Accenture european retail round table


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Accenture study reveals enticing e-commerce opportunity beset by challenges for Europe’s retailers.

In this study on European cross-border e-commerce, conducted by Accenture for the European Retail Round table (ERRT), 146 retailers from six retail sectors and seven countries were surveyed.

The research, which also included in-depth interviews with e-commerce executives from the members of the European Retail Round Table (ERRT), identifies the key challenges and opportunities that traditional retailers face in pursuing cross-border multi-channel strategies to drive profitable growth and satisfy the demands of Europe’s digitally empowered consumer.

January 2012

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Accenture european retail round table

  1. 1. European Cross-borderE-commerceThe Challenge of AchievingProfitable GrowthERRT research report
  2. 2. Foreword The shopping habits of customers Will it be easier to operate in cross- worldwide are changing rapidly. border markets? What should we Empowered by smart phones and take into account when developing or social networks, and with access to refining a multi-channel retail strategy? unprecedented levels of information, This report, independently compiled they are increasingly using digital by Accenture and drawing on the channels to shop. They are researching contributions of ERRT members and price, quality, service and delivery others, provides a detailed overview of options, and sharing ideas and opinions the challenges faced by retailers when all along the shopping journey–all looking at cross-border opportunities in through the power of online media. online retail. If you’re looking for an example, just take the current Millions of customers still come to our diversity of operational, legal and stores every day. But the number of market-entry conditions. customers shopping online is constantly growing, and the trend we see is for The findings will help every retailer on- and offline shopping experiences to sharpen their focus on opportunities merge more and more. and challenges of a new, multi-channel, retail reality–one which is happening Every retailer has to adapt and evolve as we speak. The ERRT will continue their business in order to continue to work hard with its members and to connect with customers. Online relevant stakeholders to overcome the shopping will never completely replace hurdles to a truly integrated on- and physical stores, but in five or ten years, offline retail business model focused on the retail landscape will no doubt be customer needs. very different from what we see today. Our competition could be next door, but it could also be a well organized online outfit on a different continent. Dick Boer CEO, Ahold and President, ERRT2
  3. 3. The opportunityWith e-commerce Few would deny the potential of the experiences, Europe’s consumers are using multiple channels—stores, kiosks European online retail market. With 40the fastest-growing percent of European Union shoppers and catalogues, as well as online—to complete a purchase.segment of European now using the Internet to buy goods and services1, a significant portion ofretail sales and online the €2,856 billion2 that they will spend Empowered by smart phones and social networks, and with access to on retail by 2015 is likely to be online.pure plays powering Sales in the 13 largest online markets in unprecedented levels of information, the continent’s consumers are, to beahead, going online the EU are already estimated to be €200 sure, increasingly digital. They are billion, and growing at just under 20cross-border looks like percent per annum3. leveraging the Internet to research price, quality, service and delivery options, andan increasingly enticing Spurred by this surge in digital sharing ideas and opinions all along theoption for bricks-and- shopping, the online pure plays— shopping journey—right up to the point when they finalize the transaction. Even retailers that trade exclusively via themortar retailers. New Internet—are expanding across borders so, Europe’s 27 constituent countries are at very different stages of online retailAccenture research at break-neck speed. ASOS, for instance, has reported that half-yearly sales in maturity. While online sales are oftenreveals, however, that the EU (excluding the UK) increased new sales in fast-growing geographies, by 73 percent and now account for 58 they may merely reflect a channel shiftmost traditional players percent of the online fashion retailer’s in more mature markets.view the opportunity as total revenues4. Amazon, similarly, which has websites in France, Germany, Italy, Our research, which also includedmulti-channel, driven Spain and the UK, and ships to all 27 EU in-depth interviews with e-commerceby changing consumer member states from these sites, reported executives from the members of the European Retail Round Table (ERRT), that international (non-US) sales