What's on the agenda? – Four topics that should influence the agenda Multichannel retailing and the store network – reduced offline sales and fast-changing consumer behaviour The battle for the digital and commercial relation – digital relations, sophisticated segmentation, multifaced competition Adjusting to home turf zero growth – survival of the fittest In search of growth – new economies, commercial centres and partnerships Addressing strategic issues – outline, identify, prioritise, increase … What's on your agenda? – self assessment tool
The retailer's agenda anno 2013 How to address the right strategic issues
We have identified four topics that influence (or should influence) the agenda of leading retailers Multichannel retailing and the store network
The battle for the digital and commercial relation
Adjusting to home turf zero growth
In search of growth
2
Why is it on the agenda?
Issues added to the agenda?
Shoppers are becoming internet savvy. Online retail has become a significant channel in many categories and is changing the game due to price transparency and lower prices, high convenience and fast flawless fulfilment
• How will you be able to compete with the large pure players (e.g. Amazon) when it comes to price and fulfilment given that structural costs and prices are lower elsewhere? • How will you offer a seamless proposition across channels? • What is the role, shape and number of stores in five years? • How big are the costs, and what is the timing of reshaping the store network and the stores' assortment? • Is it an opportunity or a threat?
Detailed insight into the individual shopper's behaviour has become widely available via loyalty cards and e-commerce, and the insight is highly valuable for customising offers, increase loyalty, value and relevance. However, turning data overload to actionable insight has proven to be a challenge. Brands, retailers, pure players, … are all fighting for the digital relation, and there are no clear winners
• How can we use the huge amount of data to initiate powerful actions? • What does it take to win the digital relation and create relevance with our shoppers? • How can we use individualised shopper insight to increase customer value?
Most brands and retailers with a strong presence in Europe are facing low growth rates resulting in even more fierce competition and price pressure. Costs and effectiveness together will shape the winners. Consolidation may increase to aim for larger scale economies
• How do we react to a possible stronger price pressure? • How can we refine the granularity of our concept to target the customers? • Where do our operational platform and concept allow easy extensions of our business? • How do we adjust the cost base (store network, sourcing, supply chain and organisation)? • How can we balance risk even more?
Europe faces hard times. BRIC, S-E Asia and Eastern Europe are examples of markets/regions with strong growth, but also very different consumer preferences, infrastructure, maturity and culture. When entering these "exotic markets", some have failed miserably, some have underestimated the effort and few have succeeded
• • • • •
Which market has high attractiveness and leaves us with a high ability to compete? Which elements of our concept do we need to adapt? What is the timing, and how do we organise locally? How big is the potential on existing markets, if we innovate the concept? Could M&As strengthen our future position?
Online Offline
100 8 (8%)
110 20 (18%)
92 (92%)
91 (82%)
2% 20% -0.3%
2012
2017
• Who will take the offline cut? • How many stores do we actually need, and when should we relocate?
Victoria's Secret The multichannel retailer
Consumer behaviour and business models evolve fast
• Which categories will move online the fastest?
Pure player Net-a-porter launches a Window Shop event. Purchases made via QR codes
Multichannel retailing and the store network
• Order in store, delivery at home • Click and collect
Branded flagship stores
• Research at home, shop in store • QR codes for fast access to information and purchase • Different prices in different channels with the same retailer • Pure players move to offline showrooms • Groupon/daily deals and flash sales
3
Online ordering and club
A fairly flat market and increasing online share will lead to reduced offline sales
A rare chance to a greenfield situation was given to Nestlé and Nespresso resulting in an exclusive selfcontrolled distribution of the coffee
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The retailer's strengths or entry barriers • Strong awareness and local relations • Strong multichannel offer • Service and guidance • Buying power/exclusive offers • Exclusive products/private label offer
The brand, the retailer, the pure players and the cheapest; who wins the commercial relations?
The battle for the digital and commercial relation
The loyalty cards enable the digital relation This image cannot currently be display ed.
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• Which areas of interest did the shopper indicate, and which shopping situations (gift, for family member, for him/herself)? • Identifying the customer across channels and getting insight into shopper behaviour, needs and deflection risk
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• What categories, brands and products did he/she buy or browse?
• Alliances creating more value (points, etc.)
• What drives sales: Seasonality, news/upgrades, wear and tear, children's growth, price deals, etc.?
• Expanding the assortment online
• Which products did he/she review and rate positively?
• In the UK, 94% of adults are members of a retailer loyalty scheme
• What is the risk of deflection given the current purchase behaviour?
