10427 The Retailer Autumn 2018_Final Draft Pages

autumn 2018

Nearly out of time -Brexit deal for consumers needed now

// British Retail Consortium response to the Chancellor’s Budget

// Business rates are distorting and accelerating the retail transformation

// WHY CUSTOMER EXPERIENCE IS MORE IMPORTANT THAN BRAND

“The Government has missed a much-needed opportunity to help the retail industry.”

NEWS FROM THE BRC British Retail Consortium response to the Chancellor’s Budget

Helen Dickinson OBE Chief Executive British Retail Consortium

While we welcome measures to assist smaller retailers, the majority of the UK’s 3.1 million retail workers are employed in businesses that will not benefit from today’s business rates announcement. If the Government is to truly back business, it must engage in more extensive business rates reform to help all retailers and their employees through this period of transformation.” On business rates relief for small businesses: “While we welcome the temporary support being given to small businesses, these measures alone are not sufficient to enable a successful reinvention of our high streets. “Retailers are currently in the midst of a perfect storm of factors – technology changing how people shop, rising public policy costs and softening demand.  “Rather than tinkering around the edges, struggling high streets require wholesale reform of business rates in order to thrive. The issue remains that the business rates burden is simply too high.” On the Future High Streets Fund and relaxation of planning laws: “Retailers welcome the measures announced by the Treasury to invest new funding to boost high streets and town centres and facilitate re-invention to modern and diverse destinations. We await with interest further details of the plans, particularly around how the funding will be targeted, who will eligible and how quickly funds will be made available.” On reform of the Apprenticeship Levy: “While the Chancellor’s recent announcement to review the Apprenticeship Levy is positive, retailers need action now before levy funds expire. The Levy is not fit for purpose as retailers are unable to fully utilise funds.  Businesses need the lifetime of funds to be extended while standards are finalised and more flexibility to use levy funds to cover the cost of backfilling roles while apprentices are off the job.  The Budget is a missed opportunity to demonstrate that the government is prepared to work with industry to ensure apprenticeship levy reform is successful.” On taxing plastic packaging: “The UK retail industry is leading the way in protecting the environment by reducing single-use plastic and retailers will welcome the support to make this happen. “Retailers recognise how important it is to their customers to tackle plastic pollution, removing it where possible and ensuring all packaging is recyclable. For this tax to make the difference that everyone wants to see, it is essential that the revenue raised is put back into recycling innovation rather than being locked away by the Treasury. Furthermore, Government must work with businesses to ensure the recycled plastic and recycling infrastructure is made available to support efforts to tackle plastic pollution. That is why retailers want to see reform of the recycling system. We need a producer responsibility system that incentives best practice - one that rewards retailers who use packaging that is easily recycled and penalises those that don’t change.”

the retailer | autumn 2018 | 3

this issue

03 News from the BRC British Retail Consortium response to the Chancellor’s Budget // Helen Dickinson, BRC 06 BRC NIELSEN SHOP PRICE INDEX September 2018: SECOND MONTH OF SHOP PRICE INFLATION

06

SEPTEMBER SUFFERS FROM SUMMER HANGOVER

07

Trust in the future of cyber-retailing // James martin

08

Risk of a wrong turn on rates // DAVID LONSDALE

09 Nearly out of time – Brexit deal for consumers needed now William Bain 12 Winning the hearts — and wallets — of UK shoppers with instant refunds // Luke Flomo, trustly

14

Retail 2019 – What do consumers want? // Wayne Snyder, JDA

16 How can merchants navigate the future of payments? // Ali Combes, CMSPI 18 Foodservice - the recipe for success or the kitchen nightmare? // Ken Higman, JLL Foodservice Consulting

20

Make Time for TOM // Melissa Horowitz , CMG

22 Identity Management in Retail: The Good, The Bad, and The Ugly // Doug Norton-Bilsby, ForgeRock

24 Leading retail from the front – Data Literacy is key // Paul Winsor , Qlik

26

Don’t Turn A Deaf Ear to Business Rates Reform // John Webber , Colliers International

4 | autumn 2018 | the retailer

28 Tackling the Transition to Natural Refrigerants // Eric Winandy, Emerson Commercial & Residential Solutions 30 Retail Health Check: key warning signs to look out for // Philip Lawrence, Transformation & Liquidity at KPMG in the UK

32

Helping people to eat well at work // NATASHA MAYNARD, Igd

34 Transaction data reveals key trends in fashion retail // Raj Pattni, barclays 36 National Minimum Wage Enforcement - Call for Evidence // Fiona Campbell, Squire Patton Boggs 38 WHY CUSTOMER EXPERIENCE IS MORE IMPORTANT THAN BRAND // Kareena Uttamchandani, Solutions Consulting Medallia

42 Retail Services Directory

brought to you by

the retailer | autumn 2018 | 5

BRC NIELSEN SHOP PRICE INDEX September 2018 SECOND MONTH OF SHOP PRICE INFLATION Period Covered: 03 - 07 September 2018

Helen Dickinson OBE, Chief Executive, British Retail Consortium:

