The Retailer Spring_09.05_FA
The Future of Retail Edition
// Reinventing Retail - home and away
// Business Rates – the need for reform
// Are you ready for strong customer authentication?
‘‘responding to the biggest shift in consumer behaviour in a generation takes investment. ” ‘‘a rising tide of public policy costs emanating from Government make an investment in our high streets almost impossible.’’
NEWS FROM THE BRC The reinvention of retail
Helen Dickinson OBE Chief Executive British Retail Consortium
It’s been a tough few years for retail. Well known brands like Toys R’ Us and Maplin no longer grace our high streets and retail parks. Journalists do not ask me if there will be more to come, but who they are likely to be. A seismic shift is taking place in retail. New technologies are both driving and reinforcing a change in the way we buy things. The internet is liberating us. It allows us to shop at home, at work and a million places in between. It lets us compare prices while we stand on the shop floor, and access product reviews even as we get advice from the in-store experts. Internet shopping now accounts for around 30% of all non-food purchases, and the proportion of food bought online is also growing. And there are many other technologies changing how we shop. Self-scan machines have become a ubiquitous part of our grocery shop. Apps provide help in finding, sizing and buying products, and the use of augmented reality will only make this easier for customers. Social media lets us share advice, experiences and reviews with thousands of other people. The difference between those brands which thrive, those which survive, and those which ultimately fail, can usually be found in their ability to embrace these changes in consumer habits. Successful retailers are blurring the lines between the digital and physical experience. Consumers may browse online before purchasing in store or choose to test a product in store before making a final purchase online. All this helps to explain why eight of the top ten internet retailers also have a physical presence on the high street. But responding to the biggest shift in consumer behaviour in a generation takes investment. As the role of physical and digital stores change, retailers must roll out new technology, bring in new expertise, retrain staff, and all while maintaining the competitive prices that we are all used to. Many high streets across the country are working towards this reinvention – making themselves “places to be”. Others continue to struggle – with 2018 seeing a slew of large retailers going into administration. The public want more than a retail destination, they want a location to meet, to eat and drink, a place for services and experiences, as well as shop. Retailers that can successfully reinvent themselves will reap the rewards through more customers and higher sales. Yet a rising tide of public policy costs emanating from Government make an investment in our high streets almost impossible. Business Rates – which fall disproportionally on retail – continue to skyrocket. The Apprenticeship Levy is so inflexible as to become little more than a tax on employment. Even initiatives supported by retailers, like New Living Wage, can impose significant costs on struggling businesses. These costs add up – ask House of Fraser, ask HMV, ask Patisserie Valerie. CEOs of leading businesses tell me that they need to invest more money in their shops, but our broken business rates system means they are punished for doing so. While politicians decry the empty shop fronts on many of their local high streets, they have also created a tax system which discourages retailers from taking them over. Britain is a leader in retail. Tourists travel from around the world to take advantage of our shopping. But we cannot take this for granted. We are at a fork in the road. Do we leave businesses and brands, high streets and shopping centres, to stumble on? Or, supported by sensible Government policies, do we help retail – and its three million employees – thrive, creating a future of better jobs, innovative technologies and world-leading retail. That is the future I want to see.
British Retail Consortium response The reinvention of retail // Helen Dickinson obe, BRC Retail Reinvention: Not just thinking outside the box, thinking outside the UK // Aodhán Connolly, nirc International opportunities can deliver retail success // Sukhjeeven Nat, SANTANDER How can UK retailers capitalise on opportunities with Chinese shoppers? // JONATHan smith, hot pot china How to make property work for you in the current retail market // Stephanie Kierans, sherrads solicitors How Technology Transformation Is Shaping the Retail Renaissance // Carolyn Horne, workday How the High Street can remain competitive in an e-commerce world // Stefan Nandzik,Signifyd Technology must move up the agenda for retailers and manufacturers // Prerna Carroll, igd how ai is rewritting the future of retail customer experience // andrew fowkes, sas uk & ireland GDPR one year on: what should retailers be considering now? // emily sheen, p w c It’s not all bad news. Despite the news // brc Scottish independence // David Lonsdale, Director, src Business Rates – the need for reform // Dominic Curran, brc
Are you geared up tomanage yourweather sensitive stock this spring? Perhaps not as much as you could be… // met office
The £1.9 billion cost of Retail Crime // james martin, brc
Online payments: From obstacle to opportunity // luke flomo, trustly
Readiness for Strong Customer Authentication // andrew cregan
Re-imaginingcity-based retail supply chains for a better future // hop ming chen, dp world london gateway
Sustainable Supply Chain and Packaging // clyde buntrock, allport cargo services
