In-store with IKEA’s Global CIO Paolo Cinelli
Alliance Boots’ CEO Alex Gourlay explains all
www.ngretaileurope.com • Q3 2010
Tesco’s Mike Yorwerth on building sustainable stores
Why advances in mobile technology h l are transforming f the h retail experience for consumers and stores alike S U S TA I N A B L E R E TA I L • D I G I TA L S I G N A G E • W O R K F O R C E M A N A G E M E N T • S T O R E D E S I G N • P O I N T O F S A L E Cover NGR1 final.indd 1
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FROM THE EDITOR 3
Retail on the move Mobile shopping is here to stay. But should traditional retailers view it as a threat or an opportunity?
t’s a common sight: customers in stores on their mobile phones. But today, those shoppers are just as likely to be using those devices to search for price comparisons, product reviews or in-store inventory levels as they are to be making calls; they might be sharing photos of items taken with their camera phones on social networking sites rather than texting; or they might be utilising geo-location software to ﬁnd out where your nearest competitor is before making a purchasing decision. The way consumers are using mobile technology is changing – and as a result, so is the way they expect to be able to interact with retailers. Indeed, a trio of new reports released last month conﬁrm the growing strategic importance of mobility to both consumers and retailers alike. The ﬁrst, from Pew Internet, suggests that 40 percent of mobile subscribers owners go online on their mobile phones, with 55 percent going online at least once a day and 43 percent accessing the mobile internet several times a day. The next, from research ﬁrm Compete, shows that one in three smartphone owners has called or stopped into a local business after ﬁnding it using a local search application. In Q1 alone, close to a third of Android and iPhone owners discovered at least two new businesses that they were not previously aware of as a result of using local search applications. Meanwhile, the survey also found that 76 percent of Android owners and 63 percent of iPhone owners have downloaded at least one type of retail-related application, with the most popular types being retailer-speciﬁc apps, barcode scanning apps and coupon apps. Finally, Insight Express published data showing that consumers are increasingly using their phones while shopping, with 82 percent using their phones for product/price research in stores. The overwhelming trend running through all three reports is that while most retailers are still experimenting with how to make mobile commerce work for them,
ED NOTE.indd 3
“Mobile has great promise for bringing major, positive changes to the shopping experience, payments, marketing and other aspects of retail” Tracey Mullin, President of the National Retail Federation (page 51) “Whatever you want to do, whether it’s generating new business or opening a new channel or even driving quality improvements, you need a lot of IT investment” Paolo Cinelli, CIO at IKEA (page 38)
a huge number of consumers are getting there already. Mobile is a consumer-driven development, and what is most evident is that its true power lies – for now, at least – not in the purchasing side per se but in all the things that sit around mobile that are already making it an invaluable tool for shoppers. “Consumers are not spending signiﬁcant amounts via mobiles and, for now, we believe the true potential for m-commerce is to provide consumers with a valuable tool for research, comparison shopping and retailer interaction,” says Malcolm Pinkerton, Senior Analyst at Verdict Research, in our cover story. Google, meanwhile, believes that mobile will also bring advantages of location-based marketing and social media marketing to the mix and these, while not necessarily driving direct sales from handsets, will provide the cornerstone of the future shopping experience. And this is perhaps the most pertinent point about mobile: that it is merely the latest development in the movement towards greater personalisation of the retail experience. As we ﬁnd out in this issue, the best retailers are already well on their way to embracing the mobile revolution – whether it be through shopping apps, marketing messages, location-based promotions, mobile-optimised websites or other modes of interaction – as a means of delivering a more targeted and relevant shopping experience. Which is, after all, surely the aim of every retailer?
Ben Thompson Senior Editor
46 Buying and celling
Tesco’s new battleground Why Tesco is not just content to dominate the world of retail; it also wants to change it for the better
Are retailers ready for the next wave of change? Senior Editor Ben Thompson takes a look at how mobile commerce, the newest platform for retail marketing, comparison and selling, is revolutionising the business environment for the industry
28 Trust Boots to succeed CEO of the British health and beauty giant, Alex Gourlay, has worked at Boots for 34 years. He tells Lucy Douglas why long-term relationships and strong customer service are integral to the brand
Blueprint for success With a meticulous business strategy, Swedish furniture retailer IKEA grew into a globally adored brand. Next Generation Retail speaks to CIO Paolo Cinelli to ﬁnd out how the brand’s technology department is looking to develop in a similar way
36 CONTENTS.indd 5
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Executive interviews 58 David Jokinen Optimal Payments 70 Michael Letchford Fift h Dimension 94 Jens-Uwe Holz Itellium 115 Andrew Johnston QBIS Business Systems Ltd
34 Retail sales grow despite recession As the market emerges into recovery, Next Generation Retail takes a look at the sectors that have ﬂourished and those that have foundered
44 Tomorrow’s world, today How can customer experience boost sales? Signiﬁcantly, according to Germany’s METRO group, who has developed revolutionary innovations in shopping experience that have driven revenues up in a downturn
56 Reigning supreme Raj Rawal, CIO at fast food giant Burger King, explains how the ﬁrm is expanding its technology menu
60 Digital signage personalising the retail experience Jason Palmer explains how to maximise the potential of in store digital marketing
62 Experiencing tomorrow’s retail landscape Next Generation Retail speaks to IDC’s Ivano Ortis to ﬁnd out how technology is transforming the experience for the 21st century retail customer
68 Finding the right fit Why making the most of your costly retail space can pay dividends in terms of better branding and more active customer engagement
62 CONTENTS.indd 7
72 Drive sales with in-store media marketing Mood Media’s Lorne Abony explains why instore marketing can provide a much needed boost for retailers today
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Details 117 The resilience of luxury retail 122 A shopper’s guide to Hamburg 124 Gadgets 126 Europe’s best flea markets
52 Point of sale 64 Customer experience 78 Digital signage
74 Signs of the times The Retail Advertising and Marketing Association’s Mike Gatti reveals how digital signage is going to revolutionise the retail world
92 Future home improvements Lucy Douglas speaks to Kingﬁsher’s Ray Baker about the company’s pioneering sustainability practices
96 Technology partners Ian Clover speaks to John Keeling, Head of IT at the John Lewis Partnership about the constant demands from tech-savvy consumers in the retail environment
100 Safe and sound
106 Making your mark online
Next Generation Retail takes a brief look at the retail security landscape
Why the next digital battleground will be fought over social media
102 Welcome to the jungle
108 Personal investment
How CTO Werner Vogels transformed Amazon.com into the world’s most customer-centric organisation
Next Generation Retail takes a look at how investing in your workforce can improve your bottom line
68 108 56 CONTENTS.indd 9
The NG Retail Europe Summit 14-16th September 2010 Park Hotel Bremen, Germany The NG Retail Summit is a three-day critical information gathering of the most influential and important executives from the retail industry. The NG Retail Summit is an opportunity to debate, benchmark and learn from other industry leaders.
Legal Information The advertising and articles appearing within this publication reďŹ‚ect the opinions and attitudes of their respective authors and not necessarily those of the publisher or editors. We are not to be held accountable for unsolicited manuscripts, transparencies or photographs. All material within this magazine is ÂŠ2010 NGR.
A Controlled, Professional and Focused Environment Chairman/Publisher Spencer Green Worldwide Sales Director Oliver Smart
A Proven Format This inspired and professional format has been used by over 100 executives as a rewarding platform for discussion and learning.
Finance Director Jamie Cantillon Editor Ben Thompson Associate Editor Lucy Douglas
Find Out More, Contact NG Retail +44 117 915 4794
Contributors Ian Clover, Rebecca Goozee, Nicholas Pryke, Julian Rogers, Stacey Sheppard, Marie Shields, Huw Thomas, Timon Singh Creative Director Andrew Hobson Design Director Sarah Wilmott Associate Designers Tiffany Farrant, Michael Hall, Crystal Mather, Cliff Newman, Catherine Wilson Online Director James West Online Editor Jana Grune Project Director Andrew Bahadoor Sales Executives Ian Little, Jason Sidhu, Thomas Crags Production Director Lauren Heal Production Coordinators Renata Okrajni, Aimee Whitehead VP North America Jason Green Operations Director Ben Kelly IT Director Karen Boparoy Marketing Director John Funnell
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Europe’s emerging retail frontier By Lucy Douglas
he hype surrounding Russia’s strength as a proﬁtable retail market took a hit in October 2009, after Carrefour, Europe’s largest retail company, decided to pull operations from the country after just four months. The French superretailer’s decision to exit Russia marked the culmination of a string of retreats by international brands, after Edeka Zentrale AG closed its hypermarket in 2007 and Turkey’s Ramenka gradually phased out its Russian presence. Speculation from the industry suggested that Europe’s most anticipated and potentially lucrative emerging consumer market was dwindling, struggling to overcome the worldwide recession. Fears were consolidated in a report conducted by consulting ﬁrm AT Kearney that indicated a reduced GDP and retail sales growth as well as a slower market entry rate in 2009. But with the sector across the whole region feeling the pinch, should these ﬁgures really give Russia’s retailers cause for concern? Last year’s 7.9 percent decline in the GDP was marked as less worrying than anticipated, not signiﬁcantly higher than the UK’s 5.1 percent decrease or Italy’s ﬁve percent drop. In addition, AT Kearney’s report indicated that Russia was still the most popular entry destination in the Europe region, and that despite slower GDP and retail growth
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“June saw the highest increase in retail sales since November 2008, as well as a slip in unemployment rates for the third consecutive month”
rates, the retail environment in Russia has not changed dramatically as a result of the recession. Now well into 2010 and with the global recovery ﬁnally under way, the 142 million strong consumer market of Russia is proving fertile ground for the success of homegrown and international retailers alike. The ﬁrst quarter of this year saw a rise in Russia’s GDP of 2.9 percent, and experts are placing the annual growth forecast at anything between 3.5 and 5.5 percent. June saw the highest increase in retail sales since November 2008, as well as a slip in unemployment rates for the third consecutive month. A year on from Carrefour’s exit from Russia, the move now seems to mark a blip in business for the retailer as opposed to an industry boycott of the Russian market. Conversely, Carrefour’s primary competitor, Auchan, has been gradually making its presence felt across the Federation, taking advantage of its rival’s retreat from the market and buying up Ramenka’s vacated stores. France’s second largest grocery retailer now owns 38 hypermarkets across Russia with plans to open a further six this year. In an effort to diversify its market presence in the country, the group announced plans to open up to 100 low-cost outlets, the new Raduga store, across Russia during 2010.
Auchan’s success has earned it a place in Russia’s top ﬁve grocery retailers, alongside Metro Group. The German retail brand ﬁrst moved into the Russian market almost a decade ago and by the end of 2007 had spread into 60 different locations across the country, employing 13,510 staff. Like Auchan, Metro did not feel that a strong market presence in the super and hyper-market sector was enough, and consequently brought its consumer electronics chain, Media Markt, to the country at the end of 2006. Having generated a revenue of over €400 million in 2009, the brand’s success sparked plans this year to introduce Metro’s second electronics retail chain, Saturn, into Russia with stores set to open by the end of 2010 in both Moscow and Voronezh. The two most successful international retailers operating in Russia, Auchan and Metro Group, are paving the way for greater interest in the Federation from global retail brands. Wal-Mart, the biggest retailer in the world, continues to bide its time on a much anticipated move into Russia, waiting for the ideal investment opportunity to arise in order to make the transition. However, Europe’s largest home improvement retailer Kingﬁsher, which currently has 13 of its Castorama stores in Russia, recently announced plans to invest “aggressively” in the Russian market in the coming months thanks to the predicted levels of growth in the region. In other sectors of the industry, Russia has welcomed Japanese fashion retailer Uniqlo this year. And the Russian retail market has not only provided a stage for international players to improve their performance. Homegrown talent has ﬂourished in the sector over the last year, with a number of brands taking this time of renewed interest and recovery as the ideal opportunity to invest heavily and diversify their offering. Lev Khasis, CEO of leading Russian grocery retailer X5, revealed in an interview with Russia Now that his company aims to double its revenue every three years for the next decade. Meanwhile in July, X5’s close competitor, Seventh Continent (or Sedmoi Kontinent) completed an acquisition of midsize bank Finservis for an undisclosed sum. The high street retailer plans to introduce a new attractive and convenient service for its customers, marking the ﬁrst of its kind in Russia. A spokesperson from the company said “moving the bank under the control of Seventh Continent will give a new impetus to develop the bank as Russia’s ﬁrst in-store bank.” In addition, Russian retail giant Magnit, which currently operates 3228 stores around the country, has outlined plans to invest US$1 billion (€776 million) into opening 580 new outlets by the end of the year and developing a supporting logistics infrastructure. As retailers from all sectors of the Russian market continue to report sales increases, last year’s doubts about the nation seem to be slipping into a distant memory; facts and ﬁgures all serve to suggest that this emerging market still represents one of the ﬁnest business opportunities for European retailers.
