View From The Top 2

View From The Top #2
Findings from the
World Retail Congress (WRC)

Berlin, September 2011

World Retail Congress, the pinnacle of retail learning…frank, honest and
measured opinion on what’s going on in retail today

3 ! days, 37 presentations, 118 speakers…from retail’s who’s who:
Jose Carlos Gonzalez-Hurtado (CCO Carrefour), Tommy Hilfiger,
Anders Dahlvig (ex. CEO IKEA), Andrew Jennings (CEO Karstadt) and
Burt Tansky (Chairman Neiman Marcus)….and the list of performers goes on
and on!

5 key learning's…

1.  Retail cycle is dead
2.  Multi-channel retail is mandatory
3.  Verticality for profit
4.  Resize and thrive
5.  New acts are hard to find

Optimism has moved to realism

A year ago there was still optimism that most of the worlds retail economies would
recover and fall back into a historical performance cycle

We believed in LUV…the theory of dividing global economies into 3 groups based on
their entry and exit of the GFC…but we ignored the long term forces of change

L Economy U Economy V Economy
Suffered the brunt of the Similar to L, but more flexible, Experienced the recession
recession so recovery is quicker second-hand, quick bounce
back due to gov.. stimulus

So what are the long term forces of change…?

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Forces of change – 10 years of supply chain efficiency

Retailers have forgotten how to live in an
inflationary pricing environment

Business improvements have been based on
a profit thru volume model…forgetting about
value offering to preserve Gross Margin

But.. consumer mindset is no-longer about
replacement and disposability…today they
are a lot more considered with their money

So there are less consumers in the market
with more knowledge ….educated [by retail]
to pay a lot less….everytime!

Forces of change – 6 years of a more discerning consumer

The latest ABS Household Expenditure
survey confirms that when consumers
spend, they are prioritising experiences over
general merchandise or grocery retail.

Dining out increased 68% and holidays
increased 51% since 2004

Consumers are also reassessing their needs.
There is nowhere for the historic ‘hi-lo’
retailer to hide…We all know the real price…
Where to get it…And if we really want it!

So there is no incentive for value shoppers to
‘BUY NOW’ in this transparent market

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Forces of change – 3yrs of GFC rocking consumer confidence

Consumer confidence has been hurt around
the world; the USA economy is stalled,
Greece and Italy are ready to default and
Europeans are more frugal than ever before

Income gains favoring the affluent lead to
“Wall Street”occupy protests

Disposable income has grown, but
consumers are saving like never before!
JUN ‘11 quarter saw this continue with
savings reach 10.5%, up from 9.7% in DEC
seasonally adjusted. Add super and that’s
over 15% of our income being saved

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Forces of change – 2yrs of consumer enablement see a power shift

Ebay created a means to take retail into their
own hands with C2C transactions

E-commerce explosion meant price and access
were no longer in the hands of the retailer

And in the last couple of years…

Social media opened up shopping networks to
form a gigantic water cooler of opinions online

Mobile moved those opinions in-store and
accelerated personalised marketing to shift the
power from retailers to consumers

Near field communications is being embraced by shoppers for mobile
offers and payments…recently seeing Google Wallet embraced in the US

…and ASOS has enabled shoppers to buy on Facebook or buy
from each other through a C2C site… marketplace

CBA’s phone app acts as a personal real estate agent anywhere,
anytime for tips, prices and suburb insights on the go

The Outcome.

No more Hi-hi-lo rollercoaster retail cycle .
Now retail realism says it will struggle to achieve CPI…
as there is now recognition that the slow down is
more than GFC

So bank on lower averages to succeed!