RETHINKING THE UK’S PACKAGING PRODUCER RESPONSIBILITY SYSTEM // robbie staniforth, ecosurety
vegan clothing - fashion fad or here to stay? // Leah riley browm, brc
mental health in the uk retail sector // kelvyn sampson, willis towers watson
RETAIL EMPLOYEES REPORT HIGHER ENGAGEMENT, BUT THERE IS STILL ROOM FOR IMPROVEMENT // dr. Liliana Danila
Bright Future for Retail Apprenticeships // Brc learning
Time to take stock of your apprenticeship programme // olive gradiner, babcock international group
The Good Work Plan Roundtable – Key Takeaways // John harding, anna vishnyakov, pwc
57 Directory of associate members
brought to you by
NEWS FROM THE BRC Retail Reinvention: Not just thinking outside the box, thinking outside the UK
Aodhán Connolly Director Northern Ireland Retail Consortium
The “Zentrum am Zoo” buildings were completed in 1957, one of the few still-preserved contemporary eyewitnesses to the eventful history of post-war Berlin. The ‘two-piece’ architecture, reminded the people of Berlin of a bare midriff in a bikini, the daring swimwear fashion causing a stir at the time, hence the name “Bikini”. Once a busy hub producing and selling textiles and clothing, when the Berlin Wall was erected, the ensemble of buildings fell into a Sleeping Beauty slumber, from which it was brought back to life in spring 2014 when Bikini Berlin was born. A unique combination of shopping, gastronomy, workspaces, cinema, leisure, recreation and hospitality. The first thing that strikes you is that every detail has been meticulously thought out. This is not a regular managed shopping centre, this is a concept shopping mall, a compilation of carefully curated and coordinated boutiques and gastronomical offers. The mall includes modular pop-up boxes, which can be rented temporarily. This gives well-known brands the opportunity to launch new products and also makes it easier for aspiring young designers to present their creations to the public for the first time. It has also embraced the return to showroom retail as well with brand leaders such as Austrian furniture manufacturer Bene, and concrete specialist Godelmann. It’s obvious from scratching the surface that this destination is different, but to dig a little deeper, I got some answers from Antje Leinemann, General Manager of Bikini Berlin. It was no surprise when Anjte knew exactly what makes this retail destination special. “The Concept Shopping Mall, Bikini Berlin, is as exciting and inventive as the city around it. It inspires its visitors with its creative potential and the trends that are experienced first and foremost. BIKINI BERLIN breathes an international spirit and shapes the pulse of the metropolis. An urban oasis in the heart of the capital. Here, shopping becomes an experience - we love fashion, food and design.” And with bustling crowds day and night, both tourists and locals love Bikini Berlin too. Anjte knows exactly where their focus is. “We appeal to people who are look- ing for something special, young designers from all over the world who not everyone knows yet. People who appreciate cuisine but also fashion and design.” And that’s exactly what you get fashion and food that is anything but run of the mill. And with 70% Retail, 30% gastronomy, it seems they have exactly the right mix. But it is not just the food and the fashion that is a footfall draw. An additional highlight of the Bikinihaus building is the 7000 m², freely accessible, green rooftop terrace, which is based on New York’s High Line Park and offers spectacular views into the neighbouring zoo. Exclusive office spaces can be found on the third to sixth floors of the Bikinihaus, giving a chic place to work.
What does the future of retail look like? Aodhán Connolly got some answers from Antje Leinemann, General Manager of German success story Bikini Berlin. “To succeed in this world, you have to change all the time”. Never has that been truer in the world of retail than today. We have seen more change in the past five years than we have in the previous fifty since Sam Walton, founder of Walmart, said those words. Change permeates every facet of our industry; what people buy, how they buy, how we source, even how we market our products and ideas have changed immeasurably. The question is, with all of this change, including having fewer but better stores, offers and jobs, how can we keep ahead of the curve? What does future success look like? Is it the continued success of traditional retail centres such as the St. Stephen’s Green shopping centre in Dublin which manages to garner strong footfall from both tourist and locals alike? Or the innovative transparent approach of New York brand Everlane, which builds its success on its ethical branding? The Everlane approach is worth a further look to see how they have taken ethical branding and marketing to its limits. Having recently opened its first physical store, fashion retailer Everlane is a brand that has won the approval of consumers through its radical transparency. They are dedicated to letting their customers know exactly how much their clothes cost to produce. They reveal the true costs behind all of their products, from materials and labour to their final transportation. Not everyone’s cup of tea but for the ethical fashion consumer, this brand is a must. With all the travel and immersion in retail, it does take a lot to actually floor me; to make me stop and say WOW! And that is exactly what happened on my recent trip to Berlin. The designers, owners and managers of Bikini Berlin just get it. The heritage-list- ed Bikini Berlin complex includes the Bikinihaus (Bikini Building), the Zoo Palast cinema, and even the small high-rise with the 25hours Hotel.
