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How will the Ever-changing Retail Landscape Affect Consumer Electronics Distribution in 2020?
According to Futuresource’s latest Consumer Electronics Retail Distribution report, around 10% of all global CE shipments were shipped through the vendor direct channel (i.e. through the vendors’ own physical or digital retail structure). This is driven primarily by the USA, UK and China, three retail landscapes where vendors are keen to control the consumer’s engagement with their products, manage upgrade cycles and drive upsell opportunities. This method of retail has supported Apple’s success since 2001, with the brand growing a strong retail business, which accounted for 31% of net sales in its’ 2018/19 financial year. While other vendors have had a physical footprint for far longer, using their stores to show-room their products and raise brand awareness, the ever-changing retail landscape is posing challenges to established vendors and retailers and forcing a rethink in strategy.
Underlying this, of course, is the continuing competitive challenge between physical retailers and their online rivals, and the continuing emergence of multi-channel strategies as a means to combat ecommerce giants. The same Futuresource report highlights that 27% of CE commerce flows through multi-channel retail methods. This retail strategy has helped companies such as Best Buy survive and even thrive in a retail landscape disrupted by Amazon over the last decade or so, while retailers that have failed to adapt to the emergence of ecommerce have struggled.
The advantage that multi-channel retailers have over their pure-online counterparts is threefold, all based around the importance of their physical footprint. The first two benefits centre around the ‘show-rooming’ effect of a physical store. Consumers are able to directly experience a product before they purchase it, which becomes an increasingly important part of the shopper journey towards the more premium end of the market. Moreover, in-store assistants are able to create upsell opportunities, either through warranty’s, other devices or services. As the consumer ‘Internet of Things’ (IoT) develops, and the ecosystem of connected devices in both personal and home electronics develops in line with the emergence of virtual assistants such as Alexa, Siri, or Google, in-store engagement presents retailers with the perfect opportunity to demonstrate that the whole ecosystem is worth more than the sum of its parts. Finally, customer service more generally is a unique retailer advantage often only found in-store. Retailers are able to create environments where consumers can learn how to set up or best use their device (Apple’s Genius Bar is one example of this), as well as offer in-home consultation services such as is done by Best Buy.
Demystifying technology and finding solutions bespoke to the customers’ needs are all things that in-store retail engagement can do well and is an advantage over pure-online retailers that shouldn’t be squandered. While online retailers are continually developing algorithms and services to negate their disadvantage and are able to leverage their own vast competitive advantages in price, logistics, and convenience, multi-channel retailers are equally expanding their digital presence to offer the best of both retail methods. To offset the continuing threat of online retailers, multi-channel strategies need to centre on building a good customer profile both in-store and online, before improving their abilities to market to their customers in a bespoke fashion. Of course, a major concern here is that consumers leverage the best of both types of retail, with in-store engagement allowing them to receive expert service and advice, before they then turn to online retailers for the best prices. Price matching mechanisms and promises may offset this somewhat, but there remains a general perception that online shopping is always cheaper, so multi-channel retailers need to find a clearer advantage elsewhere.
The declining physical retail landscape does present a challenge for premium CE vendors, as it limits their ability to show-room their most premium devices and leverage the advantages of in-store engagement. It is not, however, a wholly negative outlook. Consumers rely on a host of checks and balances before making a major purchase, such as product reviews, word of mouth, social media influencers and beyond. And, if the consumer does want to try before they buy, they can always go to their local Best Buy, Fnac Darty, Currys or other CE specialist stores. To counter the challenges of the modern retail landscape, CE companies can rely on and support their retail partners, especially those with an established multi-channel strategy.
2020 is expected to see CE retail continue to move towards pure-online and multi-channel retail methods, with vendors also increasingly leveraging a direct retail strategy to better control margins in mature markets. The continuing disruption to established retail is set to continue, and while it will continue to present challenges to vendors and retailers alike, it also presents opportunities to those willing to adapt.
Here at Futuresource Consulting we deliver specialist research and consulting services, providing market forecasts and intelligence reports. Since the 1980s we have supported a range of industry sectors, which has grown to include: CE, Broadcast, Entertainment Content, EdTech and many more.