Kpmg report issues monitor-retail-july-2011


Published on

This edition focuses on:
Evolving supply chain initiatives
Recovery in the global luxury retail market
Growing mobile commerce in retail

Published in: Business, Technology
1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Kpmg report issues monitor-retail-july-2011

  1. 1. KPMG INTERNATIONALIssues Monitor : Sharing knowledge on topical issues in the Retail industry July 2011, Volume Ten :
  2. 2. Mark Larson Global Head of Retail Keeping up to date with the very latest and most pressing issues facing your organization can be a challenge, and while there is no shortage of information in the public domain, filtering and prioritizing the knowledge you need can be time consuming and unrewarding. I hope that you find Issues Monitor useful and I welcome the opportunity to further discuss the issues presented and their impact on your sector.Welcome to the July edition of Issues Monitor – Retail.Each edition pulls together and shares industryknowledge to help you quickly and easily get briefedon the issues that affect your sector.ISSUE 1: Evolving supply chain ISSUE 2: Recovery in the global ISSUE 3: Growing mobile commerceinitiatives luxury retail market in retailOver the years, significant changes Triggered by the worst financial crisis Since 2010, mobile commercehave been seen in the global retail since the Great Depression, 2009 (m-Commerce) in retail, or mobilesector. To have the right product at brought fear and uncertainty across retailing, has shown phenomenalthe right time and in the right place all demographics. Luxury retail sales growth, while traditional retail storesacross multichannel touch points contracted significantly, highlighting that have exhibited relatively flat growth.has become a challenge for retailers. this sector too had been affected. But as m-Commerce has quickly altered theMoreover, tough economic conditions the economy started to recover, luxury retail landscape and is set to rapidlyand changing consumer tastes have retail bounced back to prerecession increase its share in the retail industry.forced retailers to make their supply levels. Although the luxury retail market It has blurred the distinction betweenchains more efficient. The various recovered in most regions globally, websites and brick-and-mortar outletsinitiatives that retailers have started to growth was particularly strong in Asia. by linking disparate operations andoptimize regarding their entire supply Their strong economies and the rising making the internet a pivotal saleschain include workforce optimization, income of their middle class population engine for the first time for manyinventory planning and revamping of have attracted many luxury companies to retailers.technological infrastructure. operate in these markets. Further, these retailers have also identified untapped emerging markets and started to target them strategically as part of their long-term growth plans.© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  3. 3. 1 Evolving supply chain . initiatives . Over the years, significant changes have been seen in the global retail sector. To have the right product at the right time and in the right place across multichannel touch points has become a challenge for retailers. Moreover, tough economic conditions and changing consumer tastes have forced retailers to make their supply chains more efficient. The various initiatives that retailers have started to optimize regarding their entire supply chain include workforce optimization, inventory planning and revamping of technological infrastructure.© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  4. 4. 4 | Issues Monitor: July 2011, Volume Ten “Retailers are increasingly finding it necessary to lower their service costs, whilehaving to change their business models in response to the changing shopperpreferences, the slow economic recovery and the rapid growth of online sales Blurring saleschannels.1, 2 Moreover, industry consolidation — which has increased retailers’ channels acrossoperations and expanded their product portfolios — has increased the complexity retail segmentsof supply chain management (SCM).3 require retailers to increase their focusConsequently, retailers are required to consider new ways to improve efficiencies on markets andand optimize processes throughout their supply chain.4, 5 At the same time, customers.blurring sales channels across retail segments require retailers to increase theirfocus on markets and customers.6The need for supply chain initiatives .While the global retail sales increased over nine percent annually in 2010, “Thanks to cost reduction initiativesretailers need to improve their supply chain strategies in order to maintain themomentum in 2011 and beyond.7, 8 Supply chain initiatives offer tremendous introduced by supply chainvalue to retailers who rely on the smooth planning and execution of related management executives, retailersoperations to achieve long-term profitability with minimal cost and maintain a were able to tap into existingsolid competitive edge in the market, despite reduced points-of-sale (POS).9, 10 opportunities to streamline their supply chains, lowering their bottom• An efficient supply chain helps as demand trend reports, forecasts, line costs and saving billions across retailers improve inventory inventory levels, order status and management. This can facilitate transportation plans — in real-time. the industry. Moving forward, these successful implementation of This effective communication cost structure enhancements and just-in-time stock models and and data-sharing helps to identify efficiencies will enable retailers to eliminate strain on real estate and numerous cost-cutting opportunities thrive as the economy becomes financial resources.11 that can be beneficial to all parties healthy again.”• Well organized supply chain involved in the supply chain.14 – Casey Chroust, initiatives assist effective demand • By reducing their environmental Executive Vice President of Retail, Retail Industry Leaders Association (RILA).18 planning. Consequently, retailers impact, retailers can save overhead can set their product procurement costs. By re-evaluating their supply levels to most effectively address chain in light of green policies, customer requirements — with little with regard to managing the use shortage or waste.12 Further, to meet of materials and shipping and urgent customer needs, retailers distributing final products, retailers sometimes need to resort to rushed can often identify huge savings.15 In orders, express shipments and October 2010, Wal-Mart announced un-optimized transport. Therefore, its plans to double the amount “ retailers are increasingly required of locally sourced products on its to streamline their supply chains shelves. Through this move, it will and become more responsive to reduce its environmental footprint Retailers are changing customer needs.13 by shortening the distance between increasingly required• An efficient supply chain also helps the point of production and to streamline their retailers to enhance collaboration distribution. At the same time, this supply chains and with their supply chain partners. initiative will reduce the company’s become more Retailers, vendors and suppliers tend logistics and supply chain costs.16, 17 responsive to to share vital information — such changing customer needs.© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  5. 5. Issues Monitor: July 2011, Volume Ten | 5Supply chain initiatives .Figure 1: Retailers’ supply chain initiatives Inventory Revamping optimization IT systems Supply chain initiatives taken by retailers Workforce Transport spend optimization optimizationAdopting the leading best practices in retail SCM — related to sourcing,transportation, inventory policies and distribution — can have a huge impacton a retailer’s bottom line, provide significant value and increase competitiveadvantage.19 The following are some such initiatives:Inventory optimization Under this plan, Morrisons plans to merchandising and POS softwareOne integral part of retail SCM is save various indirect expenditures, solutions, to create a seamlessoptimizing the level of inventory. In including those for transport and and efficient demand-basedorder to attract customers and increase warehousing services provided by replenishment system.24sales, retailers must have the right third party logistics companies. It • In March 2011, US-based eBayproducts, in the right place, at the plans to reduce its procurement announced the first majorright time.20 Optimizing inventory spend for building new stores by integration of local inventory ontohelps retailers not only set appropriate GBP2–3 million (US$3.7–4.9 million) It is doing this throughservice levels and ensure customer annually.23 Milo, a local shopping enginesatisfaction, but also reduce both out- • In March 2011, Family Express, a that it acquired in 2010. With thisof-stocks and overstocks, as well as US-based convenience store chain, integration, eBay offers shoppersprotect margins. As a result, retailers announced plans to enhance its a one-stop platform that providescan drive sales and free up cash for inventory optimization with Retalix, access to both its online marketother investments.21 To assist retailers an Israel-based leading software and local stores. Moreover, eBayin reducing inventory at the stores and solutions provider to retailers and allows retailers to upload theirdistribution centers, various software distributors. Family Express plans to inventory onto Milo or eBay withtools have been developed.22 reduce out-of-stocks and optimize its a new inventory management• In March 2011, British supermarket fresh product inventory management plug-in, enabling small online Morrisons announced plans to save using Retalix’s Demand-Driven entrepreneurs to expose their GBP100 million (US$163.4 million) Replenishment solution. Retalix is inventory to eBay’s 94 million annually by 2013, by abandoning expected to integrate this solution users.25 indirect procurement of inventories. with the retailer’s existing pricing,© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  6. 6. 6 | Issues Monitor: July 2011, Volume Ten Transport spend optimization 24 hours and ensure that in-store Q Many retailers have their inbound and products are fresh.28 Will supply chain outbound transportation managed by optimization multiple organizations and systems. By Workforce optimization provide the integrating their transportation planning Delivering superior customer service, winning edge to and execution, they can increase the while managing a diverse and retailers? utilization of their transport management. fluctuating workforce, continues to be Further, this can reduce the number of a challenge for retailers.29 Apart from errors and the administration time spent procuring the right people with the on freight audit and payment, reduce the right skills doing the right jobs, they number of carriers and enhance control need to manage them effectively.30 over supplier deliveries.26 Efficient retail workforce management focuses on optimizing the workforce • In April 2011, British supermarket by determining the right employee mix chain ASDA hired System Training, while minimizing budget variance.31 This the UK’s largest logistics training not only improves performance but also provider, to provide the retailer’s reduces cost.32 3,000 distribution drivers with the Driver Certificate of Professional • In January 2011, Infor, a leading Competence (CPC) training US-based provider of business (a statutory requirement intended application software, announced to improve driver performance). that American Apparel (US-based, The training covers various vertically integrated manufacturer, modules that educate drivers and distributor and retailer) had transport professionals in ASDA implemented its Infor Workbrain on better fuel efficiency, lower solution to help manage the carbon emissions and a reduction company’s global workforce with in accident damage. This, in turn, integrated time and attendance, and is likely to help ASDA reduce store labor scheduling.33 The solution numerous transportation-related is helping American Apparel find the costs.27 “best fit” schedule, which ensures right employee mix are scheduled • In March 2011, German-based Rewe at the right time to meet customer Group announced plans to take demand.34 over the distribution of its non- food products from its suppliers’ Revamping IT systems distribution centers. This move is As technology tends to change expected to improve the company’s constantly, retailers are witnessing control over its supply chain. a clear transformation in the retail Earlier, in February 2011, Rewe had IT landscape.35, 36 Innovation is announced the reorganization of its increasing, smarter business decisions fresh-food supply chain. This helped are being made and cross-functional Rewe reduce lead times to below implementation teams are being© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  7. 