weredemand—and many up over 40 percent in the nine months reveals that traditional bricks-and- mortar retailers recognize that theyare focusing on to 30 September 20115. need to defend existing sales inmaking online pay Small wonder that when Accenture existing markets by offering the same recently surveyed 146 European functionality as their more agile, puredomestically before retailers from six retail sectors and play competitors. However, they alsotackling Europe’s diverse seven countries (see About the research sidebar), one quarter of respondents believe that multi-channel strategies offer the most promising path toand challenging markets. told us that revenues could grow by 25 profitable growth. “Multi-channel is percent or more if they could sell both now a top priority, high on the CEO’s online and cross-border in Europe. agenda,” affirms one retail executive from ERRT. Fully 46 percent of another Yet just 8.8 percent of Europeans are leading retailer’s sales already are multi- currently buying online from retailers channel7. And 76 percent of our survey located in other countries6, which is respondents overall affirm that multi- the usual definition of cross-border channel customers are significantly e-commerce. Wary of the potential bigger spenders than those who stick complications of buying from foreign to a single channel—largely because providers online, especially when it they deepen their relationship with the comes to resolving complaints, many retailer, thereby driving further sales more are staying close to home. What’s (see Quantifying the multi-channel more, in their quest for convenient, opportunity sidebar). informed and satisfying shopping1. European Commission Digital Agenda Scoreboard 31 May 2011, Commission staff working paper Section 4, Page 13 of the English version2. Planet Retail Data Analysis November 20113. Centre for Retail Research: ASOS plc Trading Statement for the 6 months ended 30 September 20115. 3rd quarter Trading Statement 25 October 20116. European Commission Digital Agenda Scoreboard 31 May 20117. Home Retail Group Annual Report 2011 3
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  5. 5. Quantifying the Multi-channel customers versus single channel customer spending Percentage of respondents saying how much more multi-channel customersmulti-channel spend than single channel customers.opportunityMulti-channel consumers are biggerspenders than those who stick to asingle channel, with no significantdifferences by sector or home countryof operations.A substantial set of respondents (29percent) are already generating morethan 30 percent of revenues online.The ability to cross-sell or up-sell wasthe biggest perceived benefit of bothdomestic and cross-border online sellingfor almost half of respondents. And Source: Accenture European E-commerce Survey, 2011when asked what benefits they hadactually realized from e-commerce,45 percent added better customer Portion of total revenue from onlineinformation to these advantages— Split of respondents showing online turnover as percentage of totalinformation invaluable to adapting business turnover.ranges, targeting promotions anddriving loyalty campaigns. Source: Accenture European E-commerce Survey, 2011 Realized benefits of e-commerce Percentage of respondents identifying which benefits of e-commerce they had realized. Source: Accenture European E-commerce Survey, 2011 5
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  7. 7. The challengesMulti-channel strategies that exploit all Many retailers are, however, rising to the It’s a similar story when it comes tochannel options, not just online, offer challenge of building better performance operating an effective supply chainbricks-and-mortar retailers an alluring and scalability in their IT systems— across multiple channels. Direct-to-means of maximizing top-line growth essential if they are to achieve successful customer delivery requires significantopportunities. But they also present channel integration and deploy business changes to fulfillment set-up and pickingthese traditional players with significant changes at speed. They are investing in processes. Several retailers we spokeinternal challenges. “Going online exposes building the next generation of scalable, to had outsourced direct-to-customerweaknesses in the rest of the business,” multi-channel platforms, initially in fulfillment, but were trying to bring thisexplained one of our interviewees. domestic markets, but with a view capability back in-house in an effort to“Multi-channel ‘click-and-reserve’ cannot to expanding internationally in the reduce offered before achieving a very high next phase.level of accuracy in stock files. And the Returns handling capabilities alsoInternet puts your prices out there for all Operational require significant upgrading for bricks-to see, so if you are not competitive you Online retailing incurs many additional and-mortar retailers unaccustomed towill struggle.” costs for bricks-and-mortar retailers— the levels common in distance