6 | spring 2019 | the retailer
As if that wasn’t enough they also have a range of events including concerts, healthy food markets , fashion week and knitting parties. That’s on top of having an enviable list of exhibitions from upcoming and established artists. But Anjte is not going to rest on her laurels enjoying the current success of Bikini Berlin. Asked about the future her focus is clearly on her customers. “Retail experience – point of sale is becoming point of experience!” While we cannot easily replicate the success of Bikini Berlin on every high street in the UK, it is clear there are lessons to be learned from their phenomenal rise. And Anjte’s advice is clear: “dare to do something new, it’s worth it.” In this time of seismic transformation we need to stop looking internally for all of the answers and look at what drives thriving retail across the globe, embracing change . As the tagline for Bikini Berlin says: “Change isnot anagenda, but a principle.”
the retailer | spring 2019 | 7
International opportunities can deliver retail success
Sukhjeeven Nat Head of Retail & Wholesale Sector UK Santander Corporate & Commercial
THE MOST SUCCESSFUL BUSINESSES ARE PUTTING DOMESTIC DIFFICULTIES BEHIND THEM AND SEARCHING FOR GROWTH OVERSEAS. UK retailers face tougher challenges than ever and the outlook for 2019 remains mixed. Waning consumer confidence allied with uncertainty over the Brexit process – and its potential impact on supply chains in particular – are no recipe for a positive trading environment. But despite these tricky conditions, many businesses are managing to not just survive but thrive. Santander’s recent Trailblazers study santandercb.co.uk/insight-and-events/ trailblazers shines a spotlight on the characteristics and strategies shared by Britain’s fastest-growing companies across a range of sectors – including retail. A keen eye for opportunity The research shows that these businesses are more likely to grasp opportunities even when faced with potential threats. Take Brexit, for example. The Trailblazers study found that a third (33%) of high-growth firms are focused on the possible benefits offered by the UK’s departure from the European Union, as opposed to just 9% of slower-growth companies. The study reveals, High-growth businesses also demonstrate a stronger culture of leadership and a greater willingness to take risks. They recognise the importance of investment – in technology and innovation as well as in product development and staff – and are engaged in a process of constant renewal to stay ahead of their competitors. Moreover, these trailblazing businesses are poised to seize new growth opportunities wherever they might occur. High-growth companies are far more likely to seek external advice or enter into partnerships with other businesses. A greater proportion of fast-growing firms trade overseas – and the members of this group are also more likely to be pursuing an ambitious strategy of overseas expansion in Europe, despite Brexit concerns, as well as in territories such as the United States and Asia Pacific. Diversify for success The link between international activity and growth has long been clear: businesses that manage to diversify into a number of international markets not only reduce their dependence on the fortunes of a single economy but also give themselves the chance to rapidly expand their customer base, by capturing a global and online consumer. At the same time, they gain valuable new experience and insight that can be used to enhance operations at home and inform future strategies. The potential brand benefits of becoming an established global presence – particularly for businesses in segments such as fashion, health & wellness or lifestyle – is another substantial incentive. Just look at the recent success – and profile boost – that fashion firm Boohoo has had in the wake of its move into the US market, where they experienced a 77% increase in revenue.
Managing a complex but rewarding process Entering a new foreign market brings with it, significant challenges and potential hurdles to overcome, and it’s not surprising that many businesses view international trade with some level of trepidation. Issues ranging from choosing the right route to market, arranging international payments, and dealing with new and unfamiliar regulations and legal systems can add complexity. Businesses need to ensure that the product lines they are planning to sell into a new territory are suitable: research needs to be carried out into local purchasing patterns and buyer behaviour, for example expectations around delivery and after-sales service. Putting in place a reliable, transparent and cost-effective supply chain is also an imperative, given increasing consumer demand for added-value fulfilment services such as next-day delivery and click-and-collect – as well as ethical considerations such as product and process sustainability. Staffing is another major challenge, whether it is to support physical or online sales. Thankfully, the process of internationalising your brands for the first time need not be so daunting. For a start, there is a good deal of assistance and expertise readily available to businesses from banks, for example, public bodies such as the Department for International Trade. Taking part in trade missions to potential target markets can help businesses identify potential problems as well as strike up relationships with new customers and service providers. Picking the right route to market Making the right choice when it comes to a business’s route to market can also help the export process run more smoothly. The rise in recent years of ecommerce – especially in major markets like China and India – gives British retailers a great opportunity to reach many millions of new customers without the expense or effort of a more permanent commitment. This kind of approach could be a precursor to establishing a physical presence in the target country: in sectors such as fashion, for example an omnichannel strategy – with physical stores as well as some form of online provision – is often seen as the most effective way of mitigating the supply-chain risk that comes with a relatively high level of returns. Using an ecommerce platform may not be the only viable option and the most suitable initial approach, which could equally be a concession in a department store or a high-street outlet – will depend on the characteristics of each individual market. For more agile, mid-sized companies in particular, ecommerce provides an excellent opportunity to initially try out a limited number of product lines before quickly expanding or changing strategy as required.
1 Source: https://www.bbc.co.uk/news/business-46874367
8 | spring 2019 | the retailer
Businesses that manage to diversify into a number of markets not only reduce their dependence on the fortunes of a single economy but also give themselves the chance to rapidly expand their customer base, by capturing a global and online consumer. The process of internationalising your brands for the first time need not be so daunting; there is a good deal of assistance and expertise readily available to businesses.
But whatever approach they decide to take, the global growth opportunities for UK-based retailers of all types and sizes are huge – and given domestic conditions there has perhaps never been a better time to consider expanding overseas. SUKHJEEVEN NAT // Sukhjeeven.firstname.lastname@example.org // uk.linkedin.com/in/sukhnat // santandercb.co.uk/insight-and-events/trailblazers // +44 7568 112445
the retailer | spring 2019 | 9
How can UK retailers capitalise on opportunities with Chinese shoppers?