• After five years of deflation, for the second consecutive month Shop Prices increased on the previous year. In September, Shop Price inflation inched up to 0.2% from 0.1% in August. • Non-Food deflation eased slightly in September to 0.9% from 1.0% in August. • Food inflation was steady in September at 1.9%. • Fresh Food inflation accelerated to 1.6% in September from 1.5% in August. • Ambient Food inflation slowed to 2.4% in September from 2.5% in August. • September was the second month in which Shop Prices recorded an increase, following a span of over five years of deflation. As expected, Food prices remained inflationary, the result of unusual weather patterns in the first half of the year. Non-Food deflation decelerated, with retailers less aggressive in discounting compared to a year ago. • In September, UK retail sales decreased by 0.2% on a like-for-like basis from September 2017, when they had increased 1.9% from the preceding year. • On a total basis, sales increased 0.7% in September, against an increase of 2.3% in September 2017. This is the lowest since October, excluding Easter distortions, and below the 3-month and 12-month averages of 1.2% and 1.3% respectively. • Over the three months to September, In-store sales of Non-Food items declined 2.7% on a Total basis and 4.0% on a Like-for-like basis. This is in line with the 12-month Total average decline of 2.7%. • Over the three months to September, Food sales increased 2.3% on a like-for-like basis and 3.4% on a total basis. This is below the 12-month Total average growth of 3.7%. • Over the three-months to September, Non-Food retail sales in the UK decreased 1.6% on a like-for-like basis and 0.6% on a Total basis. This is in line with the 12-month Total average decrease of 0.5%. September Non-Food sales remained in decline. • Online sales of Non-Food products grew 5.4% in September, against a growth of 10.7% in September 2017, the second-

“Overall shop prices were inflationary for the second month in a row in August, the first time in five years that prices have risen in two consecutive months. “Global commodity conditions, in particular oil prices, would indicate that there are likely to be further inflationary pressures in the short to medium term which could lead to further price rises. “This would be worrying enough for hard-pressed British consumers if we weren’t staring down the barrel of a “no-deal” Brexit. Food prices alone have now been inflationary for more than a year and the BRC estimates that consumers could face up to a 29% increase in prices of products such as beef in the event of a “no-deal.” “Time is running out for the Government to deliver a Brexit deal with a workable backstop arrangement and a clear transition period. This is not good news for UK shoppers who out of all the stakeholders in the Brexit process ultimately have the most to lose.” best growth of 2017. This is the lowest growth since January and below the 3-month and 12-month averages of 6.7% and 7.1% respectively. Online penetration rate increased from 22.7% to 24.2% in September 2018. Helen Dickinson OBE, Chief Executive, British Retail Consortium: “These figures lay bare the difficult operating environment for the retail industry. After a challenging August, constrained consumer spending in September has resulted in the weakest sales growth for five months. “Retail represents 5 per cent of the economy and pays almost 25 per cent of the business rates bill and this disproportionate cost burden is especially hard to bear given the current trend in sales. The effect can be seen in the fact that there have been 3,200 UK store closures in the past three years. “The Government has said it wants to “back business” and retailers are waiting to see if this is just talk or if there will be meaningful action - like a freeze in business rates in the Budget.”

SEPTEMBER SUFFERS FROM SUMMER HANGOVER Covering the five weeks 26 August – 29 September 2018

6 | autumn 2018 | the retailer

NEWS FROM THE BRC Trust in the future of cyber-retailing

James martin Crime and Security Adviser British Retail Consortium

communities, to create the conditions tomanage crime risks across a range of areas, including cyber-crime. We encourage all members to think carefully about who they would like to have signed up to the communities: it’s always better to err on the side of being signed up and not having used it much than to not have signed up andmiss something valuable. One thing we’re absolutely clear on is that cyber-security is not just, or evenmainly, an area for specialists. It must be woven throughout a company’s whole structure, from the very top down. The Board’s role can be a bit difficult to pin down, but the key requirements are well-established: to lead, to assure, to challenge appropriately and to facilitate progress. We’re looking at howwe can provide some guidance on best practice with our partners in Government, academia and beyond, building on our recentWebinar with partners CGI ( here ). But it is not only the executive leadership with a role to play. Cyber-security is a whole-organisation thing; as much a question of culture as technology. Everyone needs to play their part, operating with a proper understanding of cyber-hygiene and the threats poor habits can create, even to establishedmulti-national enterprises. One inadvertent slip-up can see £billions wiped from an organisation in a matter of days. A great, and free, place to go for advice is the National Cyber Security Centre, whose most recent Annual Review, describing their work (with a small BRC contribution) is here . There’s a lot of great material in there, but perhaps most interesting is the section on live incident management, including some material previously deemed too sensitive to publish. The Cyber-Security Toolkit we co-created with the NCSC is also a valuable primer on this area, and we stand ready to help build relationships between any of our members who would like us to and the NCSC, the NCA or others. There are also some really interesting free (tomembers) events in the next fewweeks on identitymanagement andAI, although spaces are filling up quickly. Thesewill explore thewider topics around using new techniques to drive customer value in a sustainableway, and further details in the BRC events calendar or website . the end of thismagazine. Ultimately, every retailer’s path to the future will be different, requiring unique trade-offs and balances to be considered and struck. Some things will, however, be constant, such as an increasing emphasis on using data intelligently and securely. As part of our core mission to support the industry to thrive, it’s a journey we at the BRCwant to help our members navigate successfully.