selling. both expected and unexpected. In fact, Explained one interviewee: “A womanIndeed, just getting multi-channel to our research identifies significant cost asks for three sizes in an item of clothing,work seamlessly in domestic markets impacts across all core functions, from and then returns two of them. Thatraises major technical, operational and buying, merchandizing and marketing, to means you have to have the margin toorganizational challenges. planning, store operations and cover both the returns [retailers rarely supply chain. charge the customer the full costs] andInternal and Domestic Challenges the reverse logistics.” Since return rates Online sales require detailed product can be 40 percent8 or higher for high-Technical descriptions, for instance, as well as the fashion items, the retailer has to be ableTypically, retailers have launched creation and uploading of rich digital to prepare goods for sending out againe-commerce operations in their domestic content such as high-resolution images and then make them available for salemarkets as a separate channel from their and videos. Digital marketing introduces by putting them back into the stockcore, store-based business—a key reason new requirements in regard to managing control system.why so many now struggle to deliver ‘paid search’, personalization acrossthe consistent, multi-channel shopping consumer segments, and targeted emailexperience that Europe’s consumers and promotion campaigns. And plannersincreasingly demand. face the complexity of forecastingSuch seamless service ultimately requires demand across multiple channels anda high level of technical integration how to allocate inventory effectively.between front-end order capture systems Nor should the impact of multi-channeland core back-office processes. Yet only on store operations be underestimated.38 percent of our survey respondents said Store staff must be trained to handlethey had achieved inventory integration new processes associated with click-and-across channels and less than half have reserve, click-and-collect and returns tomanaged to integrate pricing. Moreover, stores. Retailers that have been reducingthe current generation of systems does the amount of space in store stock roomsnot allow a single view of the customer. to boost selling space, now have to find“We can’t do true multi-channel more space for “sold” stock in order topromotions because we are sitting be able to hold the reserved item untilon a legacy platform,” explained the customer comes to pick it up. Andone interviewee. in order to accommodate new consumer shopping journeys, retailers are increasing customer service desk space, introducing kiosks and adding digital signage.8. F. Curtis Barry & company quoted in Catalog Success, How to Develop a Reverse Logistics Strategy 7
  8. 8. Retailers, who have to date focusedon protecting their market share andcapitalizing on their domestic marketmulti-channel opportunity, are nowlooking to grow internationalmulti-channel sales and tackle thecross-border challenge in Europe.Organizational Multi-channel operations are especially Retailers with franchise operationsStores still account for more than 90 complex for buyers. Do you have one face a specific challenge in goingpercent of sales at most bricks-and- buying team for online and one for online. A franchisee is usually granted amortar retailers—a cultural legacy that offline, for instance? And for those who geographic territory, but the Internet hascan complicate the shift of business set up online as a standalone business, no boundaries. A franchisee will resistfocus to multi-channel. There is a major when and how should they integrate the any attempt by the franchisor to set upshortage of people with multi-channel two? Best practice is to have one buying a website (and take sales away) unlessskills. And retailers struggle to get function across channels, of course, and there is a revenue sharing agreement intraditional store people working with that is already being executed by 49 place—and since these are not commonlymulti-channel colleagues. Indeed, one percent of our survey respondents written into franchise agreementsinterviewee observed a “culture clash (see Figure 1). they need to be negotiated with everybetween the multi-channel explorers and individual franchisee.the store exploiters.”Figure1: Online and Store Integrated AreasPercentage of respondents who have integrated functional areas across stores and online.Source: Accenture European E-commerce Survey, 20118