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News in pictures
As Swedish author Stieg Larsson becomes the first author to hit a million ebook sales on Amazon, the internet retailer reports ebook sales have overtaken hardback books, and predicts ebooks will surpass paperbacks by 2011.
British supermarket Sainsburys has begun trials of a US style prescription vending machine service, which will allow customers to quickly and easily collect NHS prescription medication. German budget supermarket chain Aldi announced plans to pull its operations from Greece due to the economic climate. Th is is the first market exit in the company’s history.
Not everyone shops the same. So what’s happening globally in the wonderful world of retail?
GIVE-AND-TAKE Why swapping is the new shopping in Holland The large number of ﬂea markets and second hand shops dotted around Amsterdam’s city centre have long marked the city out as open to the idea of thrift retail. But now the concept is being taken a step further with the rise in swap-shopping currently being imported from the USA and the UK. Instead of getting rid of their clothes, locals are encouraged to exchange them in private and public events hosted by enterprising thirdparties. “Want a whole new wardrobe for a fraction of the price? Exchange your perfectly good items that you never wear for fabulous fashion ﬁnds,” exhorts Amsterdam’s leading swap-shop host Swap and the City. Colleen Geske and Tamara Raab, creators of the event, believe that while the idea of a clothing swap is nothing new, the economic climate means it’s a perfect time to re-examine fashion-shopping habits. “I wanted to create a fun afternoon out for women in the Amsterdam area, around the theme of fashion, beauty and charity,” says Geske. And as the event spawns a host of copycat meetings, expect the trend to continue throughout 2010.
LOCATION, LOCATION, LOCATION Themed Hong Kong streets offer bargains If you want the best deal, shop where the locals shop. That’s the lesson from Hong Kong, where consumers in Asia’s retail hotbed have swapped retail directories and the internet in favour of locally clustered retail ‘theme’ streets to help them ﬁnd the largest selection of goods in town. Kimberley Road is home to
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dozens of wedding gown shops; sportshoe shops line Fa Yuen Street; while ﬂorists (unsurprisingly) pack the units along Flower Market Road. Hong Kong has many such theme-driven clusters of small businesses that defy the conventional retail wisdom of avoiding direct competition. Economists refer to the phenomenon as the ‘clustering effect’, explaining how it acts as a magnet for likeminded shoppers. In addition, Lam Pun-lee of the department of business studies at Polytechnic University believes grouping similar shops together actually lowers the cost of marketing and creates more choice for consumers. “Hong Kong is a small city,” he says. “The presence of a few shops of similar products can grow into a cluster. That in turn attracts spending crowds.” As the saying (almost) goes, when in Tokyo, do what the Tokyans do.
CHIC ON THE CHEAP Outlet malls gain in popularity as Japan cuts costs There is a new wind blowing through Japan’s rising retail market: the arrival of city-centre outlet malls is upon us. As the uncertain economic climate forces people to become more budget-conscious, outlet malls have become increasingly popular in the land of the rising sun. But with such shops traditionally located in hard-to-reach, remote suburbs, growth in the sector has, to date, been limited. However, one shopping centre in Tokyo has brought outlet shopping to the heart of the city. Although opened in 1999 with around 160 boutiques and restaurants, Venus Fort, a shopping complex built to resemble medieval Europe, recently renovated the entire third ﬂoor to accommodate close to 50 outlet shops
Blueprint for success Jeremy Michael is Managing Director of SMG, a customer insight expert that collects and analyses customer feedback on behalf of companies such as Superdrug, Burger King, TGI Friday’s and Pets at Home. Here he offers his thoughts on store design. The store layout needs to cater for all types of customers, from ﬁrst-time visitors to regular visitors. The main factors that need to be addressed are cleanliness, speed of checkout and ease of locating items.
– a ﬁrst for Tokyo. Like other outlet malls, items are heavily discounted, sometimes between 50-70 percent off the retail price. And it is not just the affordability that attracts shoppers, but choice as well. “We had more customers than we initially expected,” said Nanase Taniguchi of the mall’s public relations team in an interview with Channel NewsAsia. “We had 170 percent more, compared to the same period last year.”
BOOM IN BARTERING ‘Cultural change’ spurs increased haggling in US It’s an age-old stereotype: the credible US shopper paying over the odds for goods and services because of a cultural reluctance to haggle. Not long ago, most Americans saw the marked price on the supermarket shelf as exactly that: The Price. Not anymore. A recent article entitled “Recession-weary consumers ﬁnd haggling can cut costs”, published in the St. Louis Post-Dispatch, suggests that many American consumers are shedding their fear of haggling and entering into negotiations with store managers in order to get prices reduced. The article cites a Consumer Reports survey that discovered “two-thirds of Americans tried in 2009 to bargain for a better deal” and that, in the majority of cases, those hagglers experienced success. The study found that hagglers had success rates topping 75 percent when they tried to negotiate lower prices on hotels, cell phone plans, clothing, jewellery and appliances, while consumers who bargained for lower medical bills were successful about 58 percent of the time. Analysts see the move as a “cultural change” rather than a desperate act triggered by the ﬁnancial crisis.
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The store design sets customer expectations – no matter how enhanced the store design is, the customer service absolutely has to reﬂect it. For instance, Apple stores look cool, and the customer service from the staff on the shop ﬂoor reﬂects the relaxed and appealing image of the store. The store layout says a lot about the brand and it is important that the brand messaging is reﬂected in the store. For instance, the new designs and branch formats of the Post Ofﬁce represent the new culture and branding of the Post Ofﬁce offering – they are clean, bright and relaxing, and even have sofas to use whilst waiting. Don’t underestimate the inﬂuence of a queuing system on customers and the impact it can have on store sales. For instance, when standing at the back of the queue, customers can get frustrated with the lack of movement and decide to walk out and abandon their possible purchases. The beneﬁts of the ‘snake queue’ are numerous. For customers, it gives the perception that it is moving fast and it is absolutely fair (especially crucial for customers in the UK). And as customers ﬁnd it harder to walk out of a queue when you have to pass several other customers, it allows retailers to offer additional ‘impulse purchases’, which has an impact on increasing ATV. A good example of this system is WHSmith at Heathrow. While waiting in the queue, the customer passes many appealing and useful holiday items to add to their basket, such as books, suntan lotion and water.
magine a world in which small, cartoonstyle tags pop up within your ﬁeld of vision, overlaying real-world objects and buildings to describe what you’re looking at, like Arnie in Terminator 2. It might sound like something straight out of Hollywood, but that is essentially what Japan’s two largest cellphone operators are about to offer their millions of customers, using the cameras and screens of smartphones – along with vast online databases – to supplement your worldview with everything from product reviews to directions to price comparison data. It’s called ‘augmented reality’, and it’s the next hot feature to hit smartphones in 2010. Japan’s NTT DoCoMo is set to launch ‘chokkan nabi’ (or intuitive navigation) in September to help people ﬁnd their way around megacities such as Tokyo and Osaka and other places in Japan. “You just need to focus on a street, a building or a particular spot with your camera-equipped cellphone to see if there is a bank, a restaurant, a supermarket or other location,” a DoCoMo ofﬁcial told AFP. “Labels or signs indicate, for example, the distance to a chosen restaurant, schedules, menus, etc. With a simple gesture, you can switch back to a conventional map in two dimensions.” The service has so far registered some 600,000 points of interest throughout Japan, including restaurants, shops and train stations, which can be searched through userdeﬁned criteria. The technology, developed with mapmaker Zenrin, uses GPS and sophisticated software to place virtual tags on realworld objects and provide directions to places outside the user’s direct view. It also links with micro-blogging site Twitter, which has been wildly successful in Japan, so that its users can spot each other in real time and real space, and tweet comments about where they are. Meanwhile, Japan’s number two mobile operator KDDI has developed a platform that allows users to scan, for example, a CD advertising poster with their camera phone to gain additional material, such as an extract from a song. The service will then offer the user the option to buy a download of the song with just two clicks, or can guide them to the nearest real-world CD shop. The application, which also features virtual characters, is an advanced version of an already popular Japanese application for Apple’s iPhone called Sekai Camera. That program identiﬁes
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visual landmarks and then displays live and past tweets from others as ‘air tags’ in the same location. Internationally, several operators are harnessing similar technology. Finnish cellphone giant Nokia is offering a free application
called Point & Find, which involves pointing your camera phone at real-world objects to access information and functions. The service also allows users to scan barcodes to compare prices, read reviews or save a product to a wish list.
AR SHOPPING APPS An array of programmes that will remake everything from roaming the mall to impulse buying.
Virtual dressing room
The most obvious application of augmented reality is location-based services that can tell if a shop you need is close by. Zagat was ﬁrst to market with NRU, but competitors such as Yelp have released their own AR apps as well. In addition to ratings and wayﬁnding, apps could also include shopping guides.
Meanwhile for the home shopper, Zugara’s Webcam Social Shopper uses motioncapture technology to create a virtual dressing room. Your movements allow you to navigate among selections, and the software calculates your orientation so that you can adjust the garment to your body.
Looking ahead It’s a marketer’s dream – and a philanderer’s nightmare: glasses that track your eyes’ every movement.
he ability to see exactly what the customer sees, what displays, ads or items catch their eye and what they skip over without a second glance has long been the Holy Grail for marketing departments everywhere. And now the vision is set to become reality thanks to pioneering technology from Tobii, the global market leader in eye tracking and eye control. According to the ﬁrm, Tobii Glasses will help researchers in commercial, scientiﬁc and government organisations gain greater levels of insight into the preferences, reactions and personal experiences of people in a natural environment. Sounds a bit sci-ﬁ, right? “We believe the product opens up entirely new possibilities for our customers to conduct research in a way that previously has not been possible,” agrees Tom Englund, Executive Vice President of Analysis Solutions at Tobii Technology AB. “The application of this product to provide insight into human behaviour can include anything from understanding buyer preferences, learning about gaze in operating mobile devices, playing sports, driving or operating machinery. In fact, the number of ways you can apply this technology to conduct research is virtually endless.” The new Tobii Glasses look and feel like a regular pair of glasses and allow wearers to walk around freely, making it easy for researchers to create a real-world environment in which to capture user behaviour. This can be while they are browsing in shopping environments, using a computer, trying out new products or reading
an advertisement. Comfortable and lightweight, the glasses have no distracting cameras or mirrors in the ﬁeld of view nor do they require the user to carry bulky equipment. As a result, the user behaves more naturally giving the data a much higher level of validity. You might not win any prizes for style – unless you’re attending an 80s revival – but the potential applications for retail are huge. “Never before has it been possible to cost-effectively conduct quantitative studies in real world environments and automatically see the visual attention a product or display received,” says Gill Aitchison, Global President of Ipsos Shopper and Retail Research, who had access to the glasses at a recent demonstration. Now researchers can measure actual consumer responses during real shopping trips – and this can be achieved at the point of purchase where decisions are made, instead of in unnatural laboratory environments, online questionnaires or over the phone. And the best thing about the technology? It’s available now. Expect marketers, retailers and jealous spouses everywhere to be queuing round the block.
“The product opens up entirely new possibilities for customers to conduct research in a way that previously has not been possible”
Seeing is believing Augmented reality isn’t just limited to smartphones. The coolest in-store information kiosk out there comes from Lego: the toy company is test launching a digital box that, when held up to an in-store camera, will superimpose a rendering of the completed Lego model on top of the product box onscreen.
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Clothing, footwear -8.1%
Health & Beauty -8.2%
Mark-ups on green retail products will continue to shrink in the coming years, according to data from the CRR report.
Food & Drink
In spite of price premiums, Green product sales are set to rise 104 percent by 2015.
