Current Trends in European Retailing

John Wheeler, Director, RMDP Tony Savage, Director, RMDP

RMDP Consulting C.2001

Agenda

       Some pan-European trends Department Stores - the dinosaurs mutate!

Discounters and off price Brands and globalisation Competition for locations Direct Channels - clicks & bricks winning What next?

Some pan-European trends

   Small Space vs. Large Space polarisation city centre and mall volumes enabling "mega   stores" in many sectors music/dvd/minidisc fashion (e.g. Bennetton)   Return of the "General Store" wider range of products and services  longer opening hours Large Space retailers and customers still prefer Out of Town  The Mobile Phone effect

The Mobile Phone effect

    eroding "traditional retail" revenues Many stores/brands Fashion status Age no barrier!

Mobile Phones & Coffee Bars

 where else could you be seen with your new phone?

Department Stores - the dinosaurs mutate!

 Department Stores - the dinosaurs mutate!

  strong loyal and now added BRANDS Selfridges showing the way    international aspirational Young, and not so young!

Discounters and off price

 Discounters and off price  in fashion terms -"the new black"    everyone wants them!

permanently changing the margin model "Walmartization" of European retailing!

Brands and globalisation

   Multi $ millions being invested  available everywhere Massive advertising   desirable values mass(ive) markets Where do local (national) brands go?

Competition for locations

  Out of Town locations are getting scarce across Europe    administrative - planning social - car usage - "green" issues cultural - local populations/local stores Re-development of City centres  -brown fields  two places of worship...

A full circle- back to the centre?

 Competition drives retailers back to the City Centre

Direct Channels - clicks & bricks winning

    Traditional Retailers make E-tail work!

Critical success factors are no different in the E conomy  right product, right place, right time   Customer Service Brand Perception Intelligent use of the Search engines reaches the global www market Fulfilment not gee-whiz is the need!

Direct Channels - some winners and losers

  boo.com -a really whizzy failure     technically clever did not excite the consumer or deliver the product or establish a brand identity Early Learning Centre - a brick based success     built on the Retail brand values established fulfilment process before the www delivered reliably now equal to their largest store

What next?

    The E-tailers continue to get better   sensible not over hyped repeat purchases increasing  further erosion of "brick" based turnover Retail Entertainment - "the Retail Theatre"   merchandise and people mix "stage school " as a part of Associate Training?

Gross Margin pressures increase Nett margins revived through intelligent supply chains

Retailing in Europe some critical management concerns

November 2001 Sextant Management Services Ltd

Agenda

     Brands dot.com

Walmart Issues Interesting Sectors

What do customers look for store or brand?

     Everybody shops where they feel comfortable  but comfort varies from customer to customer I may feel fine in Littlewoods, but overwhelmed in Harrods I believe that Waitrose is higher quality than Somerfield Volvo make safe cars I trust Marks & Spencer

Brands

 Global, consistent    Sony BMW Kodak     Bennetton Compaq Disney McDonalds

Brands attract the Customers

 Brands still growing in importance    Value Cachet Ownership aspiration     Lifestyle Timeliness Pride Passion

Attracting the Customer

 –     – – The power of the Brand is a store good enough to compete with global brands or is it just a shopfront!

A strong brand can go Direct Sony BMW British Airways Ralph Lauren

In the Year 2001..a dot.com e-tail business:

     is most likely to have a "bricks" presence has new low cost, high availability channels to their Customers.

provides personalised offerings to their profitable customers.

operates a quality service branded proposition.

is increasingly trusted by their customers or has become a dot.gone!

Where will e-tail businesses come from?

    new channels to existing markets more customer oriented services innovative "Super Niche" retailers customers growing in confidence

Sources of e-tail businesses:

 new channels to existing markets  Internet - Barclaysquare "Mk n"    has their time past?

Strong brands attract customers directly some trade ("guild") groups are effective the jewellers.net

 Specific - driven from a Brand    Tesco Direct Dell Marks & Spencer

Sources of e-tail businesses:

 Sector driven  Amazon      mature e-tail!

sold it's first book in 1995 now >$1.2 billion Entertainment Express Kingfisher get serious     and undercuts its own stores Intranet - Smartzone cable digital television

Channels to e-tailing - some potential winners

     digital TV adds to broad appeal secure, multiple channels current TV standards to go by, say, 2005 compulsive reason to buy new set!

