The future of almost eve.., p.20
The Future of Almost Everything, page 20
Forget about shopping online or offline. In future, online and offline will completely fuse into one activity. Online shoppers will be almost entirely mobile: just as likely to be placing an order on a train, sitting in the park, watching a film, or in a boring meeting at work.
Already one of the most common places for people in certain nations to do some of their online shopping is inside a traditional store – maybe comparing prices, researching, looking at customer reviews, perhaps ordering from the store’s own website.
Expect new waves of disintermediation – where whole tiers of business get wiped out by technologies that allow people to go direct. An example is estate agents or travel agents, many of whom are being swept aside by websites that allow buyers and sellers to connect at the speed of light. The best will survive, but only because of their specialist knowledge and excellent websites.
Global premium retail
With over 500 million new middle-class consumers over the next 20 years, and rapidly growing numbers of super-wealthy, expect a boom in premium retail sales – whether of luxury handbags, fashion accessories, perfumes, gadgets, jewellery, lingerie, watches, fast cars or yachts. The global market will be particularly strong for aspirational brands like Rolls Royce, Maserati, SunSeeker yachts, and so on.
The majority of middle-class consumers in most emerging markets will continue to chase premier European or American consumer brands for the next decade. While we can expect several new global superbrands to emerge from India, China and Latin America over the next decade, most will struggle to engage top-end consumers in developed nations before 2025.
Some consumers will react against endless premium malls and airport retail areas, with identical collections of boring outlets for global brands, and favour niche brands instead.
Threat from your own online store
Cannibalism is a word we will hear more of. Here is a typical story from a mid-size retailer:
Competitors with no physical stores are undercutting our prices on their websites.
Our own website prices are the same as in our stores.
We can afford to cut prices online and still be profitable, but risk killing sales in our stores, or enraging our partners who also stock our products in their own stores.
As a result, we are shrinking in market share every year.
Most stores will be strongly tempted to stick with the same prices online as offline, risking future growth. Some retailers will experiment with setting up a completely new online channel to run cut-price sales separately from their own brand. Others will face the risks head-on and invest heavily in online discounting.
Overall, the result is that the volume of retail space will fall rapidly in the towns and cities of developed nations. Outlets that remain will need to offer something extra, appealing to the emotions of customers in order to make physical shopping feel worthwhile.
Google and other large players like Amazon and eBay will sweep up huge sales with instant displays of ‘unbeatable’ offers, matched to web pages recently looked at by customers. Many shoppers will never get past the first display line of a Google search. The same is already happening to the travel industry.
Future of Amazon, Alibaba and similar retailers
Amazon is the world’s ninth largest retailer after companies like Wal-Mart, Carrefour and Tesco, with $74bn of sales a year, or $150bn if you include sales from other companies using it to sell their own goods. Amazon’s assets are a global superbrand, with a simple website, and highly efficient warehousing and distribution, shifting a billion items a year.
Amazon’s greatest hidden asset is its ability to provide any small business with its own e-commerce pages, created in minutes, with instant payments, cheap warehousing and fast delivery. Amazon already lists over 230 million items for sale in America alone – 30 times that of Walmart.
Two million businesses already sell on Amazon. This is likely to double by 2020. Most will sell exclusively through Amazon, especially where those businesses are able to shave a little off competitor prices. Amazon’s revenues will also be boosted by pay-as-you-go cloud storage – already $9bn a year of sales.
Websites like eBay will create a new generation of young entrepreneurs, whose entire careers since junior school have involved buying and selling bits and pieces online – whether used toys, bikes and cars, or old china, camping equipment or spare solar panels.
Expect a boom also in micro-facturing – tens of thousands of home-based entrepreneurs who are making, marketing and shipping their own products, some using the most expensive 3D printers to fulfil orders.
Why home delivery is unfit for the future
In the UK, over 1.3 billion online products are delivered each year to homes – time-consuming because so many are not in when the delivery van arrives. We will see a boom in click-and-collect retailing across every developed nation, following extraordinary growth in Germany and elsewhere. Order online and decide where to collect: local garage or coffee shop. Every metro station in London will be a click-and-collect depot by 2017 – the process has already started. New delivery hubs will develop, shared by many online retailers and other delivery companies.
Many retailers will start to offer same-day delivery, for a premium price. A customer will place an order, which will be routed to the nearest store. Staff immediately order a taxi and get the package ready. The taxi uses a locator App to guide them to the customer, whether at home or work or in the local gym. For longer distances and higher-value products in rural areas, commercial drones will make the delivery.
Retail in emerging economies
From Uganda to Congo, India to Vietnam, we will continue to see an almost identical retail experience. Despite all the retail trends listed above, almost all shops for the next decade will continue to be the roughly the size of a single shipping container – never much wider or deeper or higher. One outlet next to another for mile after mile.