JONATHAN SMITH FOUNDER AND CEO China specialist marketing consultancy Hot Pot China
JONATHAN SMITH OF HOT POT CHINA LOOKS AT WHAT RETAILERS CAN DO WHEN IT COMES TO TARGETING MODERN CHINESE CONSUMERS When it comes to China, UK retailers are missing out, plain and simple. The opportunity is vast. Research says that China will become the world’s top retail market in 2019 and Chinese tourists and ex-pats are already the biggest spenders in Harrods. The UK is also full of Chinese students and professionals who constantly talk with their friends and family back home and are willing to buy, ship and bring them the best the Western world has to offer. That’s an incredible captive market already here. So why does this appealing audience currently tend to focus on France and Italy as their retail destinations of choice instead of Britain? Firstly, there might be an outdated perception among some UK retailers. The modern Chinese consumer is no longer represented by a fifty-something tourist looking only for glossy, logo-heavy luxury brands. Yes, they still exist, but tastes have moved on. Sophisticated shoppers are looking for something nuanced, unique and which they identify with on a personal level. That means any retailer or brand has the potential to succeed, provided it has a story to tell and offers a relevant and differentiated brand experience. If everyone in China’s vast tier 1 and 2 cities has a Louis Vuitton bag, designs by Anya Hindmarch and Sophie Hulme are likely to hold much more appeal to a sophisticated and savvy Chinese consumer. Chinese millennials and Gen-Z shoppers are a huge market, too. Unlike their older predecessors, they’ve grown up in a highly prosperous China and tend to be freer with their disposable income. They’re keen to explore the world, are less risk-averse and identify strongly with a global mindset – particularly those from the biggest Tier 1 cities: Shanghai, Beijing and Guangzhou. And so, UK retailers can roll out the red carpet for Chinese shoppers – the way Paris has done so successfully, with themed events and experiences that are both meaningful, welcoming and enticing to high-spending consumers. A key step is to understand when those shoppers are likely to visit the UK – the recent Lunar New Year was an obvious moment, but there are other holidays such as Golden Week
(October), Little Golden Week (May) and Mid-Autumn Festival (September) when travel opportunities are maximised and the opportunity with travelling Chinese shoppers will peak. Retailers could work with their existing digital channels to attract these consumers. A vital element is analysing existing data to see what Chinese shoppers are interested in, right down to the SKU level, via tax-free shopping and credit card data at physical stores plus e-commerce channels. While not optimised for Chinese traffic, most retailers are surprised what a quick check on Google Analytics can teach them about the Chinese customer base and how their existing site is performing with that audience. Additionally, social listening on relevant social channels WeChat and Weibo can give deeper insights into brand perception, category trends and even purchase intent. What brands are being talked about? Why? Should we aim to capitalise on a particular trend and stock accordingly at peak travel times? UK retailers could also do more to improve their e-commerce experience for Chinese shoppers. Translating into simplified Chinese is often seen as an expensive and time-consuming project, but it doesn’t have to be the whole website. We have seen impressive uplift with clients from simply translating core elements of a site’s navigation and/or checkout pages – increasing page views, dwell time and conversion rates. Load speeds are another issue for online retailers. Outside full hosting within the China firewall, there are a number of simple fixes to boost load speeds for Chinese traffic, with an immediate effect on conversion rates and revenue. Plus, of course, enabling China’s most popular payment options (e.g. AliPay and WeChat- Pay) is an obvious way to boost custom that many retailers have been slow to adopt. The retail industry also potentially has a lobbying role to play when it comes to attracting more Chinese shoppers to the UK. It will surprise many to learn that the UK Visa Application Form for Chinese nationals was for years only in English and has only recently become available in simplified and traditional Chinese. To compound this, the UK is not part of the Schengen Agreement, which allows Chinese travellers to access over 25 European countries on a single visa. This means travellers have to make an extra application and fee to visit the UK, with many deciding they will simply exclude it and enjoy the shopping delights of Paris or Milan instead.
10 | spring 2019 | the retailer
On top of that, London and other UK cities could do more to appeal to Chinese shoppers. Paris has focused its strengths to great success, so it makes sense that British cities with their rich heritage and strong brand should do the same. Since the 2012 Olympics, for example, the UK brand has evolved in the mind of affluent Chinese consumers in areas such as education, creativity, design and music. British cities can do more to play to these strengths with targeted outreach campaigns, both online and offline, to attract them. When it comes to growing Chinese footfall here in Britain, retailers have to be aware of peak travel seasons when consumers are most receptive, understand their own brand appeal and craft a suitable on-brand story to spark interest. Chinese shopper appeal is not just a potentially lucrative opportunity, it’s a real and concrete part of the savvy marketer’s annual calendar. Sophisticated shoppers are looking for something nuanced, unique and which they identify with on a personal level. The UK brand has evolved in the mind of Chinese consumers in areas such as education, creativity, design and music.