Much of the UK retail industry’s future will rely on IT. Sales are the most visible area, and there the change has been dramatic: BRC calculations show that in 2006 3% of shopping was online, today that figure is around 18%, despite there being no ‘one size fits all approach’. The revolution digital platforms have catalysed goes much deeper into the fabric of retail, reshaping distribution networks, business management and customer behaviour and expectations. We expect such radical change to continue. Increasingly, for example, ‘ordinary’ consumers (if there is such a thing anymore) are demanding and receiving personalisation of their experience, products and pricing which was previously only available to the very wealthy or well-connected. Such abilities will not be a ‘nice to have’ for long: in future they will be a necessity across the industry. To give an example of how far this has gone: reports from the US suggest that 70% of Nike’s e-commerce business is from orders for customised products. It is clear that the industry is not waiting for the future, it is busy building it. “The best way to predict the future is to invent it.” Nigel Calder, paraphrasing Nobel laureate Dennis Gabor In partnership with Aon, we recently held a live event on the Future of Crime, aimed at helping our members to understand and prepare now for future crime threats. A fuller write up can be found here, but one of the key points which came out is that customer data, and customer trust, are intangible commodities for a retailer of real value. It’s difficult to pinpoint exactly what will contribute to a retailer having high customer trust over data use, and so be able to use that to create a significant competitive advantage of others, and how that can be measured. But one area likely to be central is a demonstratable cyber-security capability. Unfortunately, a couple of trends will make it more difficult to be secure. First, as data becomes more valuable it becomes a more tempting target. Second, as retailers become more integrated with their supply chain partners, the ‘attack surface’, the opportunities for a retailer’s systems to be breached, becomes bigger, and the risk from weaknesses in legacy systems buried away in a supplier higher. Third, there appears to be a growing sophistication amongst hackers, who increasingly use sophisticated attacks tailored to a precise understanding of the potential victim, rather than deploying the same attack against many. We at the BRCwork hard, through our IT and Operations

the retailer | autumn 2018 | 7

NEWS FROM THE BRC

Risk of a wrong turn on rates

David lonsdale Director scottish Retail Consortium

Business rates are a perennial concern for retailers. Scottish shops pay 22% of the rates bill, with larger and town centre stores being especially hard hit. That pressure is being felt across the industry. Latest figures from the Office for National Statistics show that the number of shops in Scotland dropped 4% over the past four years, and at a faster pace than in every other part of the UK. With SRC- Springboard data showing the vacancy rate in our town centres stuck at over 10%, it’s clear that the retail industry in Scotland is undergoing the same profound transition as it faces elsewhere, driven by changes in shopping habits, stiff competition and burgeoning costs. I would argue the growing cumulative burden of tax and regulatory costs is contributing to an acceleration in the pace of that change. Much of our focus at the Scottish Retail Consortium (SRC) has been on seeking to convince policy makers to reform an out-dated business rates system and to keep down the cost of doing business and cost of living. Encouragingly, progress is being made. The Scottish Government has listened and early in 2019 it has promised to publish a Non-Domestic Rates Bill. The SRC has argued for a rates system that better flexes with economic and trading conditions, and the Bill is set to do that by legislating for more frequent commercial property revaluations every three years. The lengthy period between valuations and them coming into force will be halved. These changes should provide a more effective shock absorber against any future economic bumps in the road. It will mean each property pays a fairer share of the rates burden relative to other properties and a more accurate one. It should also have the positive effect of decreasing the likelihood of major

fluctuations in commercial property values and contribute to a reduction in the volume of appeals. The Bill will also include welcome measures to streamline the administrative complexity around the rates system and improve transparency. The Scottish Government is heading in the right direction with these changes and we will be urging MSPs to back them. There is one exception however. With their draft proposals to allow councils to introduce a new business rates levy on “out of town and online ratepayers”, Ministers are at serious risk of taking a wrong turn. The proposal is anomalous with the thrust of the rates reform agenda. Details are scant right now, but SRC is clear that the prospect of this new levy is alarming at a time when retailers are focused on reinventing themselves and using precious resources to invest in digital platforms, higher skills, and improved logistics capabilities. Unfortunately, there is a paucity of detail about the levy at this time. We simply don’t know which firms will be liable for the levy, how much the tax rate would be, how long the levy would apply for, and what the revenues will be used for. Despite the welcome proposed structural reforms to rates, the fact is the rates burden remains onerous. The higher Large Business Rates Supplement which applies in Scotland compared to elsewhere in the UK, which costs retailers alone £14.1 million a year more, is a case in point. We’ve made clear to Scottish Ministers that this proposed levy looks decidedly rusty, and that it ought to put right back into the policy garage and quietly forgotten about.