Such shops, typically with brick walls and tin roofs, are often the living rooms of the families who own them, and are their bedrooms at night. Lit by a single light bulb, such stores have an almost identical range of products as ten or twenty other similar shops within a few hundred metres. We see clusters of clothes shops, clusters of metal working shops, clusters of furniture shops. In fact, the most important rule in retail location has always been co-opetition. And this will be as true in the slums of a megacity as on the streets of Paris or New York. Jewellers will continue to cluster, fish sellers will cluster. Retail clustering will dominate physical retail globally for the next 100 years, as it always has done.
Malls will take off in all emerging markets
At the same time, expect growth in top-down mass-retailing in emerging markets, despite e-commerce. Big companies will invade a completely new area where there has never been a single store a fraction of the size before. The first mall in a new area will usually be relatively informal, not air-conditioned, housing smaller shops. And then premium malls will follow, identical in many ways to malls in Europe, Singapore, Beijing and North America, and at international airports.
Expect radical changes in retail in emerging economies, therefore, particularly in India, with hundreds of millions of middle-class consumers, tens of millions of small retailers, and very little retail space at the moment that is not a container-sized box.
Boom in informal retailers
Alongside container-sized outlets, shopping malls and open markets, expect hundreds of millions of informal retailers to provide a significant proportion of total sales for many local products such as water, soap, rice and flour – selling at traffic lights, on the pavement and from bicycles or small stalls. The key for every maker of lower-cost products in megacities will be these networks of informal agents.
Manufacturers will divide more products up into tiny packages or bottles, to use for a single day or week, for those on very low incomes (bottom of the pyramid). Hundreds of millions of informal retailers on the street will be children in 2025 – street selling will often be their only means of survival. This will cause moral outrage in tourists from wealthy nations located many thousands of miles away, who think that all child labour should be banned.
Retail in Latin America heads online
Latin America is also experiencing an online revolution with more than $100bn of sales, including $6.2bn in Mexico, growing 40% a year. In Mexico 58% of adults have online access compared to 46% in Brazil, 67% in Argentina, 59% in Chile and 34% in Peru.
Most consumers in the region are very uncomfortable about buying online, because they do not trust the payment system, but that will change fast. Most online sales are still on websites owned by traditional retailers but the big threat from pure online retailers will really begin to be felt by 2019. Sales per online user each year will grow fast – already averaging $600 across Latin America: $900 in Mexico, $750 in Brazil and $450 in Argentina.
How will Latin Americans pay online? Few people have credit cards or bank cash cards, so newer types of payment will take off. PayPal, for example, is already used for most online sales in Mexico. A hundred million people in Latin America are likely to move straight into a PayPal or mobile payment world, having never had a bank account or plastic card before.
Most web sales will soon be on mobiles in Latin America
Mexico saw 6 million new mobile users in 2014, and smartphone sales averaging 49% a year. In addition, 60% of 25–34-year-olds own a smartphone. In Brazil, most online sales are influenced by what people read on their mobile devices.
The number of middle-class consumers in Latin America has grown by 50 million in just 10 years, and their needs will be met by larger retailers. In Brazil 56% of the population is now middle class, totalling 113 million people. We are seeing the same pattern in Chile, where you will find Latin America’s largest shopping mall – Costanera. In Peru multinational retailer Cencosud opened fourteen huge new retail stores in a single year.
Future of financial services, banks and insurance
Globalisation depends on free movement of money for goods and services, and financial services will therefore follow many of the retail trends we have seen above.
Finance, trade and digital technology all go together. Many predicted the death of banking as we knew it, following the 2008–2013 crisis, but our world needs strong banks just as it needs hospitals and schools. Banks are fundamental to every civilised society.
When a financial institution’s reputation dives, the end soon follows. At the height of the crisis in early 2009, a friend of mine who owns a global business ordered a van to drive around the country containing around $2m in cash ‘just in case’.
Trust is the most important thing a bank has to sell
Without trust you have no bank. You could say that trust is the only thing a bank really has to sell. The rest is tinkering with products and services. The fundamental issue for many banks I work with is how to rebuild trust after scandal upon scandal, with billions of dollars spent in fines and lawsuits. This will require a revolution in culture and day-to-day behaviour – we will look more closely at this in Chapter 6.
Banks and their shareholders have been punished, mocked, blamed by societies. Owners of banks have lost huge amounts of money. But the main owners of bank shares are of course pension funds, so all of us have been affected. We can expect more global regulations to force banks to hold more capital, with lower limits on the levels of risk-taking. But if regulation is too severe and returns on investment fall too low, no one will invest in banks, banks will be poorly led, bad to work for, with old technology, vulnerable to hacking, and providing last-century levels of service.
Rise of third millennial banking
Common sense will prevail in banking. Investment banking is being separated from retail and corporate banking. We will see further regulations. But we can also expect to see some regulations relaxed by 2025. New types of banking services will also evolve, with ingenious work-arounds, enabling better investment returns with better managed risks.
