Across industries, technology is reshaping operating models, and nowhere does it touch us more directly than when we shop. As consumers, we see how our changing behaviors and preferences are reshaping the entire retail landscape. The United Kingdom is at the forefront, both driving this change and feeling its impacts:
- The United Kingdom has gone further in adopting online shopping than any of its Western peers (20 percent of UK consumers shop entirely or mostly online).
- Retail margins in the United Kingdom have fallen by almost 2 percentage points since 2013, thanks to competition, the cost of omnichannel operations, declining space productivity, and inflationary headwinds (increase of labor costs by 4.8 percent compound annual growth rate (CAGR) to 2024).
- Retail is the largest private-sector employer in the United Kingdom, accounting for 13.8 percent of all jobs.
Technology is therefore a strategic imperative for UK retailers if they are to stay relevant and profitable: the retail experience of the future will be propelled by physical technology and advanced analytics to meet changing consumer expectations, while allowing retailers to reset their operating models and economics. (For more on how the coronavirus outbreak has affected our analysis, see sidebar, “A note from the authors.”)
For workers, technology will bring big changes. By 2030, we see it affecting a third of all tasks in UK retail (Exhibit 1). Roles will be redefined to encompass larger, more complex and varied work than today’s narrower, more siloed retail jobs, and will involve interacting with new technologies. Companies will need to develop or recruit the skills required in these new roles—and will put a premium on adaptability.
Technology will also create an opportunity for UK retail to launch new labor models that give employees more control of their schedules and work, while remaining part of a workforce and community. Already today, almost 10 percent of UK adults access work via an online platform at least once a week, twice the share in 2016. Retailers will need strategies for accessing gig-style labor as well as platforms for employees: they may build or buy internal platforms and explore external aggregator platforms to find retail-trained workers in flexible time slots for more standardized roles such as replenishment and cashier. They will have to rethink the social contract with their workers to strike the right balance between flexibility and the benefits that come from colleague affiliation and progression.
Across the United Kingdom, the impacts of these changes may vary by regions’ dependence on retail employment. Retailers must make data-driven decisions about how to sequence their introduction of technology. Areas with fewer other employment prospects and lower educational levels, such as Thurrock or Dudley, could be vulnerable to workforce displacement. Here, retailers may choose to delay the rollout of automation while they learn from launches in less vulnerable areas (such as Bristol or Cambridge)—or perhaps to tackle it first—but either way, will have to provide support for transitioning workers (Exhibit 2).
The business case for a technology-enabled “reboot” is strong: a holistic transformation could improve UK retailer margins by 280 to 600 basis points. Navigating the transition, however, will take more than a narrow focus on technology. Successful firms must create an integrated road map to address six essentials:
- Master planning: First, they must create a master plan that coordinates the complex, organization-wide transformation process. Retailers will need to establish a cross-functional steering group and a control tower to govern the process—managing trade-offs, planning investments, and measuring impact at the highest level.
- Consumer value proposition: Technologies that enhance customer experience must be balanced with technologies that increase productivity but may affect service levels, a balance that is likely to differ by channel and format. The future retail experience should be designed around an infrastructure that allows consumers to transition seamlessly between channels.
- Operating model: New ways of working and accessing work, along with falling costs, open up the possibility of more efficient, flexible, and effective operating models. Companies will need to phase in a mix of labor and technology calibrated to deliver the service levels they desire in store, taking interim steps on the way to a fully realized vision.
- People: As the operating model changes, so will the demands on labor, and the transition will require active management. Recruiting, training, and work planning must evolve to give workers more control and retailers greater flexibility.
- Technology: Many external vendors can help design, deploy, and maintain automation, artificial intelligence, and other technologies. Retailers will need to review their options, sequence their capital investments, and test systems, probably starting with a holistic regional pilot project.
- Community impact: Colleagues and communities will need support during the transition, especially the most vulnerable workers, on whom automation will impose the heaviest burden. Where they wish to support communities, companies may find partnerships a helpful approach—for example with education providers that can offer training programs for workers.
Automation is a strategic imperative, and the successful retailers of tomorrow will weave these strands together in bold plans that deliver it. With technology, they will unlock new levels of customer engagement, a more sustainable profit-and-loss ratio, and unprecedented employee flexibility. Those that want to be among the winners should begin their reboot today.
Download the full report on which this article is based, Rebooting retail: How technology will shape the future of retail (PDF–7.9MB).