7. Issues Monitor: July 2011, Volume Ten | 7 “formed. All of this is delivering greater will play an important role in futurebusiness benefits with reduced cost retail operations.39 In February 2011,of operation and increased profits US-based department store Macy’s As technologyfor retailers.37 started rolling out item-level RFID tends to change technology across seven stores in constantly, retailers• In January 2011, with the help of the US. It started tagging various are witnessing a UK-based in-store communications product categories — including clear transformation technology company Pierhouse, men’s jeans and women’s lingerie in the retail IT Waitrose revamped its in-store — that are typically high-margin landscape. pricing system with a new digital items whose inventory is difficult to signage solution called Netticket. manage.40 With this solution, Waitrose was able to set up a pricing database • Cloud computing is another that enables it to determine technology that is expected to in-store shelf prices immediately. change the retail landscape, owing It can also send marketing and to its high computing power and price information to customers’ significantly lower cost. With this mobile devices, in-store screens technology, information, software and social media platforms such as applications, operating systems Twitter. The solution also collates and hardware infrastructure, as detailed information on products, well as servers and storage units, including package size, content are shared over the internet.41 For and ingredients.38 example, using Microsoft’s cloud computing solution, REEDS, a• In order to meet future challenges, full-service jewelry retailer retailers also need to keep operating online and in 16 US exploiting technology. Technology states, reduced its infrastructure developments such as radio costs by 90 percent and e-mail frequency identification (RFID) tags support work by 80 percent.42
  8. 8. 8 | Issues Monitor: July 2011, Volume TenCase study – Morrisons’ supply chain initiatives .During the financial year ended January 30, 2011, Morrisons added tax).43 Various supply chain initiatives the retailer hadposted an annual increase of seven percent in its revenues, undertaken in 2010 contributed to the increase in revenues.which reached GBP16.5 billion (US$26.9 billion), with Morrisons also plans to continue similar kind of initiatives inlike-for-like sales growing 0.9 percent (excluding fuel and value 2011. Some of these initiatives are outlined below in figure 2.Figure 2: Morrisons’ supply chain initiatives44, 45, 46, 47, 48 2010 initiatives Overhauling IT systems In 2010, Morrisons accelerated its six-year IT program, which was to end in 2013, to replace its core IT infrastructure entirely. The total investment for the program is GBP310 million (US$506.6 million). So far under this program, Morrisons has replaced the majority of its payroll, HR and financial systems, installed a new wide-area network and upgraded most of its store hardware and voice-picking technology in its distribution centers. It has also rolled out a new electronic POS system in more than 200 stores. In addition, a new pilot enterprise resource planning (ERP) system in one of its product manufacturing sites is expected to be fully rolled out over 2011. Continued focus on food production In 2010, with the acquisition of Simply Fresh, a stir fry and prepared vegetable business, Morrisons renewed its focus on providing fresh food to shoppers by expanding its in-house manufacturing operations in the UK. This was followed by its acquisition of a cooked meat production plant in the UK, which expanded Morrisons’ capacity for in-house requirements in this product category. 2011 initiatives Multichannel operations In February 2011, Morrisons acquired, a fast-growing internet retailer for baby products, for GBP70 million (US$114.4million). This was followed by another acquisition in March 2011, when Morrisons bought a 10 percent stake in FreshDirect, a US-based online grocery retailer, for GBP32 million (US$52.3 million), as part of its efforts to expand into online retailing. Such acquisitions are expected to help Morrisons learn the basics of online retailing before developing its own transactional website, which is due to be launched in 2013. Morrisons also plans to begin convenience store retailing. By August 2011, Morrisons is likely to open three trial convenience stores — in Manchester, Yorkshire and Liverpool — under the M local fascia, with the first to open in July 2011. The focus of these convenience stores will primarily be on fresh foods, and if the trial is successful, a convenient format will enable the retailer to extend its reach to more customers. Distribution network development In the fourth quarter of 2011, Morrisons plans to open a GBP95 million (US$155.2 million) distribution center in Bridgewater, UK. The 800,000 square-foot site, which is expected to become fully operational by early 2012, will serve 70 stores in the region and provide the retailer with greater opportunities for nationwide expansion. It has also secured plans to build a 375,000 square-foot food preparation and storage warehouse at the Bridgewater center. Such expansion drives in the past have helped Morrisons reduce its average journey times and reduce its logistics costs by around GBP0.10 (US$0.16) per case in 2009. This was achieved when Morrisons added the Sittingbourne, UK, center to its regional distribution network in 2009.© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  9. 9. Issues Monitor: July 2011, Volume Ten | 9Outlook “ .The future of the retail supply chain In 2011, transportation costs in theis challenging.49 Retailers will have to US are expected to increase 8–10continue to work on the myriad evolving percent year-on-year (y-o-y), due to Retailers areissues regarding retail SCM. As retailers expected rate hikes by transportation expected to embracelook to optimize their supply chain companies and increases in fuel real-time analytics toprocesses, their key focus will continue prices.53 The increasing transportation integrate planningto be environmental sustainability, costs, coupled with retailers’ focus and execution.fluctuating input costs, new government on a sustainable supply chain, areregulations, evolving multichannel expected to promote initiatives tooperations and utilization of the latest reduce carbon emissions.technological advancements.50 Tesco, UK’s largest retailer, has beenThe traditional SCM model is expected working to achieve a 50 percentto transform from a push to a pull reduction of its carbon emissions perchannel, as the customer will be in case delivered by 2012–13, comparedcontrol. This trend, which became to 2006–07 carbon emission baseline.prominent as the global economy It has analyzed the carbon footprintgradually recovered after the 2008–09 of the entire life cycle of 1,000downturn, is expected to continue products, in order to identify hot spotsbeyond 2011.51 In addition, retailers are in the chain that generate the mostexpected to embrace real-time analytics emissions. As a result of this work,to integrate planning and execution, in over 500 products offered online andorder to respond to demand variability in-store are now carbon labeled.54at the point of consumption. Also, Consequently, retailers need to focusthe growth of e-Commerce and on numerous organization-widem-Commerce is expected to prompt strategies to maximize their returnsretailers to embrace multilevel from SCM process improvement andomni-channel inventory optimization technology investments.55in order to keep and expand thecustomer base.52© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  10. 