Green premiums set to shrink
EU pays more for green products
• In 2010 European consumers are paying a price premium of 46% on average for Green retail products and 25% for food and drink items, compared to 54% and 28% respectively in 2006 • By 2012 the Green premium in Europe will have dropped by 24% since 2006 and by 13% from today’s levels, shrinking from the current level of 46% to 40.5% by 2012 • Green premiums remain highest on health & beauty (183%), electricals (58%), and cleaning and household products (42%) when compared to the price of standard goods • Since 2000 Green retail sales in Europe have soared by 441% from €10.3bn to €56bn today, easily beating the growth rates of conventional retail merchandise
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lthough environmental awareness and the shift towards Green initiatives now appear high on the agenda of many European governments, the Green retail market remains relatively small, according to a report produced by the Centre for Retail Research. It was only worth an estimated €56 billion last year, and accounted for just 2.5 percent of total European retail sales in 2009. The ﬁgures are not surprising in light of the fact that European consumers are currently paying on average 46 percent more for Green non-food items than the standard alternative, with Green food items costing on average 25 percent more. However, in spite of signiﬁcant price differences, Green product sales will continue to gather pace, doubling from €56 billion to €114 billion by 2015 and taking a ﬁve percent share of the European retail market. At the same time, Green retail prices in Europe are also expected to drop by 13 percent over the next two years, reducing the overall ‘Green premium’ from 46 percent to an average of 40.5 percent by 2012.
% Change 2010-12
Source: CRR report May 2010
Still a way to go… Green retail products account for 2.5% of the total retail market in Europe.
That figure is projected to double to 5% by 2015
What Do Countries Think About Green Brands? It would be legitimate to think that with Europe coming out of a recession, shoppers would be more pre-occupied with the economic downturn than saving the planet, and according to the fifth annual ImagePower Green Brands Survey that appears to be the case, although there is a growing concern for green practices.
Consumers are more concerned about the economy than the environment *
More concerned with the economy
More concerned with the environment
Brazil 25% 41%
60% of consumers say it is of some importance to buy brands from green companies *
58% 34% 11%
Source: All figures from 2010 ImagePower - Green Brands Survey Graphic created for NG Retail US | www.ngretailus.com | GDS Digital
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Very important Somewhat important Not important
* Not showing ‘Don’t know’
Social selling Between tablets, smart phones and the perpetually evolving world of social media, more consumers than ever are interacting through virtual platforms… and businesses were only one step behind to capitalise on this revolutionary marketing tool. Next Generation Retail takes a look at the social media landscape and how it can benefit retailers today.
Justbought.it combines social media platforms with the world’s oldest marketing tool – word of mouth. The site encourages consumers to tweet when they buy something, with a picture of the product and the location bought.
UK pizza retailer Dominos announced earlier this year an initiative to reward Foursquare “mayors” of its stores with free pizza, and customers who “check-in” on Foursquare with a free side dish. The initiative has helped boost proﬁts of the chain by 29 percent.
Seven percent of all UK online retail sales are driven directly from social networking sites.
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Location-based social media site Foursquare teamed up with luxury fashion retailer Marc Jacobs during New York Fashion Week. Attendees of Fashion Week’s shows could “check-in” to Marc Jacobs stores across New York, for the chance to win tickets to the Marc Jacobs show.
Pepsi pulled its famous Superbowl advertising contracts in favour of a US$20 million social media campaign. They have successfully created an active, global network of engaged followers with the Pepsi Refresh Project.
Nestle demonstrated how Facebook campaign could go wrong. In March the global confectionary manufacturer sparked a barrage of posts from consumers on its Facebook fan page, accusing the company of unethical practices. Nestle exacerbated the situation, responding with antagonists comments.
Dell, computer manufacturer and retailer claimed it had received US$6.5 million in revenue over the last two years directly from Twitter.
Debenhams overtook ASOS this year as the ‘most visible’ fashion retail website, coming top in 52 percent of searches on Google. Stocks have risen in the last quarter.
Luxury shoe retailer Jimmy Choo utilised social media in April with its CatchaChoo campaign. Customers could follow Jimmy Choo’s new trainers to their locations around London as posted by the brand on Facebook, Twitter and Mashable. After the campaign was covered by London paper The Evening Standard, sales of the trainers went up 33 percent; positive mentions of Jimmy Choo online increased to 40 percent. 1 in 17 people in London were following the shoes online.
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Are women underserved as consumers? Women account for 57% of students in higher education worldwide
Women’s Control of Consumer Spending
Women in the Workforce
Total Controlled by Women 5
Percentage of purchases made or influenced by women
Women spend over 70% of consumer dollars worldwide
40% of business in the US is owned or co-owned by women
But only 38 of the top 400 companies are run by women
“Despite women’s dominant buying power, many companies continue to market mostly to men and fail to explore how they might meet women’s needs” The Female Economy by Silverstein and Sayre
Amount women globally control in consumer spending. This is estimated to increase to $28 trillion by 2014
Women on average only earn 77 cents for every dollar men do
World’s Largest Economic Opportunity? 2014 (est)
$13 trillion $6.6 trillion $4.4 trillion
$1.8 trillion $1.2 trillion Female Income
Women now drive the world economy, controlling $20 trillion in consumer spending and earning $13 trillion a year. Women represent a market bigger than China and India combined.
n interesting study in the Harvard Business Review last year highlighted that women, as a whole, represented an untapped market segment as consumers. Quantifying it, Michael J. Silverstein and Kate Sayre, consultants at the Boston Consulting Group, stated that “globally, women control about $20 trillion in annual consumer spending, and that ﬁgure could climb as high as $28 trillion in the next ﬁve years. Their $13 trillion in total yearly earnings could reach $18 trillion in the same period.” An emphatic assertion from the researchers has captivated marketers worldwide: that “on aggregate, women represent a growth market bigger than China and India combined – more than twice as big”, in fact. Given those numbers, it would be foolish to ignore or underestimate the female consumer.
FRONT SECTION.indd 22
Source: CNN Boston Consulting Group Harvard Business Review
According to the National Federation of Woman Business Owners, woman are the primary decision makers for consumer goods spending in 85% of households in the UK, make 75% of decisions for buying new homes and inﬂuence at least 80% of all household spending. Conversely, 91% of women felt that advertisers did not understand them
CEO PERSPECTIVE 23
Growth in tough times With Pablo Isla Álvarez de Tejera, Deputy Chairman and CEO of Inditex. After the crisis, consumers will demand a very high level of quality. There are also new communications technologies to help us keep in touch with consumers, such as blogs, Facebook and so on. Inditex has two million Zara users’ fans on Facebook, a completely new and powerful communications tool. Inditex’s investment policy is more demanding, but we have not slowed our growth as a result. We are more demanding than ever regarding our growth, looking for quality and investment return on new locations. Nevertheless, our development strategy remains the same for the mid and long-term. Basically, our response to the crisis has focused on the upgrade of procedures. This has allowed us to face the crisis through product enhancement, better manufacturing cycles, more internal coordination and so on. We continue growing with no problems since our funding is based on internal capital ﬂows, and so the credit crunch has not damaged us. I also think that Inditex never lost its long-term outlook. We have looked at the crisis as a way of enhancing our own business management, always thinking with an eye on the long-term, keeping our strategic focus in regions where we are sure we can keep growing. Our business model is also a major strength, since it is based on fashion, reasonable prices, closeness and ﬂexibility to adapt to changeable consumer demand. We have not noticed major changes in our people or in the awareness of our internal brand. On the other hand, we are perceiving that people prefer working at a demanding level: they do things better. Overall, though, the company has not suffered great pressures nor had any problem with employees. Our challenge in the human resources area is motivating, identifying and retaining talent through internal promotion. The opening of new stores and new concepts represents a good source of internal promotion and contributes to talent retention. Maybe it is good to have a bit of concern because this increases the level at which you operate. Being in the comfort zone makes you behave in a more indulgent way, while more demanding conditions makes you much more competitive. High-performance people value such motivational conditions because they know they are going to be assessed by their results. For Inditex, people are its main value and motivation is always one of its main aims. Pablo Islar was speaking to PwC as part of its Annual CEO Survey.
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Suits you What do you get when you combine age-old Nepalese tailoring with today’s advancements in online retail technology? Next Generation Retail finds out.
randing itself on the tagline, ‘what happens when technology and fashion get together’, A Suit That Fits is no ordinary tailor. Then again, its enterprising founders Warren Bennet and David Hathiramani are no ordinary fashion retailers. Both passionate about smart and stylish menswear but with backgrounds in technology, the online bespoke suit making store was masterminded after Bennet returned from a trip volunteering in Nepal with a small collection of ﬁne-woollen suits. The quality of the design, tailoring and materials inspired Bennet and partner Hathiramani, of engineering and computer science backgrounds respectively, to “simplify tailoring and bring back the idea of a local tailor for everyone”. “It was a fantastic store,” says Bennet, reminiscing back to the ﬁrst time he visited his tailor’s shop in Nepal. “I was introduced to them by some people I was working for. They had an absolute obsession with getting suits made. I remember it very clearly. They’ve still actually got the original order sheet when I ﬁrst stepped into that shop.” Bennet remained in contact with the same tailors that made that ﬁrst suit out in Nepal, and has been using their skills ever since as the foundation of the business. “They have such a rich tradition over there,” he explains. “And it’s passed down from father to son or through apprenticeships. Everything’s still done by hand so they have this fantastic tradition of handy work.” Outsourcing to Nepal may not traditionally conjure up the most positive images of clothing manufacturers, but Bennet speaks of his staff with a genuine admiration and pride for their work. “We believe in treating everybody really fairly,” he explains, highlighting that supporting the Nepalese talent has been key to delivering a quality product to the company’s customers. “We pay 50 percent more than the local rate for our tailor, which means that we actually ﬁnd it really easy to attract and retain the best tailors.” A Suit That Fits is founded on a curious amalgamation of cutting edge retail technology and design traditions that age back through generations. While the manufacturing process itself still relies on the raw talents of the tailors, the face of the retailer, the supply chain and the marketing practices are all operated from an internet platform. As the ﬂagship store opened its doors in June 2006, with the original idea of bringing high quality but reasonably priced Nepalese tailoring to the British high street, Bennet explains that Hathiramani spotted the potential for the company to ﬂourish if it operated online. “The software that we have has afforded us so many efﬁciencies that we would not be able to do this without it,” he says, adding, “It’s going to get even better.” This combination has allowed A Suit That Fits to grow to a 140strong team across the UK and Nepal in four years. “We’ve produced over 30,000 suits in four years,” Bennet reveals. “If it wasn’t for the talent then [the business] wouldn’t have grown so quickly. There are a
number of factors that allowed us to grow so quickly. We offer really good value.” Indeed the value of the product is its unique selling point. Bennet is keen to point that there is no other retailer in the UK market selling individually hand-tailored suits at high street prices. However, that success can only be sustained if growth rate is managed properly. “The worst thing you can do is not deliver,” he explains, “because that would just generate bad word of mouth and bad feeling amongst customers, and you just can’t do that.” Bennet goes on to explain that he has been able to forecast the growth of the business quite accurately, highlighting that through his experience he has now come to understand the ups and downs of the industry. “After four years in business now we’re beginning to see the cyclical nature of suit trading. We know, for example, that business will be approximately half in December because suits aren’t the automatic go to Christmas gift and you use your disposable income on gifts.” The sales ﬁgures of A Suit That Fits are certainly impressive, more so when one remembers that they are still relatively unknown. Bennet remains modest as he explains that a third of the company’s customers reorder with six months. “That’s pretty good considering you might not buy a suit every year. We get a huge amount of reordering.” He goes on to explain that getting the brand’s name out there is still the biggest challenge they need to overcome. “I think we are the biggest bespoke tailor in the UK now,” he says, “but, we’re still very small and as such most people haven’t heard of us; that’s the only barrier.” Looking to the future, Bennet says that improving the brand’s marketing is the next hurdle; he reveals that A Suit That Fits is already at the top of Google searches, a huge achievement and one that generate thousands of hits on the site every month. “It’s massive,” he says “[Google] is where the majority of our trafﬁc comes from. That’s all natural search as well.” He touches on the brand’s social media presence, highlighting that successfully marketing on this platform requires a sensitive approach and wryly admitting that the company is working on plans to develop this. “We’ve always known to focus online,” he explains. “You’ll see on the site we’ve got a blog as well that actually many of our team contribute to, which is pretty fantastic because it gives us so many different viewpoints. I think it’s a great resource. The fact that you’ve got new, fresh, relevant content to what you do, that’s usually powerful for Google. We also have loads and loads of customers who often link back to us and tell [their social networks] where they got their suit from, which is great of them. We really like that. “It’s a very personalised service that we have and trying to develop a system to cover 40 billion different combinations of suits and thousands, tens of thousands of individual customers with all different level of expectations”
“We’ve produced over 30,000 suits in four years. If it wasn’t for the talent then the business wouldn’t have grown so quickly”
FRONT SECTION.indd 24
A Suit That Fits founders Warren Bennett (left) and David Hathiramani
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New boss, old challenge?
ritish newspaper The Daily Telegraph reports that the biggest internal challenge facing new Marks & Spencer boss Marc Bolland could be about people and politics – especially given that the role has historically been as much about diplomacy and expectation-management as about selling goods. Dealing with senior staff’s egos, shareholders, City analysts, suppliers, politicians, non-governmental organisations, unions and the media requires what the Telegraph calls “Henry Kissinger-like” qualities. The paper cites one M&S insider who hopes that, under Mr Bolland, the chain will return to a more consensual management style. “The hope is that M&S will become less about one person and more about a team. It needs to be a bit more like Tesco, with a strong leader but an equally strong group of people around that leader,” said the insider, adding that this new approach would let M&S’s strong senior management team shine. “I am a person of evolution not revolution ... Yes there will be change but it will be building on the things that are good,” he told investors at the annual shareholder meeting in July, adding that customer focus “will be one of my key things.”
