Parasol Island – Integrated Digital Studio

Mathias Ullrich is managing director of the strategic consultancy LIGA2037, where he supports clients in transforming their business models. LIGA2037 is a subsidiary of LIGANOVA Group, committed to transforming commercial spaces into “phygital” experience channels. Mathias Ullrich discusses the new normal and ventures a look into the future.

In accelerated times like these – can you still recommend long-term strategies to your clients?
That’s a very interesting question. In fact, it’s becoming increasingly difficult to predict the future. But at the same time, companies would be ill-advised not to prepare for future changes. On the contrary, in times when the status quo can change overnight, planning must be carried out early and flexibly. But – similar to in IT – companies and strategies are set up and organised in a more agile way, with shorter development cycl es, and utilising existing solutions. Besides agility, we’re also seeing a different focus. Today, a successful corporate strategy relies much more on resilience than on the last percentage point of margin. This is not about building up buffers – events on the scale of Covid can’t be cushioned by buffers – but about the core question. How relevant are we for our customers in tough times? Speaking for the retail sector, companies and brands that have tended to float along and not offered customers a strong experience (brand, product, service) are struggling much more during the crisis than experience leaders.

What lessons do you draw for the retail sector from the pandemic and lockdown so far?
What has happened is, of course, highly dramatic and will lead to major upheavals in the entire sector. However, in my view we haven’t reached the peak yet. Only in the coming months will it become clear who can hold their own in the medium term and who will be left behind. Namely, when it becomes clear that in many areas there will be no “back to normal” and that many business models will no longer have a right to exist. This includes the original business of simple reselling, especially for brick-and-mortar retailers. Today, customers can make purchases in countless places, including more and more direct purchases from brands. In other words, to be relevant to the customer, a retailer must be more than just a salesperson. He must become a destination for his customers, a place to identify with, to inspire, to share and participate. This means the role of the retailer and their associated business model will have to change in many places. The value of a retailer is increasingly measured less in terms of margin, and more in terms of customers and the number of interactions. This opens up new forms of monetisation, similar to the digital world, in which retail media as a source of revenue for retailers is growing rapidly, while more monetisation is needed in the physical area of customer connect. There is still enormous potential there for many retailers.

Which retailers have made good decisions in the past six months?
Many good examples can be found of how the retail sector has adapted quickly and pragmatically to the new situation, from quickly implementing hygiene measures to the overnight availability of click and collect products, or sales via social media channels and DM (direct message). The whole spirit of helping each other, such as the “Retailer-Help-Retailer” initiative or “We-vs-Virus”, were good examples of how quickly changes can be introduced. All in all, these measures alleviated the pain, but didn’t yet involve a profound change in the directions of companies. In many cases attempts are still being made to preserve the old, instead of rethinking the approach. Real transformations are still in short supply. On the other side of the Atlantic, companies are showing more courage: Walmart began its transformation from a pure chain store business to a serious omnichannel provider long before Covid-19, but in the wake of the pandemic it added a new dimension with excellently organised kerbside pickups and has come through the crisis very well. On the other hand, it’s impressive to see how consistently Amazon is continuing to strengthen its retail supremacy and, in particular, the further development of last-mile delivery. In addition to the ongoing expansion of its own fleet, any vacant space in the JCPenney and Sears department stores is now being used as a fulfilment centre. Amazon is thereby showing itself to customers as the platform that offers everything in the shortest time with the best service. In the medium term, retailers and brands will not be able to avoid Amazon, and will have to submit to its dictates.

Must we prepare for the “new normal” – in the retail sector too – and how will it be? Yes! Now we’re aware of the issue of viral infections and related hygiene practices, the situation is reminiscent of environmental protection and sustainability. Once consumers are made aware of the topic, it will never leave their minds again. This is clear when looking at the sphere of live events. You can already hear people saying, “How could we go to large events so carelessly before, crammed with sweaty bodies in an enclosed space?” The answer is the danger was simply not in our consciousness. We now have the awareness, and this will influence future decisions. Some people might never attend such big events again. This also has consequences in retail. Concepts that focus on mass audiences and walk-in customers need to be rethought: megastores, malls and city centre concepts are all subject to the same challenges. In the future, retail space will become more flexible and decentralised. Retail will shift from conurbations to more distributed structures, becoming smaller and more mobile. Concepts such as pop-up stores will gain relevance significantly.