JONATHAN SMITH // email@example.com
// +44 (0)7401 832425 // www.hotpotchina.com
the retailer | spring 2019 | 11
NEWS FROM THE BRC Scottish independence
David Lonsdale, Director director scotish Retail Consortium
Scotland’s First Minister, Rt Hon Nicola Sturgeon MSP, has set out her ambition to hold another referendum on Scottish independence, prior to the next Scottish Parliament election in Spring 2021. It comes as her party considers switching its policy on which currency ought to be used if independence is achieved. The First Minister has said legislation will be published shortly on the rules under which such a ballot would be held, including the franchise, question to be put, timing etc. Given the pro-independ- ence SNP/Green majority at Holyrood this is likely to be passed, however the ability to hold a legally binding plebiscite is the preserve of Westminster and there is no indication that will be forthcoming. That said, it might be prudent for retailers to consider whether the issue should be added to their risk register. The retail industry is going through an unprecedented period of transition as it adapts to changes in consumer behaviour, technological innovation and rising costs. The fundamental nature of this change means retailers are acutely conscious of broader economic and political events which may affect their businesses. If there is to be a further referendum on Scottish independence then there will be an undoubted thirst for clarity over what it all means, especially for the existing UK single market and what the ultimate economic impact will be. To aid members’ own internal thinking at the referendum in 2014, the Scottish Retail Consorti- um (SRC) produced a toolkit to help members better understand the implications for their business, staff, supply chain, and customers. Practical issues of relevance might revolve around things like currency, taxation (e.g. corporation tax, VAT, NICs, excise duties), import duties, employment and industrial relations, competition policy and corporate governance, and other regulatory regimes such as data protection, advertising and consumer rights. In parallel to the independence push, the Scottish Government is also aiming to convene cross party talks on what further powers could be devolved to Holyrood, over and above those devolved already (such as income tax) and those due to be repatriated following Brexit. The early focus is likely to be employment policy (presumably including statutory minimum wages, industrial relations and collective bargaining) and immigration. The SRC is keen to hear any early thoughts from members on all of this, as well as any insights as to how the UK’s existing single market could be made more effective.
12 | spring 2019 | the retailer
the retailer | spring 2019 | 13
NEWS FROM THE BRC Business Rates – the need for reform
Dominic Curran Property Policy Adviser British Retail Consortium
The issue of Business Rates has rocketed up retailers’ agendas in recent years. As industry transformation gathers momentum, with reduced margins, changing consumer habits and increased uncertainty, the Business Rates burden is increasingly onerous and unsustainable. In England the multiplier (the formula by which a business property’s rateable value is calculated) has now topped 50p in the pound, up from 40p a decade ago, joining Scotland and Wales in what must be the UK’s least desirable over 50s club. Notwithstanding lobbying successes by the British Retail Consortium (BRC) to mitigate the Business Rates impact on retailers in recent years, the sector is still particularly hard hit by the tax. Retail constitutes 5% of the economy, yet pays 10% of all business taxes, and 25% of all Business Rates. For the largest retailers, Business Rates are almost 50% of their total tax bill. Recent reforms, such as reliefs for small businesses and linking the multiplier’s increase to the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI), are welcome victories for many retailers, but they do not remotely address the underlying problem. Only 10% of retail ratepayers have rateable values above the small business relief’s qualifying £51,000 threshold, yet they pay almost 70% of the sector’s rates bill. And an increase linked to CPI is still an increase. Some have suggested an online sales tax (OST) could offset the rates burden. The BRC opposes any new taxation on the sector. An OST would most likely almost entirely fall on retailers (although the individual impact would depend on each retailer’s proportion of turnover generated online) but, even if it directly funded a corresponding cut in Business Rates (a very big ‘if’), retailers would only receive 25% of the benefit (i.e. the proportion of Business Rates they account for). Asking retail to fully bear a tax in order to create a benefit three-quarters of which would go to other parts of the economy would seem a perverse way to help the sector. It is because of the retail rates squeeze that the BRC strongly welcomed the Treasury Select Committee’s Inquiry into their impact. This is a direct response to the pressure we continue to bring to bear on behalf of the industry. The BRC’s submission made a series of recommendations for review, relief and reform of the system. Most importantly, the BRC believes that an Independent Review of Business Taxation should be undertaken to ensure that we have a system fit for the 21st century. It must consider everything from VAT to Corporation Tax, Business Rates and potentially other taxes not currently levied, such as Land Value Taxation, to ensure that we move to a system that is fair, coherent, and supports economic growth and competition.
