Changes in consumer demand are driving innovation in retail

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Despite well-publicised struggles for high street stores, the UK retail industry registered over £380 billion in sales in 2018, which represented a third of all consumer spending and 5% of the country’s total GDP. Regardless of the negative headlines, it’s still a hugely significant sector and sales were up 4% from the previous year.

However, the consumer landscape is changing rapidly and in order to maintain this growth, retailers need to adapt. Nearly 2,500 stores and businesses disappeared from UK high streets last year and without innovation, this number is only set to rise.

Below innovation funding specialists MPA Group run through some of the ways that changing consumer demands are affecting the UK retail industry and how companies are innovating to survive.

One in four consumers only buy from ethical retailers

According to YouGov, over a quarter (27%) of the UK population only buy products from companies that have ethics and values that they agree with. Consumers are growing increasingly interested in the origins of products and if a brand is found to be morally questionable, it risks alienating a growing section of the public.

Historically the beauty industry has been one of the most notorious in this regard. Animal testing is widespread across the sector, as is the use of animal products. While such practices have been frowned upon by many for a while now, recently people have started to take action.

The Vegan Society found that over half (56%) of Brits now regularly adopt vegan buying habits, such as ensuring their toiletries are cruelty-free. To capitalise on this rise in ethical consumers, brands such as The Body Shop and Lush, having led the way in moral retailing for many years, are striving to completely eradicate animal by-products in their stores.

Significantly, the quality of cosmetics does not suffer as a result of switching to purely vegan ingredients. Arian Chui, wellness coach and co-founder of organic beauty blog Ftoxins, says: “Many mainstream cosmetics stop the skin from doing what it needs to do to be healthy – plant-derived ingredients in vegan formulas contain more vitamins and antioxidants that help to repair and hydrate. Animal ingredients can be harsh and clog pores, so vegan products are often a gentle alternative.”

Researching and developing vegan alternatives to existing products is a prime example of innovation. With the vegan beauty industry estimated to reach $20.8 billion by 2025, both established brands and startups are likely to continue investing in such ethical practices.

Diego Ortiz de Zevallos, Global Brand Director at The Body Shop, said: “The beauty industry is improving year on year thanks to new technologies, research and innovation, and with growing competition in the vegan territory, brands are striving harder than ever before to achieve the same standards in their vegan and non-vegan portfolio.”

An increasing awareness of the need for sustainable practices

The increasing demand for ethically-sourced products extends to concerns for the environment. With climate change and pollution high on the news agenda, it’s not surprising that consumers are starting to demand products that do as little harm as possible to the planet.

One of the major environmental issues in the modern world is waste, with over 50 million tonnes of products ending up in UK landfill in 2016. Companies from all sectors are pursuing ways of reducing this statistic, mainly by decreasing their reliance on non-recyclable materials.

Bite, a subscription dental product company, is disrupting the personal hygiene market with their dedication to sustainability. Across the world, over one billion plastic toothpaste tubes are thrown away each year, ending up in either landfill sites or the ocean. The traces of toothpaste left in these tubes contain several harmful chemicals which then enter the environment.

Bite’s toothpaste tablets are made exclusively with natural ingredients and are packaged in fully-recyclable containers, so the company are directly tackling the issue. Bite also has a low carbon footprint, as its deliveries are made along existing postal routes.

Environmentally-motivated innovations are also evident in the fashion industry, with Wrangler leading the way in the jeans market. Traditional denim-dying methods require thousands upon thousands of litres of liquid dye and water in order to achieve the famous blue colour, but Wrangler’s new foam-dye process drastically reduces this. It’s estimated that the innovation, which involves the denim being sprayed with foam infused with the blue dye, instead of being dragged through the large vats of water, reduces the amount of liquid required by over 99%. It also needs 60% less energy to perform the dying process, and with such significant savings being made, it’s no wonder that Wrangler are planning on scaling up this form of operation.

Whatever a company’s motivation is for going green, there is a strong consumer appetite for environmentally friendly products and as such, more and more brands should look to incorporate them into their portfolios.

Consumer convenience

It’s no secret that online shopping has dramatically shifted the world of retail. In 2018, 18% of UK retail sales were made online, which was 15% higher than the year before.  This trend is set to continue, with the convenience and financial benefits of internet shopping naturally popular with consumers.

Former John Lewis boss Andy Street, recently suggested that online retailers should pay more tax in order to keep high street stores competitive, but in reality, these physical outlets need to innovate.

To stay afloat, shops need to provide a customer experience that makes buyers want to keep coming back and this is where technology can assist.

Tesco recently announced that it is trialling a series of in-store cameras which closely monitor customers and render checkouts redundant. Partnering with Trigo Vision Ltd, Tesco’s system would involve consumers using an app to record transactions as they walk around the shop, removing the need for tills and potentially speeding up the visit.

It’s a similar concept to Amazon Go, the online retail giant’s checkout-less physical stores. Using computer vision, deep learning and other pieces of advanced technology, Amazon Go shops can detect when a customer picks up a product and then add it to their virtual basket. The buyer’s Amazon account is automatically charged once the individual leaves the site.

Such innovations are intended to transform the consumer’s shopping experience, making it easier, quicker and generally more enjoyable. It’s hoped that such developments may encourage more shoppers to visit their local stores in person, rather than continue to shop online.

Augmented reality is another tactic that stores are now employing to enhance the shopping experience. AR can be used to allow customers to virtually try on clothing, which increases both the fun element and practicality of shopping for fashion. Lacoste, for example, launched an AR app which enables shoppers to virtually try on their shoes – an innovation which saw over 30,000 interactions.

The technology can also be used to generally make a physical store more interesting and entertaining. American Apparel have added interactive displays into some of its shops which customers can scan on their smartphones to reveal further product details, including pricing and reviews.

It’s been reported that 75% of shoppers expect retailers to incorporate some form of AR into their stores, so brands need to innovate to avoid consumer disappointment.

Enabling innovation

The world is changing and retailers must innovate to keep up. Whether it involves adapting existing products and services or creating whole new offerings, companies must address consumer demand or risk being left behind.

Retailers that invest into research and development to address these challenges may be eligible to claim back a proportion of their investment in the form of a tax credit. The R&D Tax Credit Scheme is designed to enable and encourage UK businesses to invest into the research and development needed to adapt to an ever- changing consumer landscape.

If your company is investing in research and development, see if you could qualify for the R&D Tax Credits Scheme by talking to one of MPA Group’s advisors today.