By: Niranjan Gidwani – Director and Former CEO of Eros Group Dubai
Brick and mortar store-based retailing (BRI-MO RETAIL is the new acronym I have created) has been facing very strong headwinds over the past few years. These headwinds have increased dramatically with the onset of the Covid pandemic.
Once the pandemic effect eases, it can be safely assessed that many physical stores may return to decent growth over the coming years. Dubai and the UAE will continue to remain a tourist paradise. In my last article, I did mention that the revenge-spending phase will come, though no one can predict accurately as to when this will happen, and to which categories. Hopefully, there will not be too many more waves and variants of the virus to compound UAE’s and the world’s economic woes.
However, across the world, and more so in this region, there is still a certain old school of thinking, which has brought decades of a certain kind of success, where many believe that, one day, we will all wake up to the past days of glory, which will come back in their original form. This seems rather unlikely in retail and in distribution, which form the backbone of any country’s economy. Make no mistake. The entire region is poised for even bigger success and growth, but certainly not in the old, original form.
Retailers who are looking to drive growth through physical stores alone, and be present in every mall and new high street location, are likely to struggle. The struggle is going to be the most for those organisations and companies who are in the middle 50-60 percent of the spectrum scale. As per a Knight Frank report, as at the end of 2020, in the UAE, annual resident-based retail spending is forecast to have declined by AED8.2 billion. Around 47% of this decline is expected to be attributable to Dubai. This is due to the major drop in tourist numbers in 2020, and due to the UAE’s correct and stringent policies on maintaining Covid norms.
Several experiences associated with the way we buy, work and interact have been transformed by the COVID-19 pandemic, leading to irreversible changes in consumer behavior, and they continue to evolve rapidly. To address this new reality, companies need to reconsider how they think about the customer experience. The customer experience needs to move beyond being a marketing priority, to one of the board room, because the entire organization needs to be reoriented to put experience at the heart of the business
Yet, Status, reputation, and what people will think, makes many take slow decisions on reducing or smart-sizing stores. Coupled with this are the long-term leases locked in with landlords, a reluctance to reduce rents with the same speed with which staff costs are reduced. It is interesting to observe here that all organizations proudly state that their staff are their biggest asset. Yet, these assets sit on the liability side in terms of costs. All of these are compounding the stress in current times.
Much more needs to be done on technology investments and on rapidly scaling up the BRI-MO retailers ecommerce business. These aspects will continue to place a question-mark over the overall viability of the retail business model in its present form.
Until about 10 years ago, the retail business model had remained largely unchanged for decades, if not centuries. The most successful retailers were those that were the best at sourcing desired products or brands, identifying suitable store locations, and selling them in physical stores. Location, location, location was the key mantra to retail success. It still is. But now, with routes and channels to market evolving rapidly, this recipe for success has mutated. The legacy retail business model has been disrupted in a major way.
To succeed, over the next 3-5 years, in the run-up to 2025, retailers will need to speed up the pace of decision-making, and become either true omni-channel players or small-to-medium sized niche-focused specialists. Co-operative, collaborative partnerships will become the urgent need of the hour in order to survive and succeed.
Delivering seamless experiences that customers expect today, including buy online and pick up in-store, return anywhere, ship from store, requires a very capable cloud commerce platform. When data lives in more than one place, and time and energy is not spent in cleaning it up, it’s inevitably going to be inconsistent. Therefore, a unified commerce solution seamlessly connecting e-commerce and in-store POS to order management, inventory, merchandising, marketing, financials, and customer service is what is needed. That is pre-dominantly the reason why the biggest challenge is going to be for the brands or stores which fall in that middle 50-60 percent of the spectrum scale. It is no more the responsibility of just sales and marketing. Every single support function in an organization needs to be urgently re-skilled to meet new omni-channel demands of today and the future.
A reliable, 360-degree view of customer’s orders, preferences, and inventory data is the foundation for outstanding customer experiences. Imagine a customer walking in and being greeted by an associate who can pull up their order history or their wish list from a brand’s online site. Why is the customer wish list that he or she has checked online not available seamlessly in stores? This access gives unprecedented associate insight into the customer’s favourite brands, colours, and sizes. This makes the customer feel like the sales associate actually knows them and can be of value – and not just trying to sell them something.
Global Re-commerce (The new acronym created for the newer version of retail plus e-commerce) currently feels that platform-based business models are likely to dominate in the foreseeable future. As per a recent KPMG report released on retail, the 10 biggest companies in the world (by market capitalization) are all platform players. In many markets, platforms dominate: players like Alibaba, a Chinese e-commerce market player, continue to gain an increasingly larger market share.
To remain competitive in this environment, BRI-MO retailers will need to define their future strategic path. Several BRI-MO retailers may be able to get into partnership with platform players with a quick, proven off-the-shelf option that enables retailers to evolve and scale without making large investments into developing their capabilities in-house. Those who choose to transform for the new reality will need to strategically decide what role platforms will play in their future business models.
And at the same time, a huge medium-to-long term opportunity exists for the UAE to create a home-grown platform player to become a future regional unicorn if they have the will and the capability. A Noon could aspire to play that role in the region.
Yet, interestingly, there are also signs of green-shoots coming up. As technology continues to disrupt without discrimination, and as prices and rentals continue to remain under severe pressure, there is a new breed for whom it is their first opportunity to become property owners of their businesses. Retailers are moving into more economical spaces which are in apartment blocks which also have retail formats. We can see more experimental concepts being tried out as prices are reaching levels where it becomes worthwhile to do so. From amateur art, to specialty bookstores, to garage sales – all experimentation is on the rise. And is clearly visible, particularly with entrepreneurs and companies who are not carrying too much old baggage.
To top it all, as always, the UAE is one place (with Dubai being its crown jewel) – where the government is far more proactive in terms of driving technology as compared to most of the private sector. If we ponder deeply, there are very few countries in the world where the government provides the best technology and infrastructure experience to all its customers – the residents. This is greatly helping the branding of UAE and Dubai, and will continue to help in a huge way.
The top 10 percent of the companies will always remain proactive. It is time that the middle 50-60 percent of the spectrum scale of the private sector re-work their strategy. As they form the backbone of any economy anywhere in the world.
If about 17-20 percent of retail business by value is now coming from the ecommerce space, the distribution houses and BRI-MO retailers will have to find ways to ensure that, over time, they find ways to bring their share of their turnovers from E-COMMERCE reasonably closer to this figure, especially since all agree that online retail will continue to grow at a faster rate.
It will take some time and major effort, but this time, the private sector of the land can actually become a show-window to the entire region in terms of how things need to be re-done on this front. This will also be viewed as a true government-private-public partnership.
The UAE has always been a beacon, a show-window to the world. Perhaps on the BRI-MO and Re-commerce front, it is time to change the get up of this show-window, with the small, medium and large enterprises leading the way to a renewed Dubai and UAE. The same way as it was done the first time several decades ago.
In the ultimate analysis, the BRI-MO retail will continue to exist and thrive. It just needs major re-positioning and a fair amount of patience.
The UAE and its government-private-public partnership has always shown that they have it in them to re-create a newer and better success story.