The i factor
 

The i factor

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Only 3% of retailers are convinced that they are keeping pace with consumer demands for multi-channel retailing, according to a new report from the Economist Intelligence Unit, ‘The I Factor: How ...

Only 3% of retailers are convinced that they are keeping pace with consumer demands for multi-channel retailing, according to a new report from the Economist Intelligence Unit, ‘The I Factor: How consumer demand is driving retail innovation’. Many retailers are still grappling with legacy systems, hamstringing efforts to evolve as rapidly as the market.

“Customers are coming into stores with 21st-century kit, the cloud in a handheld device, and retailers are using till systems from the 1980s,” says Ian Cheshire, chief executive of Kingfisher, owner of B&Q and Castorama, who was interviewed for the report. “The arms race has really switched to the consumers now.”

The report is based on a survey of over 300 retailers from the UK, France, Germany, Italy and Russia, conducted by the Economist Intelligence Unit, on behalf of MasterCard. The survey results were supplemented with eight in-depth interviews with senior executives from leading retailers to investigate how retailers are adapting to the new world of multi-channel retailing.

Other key findings from the report include:

- Agility and speed give smaller companies the edge
- Watching and waiting for the next game-changing technology
- Physical stores take on a new role in the omni-channel landscape
- Getting personal is the key to meeting changing customer demands
- Emerging markets will not wait to follow in the footsteps of developed markets

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The i factor The i factor Document Transcript

  • the i factorHow consumer demand is driving retail innovationA report from the Economist Intelligence Unit S p o ns o re d by :
  • The I Factor How consumer demand is driving retail innovation Contents Executive summary 2 About this report 4 Today’s shifting landscape 5 Watching—and waiting—for the next big thing 7 Getting personal is key to meeting changing customer demands 10 Pioneering change—in-store and online 12 Where now? 16 Conclusion  18 Appendix: Survey results 191 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation Executive summary Retailers have every reason to feel that consumers are consumers seamlessly researching and buying across mobile winning a technological arms race. Armed with smartphones devices, computers and physical stores within the same and wider broadband access and coverage, consumers boast shopping journey is one that consumers already inhabit. unprecedented price transparency and can call on customer Winning over this new, omnipotent customer is not a question reviews with the swipe of a barcode or the tap of a touchscreen. of merely opening a store in the right location and filling it Increasingly, the shopping trip does not start on the high with the best stock. street, but rather during the lunch hour at work, at the bus stop or even in bed. When customers do hit the shops, more Retailers recognise the rise of a new, empowered consumer and than ever they expect to know what is in stock and demand the understand the need for action. But there is a wide degree of ability to reserve it, pay for it and go. variation in what it means for retailers of different stripes and in varying national markets. This retail revolution is different from previous shifts because it is based on consumer-driven innovation. Previous In order to investigate how retailers are adapting, the innovations—such as self-service supermarkets, direct Economist Intelligence Unit, on behalf of MasterCard, surveyed e-commerce sales and using credit and debit cards—were all over 300 retailers from the UK, France, Germany, Italy and cases of retailers offering consumers something that most Russia. Approximately one-half of the respondents are C-level did not know they wanted. The new omni-channel world of executives and 42% come from companies with annual revenue of €500m or more. The survey results were supplemented with eight in-depth interviews with senior executives from leading retailers. This report takes a step towards mapping the shifting terrain and sketching out how retailers are navigating it. Customers are coming into stores with 21st-century kit, the cloud in a handheld Key findings include: device, and retailers are using till systems Retailers are behind consumers in the technology arms race from the 1980s. The arms race has really Only 3% of those surveyed are convinced that retailers are keeping pace with consumer demands for multi-channel retail. switched to the consumers now. But retailers are often grappling with legacy systems that are hamstringing efforts to evolve as rapidly as the market. “Customers are coming into stores with 21st-century kit, Ian Cheshire, chief executive of Kingfisher, owner of B&Q and the cloud in a handheld device, and retailers are using till Castorama2 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation systems from the 1980s,” says Ian Cheshire, chief executive of customers by 2020 (dropping from 53% at present to 27% in Kingfisher, owner of B&Q and Castorama. “The arms race has 2020), compared with other channels such as mobile devices really switched to the consumers now.” (rising from 32% to 43% in the period). However, just one- quarter of respondents expect to be able to reduce their Agility and speed give smaller companies the edge high-street presence and over one-half (55%) say that they The first era of online expansion favoured the big players; now are turning their retail outlets into “showrooms”, recognising the smaller, more agile companies appear to have less difficulty that although most purchasing will be conducted online in responding to the rapidly evolving landscape. Nearly one-half the future, customers still want to touch and try out products (49%) of larger retailers in effect admit that they are hostages before buying. to the next big innovation by stating that some unknown technology will be the most important driver behind consumer Getting personal is the key to meeting changing customer expectations. However, just one-third of larger retailers are demands investing heavily in technology, compared to almost one-half Technology has enabled the consumer to research the market (47%) of smaller retailers. Although the big players are waiting at great speed, either in-store, at home or on the move. for the next revolution, the smaller players are experimenting Retailers must now try to keep pace, and so they are getting at the forefront. to know their customers better and using social media to meet changing customer needs. Some 37% of those surveyed are Watching and waiting for the next game-changing conducting more research on customer expectations and 38% technology are increasing their use of customer segmentation, while 39% After seeing the impact on the industry that different of retailers are delivering personalised shopping