FRONT SECTION.indd 26
It’s not just pay… it’s M&S pay New CEO Marc Bolland replaced outgoing chief executive Sir Stuart Rose at the start of May – and immediately walked into a row over executive compensation. Bolland will receive a hefty £15 million package in his ﬁrst year, including: • An annual salary of £975,000 • £7.5 million compensation for awards forfeited by his departure from Morrisons • A bonus worth up to 250 percent of his annual salary (or £2.5 million) • An “exceptional” award of shares worth nearly £4 million His annual salary alone will be 77 times the retailer’s average pay level. According to its most recent annual report, M&S’s 77,800 employees earn an average of £12,500. The move was heavily criticised by investors and analysts, but Executive Chairman Stuart Rose, the subject of investor rebellions at the two previous annual shareholder meetings, repeatedly stressed that Bolland would only get the bulk of his pay award if he met stretching performance targets. “If the company does well, Marc will do well,” he said.
Leading to suceed Over 350 of the most senior Marks & Spencer leaders have partnered with Oliver Wyman Leadership Development to take part in a programme aimed at driving the business forward in today’s challenging market.
alled ‘Lead to Succeed’, the M&S programme draws on Oliver Wyman Leadership Development’s research into leadership brand equity and its book Head, Heart and Guts, which is based on the principle that leaders combine ‘head’ to set strategy, ‘heart’ to connect with the world and ‘guts’ to make intuitive decisions based on clear values. Through the programme, M&S developed a distinctive leadership brand and aligned this with the organisation’s values, competences and corporate brand, driving innovation for customers, achieving quality for customers and building trust. This has resonated widely with programme participants, many of whom have taken on more senior roles as a result of taking part. Lead to Succeed is designed to support M&S’ transformation programme, Project 2020, which is focused on delivering a step change in how M&S operates and meets customer needs. The Lead to Succeed programme is viewed as a strategic initiative to help the organisation achieve its future goals, and additional investment has been agreed to accelerate its rollout across the organisation. Tanith Dodge, HR Director at Marks & Spencer, believes it has
been of huge beneﬁt. “The economic turbulence we’ve experienced is unprecedented,” she explains. “The ways of doing things in the past are not necessarily the ways that will make us successful going forward. We wanted to create fresh impetus and to galvanise our leaders to drive the business forward in challenging markets, and Lead to Succeed enables us to do this.” The programme consists of four modules; lead to succeed yourself, lead to succeed your team, lead to succeed your organisation and being the best. These modules allow individuals to deﬁne their own goals in line with the company’s strategic objectives and provide support to help individuals embed learning and achieve goals. Simon Hayward, senior advisor to Oliver Wyman Leadership Development, explains that Lead to Succeed was developed to ensure that M&S remains an innovative market leader. “In order to do this, we created an environment where challenge is encouraged to drive performance improvement,” he says. “Not only has M&S witnessed signiﬁcant savings from this programme, they have also seen considerable behavioural changes in the way that leaders now tackle challenges.”
Company Index Q3 2010 Companies in this issue are indexed to the first page of the article in which each is mentioned. Alliance Boots Amazon.com Apple Argility AT Kearney Axiomatic B&Q Beaverbrooks Best Buy Blockbuster Brightsign Burger King Carrefour Group Castorama Cisco Cornell University Creativ Company Debenhams Deloitte Discovery-Based Retail eBay Facebook Fifth Dimension Fnac Footlocker Forest Stewardship Council Forrester Research Fujitsu Services Gartner
FRONT SECTION.indd 27
28 46, 102 96 52, 53 34 43 92 108 46 46 76 56 34, 46 92 44, 84 102 108 64 34, 46 68 46, 106 34, 96, 106 70, 71 , IBC 46 46 92 46 44 84
Google Harris Corportation HP IBM IDC IKEA ING Intel Itellium John Lewis Partnership Kelkoo Kingﬁsher La Redoute Lacoste LinkedIn Lipsy LVMH Marks & Clerk Marks & Spencer MegaFon Mermaid Metro Group Microsoft Mood Media Corporation National Retail Federation NCR Neiman-Marcus Net-A-Porter Netlog
96, 106 78, 81 84 44 62 36 72 84 94, 95 96 46 92 46 102 106 72 106 106 46, 102 68 78, 83 34, 44 84, 96 72, 73 46 84 68 46 34
Nielsen Nike Oasis Ocado Optimal Payments Ovum QBIS Business Systems Ltd Retalix Sephora Shopworks Siemens Starbucks Stratacache Target Tesco The Retail Advertising and Marketing Association Thomas Pink Timberland Timex Corp. T-Systems Twitter Verdict Research VeriFone Videro Wal-Mart stores Inc. Wincor Nixdorf
46 72 46 46 58, 59 46 114, 115 6, 64, 67 46 68 44 64 60, 61 102 46, 84 74 72 72 102 44 34, 96, 106 46 52, 55 78, 79, OBC 34 84
Trust Boots to succeed Alliance Bootsâ€™ CEO Alex Gourlay has worked at the health and beauty giant for 34 years. In this exclusive interview, he talks about why building long-term relationships is integral to the brand, and how strong customer service can carry a business through tough times. By Lucy Douglas
BRAND FOCUS 29
stablished back in the mid 19th century, Boots has become a beacon of the British high street. Marking an almost forgotten generation of retailer from an era when business was a family affair and customer care and convenience were the very foundations of a brand, Britain’s beloved local chemist has kept hold of its longstanding custo customer-centric reputation and made it central to its success. Today, the iconic blue and white logo can be found on every high street in the UK, with global branches reaching such distant destinations as the USA and Thailand. “Our purpose purpo is to help people look and feel their best,” explains Alex Gourlay, CEO of the Health and Beauty division at Alliance Allian Boots, the retail arm of the lifestyle and wellness giant. giant “Whilst our products are key to this, so is the experience our customers have in our stores and the trust they place in us.”
Gourlay’s comment denotes a company ethos familiar to the British shopper; Boots is famous for its dedication to customers, and the company’s loyalty programme is amongst one of the best loved and well subscribed in the industry. But his words also reflect Gourlay’s own belief in what the company is trying to achieve. When he took up the position of CEO in January last year, he was in his 34th year of employment with the company, having started as a Saturday assistant back in 1976. During that time, he explains, the company has undergone a number of changes, mergers and re-brands, but has never lost sight of its core ideals. “Some things have not changed since I fi rst joined Boots,” he says. “The values around what Boots stands for continues to make it one of the most trusted brands in the UK, and the care for its people and customers still remains at the core of the business today.”
Opened in 1849 in the Goose Gate district of Nottingham, the original Boots store was founded as a herbalist retailer by John Boot, but it was his son Jesse Boot and daughter-in-law Florence that are widely attributed as the business brains responsible for developing the chain as it is known today. The 20th century saw the chemist grow into one of the most recognised and trusted brands in the country, a diversified family retailer of health and beauty products, pharmaceuticals, photographic products and optical healthcare, with outlets in every town in the UK and, by the end of the century, several countries around the world. Indeed, the £6.9 million merger with Alliance Unichem in 2006 to create Alliance Boots, one of Europe’s largest drug, health and beauty groups, put the company in a comfortable position to enjoy further global expansion as well as develop domestic operations. But longevity itself is not enough to protect a chain from sinking in the current economic climate, as retail stalwart Woolworths unfortunately proved in December 2008. Rising overheads, limited access to credit and reduced customer spending have made the high street a hostile business environment that even the country’s most beloved brands find it tough to operate in. So just how has Boots managed to maintain such levels of success during the downturn? “We are a focused healthcare group, and this has helped in the downturn as demonstrated by the health and beauty market which has continued to grow,” says Gourlay. He maintains that Alliance Boots has a clear strategy “to continue investing in developing our pharmacy-led health and beauty customer offering and expanding the scope of pharmaceutical wholesaling, all of which is focused on driving future growth”. And despite the crippling economic maelstrom that has all but obliterated many of the longstanding retailers that once stood
“It is testament to the strength of the Group that we have continued to grow and are on track to become the world’s leading pharmacy-led health and beauty group” Alex Gourlay
BRAND FOCUS 31
Boots is one of only three UK retailers to exceed
£1 BILLION in proﬁt anually
alongside it on the high street, it’s a tactic that appears to be working: Boots’ sales figures have repeatedly made headlines throughout last year and into the early part of this year for all the right reasons. In the first half of 2010, it was revealed that the retail arm of Alliance Boots is one of only three UK chains that have managed to break the £1 billion annual profit mark, alongside Tesco and Marks & Spencer, an achievement that the group’s Executive Chairman Stefano Pessina has put down to Gourlay’s success as a leader. In May, Boots then announced a profit growth of 13 percent on the previous year, marking the third consecutive year it has enjoyed double-digit profit growth. Both staff and analysts commonly attribute the success of the brand to two things: a strong history of strategic partnerships, and the company’s well-developed reputation for excellence in customer care among the British public. The diversified product base, combined with the attractive and convenient facilities of the local pharmacy, have helped to establish Boots as one of the most popular in the UK market. Gourlay explains that, for Boots, the “customer is very much at the heart of the business strategy”, a value that he holds dear as a leader; it was Gourlay, for example, who was responsible for developing the re-brand of Your Local Boots Pharmacies that rolled out around 1000 stores. He highlights that responding to customer demands swift ly is key to a retailer’s success. “We have had the confidence to invest in the customer, which has rewarded us with customer loyalty, particularly during this tough economic climate,” he says. “Increasingly, customers now expect businesses to be responsive to their feedback and suggestions. At Boots we take customer feedback very seriously.” Securing customer loyalty has undoubtedly gone a long way to securing the success of the company. Commonly acknowledged as the most generous customer loyalty scheme in the UK, the Boots Advantage Card, launched in 1997, remains to date one of the longest-running and most successful reward schemes on the British market. After it was overtaken in popularity earlier this year by the Nectar card, which allows customers to collect loyalty points with a number of retailers including supermarket Sainsbury’s and BP petrol stations, Boots announced plans to open up the Advantage Card to other retailers, a decision that has been described as potentially “groundbreaking” for retail. Today, more than 15 million British people own a Boots Advantage Card, representing around one in four people throughout the country. A report conducted by business consultancy fi rm Promise Corp., found the reasons for the success of the Advantage Card is its simplicity, the flexible rewards it offers and the relationships that are generated between Boots and its customers. “We continue each week to analyse over 25,000 customer responses to in-store marketing surveys to better understand our customers’ evolving needs,” Gourlay explains. “We are pleased that our customer care numbers improved year-on-year as a result of our ongoing focus on key areas that we know are important to our customers.” These include value for money, speed and ease of payment, the availability and approachability of staff, and the time it
VINTAGE BRITISH RETAILERS STILL GOING STRONG… BOOTS est. 1849
HOUSE OF FRASER est.1849 The department store has 62 stores up and down the UK and reported a revenue of £596 million in 2008
MOSS BROS est. 1851 The high street tailor and men’s fashion retail chain reported revenues of £128.7 million last year.
MARKS AND SPENCER est. 1884 The food and fashion retailer sits alongside Boots as one of only three UK brands to enjoy annual proﬁts of over £1 billion. It is one of the leading retailers for online presence and social media marketing, recently announcing the launch of its m-commerce application.
THOSE THAT FELL… WOOLWORTHS est. 1909
JOHN LEWIS est. 1864 The department store, which also owns supermarket Waitrose, announced record sales during the Christmas period 2009, with weekly revenues of up £110 million.