Unmanned stores, contactless retail – will the human touch in sales go extinct even if we overcome the pandemic?
Seeing as the role of the retailer will change in the medium term, the human touch in sales will continue to decrease. But on the other hand, the new role will also result in new tasks with human-touch elements. This, in turn, will mean a new profile for employees – with a stronger orientation towards hospitality. Retailers will be more event hosts than market criers.

How will large corporations manage if globalisation is pushed back further? Do they have enough flexibility to reinvent themselves?
If current developments towards protectionism by individual states continue further, this will not only cause problems for large corporations, but will bring entire economies into a new and differently functioning age. For many, the world of the “splinternet” is a realistic scenario after the current WWW era. Fortunately we’ve not gone that far yet. But nevertheless, global brands will have to think about conscious regional splitting – perhaps not as extreme as in the case of TikTok. One result could be more independent country entities. Some heavily regulated industries such as the tobacco industry or the financial market already function in this way. The whole thing of course means much greater complexity and costs, which in the medium term will have an impact on the price level of the shopping basket. This in turn will open up opportunities for regional players with lower overheads.

Who are the young, innovative retail players to keep an eye on?
Young companies often have the advantage that they still have a certain agility in their structures and ways of thinking – and can adapt more quickly to new circumstances. In addition, they’ve usually grown up in a digital context. There are quite a few exciting developments. In the bicycle industry, for example, Rose Bikes, which originally came up through the online channel, has taken advantage of pandemic momentum and is expanding sales activities across their home country of Italy with innovative store concepts. This makes it clear once again that pure-play online companies are also pushing into an omnichannel approach in the medium term, with the difference that their management is much more centralised and each store is not evaluated in isolation. This enables new concepts and more freedom in formats. For example a store can be used more as a pure showroom or brand community space while actual purchasing continues to take place online.

What should a retailer keep in mind today before entering the market?
Retailers should be aware that nowadays it’s no longer enough to act as a pure product seller. As mentioned, the role of the retailer is shifting more towards that of a curator, providing a destination where customers feel comfortable and understood, where they can meet their social contacts. Incidentally, this will also transfer to digital commerce in the short term. Those who understand this and know how to address target customers with a sharp profile, preferably in direct dialogue, will have nothing in their way to becoming a successful new generation retailer. People who just want to hawk their wares will fail.

Which retail segments have been particularly innovative?
In my opinion, there is no clear winner. The apparel market is of course well advanced when it comes to social and influencer commerce; consumer electronics is ahead when it comes to classic e-commerce and marketplaces; in the sporting goods market there are particularly strong D-to-C companies with their community approach; and automotive is the key to brand experience. In food retailing, perhaps the least has happened in recent years, but that is precisely where the pandemic has given an enormous boost and shown that new, innovative concepts can be introduced quickly.

Looking at the next ten years – what are the key technologies with the power to change retail and shopping?
In my view, we are only at the beginning of an exponentially growing development – provided the rules of the game are not changed by more severe national restrictions. But if market mechanisms remain similar, artificial intelligence and blockchain capabilities, combined with 5G bandwidth, will certainly bring about a huge change in the whole set-up. While AI will make the “advisory” role of trading superfluous in the medium term, blockchain as a decentralised transaction will ultimately eliminate the “intermediary” role in trading.

An interesting side issue of the current debate is the difficult situation in many city centres. Is the time for astronomical rents for businesses in prime locations over? This is an extremely exciting development with a still unclear outcome. The aftermath will probably leave much greater traces than originally assumed. Living in sprawling cities no longer seems desirable, not only in the short term but also in the long term. There’s too great a risk of infection and too high costs in a small area. If physical presence at the office becomes more flexible, why not move to the country, with plenty of room for family and your own home office? This in turn will drive away walk-in customers of city centre stores. You could almost speak of a “butterfly effect”: more working from home today will change entire industries in the future. Perhaps this trend will naturally replace the only partially successful attempts to put a brake on rents.

What has been your best buying experience in recent times and why?
On the one hand, it was when my four-year-old son chose a remote-controlled car at a toy store, with sparkling eyes. All the anticipation on the drive to the store, all the excitement while we were there – no matter how trivial it was … It was a wonderful experience. The other thing I remember was buying my new road bike, not IRL, but at the store of the e-sports platform Zwift – where up to 10,000 cyclists compete with or against each other every day. There too, your equipment becomes a competitive advantage and you can optimise your avatar with better bikes, jerseys, aero helmets etc. It’s pure excitement to see how real worlds are gradually shifting into virtual ones.