Shop

5,128 shops pay the large business rates supplement, costing £14.1m

8 | autumn 2018 | the retailer

NEWS FROM THE BRC Nearly out of time – Brexit deal for consumers needed now

William Bain Policy Advisor , Europe and International British Retail Consortium

A DEAL TO SECURE BREXIT TRANSITION IS WITHIN REACH. POLITICIANS SHOULDN’T LET IT SLIP THROUGH THEIR FINGERS IN THE COMING WEEKS. The ticking clock is nearly out of time altogether. The Article 50 process to negotiate an orderly path from EU membership was initiated by the PM in April 2017. One general election, two Brexit Cabinet resignations, over 80 UK Government technical notices and No Deal, and several policy u-turns later, the few weeks remaining in the process must deliver a deal for retailers and consumers, and for both the UK and European Parliaments to endorse and begin to implement the deal. Zero tariffs with EU would be replaced by MFN tariffs, with rates on cheddar 47%, beef 42% and tomatoes 28%. Zero tariffs with EU would be replaced by MFN tariffs, with rates on cheddar 47%, beef 42% and tomatoes 28% All of this would be compounded by the problems for retailers in Northern Ireland, or serving consumers in that market, with a hard trading border, hitting the processing, haulage and preparation of goods from Bailey’s Irish cream to ready meals. In order to avert this disaster, the BRC is calling upon both sides in the negotiations to agree an acceptable form of backstop on the Irish border that will pave the way for a Withdrawal Agreement providing long-term stability and certainty in trading conditions across the UK and Ireland. We were among the first business organisations to make the practical and economic case for a standstill transition period – keeping trading terms just as they are now – for a reasonable period after exit day next March. To get the security of that transition – whether 21 months or however long is necessary – a backstop must be agreed in the coming weeks. No backstop, no orderly exit, and a cliff-edge Brexit with hugely damaging impacts upon our industry and millions of consumers. That is how high the stakes are this month and in November.

Delays at ports would cause a logistical nightmare for retailers and consumers as haulage became scarce and far more expensive Any agreement will take time to implement. MPs at Westminster will have their say in the meaningful vote process following any deal struck in Brussels. The Withdrawal Agreement must be formally ratified. The EU Withdrawal Agreement Bill will need to be passed in both House of Parliament, providing the legal basis in the UK for the transition period, citizens’ rights and future payments to the EU. That in itself could take around 8 weeks. There may be some delegated legislation which has to be made, notwithstanding the standstill application of existing and future EU rules made during the transition period. The European Parliament has important committee enquiries and votes, not to mention the vote by the plenary chamber on any agreement in mid-March. All of this takes time. In a difficult retail climate, every second of delay between now and December means investment opportunities foregone by UK retailers, and money being spent on contingency planning which may never be recouped. The officials from both negotiating teams are working incredibly hard, but the politicians need to give them the breathing space to make a deal, and one that will work for retailers and consumers. It’s time to leave ideology or rigid interpretations on what the Brexit vote meant behind. Consumers are increasingly savvy but hard-pressed on their finances. They simply can’t afford the chaos and higher costs of a No Deal Brexit. The retail industry stands united behind their interests. We now need a deal which keeps goods and services flowing, which may not deal with every aspect of the future relationship between the UK and EU on trading terms now, but one which provides the certainty of an agreed transition. That’s the prize in the coming days and weeks – politics mustn’t see it slip from the consumer’s grasp.

the retailer | autumn 2018 | 9

upcoming events 2018-2019 We deliver a wide range of events throughout the year – from our annual flagship events to lectures, roundtables, webinars and conferences. Our events help you keep up to date and informed on key issues affecting the retail industry.

BRC Events bring together retail leaders, policymakers, influencers and industry partners

CONFERENCE CLIMATE, ENVIRONMENT AND THE IMPACT ON RETAIL 07 NOVEMBER

ROUND TABLE IDENTITY MANAGEMENT

RETAIL, STATS, FACTS AND TRENDS 22 NOVEMBER WEBINAR

IN RETAIL 21 NOVEMBER

WEBINAR TRANSFORMING THE RETAIL EMPLOYEE EXPERIENCE 05 DECEMBER

WEBINAR RESOURCE AND WASTE STRATEGY 11 DECEMBER

ROUND TABLE

DRIVING BUSINESS VALUE WITH AI 27 NOVEMBER

Find out more at brc.org.uk/events

We work in partnership for the benefit of all our members, with a range of sponsorship packages on offer to suit our partners’ needs. Want to find out more? Contact us at events@brc.org.uk

10 | autumn 2018 | the retailer

FLAGSHIP EVENT

FUTURE RETAIL LEADERS LECTURE 2019 23 JANUARY 2019 | 30 EUSTON SQUARE, LONDON

What makes a successful senior leader in today’s fast paced and ever-changing world of retail? This event, dedicated to the workforce, offers insight and inspiration for aspiring leaders from across the industry. Join our highly successful speakers as they share experiences and knowledge from their own careers and what they’ve learned along the journey to the top of their profession.

Jill McDonald MANAGING DIRECTOR CLOTHING, HOME & BEAUTY AT M&S

PAULA NICKOLDS MANAGING DIRECTOR JOHN LEWIS

THIS IS A SELL OUT EVENT! VISIT BRC.ORG.UK/EVENTS TO FIND OUT MORE AND BOOK YOUR PLACE.

ASPIRING LEADERS WE’RE DELIGHTED TO CONFIRM THAT WE WILL AGAIN BE HOSTING OUR RETAIL MEMBER-ONLY AFTERNOON TEA AND NETWORKING FOR RETAIL’S RISING STARS.