Competition becomes multifaced, but the retailer has his advantages
From simple demographical or userindicated interest segmentation to sophisticated shopper behaviourbased segmentation
Refining the granularity to target customers
High traffic and awareness can be the ticket to extending the categories and business
Chain
Chain EBITDA
Chain marketing
Stores
HQ and shared service
Supply chain
Store OPEX
COGS
Store contribution
In 2007, H&M launched higher-priced COS as a separate brand. By the end of 2011, more than 40 stores were established across Europe
Gross profit
Net sales
JYSK launches city concept; 30% of normal store size. Targeting young urbans
Typical levers • Refit store network/re-negotiate rent terms • Right size categories, brands and suppliers. Optimise pricing • Rethink supplier co-operation • Review area/store managers • Adjust store staffing • Rebalance fixed salary and bonus • Rethink supply chain and engagement from suppliers • Build in flexibility in forecasting • Revitalise culture and fighter spirit The crisis in 2008 • Outsource to become flexible taught retailers • Right size the most effective HQ organisation
optimisation means
Boots; now also carrying toys, opticians products, photo product, hearing aids, consumer electronics and sandwiches/juice in stores
Adjusting to home turf zero growth Total
Voluntary chains
Chains
Independents
CAGR 2.1%
13.0% -5.0% -3.9% 05
06
07
08
Year
5 Source: Euromonitor and "Kæder i dansk detailhandel"
Survival of the fittest: ride it off, your competitors will die before you
09
10
Example: Danish shoe and clothing industry. There are winners even in tough times. The professional chains outperform the independent shoe and clothing retailers
150
India
140
Russian Federation
130 Brazil
120
China
110
Euro area (17 countries)
100 90
Growth in the new economies is often driven by an emerging middle class
80 Jan 08
Jan 09
Jan 10
Jan 11
The new economies show consistent high growth In search of growth Large cities drive commercial centres together with branded retail 75 M (2.5-5m) L (5-10m) MEGA (>10m)
Population Billions Number of branded stores in China
64
60
S (1-2.5m)
45
31
44
32
37 18 9 3
15 8
6
5 5 3
China
Rest of Asia
1.34
1.25
India 1.21
Brand corporations
53
50
1
16 3
10
9 2
21 11 7 1 2
1
15 0 13 1
Europe
US
Brazil
Russia
0.74
0.31
0.19
0.14
204
82
51
40
4,000+
12
Source: www.citypopulation.de and company websites 6 Source: OECD, consumer price index
Industrial M&A
PE acquisitions
Mergers and acquisitions – either driven by industrial players or private equity – can form even stronger players
How can the retailers address the strategic issues?
Outline scenarios for online share per category, and from there estimate the need for stores and square meters Identify the customer needs that cannot be satisfied online, e.g. product look & feel and personal service, and define the role of the stores on this basis
• Investigate possible strategic roads. They may include: “Develop a unique multichannel proposition”, “fight to slow down the development”, “build a unique assortment”, “create a powerful showroom experience backed by a strong online proposition”, “use your space differently – build alliances” or “be agile, innovate the store concept”
•
Explore and sharpen your competitive unique position visà-vis online players. Explore what part of your value proposition that it is necessary to eliminate or reduce the price pressure from the online channel
• Identify the consumer touchpoints and design the role of each and your ability to influence the consumer • Intensify the commercial use of individual shopper insight. This might entail introducing a loyalty club or sophisticated online behaviour tracking via cookies, but using insight from online shopper behaviour is a good start
•
Increase transparency on costs and profit contribution from channels, markets and categories. Prioritise and make the right and tough decisions Identify and prioritise the cost and productivity means Increase focus on pricing and fine-tune the pricing process
• Build scenarios for turnover and corresponding store network, staffing and inventories • Include competitors' strengths and possible moves in the scenarios • Explore innovations to the existing concept that will bring you closer to customer segments with low share today
Markets with high attractiveness is easier to identify than your unique ability to compete on these markets: Do your homework in terms of local style, benchmarking of peers’ footprint and results plus several market visits Enter dialogues with potential partners to learn more about the market and possible entries (may or may not be with partners (JV-partner or distributors))
• Prioritise markets and entry models • Explore possible roads to strengthen the position via M&A or changing the ownership. Map potential M&A candidates
•
Multichannel retailing and the store network
•
The battle for the digital and commercial relation
Adjusting to home turf zero growth
• •
•
In search of growth •
7
Are the right things on your agenda? How much will online retail change your industry the next five years?
Not more than it already has
How are you positioned for the potential change?
Highly favourable due to our current assets, positions and value proposition
How do you capture and utilise digital shopper insight ?
We have strong insight within each touchpoint that we use commercially
Are you the player with strongest digital relation and understanding?
Yes, we drive the digital relation and understanding within our category
Are you facing sufficient growth within the “current frame”? (markets, formats, channels, segments)
Yes, we still have plenty to do within the frame, even with growth rates in our industry
How much do you need to improve your effectiveness and reduce your costs to stay competitive in five years?
We don’t need to trim extraordinarily
How much will alternative roads to growth bring, and how are they prioritised from a risk/investment perspective?
New roads to growth are clearly identified and prioritised
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It will re-define the winners and may send today’s winner into oblivion
Our future is uncertain, and we will definitely need to change our business significantly
We are currently able to gain useful insight in any touchpoint
No, the digital relations are driven by other players, and we are not positioned in the game
No, we are facing negative growth within the frame and need to explore new roads to grow
No-growth and general competition call for extraordinary and significant structural cost reductions
New roads to growth are unclear and have not been sufficiently explored