2. Multichannel retail is mandatory

It’s official, without a multi-channel retail[MCR]
strategy, retailers wont get top line sales growth

It’s not about juggling stores with e-com, but
understanding and integrating all of the channels to
purchase….and becoming consumer centric

A year ago multi-channel was a series of juggled silos

We focused on in-store, dabbled in e-commerce (but likely treated as a silo channel),
opened a facebook page and twitter account…then maybe optimised a mobile site

BUT…today there is the realism that the consumer is more active, and growing
quickly, across the online and telephony space …so retailers need to give the shopper
complete access to the retail brand

Retailers need to think about all these channels AND how to
bring it all together…including retail environments

Multi-channel shoppers who first research G(I.50+)%
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products online spend an average of $30 on
additional items once in store
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Multi-channel shoppers are found to more
profitable by 62% of retailers
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According to a study by Stamford, Australia
has one of the highest penetrations of
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smartphones in the world, predicted to rise VI:044)+:)%
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rapidly with over 50% of Australian adults
expected to own a smartphone by the end of
2011….but only 2% of the leading retailers
surveyed had a full mobile experience.
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Without multi-channel retail, you wont get top line growth

Traditional Multi-channel
The consensus… operating growth operating growth
2008-2009 2012
If all you have is stores, or a non e-com
website that only sends you to store , DQ^%.0:"-'%
customers will go elsewhere…. So expect to E^%0('"()% :044)+:)%
lose up to -5% comps[and that’s with CPI W^%%
growth of 2%]. DQ^%40,"')%
2_G%#+0&5$%

But with MCR… retail top line growth is still QQ^%
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achievable 7+-6"F0(-'%
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2_G%#+0&5$%

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Around the world MCR is even more advanced

At a glance, Australia has a lot of room to grow if we follow overseas percentages of
total retail spend online:

USA 7.5% of total retail
UK 9% of total retail
CANADA 5.5% of total retail (expect double digit growth till 2015)
CHINA expected to go from 3.33% today to 7.4% in 2015 (USA took 10yrs to achieve that)
AUS 5.5% of total retail

And going forward, particularly in the BRIC countries where access is more limited,
mobile commerce is tipped for massive growth going forward

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Internet commerce is rapidly gaining traction: 270%
growth since 2004 in Australia
140

123
120

100

81
80

$ Bn
60 57

40
40
33

20

0
2004 2005 2006 2008 2009

Source: ACMA Australia in the digital economy

The Australian market is predicted to continue to catch up

Australian online retail is forecasted at $13.6Billion for 2011, that 13% growth with 44% of
that on overseas websites (Frost & Sullivan and PWC)

If offshore spending were directed to Australia it would swell growth from 2% to 4.5%

Online spending by Australians predicted to reach $21.7 billion by 2015 (CAGR of 12.6%)

Forrester predict $29,713m in 2011 with 11% YOY growth till 2013
(Including travel, auctions, and imports)

PayPal Australia’s mobile payments grew 14 fold to reach $42 million in 2010. Globally in
2009 it was $141M, in 2011 Australia alone is expected to exceed this number.

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Shop by ratings, order online and pickup instore, free shipping,
mobile shopping, and comprehensive social content make
Crate&Barrel best practice in MCR

Over 40% of online purchases are picked up
in the store AND products are now available
45min after order – they are breaking silos
http://seekingalpha.com/article/263692-best-buy-multi-channel-growth-set-to-accelerate

Tesco’s MCR approach sees a
well integrated e-com and retail
space, while their mobile
shopping while on the go app and
club card has pioneered the way
for Australia

Levis is using social commerce to bring social and e-com to life,
re-inventing word of mouth and how we shop with friends

While Roots Canada use online video streaming as an e-commerce
Channel to compliment an already sophisticated e-com strategy

And Sportsgirl marries up the
fun and advice in-store with the
exclusivity and sharability of
online and mobile

The Outcome.

A year ago there was excitement about e-commerce
replacing traditional retail and social
replacing advertising

The reality…to engage, retailers need a single view of
the customer across all channels in a single service
offering. If retailers don’t have that view,
they will go backwards

As top line sales margins flatten the only opportunity
for profit growth is verticality.

Retailers will become brand marketers and brand
marketers will become retailers!

Retail sales are flattening with increased pressure
for profit growth from other areas up the value chain

Retailers are being squeezed by lower sales volumes (sales growth 2-3%, not 6-7%)

Discounting, global price pressure and expense percentage increases are seeing
higher attention to brand research & development for GP margin

So… suppliers are moving up the value chain to maintain national brand presence

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What does this mean for the changing face of retail?