experiences technologies have had in a very short period, retailers are and 32% say that they are using social media to meet betting that there is another game-changer that will shake empowered consumers’ expectations. The leading players will things up by 2020. The biggest agent of change in customer be building greater personalisation into how they operate, for relationships will be an innovation that is unimaginable today, example through loyalty schemes or the automatic customising according to 34% of respondents. This lack of certainty can of websites. make it difficult for companies to decide where to invest. But other seismic shifts can be predicted and prepared for: 36% Emerging markets will not wait to follow in the footsteps of expect the next big shake-up to be the burgeoning middle developed markets classes of emerging markets and 31% flag the impact of an Middle-class consumers in emerging markets will not wait ageing population in mature markets, while 43% expect mobile until their markets are deemed mature before they demand to devices to be the most important channel for interacting with transact by mobile phone, order at home for in-store collection consumers in 2020. or take to social networks. The rise of the middle classes in emerging markets is the biggest factor expected to shape Physical stores take on a new role in the omni-channel customer expectations by 2020 (36%), even beating the rising landscape prevalence of shoppers armed with smartphones and tablet Brick-and-mortar stores are expected to be a less important computers (30%). channel through which companies interact with their3 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation About this report In June and July 2012 the Economist Intelligence Unit, on l Federico Barbieri, senior vice-president of e-business at PPR behalf of MasterCard, surveyed 306 European retailers to l Ian Cheshire, chief executive at Kingfisher investigate their views on the challenges facing the retail industry in the years to 2020—what are the opportunities and l Pilar Gonzalez, head of global payment strategies at Inditex growth areas, how they are adapting to sector changes and l Jody Goodall, head of solutions architecture at Kiddicare and how are they using new technologies to deliver an improved Morrisons.com customer experience. l Mark Newton-Jones, chief executive at Shop Direct Respondents were drawn from the UK, France, Germany, l Andrea O’Donnell, commercial director at John Lewis Italy and Russia. Retailers were grouped by type—including independent retailers, department stores, supermarkets, l Dr. Christian Plenge, head of architecture and innovation at specialty retailers and chains—as well as size (annual revenue Metro Systems of less than €500m and greater than €500m). l Mike Shearwood, chief executive at Aurora Fashions In addition, in-depth interviews were conducted with eight The report was written by Marcus Leroux and edited by Monica experts from leading retailers. Our thanks are due to the Woodley of the Economist Intelligence Unit. following for their time and insight (in alphabetical order):4 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation 1 Today’s shifting landscape The secluded, fertile pastures of old are vanishing. Combined, these factors make a potent cocktail: Merely having good stores in prime locations is consumers have more choice and are better no longer sufficient. The three biggest drivers of informed than ever. changing customer expectations over the past five years, according to survey respondents, are the “The reality is that you’re competing with rise of consumer empowerment, the proliferation Amazon, whose operating profits are between of self-service and increased competition between 1% and 3%,” says Andrea O’Donnell, commercial products. Each is highlighted by one respondent director of John Lewis. “The competitive dynamics in three. have moved significantly. You have to be as good as Amazon online and offer the same amazing experience as you do offline.” Chart 1 But not all countries are at the same point or What have been the main drivers of change in customer have been affected in the same way: more than expectations over the past five years? Looking at the % from each country that selected social media. one-third of British and Italian retailers (34%) (% of respondents) highlight social media as having an impact on customer expectations, compared with only 11% Total in Russia. Differing levels of uptake by consumers respondents inevitably shape the responses of retailers in those markets. Russia 25% In a similar vein, companies of different sizes offer UK 11% varying diagnoses of the factors behind changing consumer preferences. Companies turning over 34% Germany more than €500m are more likely to look for global explanations: 36% name globalisation as a primary factor behind customers’ greater 24% expectations, compared with only 22% of smaller France firms. Furthermore, 28% adduce the influence of the rise of high-net-worth and middle-class 16% consumers in emerging markets, double the 14% Italy of €10m-500m companies that do so. Correspondingly, smaller groups are more likely 34% to see communications technology, such as the rising prominence of smartphones and live online chats, as a big factor in changing customer Source: Economist Intelligence Unit. expectations. Thus, although smaller companies5 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation see technology as the driving force behind market stating that they already use contactless payment change, larger firms look to the global economy. to improve the customer experience. The UK is The most significant manifestations of this will be in the vanguard, with 52% having adopted the explored later in this report. technology. So too, perhaps unsurprisingly, are larger companies. But the roll-out of contactless Customers’ elevated expectations carry through payment encapsulates the difficulties faced by to the final stage of the shopping experience— multinational retailers when implementing new the payment transaction—and here retailers are innovations (see case study below). slowly adding new options, with 38% of retailers Case study: Global landscape, uneven terrain The onus on retailers to adopt new technologies can be Inditex’s major rivals are also taking steps. Gap Inc, the immense. But external constraints can often be the true world’s third-biggest fashion chain, has introduced Google limiting factor. Wallet to its Gap, Old Navy and Banana Republic stores in the US. H&M, which is the global number two, ought to have Inditex, the world’s largest fashion retailer, knows this only an even bigger incentive as it is a single-brand operator too well. It operates in 82 countries ranging from Kazakhstan and sells at lower prices than Inditex. However, although to Uruguay via its native Spain. the retailer has introduced a transactional online presence The company has transactional websites in about one-third in some markets, it is yet to begin rolling out contactless of its markets. When the remaining