2. The new consumer
2. The new consumer: what they want and how to win them
What does the new consumer look like, and what behavioural changes do retail leaders expect to see continuing into 2022 and beyond? Our interviews explored how they are planning to target this new consumer: a combination of pre- and post-pandemic shifts in behaviour mean several factors are emerging.
Shift to online
The most obvious change, mentioned in some form by nearly every retailer we interviewed, is the shift to online. Online sales made up 27.9% of total retail sales in July 2021, according to the ONS, compared to 19.8% in February 2020 before the pandemic hit. This boost is likely to be permanent.
The leader of one fashion retailer agrees, saying his business has observed a “four- to four-and-a-half-year acceleration of that behavioural trend”.
There are several factors driving this. Notonthehighstreet boss Claire Davenport points out lifestyles have become more conducive to online shopping. “One of the big barriers before used to be not being in for your parcels to be delivered. That's largely gone away. Either you or your neighbours are in all the time.”
In addition, shoppers that were previously hesitant – usually in categories that relied on the ability to touch and feel products – have taken the leap since March 2020. Online retailers have noticed shoppers overcoming this psychological barrier to digital shopping. Beauty Pie chief operating officer Panni Morshedi says: “They were hesitant pre-pandemic, especially in areas like skincare. I want to touch it and I want to feel it. But I think they've gotten over that hump and now – if the price point is right, people will have no problem doing it online, and that really creates a virtuous circle.”
This influx of customers online has led to new demands around service. Gymshark VP of international Niran Chana says: “Whether it's being in stock, on-time delivery, or good after-sales service, I think that is now non-negotiable. You've got to be at the forefront of that and I think fundamentally that's what will drive consumer confidence as well.”
Chris Griffin, co-owner at Secret Sales, agrees, saying: “[There’s] an increase in customer expectations around service; the more people shop online, the more people are expecting high standards.”
Another strengthening trend online is the desire for advice and connection. Retailers have responded with virtual appointments, as at John Lewis, and live shopping that connects people with store staff, as at Currys. Mark Saunders, chief executive at Mamas and Papas, says: “We've seen appetite and growth in online services and experiences. So, for instance, we offer a service called Go Instore. If you're on our website and you hover over a product, you get a pop box that comes up saying, 'Would you like to talk to somebody in one of our stores?’ It's a really good way of bridging that internet world, with the need and desire for people to want to talk to people.” Currys boss Alex Baldock says of its new 24/7 support service: “This is one of those innovations that seems so obvious, we’re kicking ourselves we didn't think about it before.”
The need for speed
Fast-changing customer desires have increased the need for adaptable supply chains. The chief executive of an online boutique marketplace says: “The biggest learning was how quickly we need to be able to respond to consumer sentiment. For example, overnight, people stopped buying any type of fashion to go out and started buying comfort-wear.”
Studio Retail Group chief executive Paul Kendrick thinks this change is permanent. “There has been a change around what people want to wear, they no longer need work clothes or going-out clothes, so much more casualwear, because a degree of working from home will stick.”
Consumers are less willing to wait for big-ticket items as well. Dreams CEO Mike Logue says: “In the big-ticket industry, having stock available right now has not always been a requirement. But during the lockdown there was much more urgency of 'I want it, and I want it now. Who's got it available?' And we have certainly moved our model to be much more stock-invested for quicker delivery. And for us, that will be a permanent shift.”
Conscious consumption
Several retailers flagged the rise of ‘less is more’ and conscious consumption. One bike and sportswear retail leader says the pandemic has caused people to reappraise what they value. “I think there will be a move to more quality and more long-lasting and circular products rather than just having loads of stuff.”
Notonthehighstreet chief executive Claire Davenport agrees: “We think people are going to be buying things that last longer or matter more. There’s only so much clutter you can take, and that plays into the climate change discussion as well.”
Where to place marketing budgets
Our survey found social networks are dominating retailers’ marketing spend. Facebook is the most popular marketing channel in 2021 – 87% of retailers place spend here, and 75% put it in their top five channels.
Instagram is not far behind, with 85% spending on the channel, while 71% spend on YouTube.
TikTok has caught the attention of 56% of retailers who are spending on it. Gymshark's Niran Chana says it shows impressive engagement. “We've seen an incredible rise in growth with TikTok since we came onto the platform. The engagement that we see has been incredible.” The retailer currently has 3.3 million followers on the platform, compared with 5.4 million on Instagram.
The right channel varies according to retailer, however. At one fashion retailer, 42% of revenue comes from email marketing. Its chief executive says: “We have a database of people who are shoppers and people who are prospects. So, that database is very much the lifeblood of our business, and we are constantly chopping up that database and then converting people.”
For one grocery wholesaler, newspapers are still important. Its chief executive says: “It’s split a bit between old and new, so the reason we are interested in press is because it's an affordable medium that gets us wide coverage. The search engine optimisation and pay-per-click is because we've got a new and different type of customer that's using those channels. So, it's a bit about playing to where our customers are.”
Ethical corporate governance
While many retailers say ethical corporate governance (ECG) is important to them, the majority are not yet acting on it. Forty per cent of our interviewees say they are working on diversity and inclusion schemes. Only 29% are including fair pay initiatives as part of that in 2022, with many retailers saying they had addressed pay in 2021. Less than half – 44% – are working on developing sustainable products and 38% are working on a greener supply chain with the use of more sustainable materials. Just 23% are working on net zero emissions.
Rituals managing director, UK and Ireland, Penny Grivea says: “This is increasingly important and meaningful to customers who want to feel they can trust companies to do the right thing across many aspects, including: fairly sourcing ingredients, the manufacture of products and packaging, and the treatment of employees.”
There are several reasons retailers give for pursuing an ECG agenda, however.
The CEO view: Why ethical corporate governance must be central to strategy
Paul Hayes, chief executive, Seasalt: “Those standards have always been in the business, and I think both the legislation and our customers are going to hold us to account, even more so, for the future.”
Paul Kraftmann, chief executive, Gift Universe: “It's a consumer expectation. We also have some senior members in the team who have bought into it as well. Our number two, he genuinely bought into it. One of his kids is 11 years old and, you know, he's really putting his dad under pressure.”
Pharmacy and beauty retail chief executive: “I think personally that they are the right thing to do and, secondly, I think our customers are increasingly interested in those things, and if they are not yet, they will at some stage start to make their shopping decisions based on companies that they believe are meeting their needs in those spaces.”
Fashion retail chief executive: “It's becoming a driving force for financial institutions. So, they ask lots of questions and they want to be sure that they're definitely investing in a company that's ethical, but they also want to know about sustainability as well. So, it's a huge drive from investors.”
Footwear retail chief executive: “We have stores where we refurbish footwear and incentivise customers to do that because if they bring trainers back, it encourages them to engage with us more often.”
Rachel Osborne, chief executive, Ted Baker: “Increasingly shareholders want to see that you are making progress on your ESG agenda. So, I think there's a demand, and then there's an internal want to do it.”
General merchandise chief executive: “We detected a shift in colleague sentiment about three or four years ago probably, and a much greater awareness of these areas coming through from particularly, I'd say, our younger colleagues.”
Fashion retail chief executive: “We just want to make sure that we would never embarrass one of our customers; we don’t ever want there to be some news stories about some supplier we’re using treating their staff terribly.”
Timo Boldt, chief executive and co-founder, Gousto: “Gousto was born out of this idea that food waste is bad. Forty per cent of all food is wasted, we've taken it down to 1%. We just did a really fun study that says every single time you order Gousto, you save 23% CO2 emissions versus the equivalent supermarket shop.”
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