Winning the hearts — and wallets — of UK shoppers with instant refunds

LUKE FLOMO HEAD OF ECOMMERCE trustly

RETURNS ARE A HEADACHE FOR ONLINE RETAILERS, BUT IMPLEMENTING AN AUTOMATED INSTANT REFUND SOLUTION CAN SOOTHE THE PAIN. Traditionally in e-commerce, returns have been a substantial resource drain for online retailers. Shoppers often order several sizes of one item to try at home before deciding which to keep. And as we move into the holiday season, the issue is only magnified. Leading up to Christmas, people often buy a gift, only to return it if they find a better price elsewhere. Once the holiday has passed, we see a deluge of returns from the recipients, who send back hordes of presents in hope of exchanging them for something more — how do I say — to their liking. As a result, online retailers are faced with high return rates. This creates logistical and payment complexities that ultimately eat into margins. It also frustrates impatient shoppers, who are often forced to wait anywhere from 3 to 30 days for their money to be refunded to their credit or debit card. Not to mention, interest can accrue for this period on credit cards. But while managing the process can be a headache — and a very expensive headache, at that — offering a great returns experience can make the retailer stand out in shoppers’ minds and build brand loyalty. Optimizing this trade-off is vital for customer-centric, fast-growing online retailers. While free returns are now commonplace, timely processing of refunds is a key factor affecting shoppers’ experiences. Unfortunately, many companies overlook this and assume that offering free returns is enough. However, 69 percent of shoppers end up waiting four or more days to receive their refund, according to a recent survey by Trustly.

The survey goes on to reveal that shortening this time would have a direct impact on sales, as making shoppers wait for their refunds often delays any additional purchases. Increasing the speed of the refund process could lead to 58 percent of shoppers spending more and 56 percent buying more frequently. That’s an uplift in spend from over half of an online retailer’s existing shopper base. Beyond revenues, the refund process greatly impacts how shoppers feel about a brand, according to the same Trustly survey. Of the UK shoppers surveyed, 54 percent claim the speed and ease of their refund affect where they choose to shop, while 98 percent said they’d be more loyal to an online retailer if they received refunds within one day. Clearly an efficient refunds process can have a positive impact on shopper satisfaction and NPS scores. Issuing more efficient refunds is all well and good, but given the manual complexities required to do so, how can online retailers manage? Alternative payment methods are one solution. Alternative payment methods like online bank payments are growing in popularity among both online retailers and shoppers in part because of how they simplify the return process. For the online retailers, an automated instant refund solution can reduce administrative costs of processing the refunds, which costs them about 8.1 percent of total sales, according to Shopify’s “2018 Holiday Ecommerce Returns Guide.” For the shoppers, getting their money refunded more quickly means they have better control over their finances and don’t need to put off their next purchase. Implementing a simplified refunds solution sounds great in theory, so how does it look in practice? Let’s turn to one large Nordic online fashion retailer that was struggling with its resource-intensive returns process. After integrating with Trustly to offer automated instant refunds, it saw a decrease in the amount of administration required to issue refunds. On top of that, the retailer’s shoppers instantly receive funds into their bank account, allowing the retailer to market new interesting products to the shopper, who can purchase goods straightaway, instead of waiting days or even weeks to receive their refunded money. In fact, of those who were offered instant refunds, 55 percent had higher purchase basket size and 84 percent made more purchases in the past 12 months.

12 | autumn 2018 | the retailer

98% of British shoppers said they’d be more loyal to an online retailer if they received refunds within one day.

By offering instant refunds through online bank payments, merchants have an opportunity to increase their revenue per customer without fundamentally changing their business model or product offering. This can increase ROI from acquisition activities and also help in differentiating them from competitors. Now I know what you’re thinking: The UK is a market in which shoppers largely prefer to pay by cards and shoppers aren’t going to readily change behaviors. However, according to Trustly’s survey, 69 percent of UK shoppers said they would be willing to try a new payment method if it offered instant refunds. Clearly, many shoppers value functionality over familiarity Today’s shoppers have come to expect instant gratification in all areas of the shopping experience — from browsing and purchasing through shipping and returns — and brands that deliver on that expectation are sure to win not just the hearts, but the wallets of British shoppers.

LUKE FLOMO // Luke.Flomo@trustly.com // trustly.com/ecommerce

the retailer | autumn 2018 | 13

Retail 2019 – What do consumers want?

WAYNE SNYDER VP RETAIL STRATEGY EMEA JDA

JDA’S WAYNE SNYDER EXPLORES FIVE KEY AREAS FOR RETAILERS TO FOCUS ON Online retail continues to boom in the UK; with e-commerce sales reaching £13.7 billion last year. Based on these figures and recent demises of the likes of Toys R’Us and Maplin, it is easy to believe that the end of bricks-and-mortar is nigh. But in reality, the in-store experience remains a critical part of the shopping experience. JDA’s latest global Consumer Survey found more than half of UK consumers (51%) favoured in-store as their preferred method of shopping. However, retailers can ill-afford to rest on their laurels. Retailers need to be able to quickly respond to ever changing customer expectations, delivering the products they want, in the environment they like best, with the fulfilment options which meet their needs. 1) RIGHT PRODUCT, RIGHT PLACE, RIGHT TIME While customer journeys may start in one channel and purchase in another, whilst it may be a cliché, getting these fundamentals right is more important than ever when customers have so many other options to choose from. Almost half of UK shoppers (47%) claim having the right product in stock is the deciding factor for a good or bad experience. If a customer is unable to find what they want, there’s a risk of not only losing the sale in the short-term, but also of further damage if they do not come back in the future. This is where a solid supply chain operation can underpin retail success. Retailers must provide product assortments localised for what customers want, using that information to determine what items to stock in-store and which to offer online. 2) UNDERSTANDING THE DYANMICS OF CLICK-AND- COLLECT Click & Collect remains a popular option with consumers, especially in the UK, with three-quarters of consumers saying they have used it. Shoppers gave a wide variety of reasons for choosing Click & Collect over home delivery; from avoiding delivery charges (58%), to getting the product more quickly (36%), and the added convenience of in-store pick up (33%). Our survey also found that, for retailers, there’s an added benefit to in-store pickup; with two-thirds (66%) of respondents making additional purchases while visiting a store to collect orders. This means retailers should view in-store fulfilment as an opportunity to potentially capture additional sales from online customers.