two-thirds arrive will payments. depend on the growth of online penetration in these local Some retailers are actively engaged in driving markets and awareness of Inditex’s roster of brands, which standardisation across markets. Metro, Germany’s largest include Zara, Berskha and Pull & Bear. retailer, has developed a uniform method of payment using It is also making early moves towards accepting contactless near-field communications that it believes can be rolled out payment, with pilot schemes in Italy and Poland and the internationally. introduction of Google Wallet, a mobile-payment system, in Dr Christian Plenge, head of architecture and innovation its recently opened New York flagship. at Metro Systems, the IT division of Metro Group, says: “We First, there are legacy ePOS systems that hinder the are keen to move away from stand-alone solutions and to introduction of contactless payment. work towards a standard that can be applied throughout the Even if a local market has an up-to-date integrated payment industry—regardless of the provider, the platform and the system, domestic limits on the amount that can be spent devices used.” This entails greater co-operation with bodies in a contactless transaction can reduce the benefits of outside the sector, such as card providers and mobile phone introducing the new equipment. operators.6 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation 2 Watching—and waiting—for the next big thing At the After seeing the impact on the industry that for the next revolution, the smaller ones are different technologies have had in a very short experimenting at the forefront. moment, the space of time, retailers are betting that there is fast-follower, another game-changer that will shake things up Whereas the first wave of online expansion— broadly between the foundation of Amazon in the small and by 2020. Some as yet unknown technology is the 1994 and the onset of serious “click-and-collect” the nimble, second most popular choice for the main driver of initiatives around 2007—favoured the first mover changing customer expectations by 2020 (34%), have got more behind only the inexorable and long-foretold rise and those with sufficient scale to attract traffic flexibility than of the middle classes in emerging markets (36%). and spread investment over a larger cost base, the second, multi-channel phase favours fleet- the big boys. The strength of the response masks an footed operators who, often by dint of being But the major illuminating divergence. The gap between latecomers to new technology, can tailor a new retailers who smaller firms and larger companies here is a system to their own specifications. colossal 25 percentage points. Similarly, it are investing appears that the higher up the organisation you “At the moment, the fast-follower, the small and heavily in this travel, the more fatalistic—or some would say the nimble, have got more flexibility than the big are becoming realistic—the responses are. C-level executives boys. But the major retailers who are investing heavily in this are becoming more agile too,” says more agile too. are more likely to say that some unknown and Mr Cheshire of Kingfisher. The established players unforeseen technology will transform customer expectations between now and the beginning of are more likely to be locked into powerful but the next decade. unwieldy IT systems. Ian Cheshire, chief executive of Kingfisher However, although the big players are waiting The scale of what companies must manage in just one area of technology, payments, shows Chart 2 the threat to inflexible incumbents—and the What do you believe will be the main drivers of changing potential cost of inaction. The volume of global customer expectations by 2020? contactless card transactions will rise from Some technology which cannot be predicted right now 3.5bn in 2009 to 31.8bn in 2013, according to (% of respondents) US-based market-research company, the Yankee Group, while the value of mobile payments, either through near-field technology or remote 49% transactions, will rise to US$1.3trn by 2017, 23% 37% 34% according to Juniper Research of the UK. The case study on the following page contrasts Companies with Companies with C-suite Total respondents how two retailers of differing sizes dealt with €500m or more €10m to €500m technological innovation. Source: Economist Intelligence Unit.7 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation Case study: Experiments at the edges or innovation by command? Multi-channel retailing is the buzzword of the era. But the from a new automated distribution centre to rewriting the differing paths retailers take to get there are illuminating, job description of its shop-floor staff and overhauling its and offer a revealing glimpse into why attitudes differ website. between companies of varying sizes. “Four years ago, we made a decision to be a multi-channel Aurora Fashions, the British owner of clothing brands retailer because we recognised that added value to including Coast, Warehouse and Oasis, is a mid-sized retailer shopping,” she says. that, in the words of its chief executive, Mike Shearwood, is The project included customer research, a dramatic prone to the odd “mutation”. expansion of the number of products stocked online and “One of the guys from Oasis came and asked for £2,000 to retraining its 27,000 partners in what customer service develop something in 2009,” he recalls. The result, he says, means. was fashion retail’s first transactional iPhone app. “Sales “We spent a lot of time with partners talking about the through mobile now are 10% of the digital channel.” changing nature of the shopping experience and how more Letting things happen and following the customer is the shopping trips started online. We turned them into brand modus operandi. “We have integrated our IT, e-commerce and advocates, changed their job description and their KPIs [key retail teams. They all talk to each other and don’t do things in performance indicators]. That was a key area.” silos. When they develop something, they do it with another That meant explaining to a traditional workforce who have relevant part of the business. The testing is much quicker been trained to “think that good service was selling physical than the old way of doing IT projects, and a lot more flexible.” products to a customer in a shop” that they were also If Aurora adopts technology through evolutionary mutation, responsible for online sales in their catchment. then John Lewis, another British retailer with a turnover For Ms O’Donnell, multi-channel represented a leap of faith: approximately ten times the size of Aurora’s, adopts “It was a big gulp to swallow.” It was a bet, in the form of tens technology through intelligent design. of millions of capital expenditure, placed on the basis of a The company’s commercial director, Ms O’Donnell, was in long-term vision of consumer behavior—not a £2,000 punt charge of transforming John Lewis into a multi-channel on a smartphone app. retailer—a project that spanned along the