Could subscription models help retail bounce back? CTech Group CEO Ashley Bailey looks at the opportunity
Reading the papers this weekend helped put into context the challenges retail faces. From the measures to keep employees and customers safe, through carefully curated ranges that may have to be quarantined, to trying to keep the fun in shopping, retailers have a fight on their hands. Numerous brands face liquidation and many are trying to fend it off with store closures. All this against a backdrop of impending recession.
But among the headlines there are some positives. It seems that the shoppers that are braving the queues are full of intent and while footfall is down, conversion is good. But the most positive stories are from those that have been able to trade online, as illustrated by the stories of companies returning furlough funding to the government. Games Workshop said recovery had been better than expected because of the shift to buy online. And they are not alone.
Much of this is to do with having the right product and a great online supply chain. There was no way you could trade effectively and keep revenues healthy without it.
It’s also been a case of changing attitudes. Some people have been using online for the first time ever, while others have bought things that they would only ever have bought from a physical shop.
There’s also evidence that some people have taken lockdown as a chance to rethink lifestyle and the provenance and sustainability of products. Subscription models have therefore come into their own because they are even more relevant to the way people live life, and expect to, for the foreseeable future. You just need to look at the success of newly launched Disney+ to see how important entertainment subscription services are – it’s now the third most popular streaming service by subscribers in the UK having only launched in March.
It’s a sign that creating a constant source of service revenue represents a huge opportunity, and that’s especially true for electronic and mobile retailers. It can shore up a business in tough times.
Margins on hardware products are squeezed tightly these days so the real margin is tied up in value added subscription services. Retailers like John Lewis, Currys, right through to eBay, Amazon and second-hand marketplaces such as CEX, can make far more margin from services than they ever could from the hardware. They no longer need to be bound by just selling the electronic goods. Instead, many of the devices can be attached to a subscription.
There’s also a bit of market context to apply here. Since Carphone Warehouse closed its standalone stores there are now fewer choices when it comes to picking up a mobile price plan. It’s another gap that retailers can take advantage of, if they are prepared to stretch their brand and think beyond the initial hardware sell. If the offer and price is right people will buy a subscription as well.
Success will come down to who makes this easy. I select a phone, I select a SIM, I connect it, check out and it all arrives ready to go. But why stop there? I buy an oven, I get a Hello Fresh subscription, I buy a smart speaker, I get Spotify with it. There are endless possibilities for brands.
I think this is an area of growth we’ll see take off in the next three to six months as retailers recognise it will build loyalty, encourage recommendation, and create a continual revenue stream they’ve not had before.
But to make it happen, retailers will need to adapt their technology, yet building this sort of integration yourself can be a costly distraction. So, the winners will be those that seek out the new breed of middleware technology providers who can provide a slick back and front end experience.
And that will be key. This has to be just as easy for the customer to find and buy an offer as it is for the retailer to deliver it. The strategy to diversify into subscriptions will fail otherwise, because, as the initial lockdown scrum to buy online showed, if you don’t do it well your competitors most certainly will.
Ashley Bailey is CEO of CTech Group, a Sofware-as-a-service business that specialises in helping retailers sell services alongside hardware.