3) DON’T IGNORE THE RETURNS EXPERIENCE The shopper today is already thinking about how they can return a product before they even buy it and having the right process in place for returns is imperative. 86% of global consumers stated that the ease of returns is a key factor when deciding where to buy. Furthermore, a poor returns service from an online retailer would make 81% of consumers switch to an alternative retailer when next shopping online. The growth of ‘serial returners’ should also not be ignored. More than a quarter (27%) of respondents said they intentionally bought multiple sizes or product options, with the intent of returning what they didn’t want or need to a store. Retailers must ensure that their supply chains are geared to the challenge of returns. This means forecasting return rates to avoid over-stocking and ensuring products are processed quickly so they are back on the shop floor as soon as possible. 4) JOINING THE TECH REVOLUTION Today’s shopper is becoming increasingly tech-savvy, expecting a great technology experience both in-store and online. Amazon’s Alexa, Google Assistant, and Apple’s Siri have become a familiar presence in many households, with 40% of consumers globally using these devices for some element of their shopping journey. What’s more, 53% of consumers believe that technology such as augmented reality, robotics and voice assistance will enhance the online shopping experience in the future. While the current use of augmented reality in retail stores in the UK is quite low compared to the likes of Asia and the Far East, its potential is huge. Our survey found 60% of consumers believe that using AR to preview a product would make them more likely to make a purchase in-store. To take advantage of this opportunity in the future, retailers need to take the next step and lead the customer by putting these emerging technologies into wider use. For example, only 20% of UK consumers have bought an item via social media compared to 50% in most of Europe and 85% in China, demonstrating the further opportunities that are possible.

14 | autumn 2018 | the retailer

5) BE AWARE OF GROWING PERSONALISATION AND PRIVACY CONCERNS While shoppers in the UK are keen to embrace new technology, they are also starting to express concerns about how their personal data is being used. With 75% of consumers claiming they’re concerned about how retailers would use their online and in-store shopping history. This indicates that the introduction of GDPR has made personal data use a more important issue in the minds of shoppers. The retailers that do well, however, will be those which are able to show consumers that they respect their privacy and will keep their data safe. ACCEPTING CHANGE Change is one of the few constants in retail. If customers have told us anything in this year’s Consumer Survey, it’s that they expect a unified experience and personalisation no matter how they choose to shop or buy – across every interaction, every time. It will be this which will keep them coming back – to your stores, to your website, and your brand

WAYNE SNYDER // Wayne.Snyder@jda.com // jda.com

the retailer | autumn 2018 | 15

How can merchants navigate the future of payments?

Ali Combes Director of Technical Consultancy CMSPI

Challenges: why do merchants need to be careful? New payment methods will be unregulated and may actually have higher costs associated with them than Visa or Mastercard. Amex, PayPal, WeChat and Alipay all tend to have very high fees for European merchants, mainly due to price elasticity of these payment methods. They deliver incremental sales by introducing merchants to a subset of niche consumers. As a result of this specialisation, these payment methods only really create mini-monopolies for these subsets of consumers. As merchants have found to their detriment with Amex, once critical mass is reached, there is no turning back and they are forced to pay high fees for that payment method indefinitely. I. Barriers to entry mean the industry may naturally tend towards monopoly anyway. Is it really better to shift dominance to the big tech companies? II. Point of Sale (POS) experience – There are thousands of alternative payment methods (APMs) out there and it is not feasible for merchants to accept all of them. There is also dilution – the more payment methods available means low volumes per system, lowering the bargaining power of each system and benefits from economies of scale. Finally, there is the issue of multiple transaction costs with managing a number of contracts. III. There could be increased data risk. OPEN BANKING... WHO WILL BE THE PISPs? Open Banking provides the opportunity for Payment Initiation Service Providers (PISPs) to initiate payments instead of the traditional card acquirer/Payment Service Provider (PSP) model. We have identified the following potential PISPs: I. Large Merchants on their own. Realistically, only very large merchants can do this, such as the major supermarket chains. II. Merchants joining together. Merchant Customer Exchange (MCX) is an example of this type of union in the U.S. MCX sought to create a QR code-authenticated, merchant-owned mobile payment system although it was ultimately unsuccessful. These groups can be difficult to manage as there are various issues to consider when competitors join together. III. Big tech firms entering the payment space. We have already seen this to an extent with Apple Pay, although it ultimately aligned with Visa and Mastercard. CASHLESS SOCIETY One aspect of the future payments space that is often mentioned is the fabled “cashless society”. Dwindling cash volumes and numerous catalysts identified in this article may accelerate this