The beloved high street retailer of almost everything from confectionary to entertainment goods to children’s clothes fell into administration, eventually closing its doors for good in Christmas 2008, aged 99 years old.
takes to get a prescription. As a result, says Gourlay, “unsolicited customer compliments more than doubled.”
Joining forces However, it was not always plain sailing for Boots. That same image of reliability and convenience that the company had founded its reputation on was fast becoming tired, and widely diversified supermarket heavyweights were able to sell many of the same cosmetic products at lower prices. The early years of the last decade saw Boots’s sales falling, stores being sold up and down the country and stock prices diminish in value. It was time for a new approach. The 2006 merger with pharmaceutical wholesaler Alliance Unichem to create Alliance Boots provided a muchneeded shot in the arm and prevented the company from sinking further. The backing of a multi-billion euro company renewed both consumer and investor confidence in the brand, and helped re-assert the company’s dominance on the UK high street. At the time of the merger, then-CEO Richard Baker issued a statement saying: “The merger will enable us to improve the offering for both our wholesale and retail customers. While there is a lot of hard work ahead and it will take time to deliver the full benefits of this merger, we are already making changes for our customers in the UK with a range of popular Boots products available in 500 Alliance Pharmacies from today.” The move marked the culmination of half a century of mergers and take-overs that have shaped the Boots brand. From the 1960s onwards, Boots has been adding to its group, diversifying its product range and expanding its market presence, merging with chemist retailers, research laboratories and opticians. “We have a strong history of both organic growth and forging successful partnerships,” says Gourlay, explaining that these partnerships and mergers have been pivotal to the success of the brand. And the
huge potential of its latest merger was quickly realised, with many of the benefits Baker spoke of coming to fruition much sooner than expected. “At the time of the deal we set ourselves a challenging synergy target to hit,” explains Gourlay. “It is testament to the strength of the Group that we have continued to grow and are on track to become the world’s leading pharmacy-led health and beauty group.” Revenues have grown steadily since the merger, with the company hitting that magic £1 billion mark earlier this year. An ambitious £100 million cost saving target set at the time of the merger was also achieved 18 months ahead of schedule. But the merger does not mean the brand is resting on its laurels; the strategic partnerships continued and Boots has since announced a number of new initiatives for expansion and development. Gourlay reveals that in recent years Alliance Boots has invested £1 billion in developing and improving the high street brand, a massive sum certainly, but one that is already generating substantial returns. “It is important to focus on customer loyalty,” he says, and highlights a selection of Alliance Boots’ projects that will aid the expansion of the already wide reaching business. A recently announced venture with Waitrose supermarkets will see a selection of each company’s products sold in the other’s stores; childcare product retailer Mothercare is currently designing a new range in children’s clothing for Boots; and Procter & Gamble will distribute and promote the Boots Laboratories’ skincare range in Italy. “You should always try to give your customers a reason to come back,” he explains.
Boots revenues grew by
13% last year
Looking forward One of the biggest new ventures from Boots was rolled out last year; October saw the launch of the BootsWebMD, an online health and wellness information service that will use expertise from the National Health Service and Brit-
1849 John Boot opened a herbalist shop in Goose Gate, Nottingham. 1877 Jesse Boot took over control of the shop.
1884 Boots ﬁrst
1947 Boots established
1892 Flagship Boots store opened at Pelham Street, Nottingham.
1935 No. 7 cosmetics launched by Boots.
companies to carry out wholesale businesses in Australia, Canada, Pakistan and the Far East
1969 Boots launched Ibuprofen (Brufen) in the UK
BRAND FOCUS 33
1971 Company renamed The Boots Company Ltd. Acquisition of Crookes Laboratories Ltd by Boots
ish Medical Journal, among other healthcare specialists, to provide healthcare information to users. Currently only available in the UK, this service “will allow Boots to provide accessible healthcare for all with an unrivalled reach”, according to Gourlay. The web portal marks another step in the company’s online presence, which has been expanded significantly in order to maintain its strong reputation for customer convenience. Gourlay explains that the online channel has continued to grow for many retailers, and that he and his staff are pleased with the performance of the Boots site so far. “During the year we also substantially increased the number of Boots stores where customers can collect goods ordered on our boots.com website,” Gourlay says. “Our ‘order-online collect-in-store’ service is now available in more than 2000 stores across the UK, providing customers with access to the extended Boots range.” He goes on to explain that this collection service has proved extremely popular with Boots’ customers, and the company is continuing to develop its multi-channel offering in order to improve the customer experience. “We recently commenced our trial of accepting contactless card payments using Mastercard Paypass,” Gourlay explains, telling me that following the fi rst of these transactions, which took place in the fi rm’s Canary Wharf outlet, customers can now buy everyday purchases totalling £15 or less with contactless payment technology at 21 different stores across London and Liverpool. “We believe that contact-less payments could be an innovative way to speed up traditional card payment,” he says, “and as part of this trial we hope to see faster payment times at our tills where we implement this fully integrated solution.” Conquering the British market took time, but it is fair to say that Boots has succeeded; through steadily diversifying first its product range and then its operating platforms, the firm has maximised its reach across the
British market. Consequently, the greatest scope for expansion is now coming from its increasing international operations – a challenge Gourlay is relishing. Thanks to a perceptive and strategic customer offering, though helped significantly by the merger with Alliance, Boots is now a market leader across Europe, having broken into Norway, Holland, Ireland, Italy and Russia. “Pharmacy is different in every market in Europe,” he explains. “As such, we focus on developing country-specific Boots branded trading formats to meet local needs. A successful recent example is the rollout of the ‘Boots apotek’ pharmacy concept in Norway. We have also now extended the concept in Holland and we are evaluating franchising opportunities in other countries. In addition, we will consider establishing Boots pharmacy chains in new countries where it makes economic sense to do so.” Summer has seen the company expand to sell products in more European markets and in July Boots announced plans for a joint venture with Farmacevtföretagarna, a Swedish pharmacy, to create a chain of high street pharmacies throughout the Scandinavian country. Undoubtedly, strategic partnerships have provided a huge boost for the Boots brand, allowing it to penetrate new markets and increase revenues. Ultimately however, it all comes down to the customer, Gourlay says. “Retailers should remember that the customer must remain at the heart of everything they do. They should try to be as transparent as possible and deliver on promises made. Customers today are in fact one of a company’s most powerful marketing assets as word-of-mouth endorsements have become even more important given the growth of online forums, blogging, review sites and things like that. We remain committed to making high quality healthcare more available and accessible, and although we are planning for consumer demand across Europe to remain subdued, we are confident about our prospects for the year ahead.” ■
1987 Boots Opticians Ltd formed, with the acquisition of Clement Clarke Ltd and Curry and Paxton Ltd. Boots Opticians became the UK’s second largest retail optics chain.
1997 Boots Advantage Card launched.
1990 Boots Contract Manufacturing and Boots Healthcare International established
1996 First Boots store
2006 Boots Group merged with Alliance UniChem to form Alliance Boots plc, an international pharmacyhealth and beauty group.
in the Irish Republic opened, in Dublin
ES SALgrow despite
According to the results of a recent report, food retailers have proven most resilient in the current recession, while fashion and electronics ﬁrms have struggled.
irst in, fi rst out: that’s the general rule regarding retail and recessions. But with the upturn still predicted to be some way off, are there signs that things might be picking up at last? A report released earlier this year by Deloitte entitled 2010 Global Powers of Retailing suggests retail sales have not been as badly hit by the recession as many at first feared. In fact, despite one of the sharpest economic contractions in decades, the world’s largest retailers were able to increase sales by 5.5 percent in fiscal year 2008 (encompassing fiscal years ended in June 2009, the most recently available data), with total retail sales equalling around US$3.8 trillion. However, it wasn’t all plain sailing, with the report showing that the global recession did affect retailers’ bottom line. Profitability at the largest 250 retailers in the world fell from 3.7 percent in fiscal 2007 to 2.4 percent in 2008.
Food retailers, proﬁts fell from 3% to 2.2%, despite seeing higher sales growth than the other groups at 8.6%
According to the study, two-thirds of the 184 retailers that disclosed their bottom-line results saw their net profit margin decline in 2008, with 30 retailers operating at a loss. This trend affected almost every geography and category. Retailers in Europe saw their profitability fall from 4.1 percent in 2007 to 2.7 percent in 2008, while those in North America fell from 3.6 percent to 2.4 percent. Only those in Africa and the Middle East saw increased profitability. Leisure goods retailers saw their profit margin fall by more than half to 3.1 percent from 6.8 percent. Sales growth for fashion retailers fell into negative territory and profits were cut in half to 4.1 percent. Even food retailers saw profits fall from three percent to 2.2 percent, despite seeing higher sales growth than the other groups at 8.6 percent. Meanwhile, the US-headquartered Wal-Mart Stores, Inc. remained the world’s largest retailer, ahead of France’s Carrefour Group and Germany’s Metro.
ANALYST OPINION 35
“2008 has been a tumultuous year for the global retail industry,” says Koen De Staercke, Deloitte’s Consumer Business Industry leader in Belgium. “Sales growth slowed and profitability fell, sharply for some. Many retailers ‘bought’ sales with heavy promotions that hit the bottom line hard. However, we are already seeing evidence that as economic recovery takes hold around the world, retailers should be able to return to a path of improving profitability.” The report unveiled a number of significant fi ndings. Multichannel retailing continues to grow as more companies develop an e-commerce capability; however, online still accounts for only a small percentage of sales. On average, online sales account for 6.6 percent of total sales for the top 100 retailers in the world. Food retailers have yet to embrace e-commerce, with online sales accounting for only 0.9 percent. “The internet is going to pose an ever-greater challenge for retail in the next decade,” says De Staercke. “Retailers need to ensure their multichannel strategy is in place to capitalise on web-savvy shoppers migrating to the net. Secondly, we are starting to see retailers launch targeted marketing campaigns online by offering special deals or discounts through their website or social networking sites. In any case, both national and international retailers still have to defi ne a strategy on how to deal with social media such as Facebook, Netlog, Twitter, etc.” De Staercke believes social networking will increase transparency in the retail industry, giving consumers greater access to information about retailers, their products and pricing. “Th is has the potential to undermine margins by lowering prices to the level of the most desperate seller,” he says. “There are great opportunities too, as new touch points open up for retailers to communicate with their customers.” Another key trend to come out of the fi ndings is that emerging market retailers are increasingly set to take on established players – sometimes in their own backyards – with many rapidly becoming world-class players in their own right. “Not only are they well-equipped to compete with the global giants in their home markets, some are becoming competitive in other markets too,” says De Staercke. “The next step will be investments into developed markets and some of this is starting to take place. These are typically specialty players rather than food or mass merchandise retailers. The global playing field of retailing is becoming more level.” Finally, while it is clear that global growth will bounce back eventually, it is also apparent that a degree of economic rebalancing is taking place within the sector. “Countries that borrowed heavily to fi nance excessive consumer spending may experience slower consumer spending growth as households struggle to de-leverage, repair tattered balance sheets and accumulate wealth,” says De Staercke. “More of the economic growth of these countries will be driven by exports, business investment and government spending.” He expects retail spending growth in markets such as the US and UK to be slower over the next decade, while a larger share of the growth will take place in countries with large surpluses, especially the big emerging markets.
RETAIL EXPANSION China, India, Brazil and Russia remain the highest priority markets for retail expansion according to executives, with nearly 80 percent citing one of these markets as part of their ﬁrms’ plans for short-term international growth. Kuwait, Saudi Arabia, Chile, UAE, Peru and Uruguay are also ripe for further development, according to research ﬁrm AT Kearney.
