while avoiding expensive complexity.

RETAIL MEDIA IN A COOKIE-LESS WORLD: DATA MONETISATION
With the impending end of third-party cookies, retailers are exploring new ways to monetise their data. Retail media networks offer a solution, allowing retailers to leverage their customer data to provide targeted advertising opportunities within their own ecosystems. This model not only
creates a new revenue stream, but also enhances the shopping experience by offering more relevant product suggestions to consumers.

SOCIAL MEDIA AND D2C INNOVATIONS: INFLUENCER COLLABORATION AND CONSUMER ENGAGEMENT
Influencer collaborations on social media are crucial for reaching broader audiences and leveraging followers' trust, which enhances customer engagement and product promotion. This synergy, especially through shoppable posts, allows brands to bypass traditional channels and offers more control over brand messaging, customer relationships, and data. Innovations like personalised products, exclusive content, and unique experiences are further transforming how consumers discover, interact with, and purchase products, fostering greater brand loyalty and differentiation.

The retail sector is experiencing huge change as a result of macro market shifts. Adopting or learning from these disruptive business models is becoming a core competency. These models are not just responses to current market challenges, but are shaping the future of retail. Companies that can effectively integrate new models that complement their strategy will likely lead the charge in this new retail landscape, while those unable to adapt may find themselves left behind.

We're looking forward to exploring this topic further at World Retail Congress in 2024. You'll hear from the innovators disrupting their business models in a World Retail Congress podcast series supported by AlixPartners launching early next year. Our full report will be released at the
Congress in April.

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This article was published as part of World Retail Congress' End Of Year Review. If you're interested in WRC's other insights, you can access the complete report here.