Current Trends in European Retailing

John Wheeler, Director, RMDPTony Savage, Director, RMDP

RMDP Consulting C.2001

Agenda

Some pan-European trends Department Stores - the dinosaurs mutate! Discounters and off price Brands and globalisation Competition for locations Direct Channels - clicks & bricks winning What next?

Small Space vs. Large Space polarisation city centre and mall volumes enabling "mega

stores" in many sectors music/dvd/minidisc

fashion (e.g. Bennetton) Return of the "General Store"

wider range of products and services longer opening hours

Large Space retailers and customers still prefer Out of Town

The Mobile Phone effect

Some pan-European trends

The Mobile Phone effect

eroding "traditional retail" revenues

Many stores/brands Fashion status Age no barrier!

Mobile Phones & Coffee Bars

where else could you be seen with your new phone?

Department Stores - the dinosaurs mutate!

Department Stores - the dinosaurs mutate! strong loyal and now added BRANDS Selfridges showing the way

international aspirational Young, and not so young!

Discounters and off price

Discounters and off price in fashion terms -"the new black"

everyone wants them! permanently changing the margin model "Walmartization" of European retailing!

Multi $ millions being invested available everywhere

Massive advertising desirable values mass(ive) markets

Where do local (national) brands go?

Brands and globalisation

Competition for locations

Out of Town locations are getting scarce across Europe administrative - planning social - car usage - "green" issues cultural - local populations/local stores

Re-development of City centres -brown fields two places of worship...

A full circle- back to the centre?

Competition drives retailers back to the City Centre

Direct Channels - clicks & bricks winning

Traditional Retailers make E-tail work! Critical success factors are no different in the E-

conomy right product, right place, right time Customer Service Brand Perception

Intelligent use of the Search engines reaches the global www market

Fulfilment not gee-whiz is the need!

Direct Channels - some winners and losers

boo.com -a really whizzy failure technically clever did not excite the consumer or deliver the product or establish a brand identity

Early Learning Centre - a brick based success built on the Retail brand values established fulfilment process before the www delivered reliably now equal to their largest store

What next?

The E-tailers continue to get better sensible not over hyped repeat purchases increasing further erosion of "brick" based turnover

Retail Entertainment - "the Retail Theatre" merchandise and people mix "stage school " as a part of Associate Training?

Gross Margin pressures increase Nett margins revived through intelligent supply

chains

Retailing in Europesome critical management concernsNovember 2001

Sextant Management Services Ltd

Agenda

Brands dot.com Walmart Issues Interesting Sectors

What do customers look for-store or brand?

Everybody shops where they feel comfortable but comfort varies from customer to customer

I may feel fine in Littlewoods, but overwhelmed in Harrods

I believe that Waitrose is higher quality than Somerfield

Volvo make safe cars I trust Marks & Spencer

Brands

Global, consistent Sony BMW Kodak Bennetton Compaq Disney McDonalds

Brands attract the Customers

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

Attracting the Customer

– The power of the Brand is a store good enough to compete with global

brands– or is it just a shopfront!– A strong brand can go Direct

Sony BMW British Airways Ralph Lauren

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

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

their Customers. provides personalised offerings to their profitable

customers. operates a quality service branded proposition. is increasingly trusted by their customers

or has become a dot.gone!

Where will e-tail businesses come from?

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

Sources of e-tail businesses:

new channels to existing markets Internet - Barclaysquare "Mk n"

has their time past? Strong brands attract customers directly some trade ("guild") groups are effective

the jewellers.net Specific - driven from a Brand

Tesco Direct Dell Marks & Spencer

Sources of e-tail businesses:

Sector driven Amazon

mature e-tail! sold it's first book in 1995 now >$1.2 billion

Entertainment Express Kingfisher get serious and undercuts its own stores

Intranet - Smartzone cable digital television

Channels to e-tailing - some potential winners

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

Digital, cable and satellite = universal franchise

E-tail myth or reality?

May 2001: 40% of UK homes have Internet connections August 2001: 39% no of net users still growing

+ 900,000 September 2001- November 1st

More over 50s shop online than under 24s 33% of Internet users visit online stores more than

once per week 40% of shoppers access the www from the office!

The E-tail Winners

Amazon: 1.7 million UK visits in September Marks & Spencer

best "Traditional" Retailer reliable, secure on line stock availability of in store

products ease of use

The E-tail Top 10

Amazon Marks & Spencer Tesco ebay.co.uk Argos Comet jungle.com (Littlewoods) qxl.com W H Smith colonize.com

How some of today's businesses will respond ..

more customer oriented services encouraging BRAND loyalty unique personalised offers cellular technology based

loyalty points air miles tradable points/vouchers electronic purse conventional voice and E Mail

Physical retailing moves into new areas..

– Innovation "super niche" retailers gain ground

– Seattle Coffee–definitive range + books

The Link

Walmart - why worry? -1

Revenues >£2 billion per week Proven operator

occupying the "wrong" sector always avoid lowest cost

Harvard Henley Ashridge etc.etc

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

Acquisition hungry

Walmart - why worry? -2

Economic power monthly revenues over £9.5 billion

c.f. largest European retailers LfL growth exceeds sector

Supply Chain ability provides 10X more processing capability than its

nearest competitors (anywhere) shares store based sku sales data with

suppliers and trains them on how they may use it!

Walmart - why worry? -3

Creates unprecedented value based competition driven by global buying volume driven lower gross margins accepted

Public/government sentiment has moved to support lowest cost

Walmart - why worry? - 4

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

could be reduced by circa 50%potential for many casualties!not just supermarkets......"