As such, global expansion will be critical for many retailers. Slow growth, heavy discounting and more fickle shoppers in recession-weary developed markets mean retailers should be increasingly focused on international markets, agrees Hana Ben-Shabat, AT Kearney partner and co-leader of the fi rm’s annual Global Retail Development Index Study. “Retail executives have learned again that core markets like the United States and Europe are not the powerful engines of growth they would like,” he says. “Reliance on developing countries for future growth is no longer a ‘nice-to-have,’ but a necessity. Establishing operations in a portfolio of countries both small and large offers the best path to global success for retailers.” And while many retailers are focused on expansion to larger emerging markets such as Brazil, India and China, the study found many smaller countries – including Kuwait, Uruguay, Albania and Macedonia – represent increasingly attractive opportunities for international expansion. Some of these countries represent good opportunities for retailers to establish regional beachheads (Macedonia, Guatemala), some serve as test markets because of their similarities to other countries in the region (Uruguay), while others benefit from heavily urbanised and wealthy populations (Kuwait). Indeed, the top 10 development opportunities in this year’s report are the most diverse mix of large and small markets in its nine-year history: China,
“Now retailers from developing markets are using their unique insights into local business and culture to expand regionally in a trend that will shift the global retail competitive landscape” Kuwait, India, Saudi Arabia, Brazil, Chile, United Arab Emirates, Uruguay, Peru and Russia. And it’s not just one-way traffic, either. Expansion is also on the agenda for many emerging market retailers, with 92 percent of respondents from emerging markets looking to expand beyond their home market, and close to 30 percent of those saying a developed country is among their top three expansion targets. “Expansion is no longer about retailers from developed markets moving into developing markets,” says BenShabat. “Now retailers from developing markets are using their unique insights into local business and culture to expand regionally in a trend that will shift the global retail competitive landscape.” In addition, retailers are looking for fast success from their expansion efforts, with most saying they expect expansion to be profitable within three years of new-market entry. In a similar survey in 2005, retailers were looking for a profit between five and seven years of market entry. ■
THE BIG INTERVIEW
1 BRÄNNMÄRKE BRAND Each store carries the same range, and is carefully designed to have the same look and feel so that the customer experience is consistent
2 PRODUKTEN PRODUCTS With many items costing just a few cents, by the time you reach the checkout your basket is inevitably full of things you had no idea you needed/wanted
3 KUNDEN CUSTOMERS IKEA has built up a passionate following amongst its customers, many of whom come as much to browse as to shop; usually, they do both
4 ARBETSTAGARNA STAFF
IKEA’s hands-off approach to customer service frees its staff to concentrate on attending to customers with genuine service needs
5 PLANRITNING LAYOUT The notorious ‘conveyor belt’ store layout is designed to take the customer on a self-service journey – one that ends, inexorably, at the checkout
BLUEPRINT FOR SUCCESS 25/08/2010 14:14
THE BIG INTERVIEW 37
IKEA st ores ed a
590 M otal of I visitor LLION s last ye
IKEA’s journey from Sweden’s bestkept secret to global retail sensation has been founded on slavish devotion to a carefully formulated business plan. Here, CIO Paolo Cinelli explains why he is looking to apply similar discipline to the ﬁrm’s technology function.
By Ben Thompson
ou can spot the stores from a mile away: huge, hulking warehouses painted in distinctive blue and yellow, dominating the skyline as their parent company does the home furnishings retail landscape. In a little over half-a-century, IKEA has expanded beyond the boundaries of its native Sweden to become one of the most successful multinational retailers of the modern age, with global sales of €21.5 billion last year. The numbers alone are staggering. Its stores welcomed a total of 590 million shoppers in 2009, its website attracted 561 million visitors, while its cult catalogue was printed in 27 languages and 56 editions to produce a whopping 198 million copies. The IKEA range consists of 9500 home furnishing products; the company employs 123,000 co-workers in 39 countries; suppliers number 1220 in 55 countries. And as of August last year, the firm operated 267 stores with a further 34 owned and run by franchisees outside the IKEA Group. But just as impressive as the fi nancial figures has been the way the company has stamped itself indelibly into the public consciousness. IKEA has become a byword for affordable style and, more importantly, a lifestyle choice for an ever-expanding army of fans who love its clean lines and simple elegance. It has also become a common popular culture touchstone, referenced in everything from The Simpsons to Hollywood movies such as Fight Club. And while some see it as representing the very height of massmarket populism and the enemy of individual style, they are far outnumbered by those who just want their home to look good and not pay too much for the privilege. One way or another, people are passionate about IKEA.
THE BIG INTERVIEW
And for its own part, the company is just as passionate about its customers. The firm’s legendary hands-off policy to in-store service may seem like an abdication of consumer responsibility, but scratch beneath the surface and it actually reveals a remarkably grown-up approach to its customers – a “we’re here if you need us but won’t constantly pressure you into buying” style of retail. Customers find it empowering, and it frees IKEA staff up to concentrate on the store visitors that genuinely require help. The devil is in the details. IKEA plans its stores meticulously to ensure customers are best able to help themselves. Each one carries products from the same, centrally developed, range and is carefully designed to have the same look and feel so that the customer experience is as consistent as possible – whether you’re in Malmo, Manchester or Moscow. But surprisingly for a fi rm that has put consistency and standardisation at the heart of its business model, the same rigour has not always been applied to the evolution of its IT architecture – until now. Of course, IKEA is not alone in facing the challenge of how to deal with the sprawl of legacy applications while effectively planning for the future; it’s a common problem given the pace at which the technology landscape has evolved over the past few decades. The difference is that IKEA is committed to changing the status quo to better reflect the needs of the 21st century and enable it to serve its customers more efficiently and effectively. And leading that effort to overhaul its IT processes is the fi rm’s recently appointed Global CIO, Paolo Cinelli. Cinelli joined IKEA from beverage giant Heineken, where he was responsible for IT services for over 30,000 users, in late 2009. His appointment is a bold move for a company that traditionally prefers to hire from within, but adds valuable IT delivery competencies to the leadership team – critical skills as the fi rm looks to embark on the next phase of its phenomenal growth trajectory. In this exclusive interview, Cinelli reveals his technology priorities and explains how IKEA is tackling the challenge of retailing in an environment where the customer is increasingly king – and one where the right strategic uses of technology will become key competitive advantages and the difference between success and failure. What are your current technology priorities at IKEA? What have been the major IT programs you have been working on in the last 12-18 months? Paolo Cinelli. Currently, the priorities are all under the umbrella of the IT4Business program that we launched last year. It’s not a technology priority per se, it is more of an organisational change in terms of IT governance and the IT organisational model, but the reason it is important is that it is focusing us on efficiency and effectiveness. In terms of information-enabled business priorities for IKEA, customer relationship management is one big focus area for us. We have another significant initiative on product lifecycle management, which is an area where we see a lot of opportunities and benefits. And the third is the online seg-
oup IKEA Gerrs total co-work
in 123,000 ries 39 count
ment, including social media, multi-channel interaction, communication and presence.
“Whatever you want to do, whether it’s generating new business or opening a new channel or even driving quality improvements, you need a lot of IT investment”
How important is it for you as an IT organisation to align with company goals? PC. The trigger for IT4Business was a diagnostic of what we were able to do compared with what the business needed, and it has given us the chance to bring the discussion to a very high level in the company. And senior management have really taken it seriously, because there is a lot of potential in the company to take advantage of information technology due to the nature of the business model, where we have the full value chain – from product development to the end customer like you and me – which is a very powerful vantage point. As such there is a big effort to improve the competencies in IKEA regarding IT and what we call IT demand – formulating requirements and owning projects and programs on the business side, and improving how to interpret those requirements and execute on them in terms of IT delivery. So how are these initiatives really helping to improve retail operations? PC. One of the exercises we did in the early phase was to outline success criteria in order to defi ne the result we expect in terms of the business. We have a business strategy
THE BIG INTERVIEW 39
that is called Growing IKEA Together, and the objectives of IT4Business tie directly into that: for example, we have a KPI based around increasing the success rate of our projects, and that has a clear link to the growth of the company. We realised very quickly that nowadays you cannot do any project without a substantial IT component. That’s just a fact. Whatever you want to do, whether it’s generating new business or opening a new channel or even driving quality improvements, you need a lot of IT investment. So if we increase the probability of success of projects with an IT component, we actually increase the probability of success of projects in general, because those are the biggest ones. So, that is one key example of how IT4Business contributes directly to improving company results. But it is not only about project management; it is also about portfolio management. One of the reasons why we fail in too many projects is that we actually start too many of them. So that also has triggered an understanding that we should be more selective and should adopt a portfolio approach to make sure that we focus on those projects that are of most value and have a good probability of success. It’s about introducing a greater rigour and discipline into the approval process.
A to t a
198 MI of LLION IKEA c ata
logues w publis hed in ere 27 langua ge last ye s ar
One of the things you mentioned you were going to be looking at was customer relationship manage-
THE BIG INTERVIEW
ment. What are you doing with regards to CRM at the moment? Why is that a big focus area for you? PC. The ‘why’ is because we have a huge attachment to our customers. We really value them and this is a really deep principle of the company overall. But while we’ve always had that focus, we actually found an inconsistency between what is written in our values and what we believe in, and how we actually connect with customers, in that we don’t make the most of the feedback they give us everyday. We see this as a missed opportunity. We’re not good enough at understanding and capturing this feedback in a structured way so that we can actually listen to it, interpret it and react more appropriately. Take the IKEA family card, as an example. This card is owned by over 30 million people now, and is a potential goldmine of information. But we don’t take advantage of it because of missing links between systems. For example, if you want to ask for clarification on a product, you might have to provide your information again even though you already have a family card and have previously stored your information in our system. Or if you call a contact centre with a query, at the moment staff can’t identify you with just the card, which many people fi nd irritating – they start to wonder why they should give us that information in the fi rst place if we aren’t going to use it when they need us to. That’s just a simple example of what we see in terms of the potential to connect our various, complex systems. A similar example is between the website and the store. There’s a lot more we could do to help customers plan their visit to the store, or better evaluate their needs. There are things like augmented reality, for example, which we
IKEA’S JOURNEY How IKEA went from the backwoods of Sweden to international success story.
ebsites IKEAatw d trac te
LLION 561 Ms Iin 2009 visit
1920s At the age of ﬁve Ingvar Kamprad starts selling matches to his nearby neighbours and by the time he is seven, starts selling further aﬁeld using his bicycle. He ﬁnds that he can buy matches in bulk cheaply in Stockholm and re-sell them individually and make a proﬁt. From matches he expands to selling ﬂower seeds, greeting cards, Christmas tree decorations, and later pencils and ballpoint pens.
have experimented with but are not currently able to scale up to a global service. At the moment, it’s very rudimentary but it could be a great service in addition to what we can already offer with the home plan or the kitchen plan currently available on the internet. I imagine that joining those dots in terms of customer relationships is especially key for somebody like IKEA, where the whole business model is based on a slightly hands-off approach to customers; the whole idea of self-service, ﬂat pack, buy-and-build-it-yourself means that, in the stores at least, those touch points aren’t always obvious. PC. Yes, that’s a very insightful remark. In fact, we don’t call it CRM here; actually what we call it is self-managed relations. The unwritten deal with our customers is that ‘you do your part, we do ours’. That’s in the DNA of the relationship. By being prepared to help yourself in the store, not only do you feel more free because you don’t have other people interfering with your shopping process, you also know that it’s probably going to cost less as a result because we don’t need to have so many staff on-site. So, we aim to take the same approach with CRM. In all the opportunities where you have a touch point, customers can actually do most of the relationship management themselves. For instance, when you enter your card you might want to update some information about yourself. We don’t want to force the customer to go to a sales attendant or sales rep to do that; we see that as old fashioned and inefficient, and something that can be achieved much faster when you can do it yourself. So, we are trying to marry the spirit of do-it-yourself with CRM.
1940s-1950s The roots of a furniture dealer. Ingvar Kamprad is entrepreneurial in developing IKEA into a furniture retailer. This period sees the exploration of furniture design, self assembly, advertising, the use of a catalogue and a showroom to reach many people.
1960s-1970s The IKEA concept starts to take shape. New IKEA stores open and hero products are developed such as POÄNG, KLIPPAN and BILLY bookcase. It is a time where concept takes shape and is documented in Ingvar Kamprad’s The Testament of a Furniture Dealer.
THE BIG INTERVIEW 41
What impact does this have on your workforce? Store associates are increasingly being placed in a difﬁcult position in today’s environment in that the customer quite often knows more about products and pricing and competition than associates do themselves. How big a concern is this for you, and how are you addressing this issue at IKEA? PC. It is a big issue. We are aware that our customers often have access to more information than our co-workers, and we aim to equip our co-workers with far more information than they have now. Historically, that has not been the case, and as a result our co-workers do sometimes struggle, both in-store and in the contact centres, to cope with the level of information that the customer has. Ultimately, we want to provide our co-workers with at least the same level of information as the customer, but to be honest we haven’t sorted out how to do it yet. It’s a more of a target than a plan. For us, I have to say that one of the mitigations of this risk is that our prices are always very good, so most often the customer will come to us rather than the other way around when looking for the best price. I think we have a built-in advantage there. However, it’s not always about the price; it’s about knowledge. It’s really overwhelming how smart the customer is, and through mobile technologies and social networks they are often able to access knowledge about the products that hasn’t reached our co-workers yet. The rise of mobile commerce and social media certainly offers tremendous opportunities and challenges for retailers. What do you see as the major issues and opportunities with regards to both mobile and social?