Many predicted the decline and fall of the City of London as one of the world’s dominant financial centres. As I said at the time, this was overstated. The City will continue to be one of the world’s most important communities of the smartest and most experienced financial experts, from over 100 nations. The City will also continue to be one of the greatest generators of GDP in the UK. However, even 5 years after the onset of the financial crisis, the sector was employing 20% fewer people than before.
Future of retail banking
Retail banking will become far more mobile, automated and highly competitive. Banks make profits by collecting and hoarding cash, and lending at interest. But when cash itself ceases to exist, what then? In an electronic society there is nothing physical to collect or give out. Old-style banking becomes a meaningless concept, used to describe a defunct industry that now trades not cash but electronic impulses. In future you will buy any financial product, via any channel, from just about any source you could imagine.
As we will see later, banks will become telcos, and telcos will become banks, along with a string of new non-banking competitors who have all applied for banking licences in Europe and elsewhere.
Instant mortgage switching
Most senior bankers I talk to recognise it is only a matter of time before a mortgage will be switched from one lender to another by an authorised broker, with a single mouse click. Once the legality is established, expect such loans to be moved up to several times a month by broker robots constantly looking for better deals on identical terms. It will spell the death of traditional lender-borrower relationships.
Revolution in peer-group lending
Expect rapid growth of peer-to-peer lending, social lending or crowd-funding websites. Already $5bn is lent on such platforms each year and this will probably rise to more than $25bn by 2020, $60bn by 2025, with average savings of at least 1% on interest rates from banks. Peer-to-peer lending is just a small fragment of the rapidly growing ‘shadow banking’ industry, and regulators are slowly catching up. Crowdfunding platform Kickstarter alone is raising over $3m a day for entrepreneurs. In the past, such lending has been by individuals to individuals, but hedge funds and other financial agencies are piling in to provide lending capital.
Boom in micro-loans and savings associations
One of the most radical and exciting innovations in banking is micro-loans. I have seen at first hand across different parts of India and Uganda the extraordinary impact of micro-loans on the poorest of the poor. There are now over 10,000 micro-finance institutions worldwide, growing 15–20% a year, and serving 200 million people, 25 million of whom are in India, with a total of over $50bn in loans/savings. Consider that in India alone over 500 million people have no access to banking. Globally the figure is over 2.5 billion.
A while ago I met fourteen women living in a slum area who formed a savings group in Delhi. The agreement was that each person saved money each week, recorded in their own book. After they had saved for a number of months, they were able to take a loan for up to four times the amount they saved, with 12 months to repay ten instalments. Such a scheme means you are borrowing off other members of your own community, and each person in your group is guaranteeing all fourteen loans. Typically, over 97% of all loans plus interest are repaid on time. These loans are used to start small businesses.
Micro-loan schemes are usually profitable, popular with many governments and are a gateway into traditional banking as well as micro-insurance products. Millions of savers have now been through two or three loan cycles and are proving creditworthy to traditional banks. That is why many investors are entering the market.
Future of corporate banking
High-end corporate banking will remain people based, including treasury management, global money flows, advice on mergers and acquisitions, multi-currency, and multinational deals. Low-end corporate banking will go the same way as retail, moving to mobile, with a wide range of web-based portfolio management tools.
Future of private banking
Private banking used to be mainly wealth management for older, typically female, customers (because women live longer), with whom private bankers often had a long-term advisory relationship. New private banking clients will typically be younger, hyper-connected global citizens, micro-managing their affairs and with highly complex and rapidly changing business needs, demanding responses day and night at the speed of light.
A growing area for private banking will be philanthropic advice. Private bankers help make wealth for their clients faster than most can spend it, which creates a problem, since most clients are worried about spoiling their children or grandchildren, and cannot invent enough new ways to use the money themselves.
Great wealth is usually toxic to the well-being of children and family harmony. There is no evidence that people who have great wealth are happier as a result. Indeed, most research points in the other direction, and this is confirmed by my own experience of working with ultra-wealthy families. Great wealth brings its own pressures: family anxieties about maintaining the wealth, worries about personal security, tensions with non-wealthy relatives, fears about children being spoilt by wealth, or even abducted. Great wealth can distort every friendship – are they only interested in me because of what I own?
Expect to hear more about social enterprise and impact investing – where the purpose is not just to make money but to do something that has a positive impact on society or the environment, even if the returns are lower than with other forms of investment.
We are likely to see at least $10bn set aside by some of the world’s wealthiest, over the next decade, to tackle a range of important issues, following the lead set by Bill Gates, Warren Buffett and others. We will look more fully at the growth of philanthropy in Chapter 6.
Why cash has such a long future
Despite predictions by bankers and ‘digital gurus’ about a cashless society, cash has never been so popular in many parts of the world. Many people love cash: for its anonymity, convenience and speed – and because it is invisible to the tax man. Cash use will continue to grow in the EU until around 2025, despite huge handling costs for retailers and banks.