  9. 9. External and Cross-Border Market Entry Challenges the existing brand name owner, or notChallenges Our research reveals that the top three trading that particular product range in barriers to cross-border market entry are the affected country.Taking an online channel cross-border the cost of building brand awareness,greatly increases operating model Our interviewees also cited distinct the small scale of some markets andcomplexity and adds a whole new variations by product category. For unproven demand (see Figure 2).set of challenges, from classic market- example, electronics are easy to searchentry issues, to online set-up and day- In one case, for example, a retailer did online as the products are branded, butto-day operations. not own a key private label brand name it’s very hard to make money from selling in all the countries in which it wanted them online due to low gross margins. to operate and thus faced buying out Housewares confront the reverse problem.Figure 2: Barriers to Market EntryPercentage of respondents who identified the issues below as a barrier to market entry.Source: Accenture European E-commerce Survey, 2011 9
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  11. 11. Online Set-Up Challenges interaction processes need to beBuilding any online brand in a new adapted per country.” Meanwhile, “thecountry is expensive. And our research credit acceptance process in itself isshows that adapting to a diversity of very complex and involves substantiallegal and fiscal regimes adds significantly legal requirements associated withto the cost of market entry (see Figure 3). vendor responsibility, payment terms,One interviewee described the issue in bank settlements, security and risk, alldetail: “The main problem is the diversity of which differ by country.”in regulations and the varying levels of Retailers, in short, have to adapt theirlaw enforcement. General Terms and IT systems to reflect each individualConditions can’t be transferred directly country’s peculiarities—and buildto other countries. Legal advice is call-center, delivery and returnsneeded in order to analyze local product capabilities to match.return laws, distance selling law anddata transfer possibilities.” In addition,“varying personal records handlingregulations mean that the marketing,sales and customer relationship andFigure 3: Impact of Laws and RegulationsPercentage of respondents who said that the laws and regulations below had a high or somewhat high impacton their EU cross-border trading online.Source: Accenture European E-commerce Survey, 2011 11
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  13. 13. Moreover, while hiring good lawyers must offer items at an exact, rather than France, for example, requires detailedand adapting IT systems and processes a guide price—a headache for two reasons. packaging information at the individualcan overcome most challenges, some Firstly, because a customer may be buying product level, while in Germany retailersregulations have an especially severe one week for delivery the next, before only need to report how much packagingimpact on potential profitability. Take promotions that can change the basket is used annually. And in certain cultureslabeling. Retailers with one, common price are finalized. Secondly, although the where customers are accustomed toinventory for both stores and online retailer can specify the price of, say, 400g paying on delivery oblige delivery driversoperations must put the same label on of cheese, in practice they cannot deliver to carry portable payment terminals,all inventory—and in multiple languages, exactly a 400g piece because of the way which they must be trained to use. Worseregardless of the goods’ specific cheese is cut off a truckle. The amount will yet, drivers have to carry cash, whichdestination. “The additional cost of fabric always be just over or just under. results in additional security and cashto print these labels costs us millions,” handling costs, as well as heightening theexplained one interviewee, “yet most of Day-to-Day Operating Challenges risk of fraud or attacks on the vans.sales are through our home country stores. Our respondents also cited a number ofSo we either have to increase our prices, specific, cost-related issues that hadwhich is hard to do, or take a hit a high impact on their business profitabilityon profitability.” when operating cross-border (see Figure 4).Product returns laws, meanwhile, can be While different product returns laws (see Figure 3) had by far the highestshow stopping in some categories—notably impact for 47 percent of respondents,grocery. One food retailer observed, for difficulties in handling returns cross-example, that while the 14-day right border were cited by 44 percent ofto return a product rule works for wine, them (see Figure 4). And other, similar“the whole notion is impossible to apply issues—including the need to report VATto food.” And differences in domestic via locally registered companies, andregulations across Europe deepen the different rules governing the disposal andcomplexity. In Poland, for example, a grocer recycling of waste—were almost as vexatious.Figure 4: Impact of IssuesPercentage of respondents who said that the issues below had a high or somewhat high impact on their online EUcross-border trading.Source: Accenture European E-commerce Survey, 2011 13