10. 10 | Issues Monitor: July 2011, Volume TenFurther Information .Visit for the following Key contacts:related publications Willy Kruh• CFO Insights: A global survey of repeatable and distributable solutions. Global Chairman - Consumer Markets Consumer Markets executives Effective IT Strategy and Performance KPMG in Canada will help organizations ensure that Tel.+1 416 777 8710• Consumer Currents 11: Issues business systems deliver value to the driving consumer organizations business and that the unique risks Mark Larson inherent in technology are monitored in Global Head of Retail• Measuring Up - Improving an appropriate governance framework. KPMG in the US Sustainability in Consumer Markets This service includes governance, Tel.+1 502 562 5680 strategy, performance improvement, mlarson@kpmg.comHow KPMG firms can help cost reduction, risk management benchmarking, risk framework and Julian ThomasSupply Chain Optimization due diligence. Global Advisory Lead – ConsumerKPMG’s Supply Chain Optimization Marketsservices helps clients optimize the Climate change and sustainability KPMG in the UKbalance between cost and risk, align services Tel.+44 207 694 3401processes with the organization’s Climate change and sustainability goals and objectives, and issues are rising to the top of corporatedrive competitive advantage and agendas. Business is engaged; globalshareholder value. The key focus of trends and stakeholder demandsthis offering is on optimizing supply have seen to that. Energy pricing andchain efficiency across the following security, natural resource pressures,operational impact areas: cost, cash, population growth, lifestyle changes,and working capital, tax, technology, and consumer preferences areoperational, and financial risk, compelling companies to act. Oursustainability, and people issues. professionals can help addressIT strategy and performance climate change issues by supporting organizations develop corporate,KPMG’s global network of member investment and emissions tradingfirms gives us the local experience to strategies. We can also support thehelp companies align their IT operations implementation of sustainabilityand business objectives with often practices within the business model.© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  11. 11. Issues Monitor: July 2011, Volume Ten | 11 2 Recovery in the global luxury . retail market . Triggered by the worst financial crisis since the Great Depression, 2009 brought fear and uncertainty across all demographics. Luxury retail sales contracted significantly, highlighting that this sector too had been affected. But as the economy started to recover, luxury retail bounced back to prerecession levels. Although the luxury retail market recovered in most regions globally, growth was particularly strong in Asia. Their strong economies and the rising income of their middle class population have attracted many luxury companies to operate in these markets. Further, these retailers have also identified untapped emerging markets and started to target them strategically as part of their long-term growth plans.© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  12. 12. 12 | Issues Monitor: July 2011, Volume Ten “During the recession, most shoppers went into hibernation. One of the first sectorsto be hit was luxury retail, which went on to experience the worst slump.56, 57The downturn caused even high-end shoppers to spend less, particularly on luxury Since 2010,goods.58 But since 2010, while most global middle-class shoppers have remained high-end shoppersuncertain, high-end shoppers have started spending again, giving both luxury have startedretailers and investors a reason for optimism.59 spending again, giving both luxury retailers andLuxury retail recovers . investors a reason for optimism.After a difficult 2009 — when global luxury retail sales declined eight percent “annually — the global luxury retail market was expected to increase 10 percenty-o-y in 2010, to reach EUR168 billion (US$222.9 billion), according to Bain &Co.60 A sudden pickup in sales of expensive clothes, accessories and jewelrywas seen, particularly in the key regions of Asia Pacific (excluding Japan), the The global luxuryAmericas and Europe. In 2010, Asia Pacific (excluding Japan) accounted for retail market22 percent growth, followed by the Americas with 12 percent and Europe with was expected to6 percent growth.61 increase 10 percent y-o-y in 2010.Figure 3: Global luxury retail market size (US$ billion) 250 221.6 222.9 8% decline 203 se 10% increa 200 150 100 50 0 2008 2009 2010E Europe America Asia Pacific excluding Japan Japan OthersSource: Bain & Company Global Luxury Report , October 2010Note: The 2010 revenues are estimated values.Individual retailers also experienced a recovery in sales. 19 percent y-o-y. On February 4, 2011, the Paris-basedIn March 2011, US-based premium luxury retailer Saks group reported revenues of EUR20.3 billion (US$26.9reported a 5.9 percent y-o-y increase in its revenues in billion) for the year ended December 31, 2010. Its net profit2010, to US$2.8 billion. In 2009, the company’s revenues also increased 73 percent annually, to a record EUR3 billionhad declined 13.5 percent y-o-y to US$2.6 billion.62 (US$4 billion).63 This strong performance was backed by strong sales in Asia, Europe and the US.64 In 2009, LVMH’sSimilarly, after a robust rebound in global demand for revenue had declined eight percent y-o-y to reach EUR17expensive watches and leather goods, LVMH Moët billion (US$22.6 billion).65Hennessy Louis Vuitton’s 2010 revenue increased© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  13. 13. Issues Monitor: July 2011, Volume Ten | 13Figure 4 shows the revenue growth trends for the top luxury groups.Figure 4: Revenues of top five global luxury groups (US$ billion) 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Polo Ralph Lauren Luxottica Group Richemont PPR LVMHSource: Company websites and Capital IQNotes: The top five global luxury groups have been listed on the basis of their revenues.Q1 2011 revenues for Ralph Lauren and Richemont have not yet been announced.The dip in Q1 2011 revenues for LVMH and PPR was due to the high growth in sales during the festive season in the previous quarter.