Digital, cable and satellite = universal franchise

E-tail myth or reality?

    May 2001: 40% of UK homes have Internet connections   August 2001: 39% no of net users still growing  + 900,000 September 2001- November 1st More over 50s shop online than under 24s 33% of Internet users visit online stores more than once per week 40% of shoppers access the www from the office!

The E-tail Winners

  Amazon: 1.7 million UK visits in September Marks & Spencer  best "Traditional" Retailer   reliable, secure on line stock availability of in store  products ease of use

The E-tail Top 10

          Amazon Marks & Spencer Tesco ebay.co.uk

Argos Comet jungle.com (Littlewoods) qxl.com

W H Smith colonize.com

How some of today's businesses will respond ..

 more customer oriented services  encouraging BRAND loyalty   unique personalised offers cellular technology based  loyalty points     air miles tradable points/vouchers electronic purse conventional voice and E Mail

Physical retailing moves into new areas..

 – –  Innovation "super niche" retailers gain ground Seattle Coffee – definitive range + books The Link

Walmart - why worry? -1

    Revenues >£2 billion per week Proven operator  occupying the "wrong" sector     always avoid lowest cost Harvard Henley Ashridge etc.etc

Has broken out of its middle US image   still some US site potential product range extension - groceries Acquisition hungry

Walmart - why worry? -2

  Economic power  monthly revenues over £9.5 billion   c.f. largest European retailers LfL growth exceeds sector Supply Chain ability  provides 10X more processing capability than its   nearest competitors (anywhere) shares store based sku sales data with suppliers and trains them on how they may use it!

Walmart - why worry? -3

  Creates unprecedented value based competition    driven by global buying volume driven lower gross margins accepted Public/government sentiment has moved to support lowest cost

Walmart - why worry? - 4

 We had said: " UK Retailers margin model under threat!

could be reduced by circa 50% potential for many casualties!

not just supermarkets......"      We do not like being smug, but margins are falling the middle market is being squeezed there are many casualties and more to come!

Issue: Maintain Customer volumes

 In the face of  overt price based competition   aggressive promotional activity new channels

Issue: Price based competition

 How to protect the Nett achieved margin?

 lower buying prices   seek (retrospective) discounts reduce the cost of holding inventory       smaller commitments more replenishment faster stockturn lower markdown reduce wastage lower operating costs

Issue: Everybody getting smarter!

  Smarter competition  new entrants have no legacy problems  global buying and negotiating  alliances driving customer loyalty Smarter consumers     know the value of loyalty increasingly discerning more knowledge less time

Issue: Promotional Activity

  Maximise the potential from promotions   needs active collaboration with suppliers precise and timely execution  accurate measurement Advertising and communication effectiveness  measurement

More drivers of change....

  Targeted communication technologies  digital TV & set top box   www Satellite and telco Hybrids Social Pressures   Travel Parking

Issue: New Channels

   How to become a player - when I understand their potential?

 what must we do differently?

How to integrate their operation within my core business?

 I do not need to break the bits which work well  we have lots of customers in our stores How to avoid this becoming another late, over budget IT project?!

 I cannot wait for IT to learn the new skills

Loyal and profitable customers are retained because of:

 a clear and unified focus on the customer  supported by    efficient and integrated processes superior knowledge consistent execution

Some interesting Sectors: -1

   Mobile Phone retailers    high quality web sites call centre operations integration with service suppliers is critical requirement Music/Video Programme material  early direct channel   mainly established High Street retailers already under threat from new entrants Books - if they haven't already noticed!

Some interesting Sectors: -2

  Travel and Ticketing    the perfect direct product?

needs integration with suppliers digital TV could cause take-off!

