New trends shaping modern retail

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The US and Indian retail markets seem to be poles apart. About 10 years ago, India started on a journey that the US started on about 50 years earlier. Modern trade in India still accounts for less than 10 per cent of all retail. Though the two markets are so different that they could have been on different planets, strangely, there are some striking similarities in challenges that can cause retailers to sit up, take notice and perhaps learn from each other.
The Changing Indian
There are two megatrends that are driving this, the evolving consumer and pervasive technology. Over the past 20 years, per capita incomes in India have risen over 350 per cent, on a PPP basis. Correspondingly, disposable incomes have been rapidly rising, changing the demand profi le of the Indian consumer. Th is has been multiplied by a much easier access to credit. So, there has been a step function increase in the proportion of expenditure being directed to products and services that were deemed ‘luxuries” a couple of decades earlier – a phone, motorised transport and even a house.
While access has driven a part of it, the pace of change in consumer tastes has been compounded by a much, much wider exposure to global trends. The power of television has been tremendous. Reaching out to wide swathes of the country, sometimes in a language not understood by the viewer, it has nevertheless managed to alter the tastes and preferences of Indians of all backgrounds.
The Wider Power of Technology
Apart from television, the other dramatic catalyst has been mobile technology and access to the Internet. Starting in 1995, since when per capitaincomes have grown by 350 per cent, the number of Internet users has increased from practically zero to over 300 million. Much of this has been through the 900 million mobile phones now used in the country.
This is changing the way people communicate, learn about products and services, and how they transact. The pace of change, coupled with the communication revolution triggered by television, is changing consumers’ aspirations at a rate never before seen in this country.
Industry Will Struggle to Keep Pace
When consumers evolve at a rapid pace, marketers feel they are in a dream or a nightmare. For industry players who are strongly vested in past success, there is need to understand and cater to a dramatically new consumer. A consumer who is more up to date with global trends and who changes more rapidly than ever before. The challenges of diversity and market fragmentation will dramatically increase as different groups evolve differently. Companies will need to launch new products and variants at faster and faster rates, just to hold onto market share in this explosive market. And explosive it is, given that the retail market in India is expected to grow from over US $500 billion now to nearly US $1 trillion in 2018.
Where will that new growth come from? More of the same? That seems increasingly unlikely.
The Challenge in ‘Mature’ Markets
Retail markets in developed countries have largely saturated out, with consumption levels so high that further increases will happen very slowly. It is true that there has been substantial income growth in the economy, but this has been concentrated in a very small part of the population. People who already consume close to their limit.
However, this lack of growth isn’t making it any easier to predict demand and to hit the bull’s-eye of consumer expectations. The reason? Evolving consumers and the power of technology.
Consumers in these markets are changing just as much as those of emerging markets like India, and for very similar reasons. Th ere is a much wider exposure to global trends and, interestingly enough, global tastes. As people seek out new experiences, they are experimenting more and developing new and sometimes hybrid tastes to suit their fancy.
Manufacturers have also studied consumers in far more detail and have segmented their product range to meet finely specialised needs. So, a walk down the aisle of a department store will show over 50 varieties of Tide detergent on the shelves.
As fragmentation increases, the ability to forecast decreases, reducing the ability of manufacturers and retailers to predict what the consumer will pick.
The Millennials Get Paychecks
Can an entire generation behave completely differently from the past ones? Of course. For decades, the baby boomers defined the direction of consumer trends and drove the economy with their different attitude towards life, jobs, family and fun.
Today, the millennials have started getting their paychecks. A study by the Council of Economic Advisors to the President of the USA, in a report published some months ago, described millennials as the largest, most diverse generation in the US population. They
have been shaped by technology and have invested more in human capital than previous generations.
So, a tech & savvy generation is now going to start driving the consumer market. The chances of the app ruling are getting even higher as technology starts playing a critical role in servicing the long tail of demand from these new individualistic consumers.
Adapting to Challenges
When it becomes increasingly difficult to predict what is going to happen, it helps to stop trying too hard. Complex systems are very hard to forecast and these have been explained in a variety of ways, from the theory of unintended consequences to the butterfly effect.
In such situations, it is best to adopt a model of agility and fast response to changing circumstances. This is well explained in the Harvard Business Review article, ‘Your Strategy Needs a Strategy’.
Many companies continue to use strategies designed for stable environments even when they know their own environment is going through unpredictable change. Instead, the article suggests, a more appropriate approach would be to rapidly adapt to the new circumstances or, if possible, shape the consumers’ behaviour with dramatic new products.
In either case, it is necessary for companies to start relooking at their policies and processes to accelerate operations and decision making. In fact, every company has to become more like those in the fashion business, tracking trends very closely and switching products like they switch styles.
This is not easy. It would require faster feedback from the market place, a greater reliance on data mining coupled with processes to track lost sales.
New product development processes need to accelerate, something that is very difficult in a risk averse organisation. Technology deployment will have to become much faster and more pervasive, to allow for both speed and increased data handling to support quicker decisions. Finally, people need to be trained to become more customer centric, rather than process compliant. Information from the front line will be crucial to understand and respond to changing trends. Strangely enough, the responses to both the markets are eerily similar. Maybe that’s not surprising given that both are responding to a state of flux.

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