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Retail at the heart of local economies - RetaiLink investigates new business models for medium sized cities

04 January 2017

This article aims to provide a better understanding of the retail sector in order to give clues for public policy decision-makers who want to contribute to create an environment in the city in which retailers can thrive, compete, and innovate for the betterment of the city and its inhabitants.

Numerous studies and examples exist of success stories and interactions between retailing and local economies in bigger cities. However, it is far more difficult to find examples when the object of study is narrowed to medium-sized cities. This article is based on the RetaiLink’s State of the Art, that therefore focuses on the realities and complexities of medium-sized cities and towns, since they share common traits and challenges within the unavoidable bigger pictures of international commercial, financial, technological and socio-economic change.

How retail is changing

New retail business models

During the 1980s and 1990s many medium-sized European cities adopted a retail model that consisted of the creation of out-of-town, large retail and leisure complexes. Displacing and fragmenting the traditional retail offer in cities, the implementation of this sub-urban model often altered the urban retail landscape with the result being that many cities saw both a sharp decline in commerce taking place in their city centres and the consequential increase in the number of vacant retail units due to the fact that small traders and service providers were forced to close down. Current local trends strongly indicate, however, that in many cities these very same out of town shopping centres have also started to experience decay. Something’s going wrong: new business models are needed. These are the main trends emerging.
 
RETAIL = DISTRIBUTION: Nowadays, despite the apparent methodological differences between retailers and wholesalers, retail (selling for final consumption) and distribution are increasingly overlapping over time. The distinction between them, as well as their relation with manufacturing firms has become blurred since they are moving up and down the supply chain in real time together: retailers are increasingly producing and distributing their own products and wholesalers are moving closer to individual customers, particularly with the arrival of online shopping.
 
FRANCHISING: Large brand specialization seems to be gaining ground in retail while the multi-brand distributors are progressively fading from view. Franchising has thus become the widespread business model, making it possible for the same brands to be found in each and every high street and commercial centre across Europe.
 
SCALE + PERSONALISATION: The driving factors transforming the sector’s business models include the ICTs being applied to the sector, the search for efficiencies through economies of scale and the need for a differentiated profile before customers to be able to succeed to such scale without sacrificing the offer of the attractive “personalized” consumer experience.
 
NEW RETAILING STRATEGIES: The last disruption of the old retail business model has to do with recent developments in retailing strategies like multichannel selling, the technological breakthroughs and the pressures for innovation. Competition has morphed from being about “choice” of products and prices to being about “channel”: shopping formats, service levels, and experience offered.
 
 
Digitalisation & ICT tools for an integrated retail experience (and what our cities should care about)
 

 

ON-OFF SHOPPING: Digitalization and ICT tools, including geolocation (position tracking for selected and personalised product and service offer), e-selling through PC or mobile and tablets, and new customer adapted services of delivering and collecting, contribute to a 24/7 shopping experience.
 
The so-called omni or multichannel retailing strategies allow today’s shoppers to look for retailers that deliver a seamless brand experience on- and off-line. The current notion is that those retailers with the right balance of combined solutions: online, on street outlets, click and collect, mobile applications, e-solutions in shops, together with a great customer service will be the most successful.
 

 

However, digitalization is mostly adopted by big companies and new retail entrepreneurs. It challenges others, in particular family or traditional micro retail local businesses, whose owners are less savvy - or even interested – in new technologies, who find it difficult to adapt to a new world of rapidly changing tools and know-how.
 
SKILLS & EMPLOYMENT:  The digitalization of the retail sector has significant implications for employment, both in terms of the total number of employees and the changing skills required.  
 
In terms of employment needs, the good news is that the retail sector shows a relatively good performance addressing the skills mismatch. In keeping with the scenarios of new retail business models, the range of skills needed go beyond mostly commercial skills but continues to grow with the development of new formats and channels, especially increased demand for e-skills.
 
2 out of 19 million European retail jobs come directly or indirectly from online retail. Medium-sized cities, therefore, should pay special attention, since upgrading and modernising the local retail sector will call for a new skills-building infrastructure and support system, as a potential source of new employment.
 
 
Customer behaviour and expectations
 
The changing patterns of the consumer herself/himself is the ultimate factor that conditions the model for a retail strategy for the city.
 
Europeans are living longer and are increasingly concentrated in cities 
 
While young people tend to move to bigger cities, medium-sized cities are normally the home for a higher proportion of retirees, and an older working population, with a higher share of school age children. This directly impacts on consumer habits and shopping patterns. 
 
Elderly people typically slow consumption levels and purchase less while they also need small and close convenience shops. Younger adults are demanding more simplicity and convenience in order to be able to spend more quality time for family and community concerns. In short - “take away” and “better use of energy” are “in” – “long lines” and “big refrigerators” are “out”.
 
Consumers are today better educated and more informed, as well as increasingly adept at using digital technologies 
  • They are more expectant to get faster and easier access to information. 
  • More environmentally and socially concerned. And because they are better educated and better connected, they are likewise empowered to ask for greater accountability from those they buy from.
  • They show as much interest in the shopping experience as they do in the product itself. 
  • Require the most optimum mix of product and service offer.