Notwithstanding this review, the BRC’s response recommended more immediate relief and reform of the existing system. Most urgently, a freeze in the multiplier, pending further reforms, is required to guarantee that the cost burden will not rise any more than is already has done. Downwards phasing must also be abolished. This requires ratepayers who should be paying less following the 2017 revaluation to have their bill reduction staggered over four years in order to fund a similarly staggered rate increase for those whose rateable values have risen. Limits to rates increases should be funded centrally, and not by other ratepayers. Additionally, Business Rates is the only tax where legislation requires a broadly fixed sum to be raised annually, and then a tax is constructed to achieve this. This unique anachronism must end, and Treasury should set a tax rate, not a sum to be raised. The BRC also recommended an Improvement Relief. This would provide relief from increases in rateable value for three years created as a result of property improvements by tenants, incentivising such improvements, justifying the investment, and improving the quality of retail units. This would benefit tenants, customers and landlords. The Valuation Office Agency must be reformed. Its new appeal process, ‘Check, Challenge, Appeal,’ is widely held to be cumber- some, labour intensive and a major impediment to reaching accurate property valuations. The Agency must invest in upgraded practices, IT and staff if it is to be fit for the present, let alone the future. Further reform should see the Treasury treating Corporation Tax and Business Rates as a sole ‘Business Tax’, using the forecast increase in proceeds from the former to offset the rise of, and fund a further reduction in, the latter. Increased tax revenue from business growth should be used to lighten commercial property taxation, supporting further business growth, creating a virtuous economic circle. This would be an interim measure towards the BRC’s final recommendation, which calls on the Treasury to commit to a longer-term multiplier rate of 34p in the pound, and to publish a roadmap setting out how it intends to get there. Business Rates and business taxation are in urgent need of far reaching reform. The BRCwill continue to lead the charge for a fair and proportionate tax system that supports jobs and high streets, and these recommendations set out a process for Government to get there.
14 | spring 2019 | the retailer
the retailer | spring 2019 | 15
How to make property work for you in the current retail market
STEPHANIE KIERANS PARTNER, COMMERCIAL PROPERTY Sherrards Solicitors
RETAIL IS DYNAMIC AND FAST PACED BUT THE CURRENT ECONOMIC CLIMATE IS PILING ON THE PRESSURE AND DEMANDING UNPRECEDENTED LEVELS OF CHANGE. THE SHERRARDS RETAIL TEAM ARE CONSTANTLY LOOKING FOR WAYS TO HELP RETAILERS GET THE MOST OUT OF THEIR ASSETS. WHEN IT COMES TO MAKING YOUR PROPERTY ‘WORK’ FOR YOUR BUSINESS, IT’S WORTH REVISITING LEASES AND RENTS AND LOOKING AT NEW APPROACHES SUCH AS POP UPS AND CONCEPT SHOPS. Q. What are my options if my business is underperforming and I am struggling to meet quarterly rent payments? A. Talk to your landlord – they May be flexible preferring to keep tenants in premises rather than dealing with voids and the costly problems of remarketing. Leases can be varied and terms revisited. Q. What can I do if I am paying over the market rate? A. With fluctuations in the value of commercial real estate, tenants, particularly those with longer leases, can find themselves paying rent higher than the current market rate. This in itself is not a reason to bring your lease to an end. There are however options open to you. Q. What are the different options I can discuss with my landlord? A. If you feel you are paying over market rate, you may be able to agree a rent reduction in exchange for a longer term or the removal of a break clause. For increased certainty you could try to agree to stepped increases in your rent rather than a market rent review. If you want to stay in your premises but need to improve them, you could agree a longer lease term in exchange for an incentive from the landlord to refurbish the premises. Q. Is there another way I can reduce my rent? A. Even if there is no formal contractual ability to break the lease, you may be able to fall back on a rent review provision to bring the rent in line with market rate. Clauses that allow rent to be reviewed either upwards or downwards depending on how the market rate currently compares with the rent being paid, are relatively uncommon. However, if you are fortunate enough to have one then it will help bring your rent back into line with the current market rate, at the review date.
Q. Can I bring my lease to an end early? Is there a break clause? A. A break clause is a contractual mechanism which allows a tenant to end a lease early. Look carefully at your contract to see whether your lease contains a break option. If it does, diarise carefully the date for serving notice to take advantage of this. You will need to check whether there are any pre-conditions that need to be satisfied to allow you to use the break option. Courts take a notoriously stringent line on this and many a tenant has been caught out by a seemingly innocuous or trivial error in the process. Q. How else can I bring my lease to an end? A. If you are not able to rely on a break clause, there are other options including trying to agree a surrender of the lease. The commercial landscape at the time will affect whether this is achievable. It may be that the landlord has others interested in the premises and would prefer to re-let to a new tenant with a stronger covenant. Q. What are the legal issues when making changes to the lease? A. Any changes to a lease will need to be documented by a deed of variation and if you extend the term this will take effect as a new lease. Take into consideration the cost of this (stamp duty land tax and land registry fees, for example) and make sure you are properly advised. If the landlord is not willing to formally vary the lease, they may agree a payment holiday or monthly instead of quarterly payments to help with cash flow. This sort of arrangement can be documented in a less formal side letter which is likely to be personal to you and not available to the next tenant if you sell the premises. A. Pop up shops can be a great way for new retailers to test the water in the market place and for established companies to try out a new location. From a retailer’s perspective, there are many benefits including the relatively low cost associated with securing and opening pop up shops. By their very nature, they are almost tailor made for the sale of seasonal products, such as Halloween and Christmas gifts. They also generate awareness of your brand as they are usually located in high footfall areas. From a landlord’s perspective, short term leases can fill voids and encourage growth. In what is a tricky time for retail generally, offering short term leases can avoid empty units in shopping centres or on high streets. Q. How can I test the market before taking on a long lease?
