Innovate or Die, as the UK Leads the Way — The Times/Raconteur

OVERVIEW The UK is well positioned as a front runner in the online revolution in retail sales, writes James Silver

We know the UK’s economic backdrop only too well. An economy stuck in neutral, with flat-lining growth and unemployment inching back upwards. While politicians squabble like bald men over combs with their talk of a “Plan B”, economists grope for new ways of saying “expect more of the same”.

Nowhere has this sense of stagnation been more in evidence than in the retail sector, which has been squeezed between consumer belt-tightening, high rents and once-in-a-century technological shifts. Since 2008, 218 medium-to-large retailers have gone bust, affecting 21,369 bricks and mortar stores and 201,658 employees, according to the Centre for Retail Research, with a host of household names vanishing from the high street for good.

But despite this litany of gloom, the UK has much to crow about. Research by the Boston Consulting Group (BCG) published last year, which assessed the economic impact of the internet in the G-20 major world economies, revealed that the UK is at the forefront of what some are calling the Third Industrial Revolution.

According to the BCG, the internet economy in Britain, which is largely driven by e-commerce, accounted for 8.3 per cent of gross domestic product (GDP) in 2010, ahead of South Korea on 7.3 per cent, China on 5.5 per cent, and Japan and the United States each on 4.7 per cent. As a percentage of GDP, the internet economy is already larger than many legacy industry sectors, including construction, public administration, logistics and utilities.

By 2016, the UK internet economy is forecast to grow to 12.4 per cent and online will account for up to 23 per cent of total UK retail – double the size of the online market in Germany, the nation in second position. Separate research by Forrester, published in March, predicted that UK online retail sales, specifically, will grow by 10 per cent a year to 2017.

There’s little doubt that the UK’s globally dominant position in e-commerce presents both a threat and opportunity for traditional retailers, not least due the dominance of US giants such as Amazon. For the truly innovative, however, opportunities abound. “This is an age of disruption that challenges the very role of retail,” says Matt Kingdon, co-founder of innovation consultants ?What If! “It demands quicker and more fundamental innovation, right to the core business model.”

Fortunately, the UK is proving highly adept, indeed world-beating, at “fundamental innovation” too. As the shift to digital speeds up, retailers increasingly need to offer customers a reason to visit their off-line stores. A high-impact way of achieving this is via the uniqueness of the retail space. UK-headquartered multi-national construction services ISG is pioneering in this particular field.

Specialising in creating visually stunning retail environments, such as the backlit underwater tunnel and art installation by Turner Prize-winning sculptor Richard Deacon it created for Louis Vuitton, in Singapore, it is currently operating in 25 countries.

Alternatively, footfall can be driven by making in-store “content” the star attraction. Independent music retailer Rough Trade East, in London, gives music fans myriad reasons to make the trip, including “curated” music and literature, in-store live events and gigs, and (as someone who used to work nearby) halfway decent coffee. “We warrant destination store status in an age where the largest competitive force is not other retailers, but other ways our customers choose to spend their time,” explains co-owner Stephen Godfroy.

The store also seamlessly offers customers their purchases in dual format, he says. “Rough Trade card holders purchasing a dual format release automatically have the digital version added to their online account.” Increasingly profitable (first-quarter sales are up 25 per cent), Rough Trade is poised to open a “Godzilla-like” flagship store in New York, where it will house a venue room with a bar and balcony seating. A niche business it may be, but Rough Trade’s fortunes contrast dramatically with those of HMV, which so disastrously failed to innovate.

In independent fashion retail, too, innovation is saving the day. In 2007, Jose Neves spotted that independent fashion boutiques on the streets of cities, such as London, Paris and Milan, were struggling to compete as the wider industry began to go digital. He devised farfetch.com, an online marketplace, which now integrates 250 leading boutiques from 18 countries on a single platform. Today, the London-based business, which in March announced a $20-million investment round led by Condé Nast International, accounts for an average of 35 per cent of their partner stores’ inventories, enabling them, in many cases, to keep their doors open.

This year, it’s predicted that more than 1.2 billion smart devices will be sold globally, which will see mobiles and tablets overtaking desktop PCs as the primary means of surfing the internet. With customers now expecting an omni-channel experience as default, those retailers who hardwire innovation into their businesses will survive or even thrive. The rest face a precarious future.

The Times, Raconteur 2nd May 2013.