supply chain What is standing in retailers’ way from adapting because the smartphone is already the ‘all- to the new landscape? Inconsistency across purpose device’ of our customers. different markets was by far the most common response, with 64% of respondents highlighting “But mobile payment has to be as easy for the it as a problem. Payment-on-delivery is more customer as paying with a credit card, otherwise deeply rooted in some markets, such as Germany, it won’t catch on. Currently, different players on which poses problems for online sales. Similarly, the market—banks, mobile carriers, smartphone there is no industry standard for contactless or producers, et cetera—are competing to establish near-field communication (NFC) payments. their own NFC solution as the industry standard.” There are also routine internal challenges: Dr Plenge of Metro Systems says that contactless although the cost of inaction is staggering, payment was a “great opportunity” for the responding to the omni-channel challenge world’s fourth-largest retail group and its is not cheap either. Over two-fifths (43%) customers, adding: “NFC payment using a of respondents think that the adoption of smartphone is currently the most technically cumbersome IT platforms is preventing retailers sophisticated solution—we think it has a very big from moving at the same pace as the consumer potential to become a common payment method when it comes to offering multi-channel8 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation The decision to adopt a new technology is often painful, either because it requires investment or because it forces compromises in the way In a lot of organisations there’s retailers operate. M­ ommerce is a case in point. c internal resistance to change. We have tried to take a view that “More and more people are using their idle time, whether at the bus stop or in the car, to go if it’s right for the customer it online—on social networks, browsing the web or will be right for us eventually. to shop. It’s only natural that you would expect people to transact as well,” according to Mark Newton-Jones, chief executive of Shop Direct, Mike Shearwood, chief executive at Aurora whose brands include Littlewood and Very. “That Fashions requires creative effort and systems integration— and also cash.” opportunities, and the cost of adoption has to be Few retailers relish the chance of trying to inspire a major factor in this choice. customers with a selling space that is only a few The expense, for larger companies especially, inches wide, nor will they jump with joy at the is considerable. Kingfisher is in the midst of expense involved in repurposing their websites spending £70m (US$110m) on “rewiring its and, in Shop Direct’s case, their internal systems. internal systems” to enable the company to become an omni-channel retailer. Ms O’Donnell But following the customer is no longer optional. reckons that it requires between £40m and £50m “In a lot of organisations there’s internal for John Lewis to stay ahead of the game: “An resistance to change,” says Mr Shearwood of incremental 30% to 50% onto your IT bill per Aurora Fashion. “We have tried to take a view that annum is what it takes if you want to be a leading if it’s right for the customer it will be right for omni-channel retailer. We believe this investment us eventually.” will create barriers to entry.” More and more people are using their idle time, whether at the bus stop or in the car, to go online—on social networks, browsing the web or to shop. It’s only natural that you would expect people to transact as well. Mark Newton-Jones, chief executive of Shop Direct9 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation 3 Getting personal is key to meeting changing customer demands How are retailers responding to the new omni- Analysing and understanding the consumer is the channel terrain? If they are spurred on by a biggest area of activity for retailers trying to pre- need to follow consumers, it should be of little empt their customers’ shifting needs and desires. surprise to find that retailers are obsessing over Personalising shopping experiences, working on understanding their consumers better and then customer segmentation and researching their adapting the shopping experience. expectations are the most popular steps, far outranking more operationally focused measures, Chart 3 such as integrating multi-channel payments. How is your company currently adapting in order to prepare for changes in consumers needs and expectations? Personalisation is higher up the agenda for (% of all respondents) e-retailers and specialty stores than for others. E-retailers have the advantage of being able Delivering personalised to reorganise their shop layout according to a shopping experiences 39% customer’s ordering history—the equivalent of a across multiple channels Increasing use of supermarket hastily rearranging its aisles every customer segmentation 38% time a customer walks into a store. For specialty stores, personalisation is seen as a key weapon in Increasing research into consumer expectations 37% the fight against general merchants. Increasing use of customer analytics to 34% As luxury moves online, it too will seek ways to personalise service differentiate itself through personalised, one- Increasing use of social media 32% to-one service. François-Henri Pinault, chief executive of French luxury-goods group PPR, Increasing use/upgrading raised the possibility of using online orders to of CRM systems 32% reach markets where the company does not have a Integrating our online physical presence through a network of personal and offline shopping 30% experiences tailors who carry out home visits. Focussing on brand building 20% Perhaps more intriguing are the responses of Increasing use of customer discount and convenience stores, which comprise analytics to assess 19% the keenest group of retailers that are using customer behaviour personalisation and customer segmentation. Integrating multi- channel payments 5% This is despite their reputation as being the most Using payment insulated corners of the high street from the information to build 2% technological revolution in how customers shop. consumer intelligence For example, what would personalisation look like Source: Economist Intelligence Unit. in the convenience sector?10 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation J Sainsbury’s “coupon at till” scheme might offer entrenched. In no market did more than one a pointer: customers receive targeted money-off retailer in seven believe that loyalty schemes vouchers at the point of sale (POS). It is more boosted sales. immediate than the standard loyalty scheme, So where are retailers turning for information and more personalised than conventional about their customers? Web analytics seem to be voucher schemes. helping to fill the void. Metro has recently introduced a real-time Jody Goodall, head of solutions architecture at couponing scheme, allowing customers to select Kiddicare and Morrisons.com, says that currently online