Current Trends in European Retailing

1

• Current Trends in European Retailing

John Wheeler, Director, RMDP Tony Savage,
Director, RMDP
RMDP Consulting C.2001
2

• Agenda

• Some pan-European trends
• Department Stores - the dinosaurs mutate!
• Discounters and off price
• Brands and globalisation
• Competition for locations
• Direct Channels - clicks bricks winning
• What next?

3
Some pan-European trends

• Small Space vs. Large Space polarisation
• city centre and mall volumes enabling "mega
  stores" in many sectors
• music/dvd/minidisc
• fashion (e.g. Bennetton)
• Return of the "General Store"
• wider range of products and services
• longer opening hours
• Large Space retailers and customers still prefer
  Out of Town
• The Mobile Phone effect

4

• The Mobile Phone effect

• eroding "traditional retail" revenues
• Many stores/brands
• Fashion status
• Age no barrier!

5

• Mobile Phones Coffee Bars

• where else could you be seen with your new phone?

6

• Department Stores - the dinosaurs mutate!

• Department Stores - the dinosaurs mutate!
• strong loyal and now added BRANDS
• Selfridges showing the way
• international
• aspirational
• Young, and not so young!

7

• Discounters and off price

• Discounters and off price
• in fashion terms -"the new black"
• everyone wants them!
• permanently changing the margin model
• "Walmartization" of European retailing!

8
Brands and globalisation

• Multi millions being invested
• available everywhere
• Massive advertising
• desirable values
• mass(ive) markets
• Where do local (national) brands go?

9

• Competition for locations

• Out of Town locations are getting scarce across
  Europe
• administrative - planning
• social - car usage - "green" issues
• cultural - local populations/local stores
• Re-development of City centres
• -brown fields
• two places of
• worship...

10

• A full circle- back to the centre?

• Competition drives
• retailers back to
• the City Centre

11

• Direct Channels - clicks bricks winning

• Traditional Retailers make E-tail work!
• Critical success factors are no different in the
  E-conomy
• right product, right place, right time
• Customer Service
• Brand Perception
• Intelligent use of the Search engines reaches the
  global www market
• Fulfilment not gee-whiz is the need!

12

• Direct Channels - some winners and losers

• boo.com -a really whizzy failure
• technically clever
• did not excite the consumer
• or deliver the product
• or establish a brand identity
• Early Learning Centre - a brick based success
• built on the Retail brand values
• established fulfilment process before the www
• delivered reliably
• now equal to their largest store

13

• What next?

• The E-tailers continue to get better
• sensible not over hyped
• repeat purchases increasing
• further erosion of "brick" based turnover
• Retail Entertainment - "the Retail Theatre"
• merchandise and people mix
• "stage school " as a part of Associate Training?
• Gross Margin pressures increase
• Nett margins revived through intelligent supply
  chains

14

• Retailing in Europe
• some critical management concerns

November 2001 Sextant Management Services Ltd
15

• Agenda

• Brands
• dot.com
• Walmart
• Issues
• Interesting Sectors

16

• What do customers look for-
• store or brand?

• Everybody shops where they feel comfortable
• but comfort varies from customer to customer
• I may feel fine in Littlewoods, but overwhelmed
  in Harrods
• I believe that Waitrose is higher quality than
  Somerfield
• Volvo make safe cars
• I trust Marks Spencer

17

• Brands

• Global, consistent
• Sony
• BMW
• Kodak
• Bennetton
• Compaq
• Disney
• McDonalds

18

• Brands attract the Customers

• Brands still growing in importance
• Value
• Cachet
• Ownership aspiration
• Lifestyle
• Timeliness
• Pride
• Passion

19

• Attracting the Customer

• The power of the Brand
• is a store good enough to compete with global
  brands
• or is it just a shopfront!
• A strong brand can go Direct
• Sony
• BMW
• British Airways
• Ralph Lauren

20

• In the Year 2001..a dot.com e-tail business

• is most likely to have a "bricks" presence
• has new low cost, high availability channels to
  their Customers.
• provides personalised offerings to their
  profitable customers.
• operates a quality service branded proposition.
• is increasingly trusted by their customers
• or has become a dot.gone!

21

• Where will e-tail businesses come from?

• new channels to existing markets
• more customer oriented services
• innovative "Super Niche" retailers
• customers growing in confidence

22

• Sources of e-tail businesses

• new channels to existing markets
• Internet - Barclaysquare "Mk n"
• has their time past?
• Strong brands attract customers directly
• some trade ("guild") groups are effective
• the jewellers.net
• Specific - driven from a Brand
• Tesco Direct
• Dell
• Marks Spencer

23

• Sources of e-tail businesses

• Sector driven
• Amazon
• mature e-tail!
• sold it's first book in 1995
• now 1.2 billion
• Entertainment Express
• Kingfisher get serious
• and undercuts its own stores
• Intranet - Smartzone
• cable
• digital television

24

• Channels to e-tailing - some potential winners

• digital TV adds to broad appeal
• secure, multiple channels
• current TV standards to go by, say, 2005
• compulsive reason to buy new set!
• Digital, cable and satellite universal franchise

25

• E-tail myth or reality?