16 | spring 2019 | the retailer
Q. How easy is it to set up a pop up/concept shop? A. When it comes to documenting a temporary letting, leases are usually short and simple with fewer obligations. If the rents are low and the term short, then stamp duty land tax and registration at the land registry are generally not relevant. Given the nature of the letting, property searches and extensive due diligence can usually be avoided. This means a less expensive conveyancing process as well as low set up costs. Q. What are the key issues when setting up a pop up/concept shop? A. The term of this type of letting is typically between 3 and 6 months. However, anything up to 24 months would still be considered a short-term let. If the ‘longer term’ is agreed, you may also want an option to determine the lease before the end of the fixed term. It may be worth trying to negotiate a ‘turnover rent’. This is where the rent is based on the success of the shop. If the business prospers and turnover is good, you pay a higher rent than if it is less successful. Service charge caps or fixed rents inclusive of service charge are also well worth pushing for, as are limits to the usual repairing obligations to hand back the premises in the same condition as they were in when taken.
STEPHANIE KIERANS // sherrards.com // Stephanie.Kierans@sherrards.com // +44 (0) 1727 738923
the retailer | spring 2019 | 17
How Technology Transformation Is Shaping the Retail Renaissance
Carolyn Horne General Vice President, UK, Ireland, Nordics and South Africa Workday
FOR EUROPEAN RETAILERS, 2018 HAS BEEN TOUGH. HOWEVER, RETAILERS ARE RESILIENT, AND HOPES ARE HIGH THAT A MORE POSITIVE OUTLOOK IS ON THE HORIZON. FALLING EUROPEAN UNEMPLOYMENT, TWINNED WITH INCREASED NET INCOMES FOR MOST COUNTRIES ARE GOOD NEWS FOR CONSUMERS, WHICH IN TURN SHOULD MEAN MORE DISPOSABLE INCOME AND INCREASED REVENUE FOR RETAILERS. NOW, MORE THAN EVER, RETAILERS NEED TO STRIKE THE BALANCE BETWEEN THEIR PHYSICAL AND ONLINE OPERATIONS TO DELIVER A CONSISTENT CUSTOMER EXPERIENCE ACROSS ALL TOUCH POINTS. From speaking to some of the world’s leading retailers, I know the scale of the challenges facing these organisations. Tighter margins, increased competition, and a consumer base with increasingly different expectations of how they want to buy, all create new challenges for the retail industry. Hiring, developing, and retaining engaged employees to deliver outstanding customer service is tough at the best of times. European retailers now face the added task of having to adapt the way they manage their workforce to meet quickly changing market conditions, yet many organisations fail to do so effectively due to costly and inefficient technology systems that are holding them back. Empower Employees to Deliver Outstanding Customer Service Front-line employees and managers have the most impact on customer satisfaction, so it’s essential that retailers hire the right people, onboard efficiently, address problems quickly, and nurture top performers. This means having the ability to manage the full hire-to-retire life cycle of an organisation’s workforce and in a single system. A growing number of people, especially the young, have jobs with ultra-flexible working hours, no regular pay, and fewer employ- ment protections. According to a European Union consultation whitepaper, they accounted for more than one-third of the total workforce in the 28-country European bloc in 2015 and research suggests that share is growing. With this in mind, having the ability to recruit, onboard, develop, and retain the best talent—from part-time and hourly workers to full-time employees and senior management is becoming increasingly important. Millennials expect the same technology experience in the workplace as they have when they engage with social media and apps.
Ensure Compliance and Minimise Risk with Better Controls The European Commission wants more social protection and rights for casual workers, such as those in the “gig economy,” and others with non-standard contracts to try to tackle growing social inequality. This is just one example of the impact of the ongoing legislative reform that means retailers must be smarter with the way they handle data. This challenge is particularly evident in the physical separation of the corporate office and individual store locations—and the different roles assigned to each, which increases the chance for errors and inconsistencies in data and processes. The risk is compounded by complex compliance requirements and the high turnover of hourly workers. If a retailer does not have a single system-of-record for information and processes related to compensation, overtime, absence, benefits, training, background checks, how easy can it be to collate such information and audit it as required? Having the ability to automate hiring, onboarding, payroll, performance assessment, and termination across the entire organ- isation—including differences for unionised and workers’ council environments, eliminates inconsistencies at the store level. For those retailers who are getting this right, the benefits are truly tangible. At Workday, we have seen examples of retailers making annual savings of over $1 million from the automation of onboarding processes. I have personally spoken to retail organisa- tions who have been able to increase self-service by over 20 percent, which has allowed them to increase the time managers spend on the sales floor. By bringing people data into a single system, one retailer has been able to reduce overtime costs by over 12 percent, simply by getting greater insight across shift patterns, regions and individual sites. Below are three areas that retailers should be thinking about when they consider the future of their business models:
How can retailers drive digital engagement?