  14. 14. 14 | Issues Monitor: July 2011, Volume Ten Europe – Luxury markets recover to reach US$175 billion, according to Q from recession Verdict Research, a UK-based retail How crucial will In 2010, Europe remained the largest industry research company.74 the emerging market for luxury retail.66 Its share in economies be luxury retail increased from 35 percent Asia – China leads growth for the growth of (US$60 billion) in 2004 to 37 percent Asia is the main focus market for luxury brands? (US$82.5 billion) in 2010, according luxury retailers, with Hong Kong to Italian luxury goods trade group being the most popular destination, Altagamma.67, 68 attracting 84 percent of all luxury brands. Japan and Singapore follow, During 2010, Gucci Group, a division each with a 69 percent presence of of French retail group PPR SA, global luxury brands. China — with bounced back with 13 percent a 67 percent presence — ranks growth in its sales in Europe from 10th among global luxury retail a 6.5 percent drop in 2009. In the destinations, according to a 2011 first quarter of 2011, Gucci’s sales survey, conducted by CB Richard Ellis increased a further 16 percent (CBRE), that mapped the global store y-o-y. Similarly, the European sales footprint of 323 of the world’s top of Hermès International, maker of the Kelly bag and other luxury retailers across 73 countries.75 accessories, increased 18 percent Further, luxury brands are increasingly in 2010, double its growth rate in investing in the Asian markets. L 2009. In the first quarter of 2011, the Capital Asia fund — a US$650 million group’s sales increased a further private equity fund backed by LVMH 20.7 percent y-o-y.69, 70, 71 — is looking to invest in emerging Asian brands and transform them The recovery witnessed in the European into global names. By May 2011, luxury retail market is partly due to Asian the fund had already spent US$90 influences.72 Recently, there has been a million on minority stakes in two significant rise in the number of high- Singapore-based fashion companies spending tourists, increasingly Chinese, and a Hong Kong-listed watch and who tend to travel to France and Italy jewelry company. The fund is also in every year. Chinese visitors to France the process of investing in two fashion form the biggest foreign spenders on firms in China and India.76 In January luxury goods. In 2010, Chinese visitors accounted for 29 percent of the total 2011, Prada announced that it plans to amount spent by foreigners on luxury list on the Hong Kong Stock Exchange retail in France, according to research rather than in Milan, Italy, signifying firm Sanford Bernstein. Russians take the importance of the Asian luxury the top spot in Italy, accounting for goods market.77 27 percent of all tourist dollars spent on luxury goods, followed by Japan at China – Consumer trends point to 12 percent and China at 10 percent.73 continued growth Europe is expected to continue to be the China is a significant luxury market, global luxury capital. By 2015, the luxury as it offers huge revenue potential for retail market in Europe is expected European and US luxury brands.78, 79 Even during the recession, luxury retail© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  15. 15. Issues Monitor: July 2011, Volume Ten | 15in China increased 16 percent y-o-y to able to appreciate the meanings and “For luxury brands trying to enter thereach CNY64 billion (US$9.4 billion). This history of a luxury brand, according towas down from the 20 percent annual a 2011 KPMG and TNS joint survey of market, it is harder than ever. The risegrowth in 2008, but far better than the 1,200 middle class consumers in China. in the number of brands recognizedperformance of many key developed is indicative of how crowded the Moreover, as companies expandluxury markets.80 In 2010, China’s luxury market is becoming. All luxury brands their retail presence with additionalretail market was estimated to have now know the importance of the marketing resources, brand recognitionincreased another 23 percent y-o-y.81 China opportunity, but ironically, it has among Chinese consumers continuesIn light of the stagnant growth to rise. According to the KPMG and probably become harder than everin developed countries, Chinese TNS joint survey, the middle income for a new brand to gain market share.consumers are becoming the key respondents have now started Most new entrants need to investsource of revenue for luxury retailers. recognizing 57 luxury brands, a figure heavily and would not expect profitsWith rising incomes, China’s growing that has increased steadily over for some time. Careful planning andmiddle class is adopting a previously successive surveys. Respondents in brand positioning is needed to avoidunattainable high-end lifestyle, with tier 1 cities recognized 61 brands onthe traditional savings-oriented culture average, while those in tier 2 cities losing your shirt.”giving way to more spending.82 “There recognized 53.85 – Nick Debnam, Head of Consumer Markets,are now more than 960,000 people Another significant aspect of the Asia Pacific, KPMG in Chinawith wealth of over CNY10 million Chinese consumers is their ability(US$1.4 million) and 60,000 people to not only recognize various luxurywith wealth exceeding CNY100 million brands, but distinguish them from each(US$14.7 million), explained Rupert ” other based on their countries of originHoogewerf, Founder of the Hurun and associate certain countries moreReport (China’s annual rich list).83 strongly with certain products. ForMore than 50 percent of the instance, they associate Switzerlandconsumers in China have made with luxury watches, Italy withor are planning to make a luxury footwear and France with clothes,purchase, according to a 2010 survey accessories and cosmetics. And thereof 340 consumers and 31 luxury store continues to be a particularly strongmanagers in China’s tier 1, 2 and 3 inclination toward European brands atcities, by CLSA Asia-Pacific Markets, the expense of brands from other partsAsia’s leading independent brokerage of the world. However, Chinese brandsand investment group. The survey for alcohol, arts and crafts, and jewelryindicated that those consumers products have the strongest potentialwho purchased luxury goods in the to compete with international brands inpast 12 months spent an average of the future.8610–12 percent of their total household After three tough years, mostincome on luxury items, demonstrating international retailers have started tothat they have a high propensity to see a recovery in their global sales,spend.84 Also, as the market grows in and China continues to be the leadingsophistication, Chinese consumers are market — as well as the one with theshowing a clear trend of moving from brightest growth prospects.87pure ownership of a product to being© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  16. 