In this week’s MBS Weekend Edition, chairman and non-executive director George Adams writes about changing socioeconomic demographics and how retail and consumer businesses will need to change (or not change) their approach in order to react.
“There is a tide in the affairs of men, which taken at the flood, leads on to fortune” – William Shakespeare, Julius Caesar
Retail and consumer businesses live and die by the consumer. How she changes, changes them. Lacking ability to change, businesses die; lacking a core reason to be, they fail. Knowing, understanding and thinking about consumers and their futures is vital – and particularly vital in this strange beast of retail, where performance depends upon day-to-day decisions on pricing, product and interaction with customers – based on infrastructure, technology and stores with five, ten or even twenty-five year timeframes.
Yet where is the consumer going, what are the factors that buffet her, what are the longer term trends? Do we think enough about them, do we know them?
The bulk of people will be less affluent. Value will become ever more important. Increasingly the money will be with the older, richer and more urban. These people require and demand service and experience. They are the needle in the haystack. The retailer/service provider of the future needs to know which customer they are targeting, and if necessary become great at finding needles, using data as the magnet. This is not a skill that most mass-consumer businesses possess . They need to redouble their effort on value: on product, on price. For all but the most affluent, value will be a necessity; and expect the most affluent to be taxed more. The future is different to the past, it will require new skills and the sharpening of the ones we already have.
“For richer, for poorer, in sickness and in health” – Book of Common Prayer
An immediate force is the change in population demographics. Maybe you thought that we are all getting older – but we are and we aren’t. Just looking at the UK, our population is expected to increase by ten million in the next 25 years, or around 15%. The Christmas tree is getting fatter at the top. There will be seven million more people over 65, of which 2.5 million are 65-75; and there will be two million more 0-14 year olds, but only a million extra between the ages of 30 and 65. The retired will account for 30% of all people. Long live the teenager, and welcome to a world where the long lived are king.
Branko Milanovic’s ‘Elephant’, showing compression in the developed world’s middle class
There will be more people, and there will be many more people with both restricted income and relative affluence. The elephant in the room is the income compression for the developed middle class, and the increase of the global rich. The trends of increasing income inequality look set to continue: a group of relatively rich pensioners, and many poor; with greater income pressure on the key household-forming groups of 30-50 – the compressed millenials, coming under pressure from greater robotisation and chatbots (in five years time who will need a lawyer?); and having to pay both the pensions of the old (who vote) and the schools for the young.
“The rich are different from you and me” – F. Scott Fitzgerald
In Bactrian markets the death valley is moving into the middle ground
It’s (hopefully) obvious that richer people spend more: the top 30% of households often account for over 50 or 60% of spend, spending at least twice the average. The spend of the average (the spend of most people) is always below the average spend, due to a skew from the very rich end of the spectrum. And rich people spend differently, spending more on services and experience. The poorer you are, the more you spend on just getting by. This effect is amplified by technological and other shifts: spending on housing and transport, holidays and eating out have risen over the last five years, typically by 50% or more, while spend on maintaining our homes has actually fallen over the last five years.
Businesses that seek to ride both the rich and the not-so-rich fail. Many markets are Bactrian, double-humped camels – where the valley of death is moving into the middle ground, with customers demanding service that cannot be profitably delivered, while those seeking value are priced out.
“The wheel of fortune and it’s my chance to spin it” – Tupac
And so as a retailer you need to spin the wheel of fortune – which customer groups will you target? What are the trends, where will the spend be? What will be needed to release the spend? The wheel of fortune comprises the affluent on the one side, and the not-so-affluent on the other. The affluent groups spend at least 50% more than the less affluent per head, and account for around two-thirds of all retail and services spending.
The Wheel of Fortune shows the percentage of UK adults by life stage and affluence for 2035
“The future isn’t written. It can be changed. You know that” – Back to the Future
With these changes hurtling towards us, it’s our chance as players in the consumer market to make the future we want. It is imperative to get our businesses streamlined behind whichever group of customers we target.
In targeting the affluent, service and expertise will be essential. You will need the people to spot the needle in the haystack, or at least ensure that you are the magnet to which the needles are attracted. You will need to communicate with these customers in the right way.
Digital retailing, and the use of mass data techniques, can strengthen the magnet. The more affluent are the greater users of digital and also leave a greater digital footprint. The demographic divide between your UX team and your customers needs to be bridged. Graft empathy with technology.
If your main target is the less affluent then value becomes the pre-requisite. But this does not mean dumbing down on price and selling poor product: instead it’s making sure that the most attractive product is sold at great prices. In this way value retailers attract not only those who need value, but also those who want products and services they desire. It is no accident that Clarice Cliff sold well in Woolworths, or that that Balmain and Kenzo sold well at H&M. Making your business efficient to deliver will be key, as will the age-old skills in products and range architecture.
We know that the future will be different, but we also know that the fundamentals will still apply. Sell great products and services at a good price, and tell the right customers about it.
George Adams is currently chairman at FFX Tools and non-executive director at ScS and Frontier Economics and a trustee at the Whales and Dolphins Conservation. He was previously commercial director for Victoria Plumb, group CEO at Maxeda DIY and Spicers Group, CEO European development at Kingfisher and chairman of Screfix. He has held other executive roles at B&Q and Woolworths.