It’s difficult to find a retail CEO these days who is not concerned about disruptive influences, many of which have emerged from a plethora of start-ups which are impacting the way retailers engage with customers and run their businesses. Digitalisation has lowered the entry barriers for online retail businesses and created a vast ecosystem of technology, social, analytics and support businesses. For traditional retailers, the changing landscape is cause for concern.

There are three types of disruptors retailers should be thinking about: those that compete directly, those that can help deliver a better customer offer, and those which can help boost profitability.

Start-ups, which compete directly often address a small niche and serve it better than a larger retailer can. One example is SilkFred, a small UK-based start-up that sells fast fashion online, leveraging Facebook analytics to target customers. On a larger scale, four-year-old acts as a marketplace for ultra-cheap products (mainly fashion), directly shipped to the US and UK from various Chinese manufacturers. It is now valued at $3.5 billion with the owners claiming “hundreds of millions of users”, again with a model that also relies heavily on social marketing.

Not all of these types of businesses will scale or succeed, but what they can do is chip away at the established retailers’ market share and reset customer expectations of how a retailer should engage with them. Savvy fashion retailers are picking up on the 'social shopping' trend and are employing people to scout social channels such as Instagram, Snapchat and Facebook, and feed back quickly to their design teams to adapt to the trends they see. The whole social shopping trend is inextricably linked with the use of mobile, and retailers need to pivot to a mobile-first approach, while adapting to customer preference for new ways of engagement, such as increased use of video.

Then there is a whole raft of disruptive technologies and businesses that can help retailers better serve their customers. In this case, the disruption comes, not from the technology but from the fact that competitors who adopt the right technology gain a distinct business advantage. For instance, let’s look at how retailers react to fashion trends. Technologies such as Edited leverage big data to analyse fashion trends and determine which products retailers should focus on, and at what price. US-based First Insight tackles a similar problem, but using gamification and leveraging insights from customers to help fashion buyers predict which trends to buy into at what volume and what price, ahead of the season. DynamicAction offers a prescriptive analytics platform, which enables faster reaction to a plethora of data; prescribing precise actions to take, accurately ranked by financial impact on a day-to-day basis. So retailers who do not exploit these kind of analytics tools are more and more at a disadvantage versus their competitors.

On the store operations front, Yapster is an internal communications platform for non-desk-based staff, which allows them to talk among themselves. One of the most frequent topics of conversation revolves around “who would like to swap shifts with me?”. Savvy retailers are learning from this type of business and building their own digital solutions that cover functions such as staff planning and stock availability to better advise customers on the shop floor.

Another clear pain point for retailer profitability is the last mile – the increase in home delivery and click and collect has proved hugely challenging for most retailers’ P&Ls. There’s still a lot to play out in this space, but some interesting concepts are emerging; InBoot, for example, is a collaboration between retailers and car manufacturers, that aims to have a delivery securely dropped into the shopper’s car boot with a remote auto-unlocking facility and Instacart, the two-hour grocery delivery business, and others are looking at crowdsourcing last mile delivery.

So change is the new norm. So what should retailers do? They have a number of options:

  1. The ostrich approach: Do what we've always done, with some sensible tweaks along the way. This can be effective as a short-term strategy for smaller and niche retailers. Discount retailers have adopted this approach with success. In the fashion arena, a great brand and customer proposition can do a lot to buoy up a retailer as customer expectations and technologies evolve. But even those retailers who are wedded to their traditional business model need to understand disruptive trends and influences, and apply them where they can add value… otherwise their days will be numbered.
  2. Acquire disrupters in an effort to gain market share: Access a new business model or tap into a high-growth market segment. We see a lot of examples of this in the food and beauty supplier sector, with smaller innovative beauty brands being bought by global players. The acquisition route can be an effective strategy for large retailers looking to leapfrog a few missed steps or to tap into a specific niche or geography – it’s very unlikely to be the only strategy such larger players will adopt though.
  3. Create or support an innovation hub: Many retailers are trying out variants of the innovation hub, both internally and externally, with XRC in New York an accelerator focused on retail and consumer. Retailers can support to gain access to the startups and use the accelerator program as a way to train and develop their own teams and expose them to the startup mentality and approach.
  4. Become an innovator and disrupt yourself before someone else does: This "retailer meets tech company" approach means recruiting large digital teams (usually from the global tech players rather than from other retailers), working in an agile way, with constant waves of change. 

Retailers can approach the disruption challenge in a variety of ways, and the right approach will vary by retailer. Those who succeed will be those who stay very close to what their customers need and how those needs are changing, who invest time and resource to understand how technology and competition is evolving, and who carefully choose which disruptive technologies and business models to absorb into their business. Retailers have not faced challenges – and opportunities – of this magnitude for many years.

Siobhán Géhin is managing director at Kurt Salmon, part of Accenture Strategy.