16. 16 | Issues Monitor: July 2011, Volume TenLuxury retailers expand operations asdemand improves .As well-off shoppers have again started spending more, and with stores stockingmore affordable luxury goods, luxury retailers are expected to rebound, particularlywith their new expansion initiatives.88 Some of these initiatives are listed in Table 1.Table 1: Strategic initiatives by retailers Initiative Company Description Geographical Burberry In April 2011, British luxury group Burberry opened a new 820 square-meter flagship store in expansion in Sydney, Australia. The store is expected to stock apparels, accessories, non-apparel items, developed fragrances, watches, eyewear and the entire range of Burberry’s collections. Burberry already markets operates six stores in Australia — two in Sydney, three in Melbourne and one in Perth.89 Thomas Sabo In February 2011, German luxury jewelry brand Thomas Sabo announced plans to expand its retail operations in the UK, by increasing the number of its outlets from 400 to 500 stores. The retailer also plans to increase its shop-in-shops* in the UK from the current 22 to 45.90 Geographical Luxottica In March 2011, Italy-based Luxottica Group announced plans to increase its revenue in emerging expansion in markets by 20 percent in 2011, and increase sales volume in China and India by 120 percent by 2014. emerging markets It also plans to open 15 Sunglass Hut stores in Brazil, 40 in India and 50 in China.91, 92 Ted Baker In March 2011, following in the footsteps of Burberry and Mulberry, Ted Baker — the British luxury fashion house — announced its plans to expand in mainland China, by opening its first 3,000 square-foot store in Beijing during the second half of 2011.93 Hermès In January 2011, as part of its expansion strategy in the growing Asian markets for luxury products, Hermès opened its first luxury outlet in Pune, India. Its Pune store stocks the entire range of its luxury accessories, as well as Hermès’ permanent collections. The retailer plans to open another store in Mumbai by May 2011.94 Industry LVMH In March 2011, leading luxury group LVMH acquired a controlling stake in Italian luxury group consolidation Bulgari for EUR3.7 billion (US$5.2 billion) to expand its watches and jewelry unit. LVMH purchased the Bulgari family’s 50.4 percent stake for EUR1.9 billion (US$2.6 billion) in stock and the rest in tender offer. Earlier, in 2010, LVMH had bought a stake in Hermès International SCA.95Shop-in-shops refers to a retail concept where a company or brand operates a small store within a big retail store.*© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  17. 17. Issues Monitor: July 2011, Volume Ten | 17Luxury shoppers go online .Many affluent consumers are turning to connect with a brand. For example, Qthe internet to research luxury brands, consumers are now able to create a Are luxuryform connections and make purchases.96 personalized Ralph Lauren polo shirt, retailers effectivelyIn fact, growth in the global luxury retail for which they are able to choose a leveraging onlinesegment is expected to be fueled by country flag and colors, and even have channel to expandinvestments in online channels, according their names printed on the back. Ralph reach and increaseto Verdict Research. Lauren’s Rugby iPhone application allows sales? users to create customized rugby shirts.98Traditionally, luxury retailers used theinternet to provide information, not In the US, affluent individuals aged 35to sell. But with retailers realizing years and under are avidly consumingthe potential of selling online, a shift a wide range of new media onis now underway. In 2010, Gucci smartphones and tablet computers, and “launched its first e-store, which delivers quickly losing the habit of consumptionto 12 countries, mostly in Western based on television, radio and printEurope. Ralph Lauren also launched media advertising, according to New York Online retailing cana transactional site in 2010 in the UK. City-based market research company play an importantIn doing so, it has made luxury goods Luxury Institute.99 And although an role in enhancingmore accessible, as consumers do not online presence has become crucial for the exclusivityhave to wait until they visit major cities, success, the presence of a physical store provided at thewhere luxury retail stores are located, to helps promote the brand and provides physical stores bypurchase such goods.97 a destination where customers can luxury brands. ‘try out’ a product before purchasing it.Online retailing can play an important Consequently, more retailers are nowrole in enhancing the exclusivity provided using their online operations to enter andat the physical stores by luxury brands. test new markets before committing to aInteractive websites also serve as a physical store presence.100platform for consumers to personallyOutlook “ .Over 2010, the global luxury retail about 20 percent or CNY180 billionmarket grew strongly, and it is expected (US$27 billion) of global luxury retailto continue expanding.101 In 2011, it sales, according to McKinsey.104 By 2015, Chinais forecast to increase 3–5 percent Increasing levels of wealth in tier 1 and is expected toannually, to reach EUR173–176 billion tier 2 cities, and continued confidence account for about(US$229.6–233.6 billion), according to in the positive economic prospects, 20 percent of globalBain & Co.102 This growth is likely to be are likely to support the Chinese luxury luxury retail sales.driven primarily by the growing demand retail market.105for luxury products in the emerging Online luxury retail sales have emergedmarkets — particularly in China. information on luxury brands at least as one of the promising trends in luxuryBuoyed by the favorable consumer retail. In 2010, global online luxury retail once a month, and 30 percent statedattitude toward brands (particularly sales recorded massive growth of 20 that they did so more than once a week,those of Western origin), China will percent y-o-y, well beyond the 8 percent according to the 2011 survey conductedcontinue its march toward becoming growth of overall online sales.106 In by KPMG and TNS.107 Such consumerthe largest luxury market in the world.103 China, nearly 70 percent of respondents trends will help boost the recovery ofBy 2015, it is expected to account for stated that they searched online for the luxury retail market.© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  18. 18. 