coupons with their smartphones at the the brands eschew a loyalty card, instead, they POS. “We see a great potential for digital and glean information from web analytics and simply personalised couponing with mobile solutions,” by asking customers about themselves when they added Dr Plenge. order online. However some sort of loyalty or reward scheme is very much on the future agenda. It is clear from the survey that retailers feel compelled to act in response to customer As the online operations of traditional retailers requirements rather than, for example, in the increasingly come to the fore, the data they hope of cutting costs. Some 42% say that their provide may become more valuable. adaptations would win customers’ loyalty and strengthen their brand, compared with cost- Mr Shearwood says that geolocation technology cutting measures such as reducing their high- means that it is increasingly feasible seamlessly to street presence (25%) and customer-support link up e-commerce, m-commerce and stores. If costs (29%). it is raining solidly in the south-west (of the UK), he says, customers browsing the mobile-enabled However, the proactive reasons for adopting website on their smartphone would immediately change (increased loyalty, for example) are see the latest offers on raincoats, just as they far more likely to be mentioned by smaller would if they walked into a store. Similarly, the businesses, with larger firms more likely to website layout could change for IP addresses emphasise cost and efficiency savings. This again or customer accounts linked to the south-west. underscores the more proactive approach of more This could open the door to price discrimination: nimble players. charging customers different prices for the same product on the basis of information, for example, With the increasing value of customer data and on their user history. However, many retailers analytics, it would be easy to assume that the will be reluctant to risk the ire of consumers. But loyalty card is coming to the fore. But, according the personalisation of websites based on order to retailers, the loyalty card is becoming history is already in use by Ocado, an online yesterday’s solution. Only 8% disagree that grocer. loyalty schemes are now expected by consumers but have little effect on their company’s sales. Using the Internet as a window to what customers Loyalty schemes seem to be grudgingly accepted are searching for is also more reactive than as a necessary evil rather than the gateway waiting for batch-processed data. “Last week I to valuable customer data they were once knew that the most searched item of womenswear considered. Strikingly, the disenchantment seems was a one-shoulder dress”, says Mr Newton-Jones to be strongest among supermarkets—where the of Shop Direct. “I don’t have to do any research, use of loyalty cards was pioneered and is most which is always backwards looking. This is live.”11 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation 4 Pioneering change—in-store and online The survey sketches a roadmap of the innovations said that they use it currently, rising to 44% that will be introduced to stores in the coming next year. Russian retailers lag their European years. QR codes, despite their increasing counterparts, as would be expected of a rapidly prevalence in magazines, advertising and developing market. But in important areas such packaging, remain decidedly rare, with only as contactless payments and data collection, 8% of respondents using them. Location-based Russian retailers expect to have closed the gap technology will become more commonplace by by 2020. the end of the decade, as will staff roaming the shop floor with mobile-POS equipment. Kingfisher is using QR codes on packaging and on the edges of shelves to link to demonstration However, contactless payment is already firmly and how-to videos that can replace leaflets. Its in the pipeline. Some 38% of those surveyed Castorama chain in France has attracted 6.5m Chart 4 video views, including user-generated views. Which of the following technologies do you currently use to B&Q, its British counterpart, has racked up deliver an improved customer experience? 2.5m views. (% of all respondents) Shop Direct is also putting store by its online Data collection videos, shot at its custom-made studios. (eg, based on previous 40% purchase history) Some 70% of clothing on its website is now Contactless payment accompanied by a video, with the aim to reach technology 38% 100%. Mr Newton-Jones says that there is a three-fold advantage: first, the conversion Social media tools 36% rate rises because customers can see how the Technologies to enhance garments hang; second, return rates decline as e- and m-commerce 35% customers are less likely to change their minds when the item arrives; and finally, having video Self-service kiosks 32% content also gives its products a leg-up on Employees in-store Google searches. with mobile-POS 29% If customers can now shop anywhere they can Swipe and go 28% get a phone signal, it will doubtless increase the Location-based number of sales opportunities. But it will also technologies 23% make consumers more demanding. Quick response codes 9% Aurora introduced an industry-leading 90-minute Next generation delivery service in 2011. Its record to date is loyalty engines 7% 14 minutes and 55 seconds. In one example, a Source: Economist Intelligence Unit. woman arrived at a wedding ceremony wearing12 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation Chart 5 Which of the following technologies do you plan to use in the future to deliver an improved customer experience? (% of all respondents) Next year By 2020 Data collection (eg, based on previous 41% 31% purchase history) Contactless payment technology 44% 26% Employees in-store with mobile-POS 26% 41% Swipe and go 38% 28% Location-based technologies 27% 35% Social media tools 27% 33% Self-service kiosks 26% 33% Technologies to enhance e- and 35% 14% m-commerce Quick response codes 16% 32% Next generation loyalty engines 7% 18% Source: Economist Intelligence Unit. the same dress as another woman. She was able advice, enjoy the plush surroundings and then to order a new dress in time for the reception. order the same product from the cheapest online pureplay. Store groups in the US have reacted Overcoming the fear of showrooming furiously, with some blocking out WiFi signals. The phenomenon of showrooming holds some fear for brick-and-mortar retailers. On the This particular iteration of multi-channel positive side, it implies that consumers still want retailing is already happening in Europe. Some to go somewhere to see, touch and feel physical 55% of respondents say that they are turning goods. This is good news for those retailers stores into showrooms because more sales that incur the inconvenience of rent, rates and are conducted online, against only 18% who overheads. The bad news is that a shop may disagree. This is even the case for franchises, well be a showroom, but not necessarily your which historically have had good