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  15. 15. ConclusionDriven by the preferences of Europe’s Retailers are beginning to tackle their Meanwhile, leading retailers are focusedmany new, digitally empowered internal challenges. More than half on the next growth opportunity. They areconsumers, the continent’s traditional of our respondents are investing in creating innovative, low-cost operatingretailers increasingly view multi-channel, technology to streamline and manage models that combine the agility andrather than standalone e-commerce, cross-border differences in Europe, flexibility of the pure plays with theas the ultimate strategic destination with half offering local languages on brand power and convenience of store-in European markets. However, due to their website and almost as many based businesses. In addition, they arediffering levels of market maturity and (49 percent) offering local currency investing in new collaborative alliancesa diversity of operational, legal and payment facilities. But operating costs among partners in order to drive downmarket-entry conditions, taking multi- will remain an issue until retailers costs. Having invested billions of dollarschannel across borders is significantly achieve scale. For most, international to build an infrastructure, Amazon.commore challenging than simply enabling supply chain and fulfillment operations took more than 6 years to turn a profit9.European delivery options from a retailer’s are still immature and sub-scale relative to domestic market operations. But traditional retailers don’t have thatexisting online operation. luxury. They need to move quickly toUntil recently, traditional retail players Retailers, moreover, face competing establish first-mover multi-channelwere focused on defending market share investment choices—entering new international advantage.and capitalizing on the multi-channel markets in Latin America or Asia Pacific,opportunity in their domestic markets. or building multi-channel capability inBut they are now beginning to tackle the Europe. With high average per capitacross-border challenge, and in a variety wealth, Europe’s 500 million shoppersof ways. clearly represent a potentially significant growth opportunity. And Europe alsoSome retailers we interviewed are enjoys a relatively robust infrastructure.opening their domestic websites to According to many of our interviewees,European and/or international orders, Europe’s attractiveness needs to beor pursuing cross-border European sales improved, by continuing to makefrom a domestic location. Several are progress towards a single market inconsidering entering new markets with e-commerce, which will make it easiera pure play online model to test the to do business in multiple channelsmarket, and following up by opening across borders.stores. Still others are entering new,high-growth or under-served Europeanmarkets via multiple channels, orupgrading to multi-channel in locationswhere they already have stores—anapproach that is particularly pronouncedin food, where the most successfulplayers pick their online orders in storeslocal to the customer.9. Annual Report 2001 15
  16. 16. About Accenture About ERRT About the researchAccenture is a global management consulting, The European Retail Round Table is a network Accenture’s investigation into European cross-technology services and outsourcing company, of business leaders established to express the border e-commerce comprised a survey of 146with more than 244,000 people serving views of large retailers on a range of issues retailers with more than 100 million eurosclients in more than 120 countries. Combining of common interest. The ERRT businesses in annual revenues across six retail sectors—unparalleled experience, comprehensive operate worldwide and represent a cross- grocery, home goods, consumer electronics,capabilities across all industries and business section of the retail sector. Collectively, ERRT clothing, toiletries and leisure goods—andfunctions, and extensive research on the members have a turnover of more than €420 seven European Union countries: Denmark,world’s most successful companies, Accenture billion and employ 2.4 million people in over France, Germany, Italy, Poland, Spain andcollaborates with clients to help them 44,000 stores. More information on the ERRT’s the UK. Interviews with relevant executivesbecome high-performance businesses and activities is available at from the 14-member European Retail Roundgovernments. The company generated net Table (ERRT), which also included participantsrevenues of US$25.5 billion for the fiscal year from the Netherlands, Sweden and Belgium,ended Aug. 31, 2011. Its home page is supplemented and enhanced the survey For more information, please contact: Janet L. Hoffman Global Managing Director, Retail San Francisco, California, US Juan Manuel Rebollo Managing Director, Retail, Europe, Africa and Latin America Madrid, Spain Matthew J. Prebble Senior Executive London, UK ERRT 35 square de Meeûs 1000 Brussels, Belgium +32 2 286 51 22Copyright © 2012 AccentureAll rights reserved.Accenture, its logo, andHigh Performance Deliveredare trademarks of Accenture.