• May 2001 40 of UK homes have Internet
  connections
• August 2001 39
• no of net users still growing
• 900,000 September 2001- November 1st
• More over 50s shop online than under 24s
• 33 of Internet users visit online stores more
  than once per week
• 40 of shoppers access the www from the office!

26

• The E-tail Winners

• Amazon 1.7 million UK visits in September
• Marks Spencer
• best "Traditional" Retailer
• reliable, secure
• on line stock availability of in store products
• ease of use

27

• The E-tail Top 10

• Amazon
• Marks Spencer
• Tesco
• ebay.co.uk
• Argos
• Comet
• jungle.com (Littlewoods)
• qxl.com
• W H Smith
• colonize.com

28

• How some of today's businesses will respond ..

• more customer oriented services
• encouraging BRAND loyalty
• unique personalised offers
• cellular technology based
• loyalty points
• air miles
• tradable points/vouchers
• electronic purse
• conventional voice and E Mail

29

• Physical retailing moves into new areas..

• Innovation
• "super niche" retailers gain ground
• Seattle Coffee
• definitive range books
• The Link

30

• Walmart - why worry? -1

• Revenues 2 billion per week
• Proven operator
• occupying the "wrong" sector
• always avoid lowest cost
• Harvard
• Henley
• Ashridge etc.etc
• Has broken out of its middle US image
• still some US site potential
• product range extension - groceries
• Acquisition hungry

31

• Walmart - why worry? -2

• Economic power
• monthly revenues over 9.5 billion
• c.f. largest European retailers
• LfL growth exceeds sector
• Supply Chain ability
• provides 10X more processing capability than its
  nearest competitors (anywhere)
• shares store based sku sales data with suppliers
• and trains them on how they may use it!

32

• Walmart - why worry? -3

• Creates unprecedented value based competition
• driven by global buying
• volume driven
• lower gross margins accepted
• Public/government sentiment has moved to support
  lowest cost

33

• Walmart - why worry? - 4

• We had said
• " UK Retailers margin model under threat!
• could be reduced by circa 50
• potential for many casualties!
• not just supermarkets......"
• We do not like being smug, but
• margins are falling
• the middle market is being squeezed
• there are many casualties
• and more to come!

34

• Issue Maintain Customer volumes

• In the face of
• overt price based competition
• aggressive promotional activity
• new channels

35

• Issue Price based competition

• How to protect the Nett achieved margin?
• lower buying prices
• seek (retrospective) discounts
• reduce the cost of holding inventory
• smaller commitments
• more replenishment
• faster stockturn
• lower markdown
• reduce wastage
• lower operating costs

36

• Issue Everybody getting smarter!

• Smarter competition
• new entrants have no legacy problems
• global buying and negotiating
• alliances driving customer loyalty
• Smarter consumers
• know the value of loyalty
• increasingly discerning
• more knowledge
• less time

37

• Issue Promotional Activity

• Maximise the potential from promotions
• needs active collaboration with suppliers
• precise and timely execution
• accurate measurement
• Advertising and communication effectiveness
• measurement

38

• More drivers of change....

• Targeted communication technologies
• digital TV set top box
• www
• Satellite and telco Hybrids
• Social Pressures
• Travel
• Parking

39

• Issue New Channels

• How to become a player - when I understand their
  potential?
• what must we do differently?
• How to integrate their operation within my core
  business?
• I do not need to break the bits which work well
• we have lots of customers in our stores
• How to avoid this becoming another late, over
  budget IT project?!
• I cannot wait for IT to learn the new skills

40

• Loyal and profitable customers are retained
  because of

• a clear and unified focus on the customer
• supported by
• efficient and integrated processes
• superior knowledge
• consistent execution

41

• Some interesting Sectors -1

• Mobile Phone retailers
• high quality web sites
• call centre operations
• integration with service suppliers is critical
  requirement
• Music/Video Programme material
• early direct channel
• mainly established High Street retailers
• already under threat from new entrants
• Books - if they haven't already noticed!