reason to fear showroom. Customers armed with smartphones, direct online sales (52%) and for independents, sometimes equipped with barcode scanning apps, which may be forgiven for not having fully can avail themselves of a traditional retailer’s fledged transactional websites.13 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation Those most reluctant are specialty retailers— The social media challenge only 34% say that they are turning stores into Despite the buzz over social commerce, the showrooms. It is specialists that have the most to results betray a lack of certainty regarding how fear from the freerider problem of online stores social networks will affect the industry. The benefiting from the service and store network UK and Germany are further ahead than their of their rivals. The role of suppliers here could counterparts. British retailers are more likely become crucial. to say that social media has driven change in customer expectations in the past five years, but The demands of multi-channel retailing also less likely to say that it will do so between now Since the mean that there are fewer hiding places for dual- and 2020. advent of pricing policies between the Internet and stores. multiple stores John Lewis took the decision to drag its Never Accordingly, British and German retailers appear Knowingly Undersold pledge online, albeit with to be thinking more actively about how they in towns, a caveat excluding Internet-only retailers, and use social media. For example, 51% of British people have the big electrical retailers are moving towards retailers say that more empowered consumers walked around pricing parity. will necessitate a new social media policy, and checked WM Morrison’s Kiddicare was a pioneer of the compared with 35% overall. prices. multi-channel showroom. Bespoke online- Federico Barbieri, senior vice-president of Technology has ordering kiosks are available in its stores. It e-business at PPR, social networks provide a is sanguine about the threat of customers made it more quandary for the luxury industry as a whole. test-driving its buggies before buying them transparent, from Amazon. “[Social media] builds networks of people based more on relationships, common interests or occasions. “We will give you free WiFi, PCs even, to help you Historically luxury brands built their awareness immediate and make your purchasing decision, whatever that through word of mouth among those few who now people might be,” says Ms Goodall. “Since the advent could afford them - it was still exclusive and are doing it of multiple stores in towns, people have walked discrete, so in line with luxury values,” he says. in-store with around and checked prices. Technology has made “[But] times have changed and now social media it more transparent, more immediate and now is doing that job, mixing people who would never mobiles. people are doing it in-store with mobiles.” be a customer with core customers. For luxury brands, it is key to understand how to play in that Similarly, Sportscheck, the German sports complex field rather than just do it [social media] Jody Goodall, head of retailer, introduced online browsing tables because its happening.” solutions architecture and in-store iPads to its stores two years ago. at Kiddiecare and This circumnavigates the classic problem faced Luxury brands are beginning to grapple with how Morrisons.com by sports stores: how to display low-margin, to engage on a forum as democratic and open as awkward-to-stock sports equipment. Customers social media in a manner that is appropriate for a can also benefit from in-store service instead of sector that thrives on exclusivity and scarcity. The being left to sink or swim online. case study on the next page shows how retailers can use social networks to create communities for The train of thought here is that, since there is no their customers. hiding place, one may as well be as transparent as possible and earn the goodwill of parents at a time when they are in need of advice. And, of course, price match if one has to.14 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation Case study: Building a community of customers Castorama, a French home-improvement chain elements of Groupon and collective buying.” owned by Kingfisher, has devised an innovative “We bought a web platform which we have way of allowing its customers to benefit from adapted to help streets to get together to share, each other’s expertise. Les Trocs’heures is a borrow from each other or buy equipment as a free website that allows customers to swap street,” he explains. “That’s been on trial this their DIY expertise (troc is French for barter or year and we’re hoping to scale up to a national swap). roll-out.” “Say you’re a gardener but you don’t have Thus, instead of paying £50 for a powertool that a clue how to lay a floor. You can swap with will be used once and stowed away in the shed, somebody who’s good at flooring but not much members will be able to pay a fraction to borrow cop in the garden,” explains Ian Cheshire, one from an assigned neighbour whose contact group chief executive of Kingfisher. “It’s doing details would be available on the website. surprisingly well on a slow burn.” “We’re trying to think differently about the retail Users upload a profile including their location, relationship with our customers.” availability and areas of competence. The website already has 3,500 members and has He adds: “All of this relies on technology that just facilitated more than 1,000 swaps. wouldn’t have been possible ten years ago.” It is one of a series of peer-to-peer schemes Screwfix, Kingfisher’s trade business, hosts that Kingfisher has set up. In the UK, it has online forums where tradesmen share tips and launched a pilot scheme called Street Club, upload home-made instruction videos of projects which aims to introduce group-buying for they have worked on. The electricians’ area of the tools. “Think of it as a local social network with site alone has nearly 40,000 discussions.15 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation 5 Where now? Ten steps in pursuit of the high-street presence, leaving it well down in the list of objectives. omnipotent consumer for 2020 3. Stores will embrace their new status as showrooms. There is a temptation to push back 1. Mobile devices will become the first port of against online prices and product comparison in call for engaging with customers. Whether it an attempt to preserve margins. This will recede is through the use of near-field communication as retailers become more adept at using their technology or using geographical positioning multi-channel flexibility to make sure that, once capabilities to offer targeted discounts, or customers cross the threshold, they are offered simply ensuring that mobile-optimised websites a range of product and delivery options. This will carry the hand-writing of a brand, mobile will mean building incentives for online sales into be the shop front of tomorrow. Today, mobile store staff’s pay structure. It also means that devices