Toys    Learning element translates well to e-commerce Brands already established take on Toys'RUS

Some interesting Sectors: -3

  Leisure & Sports Brands    strong consumer loyalty desire for information opportunity for direct channels Motoring & Service Organisations   Call centre based integration required to many systems/sources  provided a focus for consumer services businesses

Summary : Retailing today

  Increasing competition    new entrants established retailers & suppliers extending reach global information creates consumer knowledge Pressure on costs  product    operations store people

Information Technology in Retail

the operational necessities e-tail or retail!

Sextant Management Services Ltd.

SKU Management

 The ability to manage stock at the level at which the customer purchases  the Stock Keeping Unit   E.g.: a pair of shoes style, size, colour, width     a dress style, colour size a can of beans description, size

Measuring and monitoring the SKU

       Throughout the whole process Plan Order Supply Chain Warehouse Distribution Sales

The Retail Cycle

 Retail, and most consumer goods wholesale businesses work to a very similar basic process model: PLAN CONSOLIDATE BUY REPLENISH SELL DISTRIBUTE

Electronic Point of Sale

     EPoS Terminals  online, real time Up to 60,000 SKUs per outlet Promotion Control    3 for the price of 2 lowest price free linked purchases, etc Plastic Card Authorisation  and verification Robust and reliable

Accurate Data Capture

      EAN 13 digit barcode    world wide standard the world's most successful standard basis for b2b e commerce Robust Reliable Universal Retail & Wholesale Hypermarket to Corner shop

The Must Haves....merchandise

 Basic functionality  epos provides sku data capture        and price look up store polling of sales price file changes and refresh inventory file updates replenishment requirements inwards merchandise movement inter branch transfers

The Must Haves....customer

 Basic functionality  unique customer record  Card based - loyalty or payment    Mail or telephone order payment verification/authorisation fulfillment process

Local (Store Based Processing)

       EPoS Price File Management SKU Sales Personnel Planning Payroll Data Capture Merchandise Ticket Production Delivery Information

Central Based Processing

      Sales Consolidation & Financial Reporting Stock Replenishment Merchandise Purchase Ordering Payroll Processing www Management & Executive Information  Data Warehousing

Issue: IT skills & resourcing

  "My IT function is already stretched, and they will not have the skills" "I need to keep our revenue costs flat (at worst), can we afford this?"

Issue: Best of breed vs Integration

  "Retail ERP" has existed in merchandise system terms for some years    Retail Express Island Pacific(now owned by SVI) JDA (now owned by NSB) However, they did not include Finance systems  typically CODA was a popular choice

Issue: Best of breed vs Integration

 SAP developed a retail version  initially relatively poor in retail depth   now on a par with NSB/JDA expensive to implement when allied to business  process review  long projects (B&Q, Homebase) new template based systems from specialist retail implementors reducing cost and time

More drivers of change....

  Targeted communication technologies  digital TV & set top box   www Satellite and telco Hybrids Social Pressures   Travel Parking

Markdown -

 The difference between Stock valuation at Retail prices, and how much the item was actually sold for.

   a budgeted and planned item the largest single cost after personnel can have a make or break affect on results!

Issue: Promotional Activity

  Maximise the potential from promotions   needs active collaboration with suppliers precise and timely execution  accurate measurement Advertising and communication effectiveness  measurement

Some real positives!

 www. is a liberating experience   in gaining information in application development     new tools enable VERY rapid deployment of collaborative and www applications outside of the traditional IS functions in how systems are upgraded and maintained 24hr/remote/informed

EDI to E-commerce

  EDI (Electronic Data Interchange) is well established  between consenting retailers and suppliers  complex messages   batch operation tends to be inflexible - it works so leave it alone EDI has not been taken up by the SMEs  too complex and technical  requires intricate interfaces to "operational" systems

COLLABORATIVE APPLICATION USERS

  What are Collaborative Applications?

 These applications are being used by major    players to reduce total inventory in the supply chain optimise promotional sell through They will also be used by SME retailers, suppliers and channels  as they are easier to implement than traditional IS with easy access and usability

Who are COLLABORATIVE APPLICATION USERS

   J Sainsbury is a hub:  circa 200 in the JS "community" on promotional  collaboration and up to 500 in "Order" collaboration Some of these community users are themselves becoming hubs  Nestle  KJS Each of these will subscribe to the need to integrate into their Core Operational systems.