42

• Some interesting Sectors -2

• Travel and Ticketing
• the perfect direct product?
• needs integration with suppliers
• digital TV could cause take-off!
• Toys
• Learning element translates well to e-commerce
• Brands already established
• take on Toys'RUS

43

• Some interesting Sectors -3

• Leisure Sports Brands
• strong consumer loyalty
• desire for information
• opportunity for direct channels
• Motoring Service Organisations
• Call centre based
• integration required to many systems/sources
• provided a focus for consumer services businesses

44

• Summary Retailing today

• Increasing competition
• new entrants
• established retailers suppliers extending
  reach
• global information creates consumer knowledge
• Pressure on costs
• product
• operations
• store
• people

45

• Information Technology in Retail

the operational necessities e-tail or retail!
Sextant Management Services Ltd.
46

• SKU Management

• The ability to manage stock at the level at which
  the customer purchases
• the Stock Keeping Unit
• E.g. a pair of shoes
• style, size, colour, width
• a dress
• style, colour size
• a can of beans
• description, size

47

• Measuring and monitoring the SKU

• Throughout the whole process
• Plan
• Order
• Supply Chain
• Warehouse
• Distribution
• Sales

48

• The Retail Cycle

• Retail, and most consumer goods wholesale
  businesses work to a very similar basic process
  model

PLAN
BUY
RECEIVE
SELL
DISTRIBUTE
49

• Electronic Point of Sale

• EPoS Terminals
• online, real time
• Up to 60,000 SKUs per outlet
• Promotion Control
• 3 for the price of 2
• lowest price free
• linked purchases, etc
• Plastic Card Authorisation
• and verification
• Robust and reliable

50

• Accurate Data Capture

• EAN 13 digit barcode
• world wide standard
• the world's most successful standard
• basis for b2b e commerce
• Robust
• Reliable
• Universal
• Retail Wholesale
• Hypermarket to Corner shop

51

• The Must Haves....merchandise

• Basic functionality
• epos provides sku data capture
• and price look up
• store polling of sales
• price file changes and refresh
• inventory file updates
• replenishment requirements
• inwards merchandise movement
• inter branch transfers

52

• The Must Haves....customer

• Basic functionality
• unique customer record
• Card based - loyalty or payment
• Mail or telephone order
• payment verification/authorisation
• fulfillment process

53

• Local (Store Based Processing)

• EPoS
• Price File Management
• SKU Sales
• Personnel Planning
• Payroll Data Capture
• Merchandise Ticket Production
• Delivery Information

54

• Central Based Processing

• Sales Consolidation Financial Reporting
• Stock Replenishment
• Merchandise Purchase Ordering
• Payroll Processing
• www
• Management Executive Information
• Data Warehousing

55

• Issue IT skills resourcing

• "My IT function is already stretched, and they
  will not have the skills"
• "I need to keep our revenue costs flat (at
  worst), can we afford this?"

56

• Issue Best of breed vs Integration

• "Retail ERP" has existed in merchandise system
  terms for some years
• Retail Express (now owned by NSB)
• Island Pacific (now owned by SVI)
• JDA
• However, they did not include Finance systems
• typically CODA was a popular choice

57

• Issue Best of breed vs Integration

• SAP developed a retail version
• initially relatively poor in retail depth
• now on a par with NSB/JDA
• expensive to implement when allied to business
  process review
• long projects (BQ, Homebase)
• new template based systems from specialist retail
  implementors reducing cost and time

58

• More drivers of change....

• Targeted communication technologies
• digital TV set top box
• www
• Satellite and telco Hybrids
• Social Pressures
• Travel
• Parking

59

• Markdown -

• The difference between Stock valuation at Retail
  prices, and how much the item was actually sold
  for.
• a budgeted and planned item
• the largest single cost after personnel
• can have a make or break affect on results!

60

• Issue Promotional Activity

• Maximise the potential from promotions
• needs active collaboration with suppliers
• precise and timely execution
• accurate measurement
• Advertising and communication effectiveness
• measurement

61

• Some real positives!

• www. is a liberating experience
• in gaining information
• in application development
• new tools enable VERY rapid deployment of
  collaborative and www applications
• outside of the traditional IS functions
• in how systems are upgraded and maintained
• 24hr/remote/informed

62

• EDI to E-commerce

• EDI (Electronic Data Interchange) is well
  established
• between consenting retailers and suppliers
• complex messages
• batch operation
• tends to be inflexible - it works so leave it
  alone
• EDI has not been taken up by the SMEs
• too complex and technical
• requires intricate interfaces to "operational"
  systems

63

• COLLABORATIVE APPLICATION USERS

• What are Collaborative Applications?
• These applications are being used by major
  players to
• reduce total inventory in the supply chain
• optimise promotional sell through
• They will also be used by SME retailers,
  suppliers and channels
• as they are easier to implement than traditional
  IS
• with easy access and usability

64

• Who are COLLABORATIVE APPLICATION USERS

• J Sainsbury is a hub
• circa 200 in the JS "community" on promotional
  collaboration
• and up to 500 in "Order" collaboration
• Some of these community users are themselves
  becoming hubs
• Nestle
• KJS
• Each of these will subscribe to the need to
  integrate into their Core Operational systems.