are being used by just 32% of retailers price matching will become the norm, not the to communicate with customers, but when asked exception. about their expectations for 2020 it is the most common channel of communication, with 43% 4. E-commerce will develop a human touch. suggesting that it is set to overtake stores, call Online retail will become an experience in centres and direct mail. itself, not just a means to an end. Pureplays are grappling with how to deliver service in real time, 2. The high street will make a comeback. The while brick-and-mortar retailers are desperate to omnipotent consumer is more demanding than express ethos and translate their “handwriting” their traditional high street or online-only online. This means more live chats. Only 2% are cousins—retailers must assure the “omni- using instant messaging to communicate with shopper” that they have what they want, when customers—but 21% say that they will do so and where they want it, and will therefore by 2020. This is a technique pioneered among win their trade. Online-only players are e-retailers, 13% of whom are already using it. already seeking physical presences. Amazon is Websites will also become increasingly dynamic, experimenting with lockers and recently signed automatically tailoring search results and up a partnership with Collect+ to use its network architecture to a customer’s history. of 5,000 cornerstores for deliveries and returns. Even retailers with significant store presence 5. Contactless mobile payments will reach are taking similar steps: John Lewis will deliver critical mass after standardisation. Competing to its Waitrose sister chain, a model that it will systems and inconsistent regulations are a soon extend to third parties. Only one-quarter barrier to adoption by retailers. The rivalry of respondents hope that by meeting customers’ between different consortium-backed systems, new demands they will be able to reduce their and Google Wallet, means that an industry16 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation standard has yet to emerge. Dr Plenge of Metro technologically enabled price discrimination Systems notes: “Mobile payment has to be as easy as long as it is packaged as a “reward” for a for the customer as paying with a credit card, lucky few? When is it appropriate to enter a otherwise it won’t catch on.” conversation on social media? The code of conduct offline has been built up over millennia. 6. Bespoke technology will be a source of The unwary retailers will find out about the new advantage. Being locked into unwieldy IT code of conduct the hard way. platforms can restrict moves towards multi- channel or international development. There 9. The global population of omnipotent Mobile will be more deals such as Morrisons’ acquisition consumers will explode. There is widespread payment has to of Kiddicare, PPR’s tie-up with Yoox (an online- recognition that first-generation consumers in be as easy for only fashion retailer) and supermarket groups emerging markets will reshape the industry—only buying digital media retailers in order to acquire 19% of respondents see it as a factor behind the customer successful technology. Similarly, there has been a changing expectations in the past five years, but as paying with succession of large retailers, such as Mothercare 36% believe that it will be a driving force over the a credit card, and Marks & Spencer, announcing that they will remainder of the decade. stop using the Amazon platform. otherwise it 10. The concept of “retail” needs to be flexible. won’t catch on. 7. Price will be neutralised as a weapon. The Even by conservative estimates, more than one omnipotent consumer has as good a view of high street shop in ten is empty in the UK. In competitor pricing as the retailer has. In the France, the most successful e-commerce model absence of differentiated pricing, low prices is the “drive” concept, used by hypermarkets Dr. Christian Plenge, head of architecture will be the ticket to entry, not a guarantee of so that customers can click-and-collect orders and innovation at winning the prize. Convenience, service and without leaving their cars. Meanwhile, initiatives Metro Systems exclusivity will be the key drivers—retailers like Amazon’s collection lockers and third-party clearly feel compelled to act in response to drop-off points are taking off. How long will it customer demands, rather than in the hope of be before retailers with excess store space or cutting costs. landlords of empty shops become repositories for other people’s goods? Smart retailers will 8. The etiquette of the omnipotent landscape embrace the opportunities brought about by this is still being written. Retailers must mind flexibility while considering how changes might their step. Is it overbearing to phone a shopper affect consumers’ perceptions of their brand. who has abandoned an online transaction to offer assistance? Will consumers accept17 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation Conclusion The test presented by omnipotent consumers is daunting. They know what the market is offering, at what price and at a speed unimaginable a decade ago. Retailers are responding but some are reverting to the comfortable, for example abandoning “troubled” low-margin markets where online presentation is highest—a move sometimes born of necessity, but as often out of ludditism. Solutions are not one-size-fits-all, as demonstrated by the range of innovations highlighted in this report. But successful retailers will accept the challenge laid down by “omni-shoppers” and use the new environment as an opportunity to refigure their businesses.18 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation Appendix: Survey results What have been the main drivers of change in customer expectations over the past five years? Select up to three. (% respondents) Increased competition between product/service providers 37 Proliferation of self-service (ie, booking a holiday online rather than through a travel agent, self-service check-outs at grocery stores, etc) 33 Customer empowerment 32 Increased amount of available information to consumers 30 Globalisation 28 Social media 25 Communications technology (smart phones, web chat, etc) 21 The rise of middle-class and HNW consumers in emerging markets 20 The need to compete on brand in a crowded marketplace 19 Changing demographics 12 Increased information available to companies on customers through analytics 5 Decreased customer loyalty 2 Other (please specify) 319 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation What do you believe will be the main drivers of changing customer expectations by 2020? Select up to three. (% respondents) Growing middle class of consumers in emerging markets/increased per capita incomes 36 Some technology which cannot be predicted right now 34 Increasing global competition 33 Changing demographics (ie, ageing population in many developed markets) 31 Increasing use of smartphones, tablets and other portable web-enabled devices 30 Personalisation technology 30 Increasing