1980s IKEA expands dramatically into new markets such as the US, Italy, France and the UK. More IKEA classics arrive such as LACK and MOMENT. The company begins to take the form of today’s modern IKEA.
1990s IKEA grows even more. Children’s IKEA is introduced and the focus is on home furnishing solutions to meet the needs of families with children. The IKEA Group is formed and responsibility for people and the environment is seen as a prerequisite for doing good business.
“I saw a website that shows how you can use certain pieces of IKEA furniture to cover up water tanks and boilers in the cheapest possible way, misusing parts of the product and throwing away the rest”
Th e range IKEA consis ts o f
PC. Mobile technology is making communication faster and easier, and we don’t see this as a threat but an opportunity; however, we still have to fi nd our way in this area. For example, we are reluctant to become a mass marketing company that puts pressure on customers to go and buy through the use of big promotions; we are not into aggressive mobile marketing. We see it more as an opportunity to provide information and to make people more aware, but certainly not in an aggressive way. We have apps for smartphones and have experimented here and there with augmented reality experiences through the phone camera. You can browse the catalogue on the mobile phone and things like that. So we have a softer approach to using mobile channels. With regards to social media, we see big opportunities in areas like user-generated content and co-invention. We have a lot of people that are willing to share – both amongst themselves and with us – how they use IKEA products. There are people that only have IKEA furniture in their home, and they are even using things in ways they were not designed for. I saw a website that shows how you can use certain pieces of IKEA furniture to cover up water tanks and boilers in the cheapest possible way, misusing parts of the product and throwing away the rest. We respect those types of activities and don’t want to interfere with them. The question is, how can we contribute to that? What’s the impact of that on our business? And I cannot say that we have sorted that out yet.
furnis produ hing c ts
2000s IKEA expands into even more markets such as Japan and Russia. Everything for the bedroom and kitchen is explored and presented in co-ordinated furnishing solutions. This period also sees the successes of several partnerships regarding social and environmental projects.
I wanted to touch on the idea of what Bob Parker from IDC calls omni-channel retailing – the idea that the retailer somehow needs to present a consistent picture of their brand across all touch points; a ubiquitous brand presence across channels. What are your thoughts on this and the challenges that it presents? PC. I totally agree that customers expect more and more precision. As customers we cannot stand deviation between what we see on one screen and what we see in the store or on another screen. So the demand for accuracy is increasing, defi nitely. I think the underlying problem is that most companies have multiple systems in the back office, and these different applications have been developed in a rather disconnected and layered way. So there is a fundamental problem in all IT landscapes that creates inaccuracies and differences – and it is very difficult to fi x. It will take time and investment, so CIOs have a big role in driving this transformation. Part of IT4Business is to change our architecture in the direction of fewer, more integrated systems, but it will take time. What’s important is recognition of the fact that customers now expect there will be no difference between channels of information. That is the challenge. You also mentioned product lifecycle management as a focus area. What are you doing with regards to this in terms of managing the whole value chain through PLM? PC. First of all, it’s a joint initiative that involves almost
THE BIG INTERVIEW
all of our suppliers. We have many suppliers in different parts of the world, and with most of them there is a very strong relationship that goes back many years. It is a really high-value relationship on both sides, and they are part of our development cycle. We have a lot of interaction with suppliers – for example, we have to manage the way we share documentation with them because our specifications are very detailed and they have to be globally consistent. So the starting point is actually looking at the product documentation and fi nding a way to share it in a much smarter fashion than we do now. Currently, it’s pretty paper-based with a lot of text, and it doesn’t really help in focusing the attention on the most important things – even for the simplest products that have been in the market for 30 years, there is still a lot of documentation to read. Suppliers are really struggling with that, and of course we struggle as well. So we started by simplifying the product documentation, and already that has highlighted the fact that we have to standardise our product hierarchies better. A lot of the master data is getting cleaned up as we speak, triggered by this. That is step one, and then there will be many more steps in terms of facilitating better collaboration with external designers, suppliers and networks. We have selected technology platforms that we believe can scale up to all this, but it is still early days so I don’t want to disclose too much about it. One of the things I wanted to talk about was the IKEA experience; you visit an IKEA store, and it’s a unique shopping experience. How do you translate that to a multi-channel environment? And as an IT professional, how do you support that? PC. One new way we’re looking at this is using the concept of inclusion, rather than seeing store and web as two competing things. The paradigm of the past was to see these as opposing forces. One school of thought said we should only sell online; another said we should only sell in stores. For me, that is the wrong starting point. It’s more about how the two channels can complement each other. They have different possibilities, opportunities and roles, but at the moment, we are not always in the best position to take advantage of them. For example, home shopping can be very good for selling some things – e.g. repetitive purchases or simple items – but nobody would feel comfortable buying a kitchen online. For that you want to be in-store, you want to talk it through with someone. So the point is to fi nd the best complementary approach and to enrich the services in the process. Even for a company like IKEA, it is important to give the option of shopping in different channels. Obviously, delivery would cost a bit more if you were to buy online rather than pick it up yourself, but some customers want that option. Click-and-reserve is another option for customers who want something specific and don’t want to have a wasted trip if it is not in stock. For us, that also gives an opportunity for an actual visit to the store, during which the customer might want to buy something else that they didn’t plan to in addition to picking up the reserved item.
“The point is to find the best complementary approach and to enrich the services in the process. Even for a company like IKEA, it is important to give the option of shopping in different channels”
ily IKEA Fam
LION 29 MbIL ers in mem ies 21 countr
Finally, I wanted to talk about how retailers – and speciﬁcally their IT departments – address the problems of today while also anticipating the needs of the future. How do you balance the need to focus on the complex legacy of the past as well as build for tomorrow? PC. I can’t speak for other companies but my feeling is that most face the same challenge – that of having a big legacy drawing the majority of resources. So how do you address that? First of all, it goes back to the transformation that I mentioned at the beginning. Someone has to take the lead in cutting the loop, in saying, “Okay, we will not fi x this overnight, but if we don’t act now it will grow worse and worse.” That’s the first realisation. Next you need to put in place simple KPIs to measure how to increase the investment and reduce the operational cost of running the business. It’s one of the things we are targeting alongside our focus on improving the likelihood of project success, and we are starting to increase the budget share that goes into investment compared with operations. Finally, it’s about bringing the same level of standardisation and consistency to the IT architectures that we bring to the rest of the organisation. One of the things I found a little strange on joining the company is that while the stores are pretty much the same everywhere you go – they look the same, they have the same products, they have very similar layouts – there is a massive deviation between the different IT systems we use across the organisation. That consistency in store layout is the result of orderly planning; of course we have several blueprints we work from, but there are a limited number of versions and everybody sticks to them. It is a really strong value for the company. But in contrast, the IT landscape is largely unplanned. It just evolved over the years to become what it is today. So we put this example in front of senior management and asked what would happen if our stores suffered from the lack of planning that the IT systems suffer from. Imagine what they would look like? Badly planned, disorganised, inconsistent – if, as a customer, you were ever able to get out of that store in the fi rst place, you would never come back again. And that discussion triggered the sponsorship of an IT architecture landscape redesign for the future. It won’t happen overnight – it took a long time to get the stores as they are now, and we still haven’t fi nished yet – but at least we’ll have a reference architecture that can drive our decisions going forward. And it feels really exciting because senior management are looking at it and saying, “Okay, fi nally we have a target. At last we have a reference point.” And of course, you also see resistance as well; I realise that in order to make that blueprint a reality, we will have to give up a lot of the investments that were done in the past. Managers from the big departments will worry about having to retrain all their people to shift from the current systems to whatever standard system we will implement. So the effort ahead of us is daunting; I am not denying that. But I think overall the balance of the company is determined to do it, which is great. ■
AXIOMATIC AD.indd 1
Tomorrow’s world, today Imagine a huge retail laboratory where ideas for how technology can inﬂuence the shopping experience can be tested and proven. Throw in real customers and a live shop ﬂoor environment and you have the basis for METRO’s Future Store Initiative.
he unassuming town of Tönisvorst (population 30,084) in the district of Viersen, in Germany’s North Rhine-Westphalia region, seems an unlikely setting for a retail revolution. But it is here, deep in the German countryside, that one of the world’s most innovative retail experiments is taking place – and in a live store environment with real customers, too. On a selling space of approximately 8600 square metres at the town’s Real hypermarket, some of the world’s most forward-thinking technology companies – including IBM, T-Systems, Cisco, Fujitsu Services and Siemens – are, under the aegis of METRO Group’s Future Store Initiative, testing new concepts and technologies that will provide customers with an even more convenient, exciting and informative shopping experience in the future. The initiative’s loft y objective is to “optimally adapt the product assortment and service offer to the individual needs of the customers and advance modernisation in the retail sector.” In real-terms, it’s about making the shopping experience easier and more relevant – and using state-of-the-art tools and solutions to do so. Modern checkout processes will raise convenience in the checkout area. RFID for automatic product identification will contribute to rendering quality management even more efficient. And mobile technology will be at the forefront of many of the innovations on show. “The future store is our testing place, if you will, where new ideas or new technologies we believe could be beneficial are tested in real life,” explains Christian Plenge, Head of Innovation and Architecture at METRO Group. “If we think there’s a technology or a solution that should be
METRO Group.indd 44
pursued, we do initial testing or prototyping at the Future Store so that we can see if it works or not – and if it will be accepted by the customer, the employee or whoever else is affected by the solution.” The Tönisvorst location is the second iteration of METRO’s hugely successful Future Store concept, the first version of which launched in 2003 in Rheinberg near Dusseldorf and witnessed the development of such technologies as smart scales that automatically identify fruit and vegetables for customers, and self-checkouts where customers can carry out the entire checkout process themselves. Having been successfully piloted at the original Future Store, such technologies are now being rolled out across the group’s mainstream outlets; and it is hoped that the new store, opened in 2008, will have a similar impact in terms of changing the way people shop. Current innovations being trialled include the use of a smart freezer equipped with RFID-reading devices that checks stock (via chips embedded in the product packaging) and informs employees when products are running low or if an item’s ‘best before date’ is approaching. Another groundbreaking innovation is Pay by Fingerprint, a service available to customers who register their bank details with a service provider, and that enables them to pay for their goods simply by placing their fi nger on a scanner. Following recent developments in smartphone technology, one of the most exciting developments is the use of mobiles in-store. The Mobile Shop Assistant (MEA) is a soft ware package that allows the customer to scan items independently, receive current pricing information and a
Real Store has seen a
50% increase in revenues as a result of these innovations being trialled
INNOVATION FOCUS 45
“Innovation is not just about technology, it includes instore services, new furniture, new lighting, it covers the smell in the store and new acoustic technologies and so on. It’s about improving the whole retail experience”
Market leader How the Real Future Store is redeﬁning the shopping experience.
Winning strategies New service concepts and expert advice characterise the sports department of the Real Future Store. Customers can test the products thoroughly before buying, and trained assistants aid them in their choices. An information terminal offers details on selected products and ﬁtness tips, while special loudspeakers transmit appropriate background sounds for the sports department, the information point and the cycling department.
More than skin deep In the newly refurbished ‘beauty and more’ department customers receive useful hints for personal care. For example, at the cosmetics advice terminal customers can try different types of make-up and hair colours, using either the image of a model or a picture of their own face taken by a built-in camera. Likewise at the skincare advice terminal, customers use an interactive machine to determine their skin type independently in order to receive the appropriate advice.
Sensory delights Innovative technology is used to support the presentation of the fresh ﬁsh range in-store. Hidden loudspeakers transmit the sound of the sea in an enclosed area. At the counter there is an interactive ﬂoor – if the customer steps on the surface, the projected image changes. The store also uses scents to enhance the customer experience; at the ﬁsh counter, there is a scent of herbes de Provence with lime, created using essential oils and diffused into the room via the air conditioning.
