Why are farmers pushed to the brink, as the Panorama report about supermarket prices showed on Canvas? The entire chain is under tremendous pressure nowadays, according to retail expert Jorg Snoeck.
The “good old days” are never coming back
You have the worldwide purchase groups at the one end of the chain, present from Lichtervelde to Shanghai and on the other end of the chain, you have the consumer that is no longer willing to pay 30 euros for a shirt if it can get one for 5. The bigger picture is moving ever-faster and everyone is obviously pulling for their own benefit.
It used to be “different”: Everybody wanted to move ahead after World War II. Scarcity and depravation were left behind and the future had to be radically different. No one wanted to be surpassed. If the neighbour’s son had a Millet jacket, then you had to get that same jacket for your children as well. Obviously, retailers thrived under these circumstances: if you had the right product range, you only had to build additional stores and keep track of your back office.
As families had more money to spend (because ‘mommy’ went to work as well), things got even better and money got spent left and right, but not only on items that were absolutely necessary. The middle-class reveled.
A ‘booming’ middle-class, in numbers as well
If all goes well, more children are brought into the world and their parents did everything in their power to give them more than what they had during the war. They went to school for a longer period of time and only went to work much later. These new brand of “youths” had spending power as they still lived with their parents and could easily be reached through the power of television. Several commercials on that fascinating piece of technology sufficed to boost the desire for a particular item.
The result was a “booming” economy: more spending power, more people who desired the same thing, more rotation, basically more of everything a retailer’s heart desired. It was the golden age of retail and retailers alike.
All good things come to an end
However, society evolved: logistics began to grow in the 80’s and exotic products could more easily be imported. Things were cheaper elsewhere and that is why industry left Europe. That is why Europe was left with stagnant wages, an increasingly expensive housing market and fewer job openings.
Industry ‘without borders’ was an eye opener for a lot of non-Europeans as they wanted to find work here in the hopes of establishing a better life. A huge immigration flow ensued into Europe. A symbolic highlight was the fall of the Berlin Wall in 1989. Loss of industrial employment meant that an increasing number of people were left without a job and people also changed their attitude. No longer did they wish to be ‘the same as everyone else’.
A comparison between the Belgian World Cup teams of 1986 and 2014 might be an excellent way to prove the point of how consumers have changed. Previous heroes called Gerets, Pfaff and Ceulemans are now replaced by names like Lukaku, Fellaini, Dembele and Origi for example.
Hard-working people deserve to rest after retirement. The system dates back to the 1950’s when people retired at 65 and lived on average 68 years. However, there is a problem nowadays because of a lot of changing prerequisites: people live on average 72 years, kids go to school longer and don’t work as long and retirement age sometimes drops as low as 59 years. If you add the fact that there is a smaller group of youngsters nowadays and a larger group of elderly people, that spells disaster. Just to illustrate the point: more diapers for the elderly were sold this year than diapers for babies.
Elderly people also need their savings to pay for their retirement days, which means their children cannot inherit a lot, which leads to an entire generation of children who have not received an injection of cash through their parents.
Welcome to the ‘smart consumer”
This new, money-barren generation has caused a ‘mind shift’ in consumer behaviour. Chains like Primark, Troc.com, Action and Zeeman have all done exceptionally well and shopping at Lidl, Aldi or Wibra is no longer considered shameful. Consumers are now “smart consumers” and buy larger amounts of household brands.
We all felt the need to “upgrade” back in the day, but now we seem to “downdrain”: expensive items still sell, but the middle section of the market is being squashed by low-end products, which usually don’t have to lose out on quality either.
Speed of change has changed
Built on that new type of consumer behaviour, a new retailer was born in 1995. Now, in 2014, it has become the world’s largest online retailer and every retailer’s worst nightmare: Amazon. It signaled an age in which names like Facebook, Twitter, Apple and Samsung have become commonplace but that is not the end of change.
Soon, a wave of Asian companies will invade everyone’s private life. Companies like Alibaba and Rakuten specialize in ‘unlimited’ 24/7 shopping, while our shops are still working in a mind frame of ‘limited shopping’ (opening hours, closing days, …).
Trade was used to working in a top-down approach, which meant that companies are at the top, consumers at the bottom. That is what was being taught at school and by employers, alongside words like turnover rotation, average receipts and so forth. Stores were the ultimate sales channel, while they have now become part of the range of sales channels.
Customer numbers (and margins) have dropped because of the internet as we now live in a transparent world where we only need to click a button to find a cheaper option elsewhere. We see the rise of flagship stores. These not only serve as a sales opportunity, but also as a marketing opportunity: brands become retailers and retailers become brands. Everything follows a single, golden rule, which is no longer just a phrase to be uttered, but the absolute truth: the customer is king.
Find a connection with the consumer again
Most people believe the worst has passed in 2014, but the index of consumer prices continues to drop. That seems to be good news for the consumer, but it also means margins drop which forces companies like Delhaize and Cora to shut down stores to keep their competitiveness. If they do not make changes, they could become the next Free Record Shop, Home Market, Saturn or another scrapped retail chain. Consumers do not like more expensive receipts, right?
Compared to the Netherlands, Belgium is keeping things relatively positive regarding bankruptcies, closures and vacancies, but it remains to be seen how long we can keep that lead. It also remains to be seen if we will have to say goodbye to domestic trade.
If we wish to keep our competitive edge, then we will have to create room for change. If we do not want our regions between cities to dry out, we will have to control them like shopping centres. Stores may have to have longer opening hours so that the consumer, who works longer hours, also has the time to shop. What about Sunday as the day of rest because stores on the internet are never closed! Everything our ancestors fought for, is now debatable. Everything has to be reimagined.
Belgians are known for their creativity, so let us use it, even if we have to take down old habits. The consumer, who wants to work from 9 to 5 but wants to be able to shop on Sunday, is on a collision course. That means we have to monitor our consumers all the time and have to try to understand them. That is why RetailDetail has opened its ‘retail experience center’ The Loop. We want to find a connection between retailers and the consumer of today and tomorrow…
Panorama’s full report can be viewed here.