The market will become divided into national brands and private label

1.  Specialists could become a collection of national brands

2.  Retailers are doing more vertical product and brand development

3.  Retailers will make more mistakes as they go…but at a 70% starting point, you still
better off

4.  There will be more options for the consumer going forward, so the retailer must
improve brand building skills and competencies to compete

IKEA is 100% vertically enabled, building an iconic brand, with complete
control over design, display and most importantly…margin

Tesco extends their private label across budget to luxury product
….and it now makes up an estimated. 40% of their dry good sales

Google Chrome Store

Google has moved from search engine to pop up retailer, opening their
first London store ‘The Chromezone’ selling Google Chromebook

Even gettyimages has gotten into the retail space,
crossing the boarder between search engine and retail

Zara
•  100% of margin

Zara at 100% margin works up the chain from farm to fast fashion,
thriving in a market that is seeing many retailers close up shop

Nivea has opened their own stores, elevating
the brand and to give gravity to it’s position

Hugo boss uses highly engaging visual
merchandising and spaces for their own stores

Iittalia’s dedication to beautiful home design
is perfectly reflected in their stores

Lego demonstrates the breadth and imagination
of their brand by opening their own stores

The Outcome.

It’s going to be hard to share margin in the future, so
retailers will be better brand marketers and national
brands will be better retailers to
secure consumers loyalty

The winner is the customer with more choice

Multi-channel is forcing the resizing of retail

As multi-channel gets bigger, there is an argument to
consolidate stores to afford the creation of an experience
or provide a pick-up point network for convenience

Retailers are battling to make economies work

There is no longer a general historical foot print concept for retailers to aspire to

Today every property deal is based on that markets unique requirements ….either
on an opportunity analysis, unique consumer opportunity …or both

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Walmart is going smaller,
with express stores and
pick up desks for online
reservations

Uniqlo
•  Uniqlo going bigger – biggest way to get scale, such a big store you are forced to
look – big statement has gravity

Uniqlo has made a brand statement, giving gravity to their experience with
a flagship 5th Ave store at 89,000 SQF, 100 fitting rooms and 50 registers
http://money.cnn.com/2011/10/13/pf/uniqlo/index.htm

Carrefour, traditionally known
as a big format has moved it’s
positioning to small format

Zara is less a fashion store and more
so a private label department store

Part museum, part store the National Geographic store
in London makes a unforgettable brand statement

Tesco has even gone as small as QR code
outdoor signage for convenient shopping

The Outcome.

There is a battle to make economies work

Retailers are driving bigger statements with larger
catchments or pushing into smaller formats
for convenience

The standard one size box fits all will fail

The risks of successfully developing new acts …and
succeeding in this new market are greater….so there are
less ‘high-wire’ risk takers!

And accordingly…less early followers

In retail today there are less new acts, but more room
to prove new ideas

Retailers are deep in focus on own survival

This renewed focus on oneself is going to
see a resurge in creativity

New ideas are left to grow and prove
themselves before seeing copy cats

But… new acts are harder to find

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Today internationally there are less new outstanding concepts …but there
are some like Eataly, which are so unique and intense with service that its
almost impossible to copy !

Or clever concepts like Kochhaus that help with every step in preparing a
meal…from the complete ingredient set, to the perfect utensils and in an
environment that lives for good food

Bow Berlin is a very unique jewelry and leather accessory
store bringing a raw edge to their environment

Field Candy design quirky tents for the stylish camper

Volkswagon 'Think Blue' showroom which combines
both physical and virtual engagement!

Manufactum …which builds its story around the eye of the owner to identify
products and stories then deliver them in its own environment and surrounds!

The Outcome.

Today there is less fat in businesses, so new concepts will
be given more time before competitors get onto it

Find out more…
Stephen Kulmar
RetailOasis
p: +612 9976 6222
w: www.retailoasis.com
e: stephen.kulmar@retailoasis.com
twitter: @RetailOasis

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