We do not like being smug, but margins are falling the middle market is being squeezed there are many casualties

and more to come!

Issue: Maintain Customer volumes

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

Issue: Price based competition

How to protect the Nett achieved margin? lower buying prices

seek (retrospective) discounts reduce the cost of holding inventory

smaller commitments more replenishment faster stockturn lower markdown

reduce wastage lower operating costs

Issue: Everybody getting smarter!

Smarter competition new entrants have no legacy problems global buying and negotiating alliances driving customer loyalty

Smarter consumers know the value of loyalty increasingly discerning more knowledge less time

Issue: Promotional Activity

Maximise the potential from promotions needs active collaboration with suppliers precise and timely execution accurate measurement

Advertising and communication effectiveness measurement

More drivers of change....

Targeted communication technologies digital TV & set top box www Satellite and telco Hybrids

Social Pressures Travel Parking

Issue: New Channels

How to become a player - when I understand their potential? what must we do differently?

How to integrate their operation within my core business? I do not need to break the bits which work well we have lots of customers in our stores

How to avoid this becoming another late, over budget IT project?! I cannot wait for IT to learn the new skills

Loyal and profitable customers are retained because of:

a clear and unified focus on the customer supported by

efficient and integrated processes superior knowledge consistent execution

Some interesting Sectors: -1

Mobile Phone retailers high quality web sites call centre operations integration with service suppliers is critical

requirement Music/Video Programme material

early direct channel mainly established High Street retailers already under threat from new entrants

Books - if they haven't already noticed!

Some interesting Sectors: -2

Travel and Ticketing the perfect direct product? needs integration with suppliers digital TV could cause take-off!

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

Some interesting Sectors: -3

Leisure & Sports Brands strong consumer loyalty desire for information opportunity for direct channels

Motoring & Service Organisations Call centre based integration required to many systems/sources provided a focus for consumer services

businesses

Summary : Retailing today

Increasing competition new entrants established retailers & suppliers extending reach global information creates consumer knowledge

Pressure on costs product operations store people

Information Technology in Retail

Sextant Management Services Ltd.

the operational necessitiese-tail or retail!

SKU Management

The ability to manage stock at the level at which the customer purchases the Stock Keeping Unit

E.g.: a pair of shoes style, size, colour, width

a dress style, colour size

a can of beans description, size

Measuring and monitoring the SKU

Throughout the whole process Plan Order Supply Chain Warehouse Distribution Sales

The Retail Cycle

Retail, and most consumer goods wholesale businesses work to a very similar basic process model:

CONSOLIDATE PLAN BUY

RE

CE

IVE

DISTRIBUTESELLREPLENISH

PR

OM

OT

E

Electronic Point of Sale

EPoS Terminals online, real time

Up to 60,000 SKUs per outlet Promotion Control

3 for the price of 2 lowest price free linked purchases, etc

Plastic Card Authorisation and verification

Robust and reliable

Accurate Data Capture

EAN 13 digit barcode world wide standard the world's most successful standard basis for b2b e commerce

Robust Reliable Universal Retail & Wholesale Hypermarket to Corner shop

The Must Haves....merchandise

Basic functionality epos provides sku data capture

and price look up store polling of sales price file changes and refresh inventory file updates replenishment requirements inwards merchandise movement inter branch transfers

The Must Haves....customer

Basic functionality unique customer record

Card based - loyalty or payment Mail or telephone order

payment verification/authorisation fulfillment process

Local (Store Based Processing)

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

Central Based Processing

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

Data Warehousing

Issue: IT skills & resourcing

"My IT function is already stretched, and they will not have the skills"

"I need to keep our revenue costs flat (at worst), can we afford this?"

Issue: Best of breed vs Integration

"Retail ERP" has existed in merchandise system terms for some years Retail Express (now owned by NSB) Island Pacific (now owned by SVI) JDA

However, they did not include Finance systems typically CODA was a popular choice

Issue: Best of breed vs Integration

SAP developed a retail version initially relatively poor in retail depth

now on a par with NSB/JDA expensive to implement when allied to business

process review long projects (B&Q, Homebase)

new template based systems from specialist retail implementors reducing cost and time

More drivers of change....

Targeted communication technologies digital TV & set top box www Satellite and telco Hybrids

Social Pressures Travel Parking

Markdown -

The difference between Stock valuation at Retail prices, and how much the item was actually sold for. a budgeted and planned item the largest single cost after personnel can have a make or break affect on results!

Issue: Promotional Activity

Maximise the potential from promotions needs active collaboration with suppliers precise and timely execution accurate measurement

Advertising and communication effectiveness measurement

Some real positives!

www. is a liberating experience in gaining information in application development

new tools enable VERY rapid deployment of collaborative and www applications

outside of the traditional IS functions in how systems are upgraded and

maintained 24hr/remote/informed

EDI to E-commerce

EDI (Electronic Data Interchange) is well established between consenting retailers and suppliers complex messages batch operation tends to be inflexible - it works so leave it alone

EDI has not been taken up by the SMEs too complex and technical requires intricate interfaces to "operational" systems

COLLABORATIVE APPLICATION USERS

What are Collaborative Applications? These applications are being used by major

players to reduce total inventory in the supply chain optimise promotional sell through

They will also be used by SME retailers, suppliers and channels

as they are easier to implement than traditional IS

with easy access and usability

Who are COLLABORATIVE APPLICATION USERS

J Sainsbury is a hub: circa 200 in the JS "community" on promotional

collaboration and up to 500 in "Order" collaboration

Some of these community users are themselves becoming hubs Nestle KJS

Each of these will subscribe to the need to integrate into their Core Operational systems.