WILL OPEN BANKING PROVIDE THE COMPETITIVE CATALYST MERCHANTS ARE HOPING FOR? A visit to any payments conference, a read through industry publications, or even a quick Google, will show the payments market as being a hotbed of exciting innovation. Despite this, the majority of consumer payments are still conducted via either cash or card systems developed 40 years ago. PSD2’s Open Banking provisions may change this, but will it succeed? The Second Payment Services Directive (PSD2) entered into force in January 2018 and promised to have a fundamental impact on the European payments industry. It affected merchants in three main ways - through a ban on surcharging of regulated card transactions, a mandate covering strong customer authentication* and, arguably most importantly, through its Open Banking mandate. This Open Banking initiative will open up access to bank accounts to non-financial institutions, and will likely result in an unprecedented surge in innovation, but will it have a material effect on retail payments? *The SCA mandate will only emerge after the Regulatory Technical Standards are published in September 2019. HISTORY - THE PAYMENTS GRAVEYARD In recent years, countless payment methods have tried – and failed – to seriously penetrate the retail payments space. Indeed, it seems that every year is touted as “the year of mobile”. Ultimately, however, these payment methods are often absorbed by the major card brands, if they don’t fail altogether. The fundamental conclusion to draw from this is that it’s hard to break the dominance of the card schemes. However, a major catalyst has emerged in the form of PSD2’s Open Banking provisions, which give third parties access to consumer bank accounts. WHAT DOES OPEN BANKING MEAN FOR MERCHANTS Benefits: why might Open Banking be positive? I. New payment methods provide much needed competition to Visa and Mastercard. Any movement away from expensive card payments reduces interchange and scheme fees for merchants. II . Merchants may be able to gain more customer insights from new payment methods, including marketing and loyalty benefits. This could ultimately deliver new customers. III. The innovation encouraged by PSD2 can improve security, speed and efficiency within the industry, to the mutual benefit of all supply chain stakeholders.

16 | autumn 2018 | the retailer

Any movement away from expensive card payments reduces interchange and scheme fees for merchants.

The high street is finding new ways to compete, and we expect to see increasingly innovative collaborations merging fashion, food and fun along with product personalisation and tech.

decline, so it seems reasonable to ask: is it still ultimately feasible to achieve a cashless society? For merchants in the majority of European countries, it seems a cashless society still poses risks, including lost sales, negative press, and an open-door for the global card schemes to increase their dominance. IN SUMMARY The payments space is rapidly changing, but many of the alternative payment systems predicted and touted over the years have failed to materialise to the extent predicted – if they have attained any permanent presence at all. Many well publicised and promoted mobile payment solutions have either been acquired or failed outright. Open Banking could change this, and potentially provide much needed competition for Visa and Mastercard, along with innovations that could improve speed, cost and security for all. To learn more about Open Banking and the future of payments attend the Retail Payments Conference 2018 in London on

November 7th. Join over 120 of Europe’s largest retail organisations, register at www.retailpayments.org.

ALI COMBES // Acombes@cmspi.com // cmspi.com

the retailer | autumn 2018 | 17

Foodservice - the recipe for success or the kitchen nightmare?

Ken Higman Director JLL Foodservice Consulting

In the battle between clicks and bricks, physical retailers are looking at an ever-diverse range of strategies to drive engagement, footfall and ultimately sales. Foodservice, the delivery of restaurants, cafés, kiosks or even food trucks, is being used more and more to tap into the desire for providing a more “experiential” offer. The simple reason for this is that foodservice is playing a bigger role than ever in the success of physical retail. 40% of visitors base their choice of shopping centre on the dining options available (ECE), and the same is true of which high streets they shop at. The food offer doesn’t just impact choice, it also impacts spend – recent research from Coniq shows that consumers spend 12% more on retail when they eat out during their trip. The results are clear – a strong food offer that is carefully curated to complement the surrounding retail, will drive footfall and revenue for the whole area. At JLL Foodservice Consulting we have been supporting landlords for 25 years on developing the foodservice within a wide variety of retail real estate locations, from Shopping Centres to Urban Regeneration projects. We have also worked direct with retailers from Department Stores to Supermarkets, but the interest direct from retailers has been at its peak in the last 12 – 18 months and from a much wider range of retail types as well. Department stores have long-recognised the benefits of a compelling food offer – Selfridges continues to innovate with rooftop pop-ups and the likes of Debenhams are working with a wide range of third party brands to really enhance their foodservice offer. Luxury brands have been quick to pick up on the added value that foodservice can deliver to their customer experience. Recent examples include Tiffany’s Blue Box Café serving locally sourced dishes on signature turquoise crockery. Then there is the Gucci Garden which blends retail with dining and leisure to provide a forum for the brand to express its heritage to potential customers, and offers a more affordable way to buy into the brand: a three course meal will set you back around €60 whereas the plain white Gucci logo t-shirt costs a substantial €390. This helps to broaden their market without detracting from the exclusivity of their apparel. It serves as both a visit driver and a powerful PR mechanism, alongside an additional revenue stream.