18 | Issues Monitor: July 2011, Volume TenFurther Information .Visit for the following Key contactsrelated publications Willy Kruh• Luxury Experiences in China Margin Enhancement Services Global Chairman - Consumer Markets Working alongside clients, our firms’ KPMG in Canada• Consumer Currents 10: Issues that professionals help to streamline Tel.+1 416 777 8710 are driving consumer organizations processes, to enhance controls and worldwide to contain costs and business risks. Mark Larson We look at systems, supply chains, Global Head of RetailHow KPMG firms can help capital structures and contracts with KPMG in the USGlobal Location & Expansion third parties to see how they can Tel.+1 502 562 5680Services best be utilized. We examines the entire revenue process and helpsKPMG’s Global Location & Expansion to effectively integrate the critical Julian ThomasServices (GLES) group was created business processes and systems that Global Advisory Lead – Consumerto help companies to locate and process, provision, deliver, and bill Marketsestablish new operations around services to a client’s customers. KPMG in the UKthe world. From manufacturing to Tel.+44 207 694 3401distribution, R&D to shared services, member firms have experienceacross all types of operations and Hélène Béguinsectors. GLES professionals are based Head of Luxury Goodsaround the world, and can provide the KPMG in Switzerlandnecessary local knowledge. Through Tel.+41 21 345 0356our experience, we have developed a hbeguin@kpmg.comsystematic process for evaluating andselecting locations and sites.© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  19. 19. Issues Monitor: July 2011, Volume Ten | 19 3 Growing mobile . commerce in retail . Since 2010, mobile commerce (m-Commerce) in retail, or mobile retailing, has shown phenomenal growth, while traditional retail stores have exhibited relatively flat growth. m-Commerce has quickly altered the retail landscape and is set to rapidly increase its share in the retail industry. It has blurred the distinction between websites and brick-and-mortar outlets by linking disparate operations and making the internet a pivotal sales engine for the first time for many retailers.© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  20. 20. 20 | Issues Monitor: July 2011, Volume Tenm-Commerce – Next big thing in retail .m-Commerce is a special form of electronic commerce (e-Commerce) that Quses wireless communication and mobile devices — such as cell phones, Are you effectivelypersonal digital assistants (PDAs) and tablet PCs.108 Although a relatively new exploringphenomenon, m-Commerce is already making its mark along with the growing m-Commercedemand for smartphones* — first the iPhone, and more recently Android-based options to expandmobile devices. your operations?In 2010, global m-Commerce revenues increased 38 percent over 2009 to reachUS$25.2 billion, according to ABI Research, a US-based research and analytics “firm.109 In Japan, m-Commerce accounts for about 20 percent of e-Commerce, and50 percent of mobile users regularly make purchases on their phones, accordingto Nomura, a Tokyo-based investment banking company. In the US, 15 percent In 2010, globalof consumers use their cell phones and 20 percent use their PDAs for price m-Commercediscovery and product comparison. In 2011, 10–15 percent of the revenues from revenues increasedretail across France, Germany, the UK and the US are expected to be influenced 38 percent overby mobile applications.110, 111 2009 to reachFigure 5 highlights the fact that m-Commerce is increasingly affecting the retail market. US$25.2 billion.Figure 5: Key facts• m-Commerce is five times as big as e-Commerce was at a similar stage in its development in early 2000.• In terms of revenue, Japan is the biggest m-Commerce market in the world. m-Commerce revenue, 2010 (US$ billion) 20 15 15 10 3.4 5 1.8 1.9 0 China Japan UK US• The mobile payments industry is proliferating in Latin America, South Asia and Africa, where typically more people have cell phones than bank accounts.• In emerging economies, especially in Southeast Asia, there are 10 mobile phones for every desktop / laptop. In these markets, mobile phone is the primary means of accessing the internet and engaging in commerceDeveloping a Scalable mCommerce Model Nice 2010, tmforum, 2010; Mobile payments: Who will regulate?,Politico, April 14, 2011; Mobile Phones becoming a transaction medium* A category of mobile phones that includes Apple’s iPhone, Google’s Android, Research In Motion’s BlackBerry, and other phones using similar operatingsystems.© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  21. 21. Issues Monitor: July 2011, Volume Ten | 21Increasing popularity of m-Commerce “ .The mobile channel continues to expand its role as a connector betweentraditional, online and other sales channels. Consumers have started usingtheir mobile devices to compare products and offers across multiple stores, Consumers usefind product ratings and reviews, and search for coupons or discounts. In fact, mobile devicesconsumers are using their mobile devices more frequently for comparative more frequentlyshopping purposes while standing in a physical store, primarily to check if for comparativecompetitors have better deals to offer. Figure 6 presents the key factors driving shopping purposes.the increasing popularity of m-Commerce.112Figure 6: Factors leading to increase in m-Commerce Convenience for consumers Most customers carry their mobile phones all the time. Profitability for retailers Availability of Increasing Retailers will be able to circumvent the hefty cut of necessary penetration of transactions taken by credit card companies. technology, such smartphones as near-field communication Popularity of social shopping* (NFC)** It satisfies the innate human tendency to share shopping information with family and friends.AisleBuyer Debuts Card Capture Technology, marketwire, April 13, 2011; Creating a More Social Shopping Experience, demandware blog, March 21, 2011;NFC: Under-hyped, ready to over-deliver, VentureBeat, April 11, 2011; Swipers, No Swiping: Mobile Commerce Battle Heats Up, brandchannel. March 28, 2011Note:*Social shopping is the concept of utilizing a mobile device’s capabilities such as creating videos, sharing experiences to Twitter and Facebook, while shoppingwith the device.**NFC is a short-range exchange of wireless data between a chip in the phone that acts as a ‘reader’ and other chips embedded in, for example, a paymentkiosk or a subway turnstile.© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  22. 22. 