outsourcing of service jobs to emerging markets 27 Increasing customer empowerment 21 Social media 14 Decreasing customer loyalty 5 Other (please specify) 0 Don’t know 2 What are the implications of more empowered consumers for your company? Select all that apply. (% respondents) New customer service strategies 42 New marketing strategies 41 New payment solutions 40 New social media strategies 35 New ways to increase customer loyalty 35 New ways to increase customer trust in our brand 34 Expanding into new markets 26 New pricing strategies 18 Partnering with other companies to strengthen our brand 9 Partnering with technology companies to help us manage the transition to multi-channel retail 6 No implications 0 Not applicable, I don’t believe consumers actually are more empowered than in the past 020 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation How is your company currently adapting in order to prepare for changes in consumers needs and expectations? Select all that apply. (% respondents) Delivering personalised shopping experiences across multiple channels 39 Increasing use of customer segmentation 38 Increasing research into consumer expectations 37 Increasing use of customer analytics to personalise service 34 Increasing use of social media 32 Increasing use/upgrading of CRM systems 32 Integrating our online and offline shopping experiences 30 Focussing on brand building 20 Increasing use of customer analytics to assess customer behaviour 19 Integrating multi-channel payments 5 Using payment information to build consumer intelligence 2 Other (please specify) 1 What do you believe those adaptations will deliver for your company? Select all that apply. (% respondents) Increased customer loyalty 42 Stronger brand 42 Cost efficiencies through targeted marketing 33 Reduced customer support costs 29 Better customer intelligence 29 More efficient payment systems 28 Reduced high street presence 25 Increasingly globalised customer base 15 Broader product/service range 13 More personalised product/service offerings 5 Other (please specify) 121 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation What is preventing retailers from moving at the same pace as the consumer when it comes to offering the multi-channel opportunities consumers want? (% respondents) Inconsistency of experience across different territories (eg, some markets adopting new technology faster than others globally) 64 Adaptation of cumbersome IT platforms to meet new consumer demand 42 Lack of audience intelligence to stack up the case for investment 42 Lack of internal co-ordination and alignment 22 Supply chains which are not designed to serve multi-channel businesses 11 Not applicable, I think retailers are keeping pace with consumer expectations 3 Do you agree or disagree with the following statements? (% respondents) 1 Agree 2 3 Disagree We are turning our retail outlets into “showrooms” as most purchasing will be online in the future. 55 28 18 Creating a seamless customer experience via online and offline channels is key to my company’s success. 43 37 20 We are investing heavily in technology to support our ability to deliver an effective multi-channel experience. 41 29 30 Loyalty schemes are opening up new ways for my company to market and sell our products. 36 54 11 Loyalty schemes are now expected by consumers but have little effect on my company’s sales. 51 42 8 Which of the following technologies do you currently use to deliver an improved customer experience? Select all that apply. (% respondents) Data collection (eg, based on previous purchase history) 40 Contactless payment technology 38 Social media tools 36 Technologies to enhance e- and m-commerce 35 Self-service kiosks 32 Employees in-store with mobile-POS 29 Swipe and go 28 Location-based technologies 23 Quick response codes 8 Next generation loyalty engines 7 Other (please specify) 122 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation Which of the following technologies do you plan to use to deliver an improved customer experience in the next year? Select all that apply. (% respondents) Contactless payment technology 44 Data collection (eg, based on previous purchase history) 41 Swipe and go 38 Technologies to enhance e- and m-commerce 35 Social media tools 27 Location-based technologies 27 Self-service kiosks 26 Employees in-store with mobile-POS 26 Quick response codes 16 Next generation loyalty engines 7 Other (please specify) 0 Which of the following technologies do you plan to use to deliver an improved customer experience by 2020? Select all that apply. (% respondents) Employees in-store with mobile-POS 41 Location-based technologies 35 Self-service kiosks 33 Social media tools 33 Quick response codes 32 Data collection (eg, based on previous purchase history) 31 Swipe and go 28 Contactless payment technology 26 Next generation loyalty engines 18 Technologies to enhance e- and m-commerce 14 Other (please specify) 223 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation Which of the following are the most important channels your company uses to interact with customers now? Select your top three. (% respondents) Stores/outlets 53 Email 44 Telephone/ call centre 43 Website 38 Social media 37 In person/sales force 36 Mobile devices 32 Mail 13 Instant messaging services 2 Other (please specify) 3 Which of the following will be the most important channels your company uses to interact with customers in 2020? Select your top three. (% respondents) Mobile devices 42 Website 38 Telephone/ call centre 38 Social media 37 Mail 37 Email 32 Stores/outlets 27 In person/sales force 21 Instant messaging services 21 Other (please specify) 424 © The Economist Intelligence Unit Limited 2012
  • The I Factor How consumer demand is driving retail innovation In which country are you personally located? (% respondents) UK 23 France 22 Germany 22 Italy 21 Russia 12 What type of retailer is your organisation? Select all that apply. (% respondents) Independent 36 Department store 23 Chain 19 Speciality retailer 18 Supermarket 17 Franchise 15 Warehouse retailer 11 E-tailer 8 Convenience retailer 8 Discount retailer 2 What is your job title? (% respondents) Board member 4 CEO/President/Managing director 23 CFO/Treasurer/Comptroller 6 CIO/Technology director 2 Other C-level executive 14 SVP/VP/Director 17 Head of Business Unit 15 Head of Department 19 Manager 1 Other 0 0 025 © The Economist Intelligence Unit Limited 2012 0
  • The I Factor How consumer demand is driving retail innovation What type of goods does your organisation sell? Select all that apply. (% respondents) Food 40 Durable goods 37 Soft goods or consumables 33 Intangible goods/services 8 What is your organisation’s global annual revenue in euros? (% respondents) Less than €10m 0 €10m to €500m 58 €500m to €1bn 25 €1bn to €5bn 16 €5bn to €10bn 2 €10bn or more 0 Where does your company operate? (% respondents) Globally 9 Europe only 40 My country only 45 My city/region only 526 © The Economist Intelligence Unit Limited 2012
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