But it isn’t just luxury brands exploring what a foodservice offer can do for them. There are benefits that work just as well for high-street brands, such as providing a resting point for tired shoppers in an environment where something attractive might catch their eye. You can see this in Jack Will’s Espresso Hut, Farm Girl who have partnered with Sweaty Betty and, H&M’s “It’s Pleat” café in Stockholm. These enliven the atmosphere in the store and can make a brand more ‘front of mind’ by working it into customers’ routine. Most of all, these in-store dining experiences offer something that online shopping cannot – brand immersion. H&M has chosen a young, fun, health conscious offer to express itself whereas Gucci has chosen luxury and heritage. These are qualities that you can live, breathe and taste in-store in a way that you could never do online. Developing the right foodservice offer for your retail space can be a challenge, which is often why we are brought onto a project, and whilst I cannot give you all the answers in this short article, what I have done is set out a series of questions that you should consider when looking at the potential for delivering foodservice in your retail spaces. • Do you have the right amount of space for the offer that you want to provide? Foodservice units can range from 60ft² – 6,000ft² depending on what you want to offer, your proposed space must match your proposed concept. • Is the space right for foodservice? A bad retail space can be a decent foodservice space, but this is not always the case, sometimes a “dog is a dog”. Throwing foodservice into spaces just because they don’t work for retail is not a solution. • Do your trading hours match the offer you want to provide? 50 - 60% of restaurant sales come after 6pm. Lots of retailers aren’t even open at these times. If your retail closes at 6pm, then you need to provide external access to give your foodservice offer the best chance of success. • Do you want to partner with a known brand or do you want to develop something yourself? Doing it yourself gives you control and allows you to match foodservice to the retail offer, but you will need to recruit and employ specialists to deliver it. • Do you have the right level of physical infrastructure? There are the “simple” requirements like gas electric, water and exhaust but what about things like waste routes - foodservice is much more noisy, smelly and dirty than traditional retail. Do you really want the same service lifts to transport both £500 hand bags and bags of food waste?

18 | autumn 2018 | the retailer

The high street is finding new ways to compete, and we expect to see increasingly innovative collaborations merging fashion, food and fun along with product personalisation and tech.

From H&M to Gucci, fashion retailers are adding food elements like cafés, restaurants and seasonal pop-ups to bring more consumers to their stores.

The above questions are not designed to put you off developing foodservice as part of your wider retail offer, I genuinely believe that foodservice is now a fundamental part of the retail experience, but like all great meals you need the right ingredients to deliver a recipe for success.

KEN HIGMAN // Ken.Higman@eu.jll.com // jll.eu/food

the retailer | autumn 2018 | 19

Make Time for TOM

Melissa Horowitz Principal Consultant cmg

HOW TOM CAN SAVE YOU TIME, MONEY AND PAIN It’s no secret that Transformation programmes can be painful, expensive and often overrun. This is more likely when programme objectives and the business design are unclear, causing misalignment amongst senior stakeholders. A well-defined Target Operating Model (TOM) helps deliver the business case and paves the way for future continuous improvement. Plan ahead Often on IT-led programmes, the need for a TOM is appreciated too late. We’ve joined many programmes heading into testing and training, not exactly sure what to test or train. Programmes often cut the design phase short, trusting their business representatives to put the new processes in place without lots of documentation. By defining a TOM up front, you will be sure to achieve the stated outcomes, and your teams will know what changes they need to make. The TOM needs to be simple, clear and easy to understand. Meet TOM TOMs define how the organisation will operate after the change is complete. While business representatives are usually knowledgeable about their process areas, the touchpoints between functions are less obvious. Developing a TOM also gives the organisation a structured approach to work through these touchpoints and core business scenarios so it can understand how it will operate when the initiative goes live. Our favourite framework for a TOM breaks it down into four

govern the programme’s delivery. During the design, any risks, issues, assumptions and dependencies are circulated throughout the wider business to gather the support needed to address any gaps in direction. TOM sets the scene A TOM defines the new ways of working for the parts of the business that are changing. One of the first steps in developing a TOM is to define the scope of the processes that are changing, often against the value chain (the end-to-end processes needed to run the operations). It’s critical that the business defines the processes needed to run the organisation in the language that they use to talk about them, so that everyone buys into the value chain. The value chain should cover all the operational activities. So, when the value chain is marked with the programme scope, the organisation clearly knows what is in and out of scope. TOM speaks the LANGUAGE OF BUSINESS AND TECHNOLOGY Just as the value chain needs to be in business language, so do the process maps. All too often, we’ve seen IT-led initiatives produce systems process maps, not business process maps. A business user should be able to read a process map and understand how they will carry out the process, the roles and systems involved and which parts of the process they support. The process maps should provide IT with the business context for how the technology will be used. TOM is a team player Large organisations are generally siloed and some of them replicate this way of working on their programme teams. These teams produce process maps whose touchpoints have not been worked through or, even worse, processes for just one or two functions. The function owning a process map needs to agree all the steps they have defined with ALL the other functions involved in the process. Along the same lines, a TOM cannot be defined for one function in isolation of the others. Each function depends on the others for inputs and outputs and the other functions need to sign up to provide them. TOM will save you time Once you have developed a TOM, developing the next one is that much easier. Recently, we worked on a project with a team who had just completed a Transformation. In the course of our work together, we were impressed with how well the team knew their business processes and the touchpoints with their colleagues’ processes. The design work that usually takes four to five months took only two. Since the team already had established relationships with the business, open questions were quickly

components: • Solution • Processes

• Organisation structure • Skills and capabilities

Simply put, to design a new way of working, you need to design each of these components and how they interact. The objective of the documentation is to align the programme team and wider business to prepare for the change. Really, the TOM is a communication tool. If everyone has a shared understanding of the TOM, that alignment is easier to establish and ultimately easier to implement. T stands for Target We’ve seen some programme teams struggle to know what that target is. This can be due to a lack of vision from the business or the volume of change in the organisation. The TOM documents the business design needed to deliver the stated benefits and

20 | autumn 2018 | the retailer