22 | Issues Monitor: July 2011, Volume TenGreat potential of m-Commerce .By combining the location-finding power of the global positioning system (GPS),the ubiquity of the cell phone and the creativity of online marketing, m-Commercehas been altering the consumer landscape. m-Commerce offers several benefitsto both retailers and consumers.113 Some of them are as follows: “First-mover advantage – The early provider or the telecommunicationadopters of m-Commerce tend to provider.117have greater opportunities to influence Discounts on “Clients are telling us that location-basedshoppers in real time, as they build shopping through marketing could become the single‘in the moment’ customer analytics smartphones are biggest development in marketing of thecapabilities. Lagging merchants run the most common last 10 years, says Jennie Cull, Advisory ”the increasing risk of customers loyalty program Managing Director, KPMG in the US.browsing their aisles while tuning in to used by retailers. According to Jennie, “Companies needtheir smartphones to check reviews, to decide what their goal is when theycompare prices and make on-the-spot start location-based marketing. Is it todeals with competitors.114 In fact, major program that spans all sales channels get people into a store? To increaseretailers believe that by being the first has a wider scope and greater sales? To drive particular product lines?”to implement mobile engagement, they potential. This is evident from the Companies, she says, know mobileearn a better chance of establishing finding that 54 percent of consumers channels represent a huge opportunity.intimacy with and loyalty of their wanted to have a mobile loyalty The key is unlocking it.customers, according to a 2010 Forbes account that provides credit, points andsurvey of 300 executives at top US Enhanced buying experience – promotions across a variety of physicalretailers.115 m-Commerce has the potential to and virtual outlets, according to a 2010 combine the best of both online mobile commerce survey by Booz &Effective advertising – Location-based retail and traditional shopping. For Company conducted in the US.119social applications such as foursquare, example, in-store shoppers canShopkick or Gowalla help retailers Cost-effective advertising – research products and prices on theirdeliver deals and offer promotions, Advertising via Facebook applications, smartphones, using bar code scannersincentives and other services to foursquare and other mobile social and other mobile applications. Retailersencourage nearby shoppers to enter networks is not only cost effective, can provide immediate incentivesa store.116 Such applications also but also has a wider reach and higher based on these searches.118allow retailers to direct custom-made potential. While still new, these mobileadvertisements and offers to individual Enhanced customer loyalty – social networks are growing andcustomers, based on purchases, Discounts on shopping through are relatively inexpensive. In 2010,preferences, products viewed and smartphones are the most common McDonald’s launched an advertisingreviews, which can be stored as a loyalty program used by retailers. campaign with foursquare to get thedigital log either with the application However, a well-integrated loyalty© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  23. 23. Issues Monitor: July 2011, Volume Ten | 23application users to visit a nearby Cross-channel marketing –McDonald’s outlet. The campaign m-Commerce provides retailers the Qcost McDonald’s US$1,000 to reach opportunity for cross-channel marketing Are you usingthree million people — an average of through options such as ‘reserve and the right strategy33 cents per thousand consumers. collect’ or ‘research and collect’ activities. to implementA similar television campaign would These options encourage consumers to m-Commerce?have cost McDonald’s US$10.67 per visit the physical stores to collect theirthousand consumers.120 goods — where additional up-sell and cross-sell opportunities exist.121Security and technology challenges .Although m-Commerce has immense However, a more serious concern for competing business sectors — frompotential and is the fastest growing consumers is the issue of security. telecom companies to financialretail channel, it has a few drawbacks. Consumers are sometimes asked institutions to internet companiesMost problems in m-Commerce pertain to divulge personal details such as — are required to cooperate andto technical and perception-based address and date-of-birth in return agree upon regulations to ensure theissues. The common problems faced for a discount or free gift. While success of m-Commerce.123, 124by consumers are error messages, privacy continues to be an importantan inability to complete transactions, issue, consumers are willing to sharelog-in issues or getting caught in an personal information in return for‘endless loop.’ In 2010, 83 percent of something of value. In fact, the very “It all comes down to who getsusers faced technical problems with success of the mobile retail channel paid and who makes money. Youmobile shopping, according to a Tealeaf is likely to depend on consumers’ have banks competing with carriersand Harris Interactive (a US-based perception of security and privacy inresearch and analytics company) survey the medium. Encryption software and competing with Apple and Google,of 2,228 individuals in the UK.122 But other technological security measures and it’s pretty much a goat rodeo untilwith improvement in mobile devices represent one half of the solution, someone sorts it out. ”and wireless technology, the glitches while regulations make up the other – Drew Sievers,in m-Commerce are expected to half. In order to formulate regulations Chief Executive Officer (CEO), mFoundry, maker of mobile payment software for banks and retail125gradually minimize. that will make m-Commerce safe,© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated withKPMG International. KPMG International provides no client services. All rights reserved.
  24. 24. 24 | Issues Monitor: July 2011, Volume TenType of m-Commerce initiatives usedby retailers .Large retailers without an m-Commerce initiative are a minority. In fact, all majorretailers now have some form of m-Commerce strategy in place — ranging froma sophisticated electronic wallet* to the basic short messaging service (SMS)outbound advertising program. Figure 7 gives a snapshot of the penetration ofm-Commerce in the US.Figure 7: Spread of m-Commerce in US 39% 24% 10% 20% 7% Widely implemented a strategy Rapidly expanding strategy Initiated pilot programs Evaluating strategies No strategyForbes InsightNote: The findings are based on a 2010 Forbes survey of 300 US retailers with multiple locations and annual revenues of US$100 million or more.* Mobile devices linked to debit or credit cards with the ability to purchase items and pay bills.