There’s a creaking and a groaning in the night in Swindon. Head of multi-asset investments David Coombs is living with a ghost of retail past that not even store credit can bury.

28 October 2020

In August 2019 Tracey and I ordered a dining room table from a fancy store on the above boulevard at a not insignificant cost. As we celebrate our second Halloween since then we still await a third table after the first two were delivered with clear defects.

We have had many visits from the store’s employees and even an independent assessor, yet we are still dining on a wobbly table. To cut a long story very short the store keeps blaming its suppliers, completely ignoring the fact that we purchased the table from them, not the suppliers. We constantly have to chase to get updates and it feels like the store is dragging its feet. I mean, it has been more than a year!

The customer is key

So why, other than for catharsis, am I sharing my retail nightmare with you?

For some time, we have banged on about customer experience being a key part of our analysis of our potential investments. Without customers, you don’t have a business. Obvious, I know. But – especially in the UK – many retailers seem to be forgetting that and giving their customers terrible service.

Sometimes, businesses can get away with treating their clients poorly – usually when there’s no alternative, like a water company or a specialised supplier of replacement parts. But even then, treat people badly enough and they will move their factory to get away from you, or replace their machines so they don’t have to deal with you anymore. Retailers are at the very tip of the pointy end of customer whims. Typically, there is no ongoing tie to their customers. They have to make shopping so pleasant, easy and enjoyable that the customer never thinks about looking for an alternative. This is the quiet underlying strength of Amazon: it’s no flashy boutique, yet I know I can buy in an instant, have it delivered tomorrow and returned the day after if it’s not what I ordered.

I can honestly say that my not-so-recent furniture purchase is my worst ever customer experience. And I have flown Ryanair. So no prizes for guessing whether I will be a repeat customer …

Retailers fighting the wrong ground

Because of this difficult environment, retail has generally been a bare area for our Multi-Asset Portfolio funds in the past few years. I think in many ways though, a lot of retailers have been bleating so much about the rise of Amazon and other ecommerce specialists, and the unfair playing field, that they have forgotten to look in the mirror.

Retailers, and indeed some wholesalers, have rolled out less-slick websites and cobbled together inefficient distribution systems to try to beat their digital rivals on convenience and/or price. Meanwhile, many have neglected their actual stores. I think a good number of people would like to shop in person, yet when they do it’s often terrible. What has been lacking in most retailers is innovation and the capital needed to shift their ancient business models. Many don’t have the courage to exit markets where competition is fruitless and find new markets that are either inadequately serviced or that are niche and of little interest to the mass market volume players. It’s in such niches, cultivated by savvy operators, that you find some rare success stories. These include US wholesale bargain warehouse Costco, beauty destination chain Ulta Beauty and shoe giant Nike (all of which we own in our Multi-Asset Portfolio funds), as well as near-enough-cult Apple (which we don’t own). Not too many UK names there you’ll note.

The pandemic-propelled leap to hybrid retail

COVID-19 has accelerated many trends, as In flux, my report on the pandemic and its implications for our multi-asset portfolio funds , makes clear. The decline of bricks and mortar retailing is just one. And it’s not just the likes of Debenhams that are suffering. It’s also the landlords, such as Land Securities, British Land, and other institutional investors. So what will retail look like in the post-pandemic new economy? I think it will has to move to a hybrid model that straddles both the digital and physical realms. And yes, customer experience must be at the fore.

What does this look like? Imagine you are looking online for a new suit or dress. You select two colours and in two sizes, so four variations. You select your nearest store and have the items delivered there. You book a slot for fitting. You go to the store and the items you want are actually there. No searching racks, no waiting for a disinterested teenager to “check around the back” for the size you want (it’s never there by the way, they’re just indoctrinated to never say no – even when it would save you time and hassle). The fitting room is large, clean and well lit. There’s somewhere to charge your phone as you try on a few different things. And enough rooms that you don’t feel like a squatter, besieged by the queues camped outside. Maybe even a reasonable café nearby in case you need a quick pick-me-up … well trained staff providing helpful advice rather than cooing, “you look amazing,” or walking off without replying …

Then you can bag up the one you like and walk away with a smile on your dial. I assure you, clothes shopping really could be that easy. It could be – it should be – it has to be fun. Otherwise retailers really are doomed.

This is just one simplistic example from my overactive imagination, but my point is that many retail managers, across the retail spectrum, need to put the customer back at the heart of their thinking. After COVID, I’m sure people will want go out and spend. Apple Stores and Nike Town have shown you can make high street retail work. But it takes capital, vision, great products and, yes, great service. Fuse that with online and you have a business I could invest in.