Data is important in order to better understand customers, integrate digital services, and drive personalised engagement for the increased revenue and loyalty that comes from creating targeted and personalised experiences across all channels. This also applies to a retailer’s internal customer—the employee. The use of self-service tools and digitalisation of processes, such as onboarding, learning, holiday requests, payroll management, and time management can drive workforce engagement and produc- tivity.
18 | spring 2019 | the retailer
How do we obtain data-driven insights? Digital innovators will focus data mining and analysis on product performance, pricing optimisation, and customer experience optimisation. Data leaders in the retail space are putting more emphasis on customer insights and social analytics. Having a holistic view of who customers are will be a major differentiator for brands. Bridging the gap between personal and social data to a customer profile will be the key to meaningful, personalised experiences that will inspire loyalty and frequency. How do we win the battle for retail talent? The workforce is multi-generational. Retailers need to attract, retain, and leverage talent rapidly, without spending time away from the sales floor managing administrative processes; the workforce is seasonal and has high employee turnover. Consider that candidates of the future will likely require a complex mixture of soft, interpersonal as well as detail-oriented digital skills. Tackling recruitment requires new thinking and business processes designed to attract candidates best able to create consumer moments that truly matter.
CAROLYN HORNE // workday.com/uk
the retailer | spring 2019 | 19
How the High Street can remain competitive in an e-commerce world
STEFAN NANDZIK VICE PRESIDENT OF CORPORATE COMMUNICATIONS Signifyd
THE GROWTH OF PURE PLAY E-COMMERCE RETAILERS IN THE LAST DECADE HAS BEEN STUNNING. THE RAPID SHIFT HAS CHANGED THE WAY CONSUMERS SHOP AND SIGNIFICANTLY HEIGHTENED THEIR EXPECTATIONS. High Street retailers, however, can be forgiven for not celebrating the progress. From a consumer perspective, it’s liberating to be able to get anything you want delivered in two days, but this uber convenience kills consumers’ motivation to visit stores. Now is the time for brick-and-mortar retailers to turn the new reality on its head. In fact, consumers’ new behaviour and the rise of pure play e-commerce can be an advantage for traditional retailers who rethink their strengths. Think of the winning paradigm as “retail as a service.” Big pure-play online retailers have established themselves based on convenience and rapid delivery. They are designed for spearfishing — shopping journeys that begin with a specific product in mind. The consumer is out for the best price and/or the fastest delivery. High Street retailers have a chance to provide something more — something different. “I think there is an opportunity for High Street retailers to inject some personality, some soul, into their stores,” says Natalie Berg, the founder of London-based NBK Retail. Personality and soul, like what? How about John Lewis sending associates to theater training to build their confidence and improve their in-store interactions with customers, as reported by the Daily Mail. Or what about the Nike Store in central London? David Bucking- ham, CEO of Ecrebo , a point-of-sale marketing company, says Nike understands the value of transforming a store visit from an errand to an event. “Nike’s central London store has made a big effort in moving into what we might call ‘Shoppertainment,’” he says, “with a big focus, not necessarily on product-related things, but having high-profile sports stars making appearances and giving talks.” In short, omnichannel retailers with store fleets need to think of those physical locations as an advantage, not an albatross — and they need to double-down on what they have that big online pure plays do not. Understand the power of transforming a store visit from an errand to an event.
Three ways to put retail as a service into action Think of your store as a centre for community, a place that goes beyond transactions: establishing your brick-and-mortar locations as something more than a place to buy things, creates customer loyalty and provides consumers with a reason to buy from you even when an e-commerce pure play might offer a lower price. Here are a few ideas to iterate on: • A grocer could host a cooking class to encourage customers to come in and engage with the products and environment in a new way. • A wine specialist could host tastings or informational seminars to educate consumers. Advice on pairings or proper barware would tell customers that the merchant cares about them. • A cosmetics store could provide in-house consultations to allow customers to get just what they are looking for, without having to guess their way through an online product description, increasing confidence in their purchase. Turn to technology to keep up with online pure plays: The increase in customer expectations shows no sign of receding, so retailers need to constantly refresh the technology that gives them an edge. The good news? “There are a lot of very, very clever technologies out there that retailers can equip themselves with to compete,” Chris Fields, an analyst with Retail Connections, says. Some ideas: • Cashierless checkout eliminates the unpleasantness of waiting in line when a customer just wants to get home with her or his purchase. There are a number of companies rolling out systems to upend traditional checkout. • In-fridge delivery might not be for everyone — either retailer or consumer — but Waitrose has tried the idea. It pushes the envelope on convenience and inspires thinking on other ways to better get goods to consumers. • Augmented and virtual reality have been slow to roll out, but for certain verticals (think home furnishings) the interfaces can spark a shopper’s interest and lead to an in-store visit. Think of your stores as a network of distributed warehouses, showrooms and customer service centres: It is hard for consumers to connect with a large, invisible online presence, but when your store is just down the road, consumers feel a connection.
20 | spring 2019 | the retailer
Made with FlippingBook - Online catalogs