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quick overview of the value of their goods. In addition, the MEA makes looking for products in the store easier and speeds up the payment process, as the articles do not need to be scanned again at the till. In the future, customers will also be able to use the MEA to pay so that mobile shopping becomes even quicker and easier. “Our aim is to look at long-term trends or longstanding issues in retail, and figure out which new technology or new idea or new organisational solution can provide the best answers,” says Plenge. And it’s not just about looking at examples or best practices from within the retail industry, either. “Very often it is looking for things that happen already outside the retail space and trying to figure out if they can be applied within our industry; other times it is about looking to other parts of the world and understanding what is going on there and questioning whether or not they can be applied in Europe.” But the Future Store is about far more than just IT. “Innovation is not just about technology,” Plenge continues. “It covers product categories and new product assortment; it includes in-store services, new furniture, new lighting, it covers the smell in the store and new acoustic technologies and so on. It’s about improving the whole retail experience.” Indeed, the philosophy behind the initiative is that in order to operate successfully, modern retail companies have to develop and implement cutting-edge technologies in concert with an advanced understanding of the customer in order to optimise processes, lower costs and establish ranges and services tailored to individual consumers. Shopping behaviours change from one moment to the next given rising customer numbers; sometimes price is all-important, sometimes it’s the store atmosphere, and sometimes the service and image of a particular store is the key buying criteria. Such a dynamic, demand-driven environment must be matched by a responsive, adaptive and customer-focused approach in-store. Taking a holistic approach to getting the details right has tangible benefits, too: Plenge estimates that the Real store in Tönisvorst has witnessed an approximate 50 percent uplift in revenue and attracts 20 percent more store visitors as a direct result of the multiple innovations being trialled both in-store and behind-the-scenes. Indeed, the store is universally acknowledged as a pioneer in the competitive supermarket space, and is even influencing retailers across a broad spectrum of segments. Why? Because it provides valuable real-world information on how the various innovations can be applied in a store setting, and what the customer reaction to them is like. After all, new technologies can only be successfully introduced if people trust them. “We try to anticipate very early what a customer might like and what the impact of that will be on our in-store processes,” concludes Plenge. “And we believe it is beneficial for those things to be tested in real life. We want to know exactly what opportunities and chances are offered by those technologies in order to promote customer loyalty, individualised customer marketing and to make shopping even more comfortable and attractive for consumers. The Future Store is our proving ground for that.” ■
*11.3, Mobile commerce is set to revolutionise the retail environment in the next few years – and not necessarily in the way you might expect. Are retailers ready for the next wave of change?
By Ben Thompson
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he tagline was revealing. “Th is changes everything. Again.” As pieces of blow-your-own-trumpet marketing go, it was right up there, but Apple’s campaign to launch the new iPhone earlier this year certainly showed the impact mobile devices have had on the consumer psyche in recent years. Approximately 1.15 billion mobile handsets shipped around the globe in 2009, with smartphones accounting for 81 percent of that figure. Th is, combined with the rise of social networking applications – the Facebook for Mobile application alone currently has over 48.3 million active monthly users, while eBay’s iPhone app, launched earlier this year, has already been downloaded in excess of 11 million times – and the public’s need to be constantly connected, is driving changes in the way we consume, share and interact with information of all types. In many ways, Apple’s ad might represent excessive marketing industry hyperbole, but it does hold an essential truism: the mobile revolution has fundamentally altered the way we live.
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Picture the following scene: a group of friends are sat in a pub, arguing over an obscure fact. In years gone by, the argument would have raged for hours, with neither side willing to give an inch in defence of their position; these days, however, such debates are solved easily at the touch of a button via a simple Google query. Elsewhere, a commuter on the way to an important meeting is stuck in traffic; a real-time travel update means he is able to reroute his journey to get there on time. Meanwhile a tourist is looking for somewhere to eat in a strange city; no problem, the location-aware soft ware on her mobile phone instantly provides her with a range of choices. Mobile phones have to be one of the best on-the-spot information retrieval resources of all time – which is why they are increasingly becoming the weapon of choice for a new army of consumers constantly in search of lower prices, better deals and greater information on everything from product comparisons to user satisfaction. With consumers relying on handheld devices for everything from phone calls to web surfi ng, retailers are looking to mobile as the next frontier of the shopping experience. Like e-commerce before it, mcommerce is here to stay. And with good reason, too: even in the current tough economic climate, online retailing is one of the fastest growing market segments in Europe. Worth €44.7 billion in 2003, it grew by 221 percent to €143.7 billion last year and e-commerce sales continued to perform strongly in 2009, growing by 22 percent and representing 4.7 percent of total retail sales across Europe. In contrast, US growth stalled in 2008, and increased by just two percent in 2009, despite the fact that online sales accounted for seven percent of the total US retail market. Indeed, the European online market has been growing faster than its counterpart in the US for the last three years, and this trend is set to continue. Kelkoo, Europe’s largest e-commerce website after Amazon and eBay and the largest e-commerce advertising platform both in the UK and Europe, estimates that online growth in 2010 is set to rise by 19.6 percent in Europe (to €171.9 billion, or 5.5 percent of all retail spending) compared to 10 percent in the US. If European growth rates continue, seven European countries – the UK, France, Germany, Norway, Denmark, Sweden and Finland – will have a higher market share than the US by 2014. In fact, European e-retail is widely predicted to buck recessionary trends in 2010 and grow by 20 percent, compared to an overall rise in retail sales of just 1.4 percent. “2010 is when we will really start to see online sales achieving a significant share of retail trade in most European countries,” asserts Bruce Fair, Managing Director of Kelkoo UK. “While the retail industry is showing slow signs of recovery, the online shopping sector bucked the trend in 2009, delivering double-digit growth, and is expected to continue to perform strongly in 2010.” “While the major sectors in Western Europe are still emerging from the impact of the fi nancial crisis, the internet channel continues to gain awareness and traction among consumers,” suggests Patti Freeman Evans, Vice President at Forrester. She believes that online commerce
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will remain resilient during the coming quarters as retail e-business and channel strategy executives focus on retaining customers and increasing efficiency in 2010. “In this environment, we expect that e-business and channel strategy professionals will promote online self-service to decrease costs, improve the multichannel customer experience, and keep their customers engaged,” she adds. “Retailers will primarily focus on keeping costs under control and will continue to track and test emerging technologies like mobile devices and social media.”
GOING ONLINE Online retailing is a market dominated by the traditional powerhouses of European industry: between them, the UK, Germany and France account for 70 percent of total online sales in the EU. But other countries are catching up fast. Denmark, for instance, has an online spend per capita of €716, the highest in Europe, while its Scandinavian neighbour Norway – where online retail accounts for a substantial share of overall retail trade – spends €694 per head online compared to a European average of just €358.
Etail therapy Most retailers predict that the advent of m-commerce will only serve to accelerate the growth of online retailing – a view many experts agree with. Forrester analyst Thomas Husson believes that mobile presents a growing market opportunity for retailers of all types. “Smartphone adoption in Europe is growing fast, which makes traffic to websites through mobile devices easier,” he says. “European consumers are starting to show interest in mobile commerce activities, and many retailers across Europe – like La Redoute, Fnac, eBay, Amazon.com, Tesco and Carrefour – are starting to improve their mobile websites and creating mobile applications for the iPhone.” Like e-commerce, mobile retail is a fairly broad church, including everything from buying and downloading apps and content (a wildly successful space thanks to the emergence of the iPhone) to the concept of using your phone as a payment option at the retail counter (a segment that has yet to grow legs despite plenty of investment). Then, of course, there is selling physical goods to consumers over the mobile web – a potentially huge industry. Auction giant eBay is gunning for a whopping US$1.5 billion in mobile sales this year, and Amazon’s mobile site traffic is second only to eBay among vendors of real-world stuff, according to figures from Nielsen; the retailer notched up US$1 billion in mobile sales in the 12 months to June this year. Meanwhile, a survey from Deloitte last year found that one in five consumers planned to use their mobile phones to shop during the 2009 holiday season, 25 percent of whom said they intended to make purchases on their phones, while in Britain, a recent report produced by analyst fi rm Ovum in collaboration with market research specialist Verdict predicts that UK internet shopping sales from mobile phones will more than double by 2013 as consumers get used to paying for goods on their handsets. Clearly, mobile commerce is set to be big business. Indeed, performing mobile transactions – the physical act of buying goods via a smartphone – is just the tip of the iceberg for m-commerce. While 28 percent of the UK adult population had internet access on their mobile in 2009, just 2.1 percent used this access to shop online. Internet shopping sales via mobiles were worth just UK£122.9 million, a tiny 0.6 percent of the UK£21.2 billion that was spent online last year. Instead, rather than shop, it is clear that consumers are increasingly using their mobiles to enhance the shopping experience by comparing prices, researching products and interacting with retailers.
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“Consumers are not spending significant amounts via mobiles and, for now, we believe the true potential for mcommerce is to provide consumers with a valuable tool for research, comparison shopping and retailer interaction,” confirms Malcolm Pinkerton, Senior Analyst at Verdict Research. He believes that though m-commerce will still take some years to become a significant channel in its own right, its effectiveness as a marketing tool and way of interacting with customers will increase substantially over the short-term – providing a massive boost to sales growth across the multichannel environment. “If correctly implemented, m-commerce will not only ensure the needs of tomorrow’s shoppers are met today, but also that growth is maximised across all channels.” Christine Bardwell, retail analyst at Ovum, thinks that retailers are at a crossroads similar to that presented by the emergence of e-commerce in the 1990s. “As consumer affi liation with m-commerce increases, retailers will need to decide if they’re going to be pioneers in the market and meet consumer expectations, or wait and risk being behind the curve,” she says. Already, a significant portion of consumers are leveraging the power of mobile technology to inform their shopping habits, with 11.5 percent of all UK shoppers using smartphones to do research before making a purchase and 3.8 percent using them to research, engage and interact with retailers while out shopping; clearly, the race is already on. “The opportunities are there for the most proficient multichannel retailers to claim a share of the growing cross-channel expenditure by exploiting the possibilities provided by mobiles to seamlessly link the online and in-store environments,” adds Bardwell.
“The true potential for m-commerce is to provide consumers with a valuable tool for research, comparison shopping and retailer interaction”
books and toys. The app has proved to be very successful, with 4.4 percent of all Ocado orders in February 2010 being taken through the iPhone edition of its system. Meanwhile, other applications offer checks on in-store item availability as well as comparisons of online and local pricing. For example, fashion retailers Oasis and Net-A-Porter launched iPhone applications that enable customers to shop and complete transactions via their mobile devices. Elsewhere, with the internet proving to be a strong growth channel for most retailers, many are redesigning websites in order to maximise the revenue potential of their online presence via mobile web access. For example, UK grocer Marks & Spencer recently launched a version of its website designed specifically for mobile devices where users can access the site through the original Marks & Spencer address without having to download any software or applications. Carrefour also launched a dedicated mobile channel where users can see 360-degree product views, fi nd in-store promotions, check inventory and order products. Mobile service can also be used without performing any transaction, such as for price comparisons or as a user review tool when the user is at the point of sale. For example, beauty retailer Sephora brings the online content and experience into the store – as well as the voice of the customer – by urging customers to read reviews on their phones in-store by going to its mobile-specific website. Th is enables customers to access credible word of mouth on products and services from any location. Similarly, French
FIELD OF VISION
And there are signs that a growing number of retailers are embracing the enabling power of mobile technologies as they look to build better relationships with their customers. At the recent Mobile Marketing Forum in Los Angeles, Tiffany Gerhard, Senior Manager of Marketing and Emerging Capabilities at Best Buy, suggested that mobile enables the shopping experience to be more social than ever before. “The right information at the point of impulse increases desired consumer behaviour, sales, profits and customer satisfaction,” she said. “We view mobile as less of a tactic and more of an integrated effort to build a relationship and drive consumers into our retail locations.” Forrester fi nds that European retailers have adopted mobile commerce strategy by three main routes: developing smartphone apps, optimising their website for mobile traffic and using mobile as an in-store tool. And the range of approaches being taken is extremely varied. According to a recent study compiled by the analyst firm, European retailers, travel operators and price comparison sites are particularly keen on apps, as these allow customers to do online shopping and travel research including searches for products, prices, store locations, and sales information anywhere they go. Ocado was the fi rst UK retailer to launch an iPhone app, and Ocado on the Go users can shop for everything from food and drink to
Near ﬁeld communication (NFC) is a short-range high frequency wireless communication technology that enables the exchange of data between devices over a 10-centimetre distance. In other words, if you have an NFC enabled phone and opt-in, your mobile phone will be able to communicate with another proximate electronic device automatically. And with NFC chip shipments predicted to reach 785 million units in 2015, according to a new report from IMS Research, the types of applications for NFC on mobile are numerous:
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• ELECTRONIC PAYMENTS: swipe your phone and make a payment without a credit card; NFC technology is already being used in Japan in more than 30,000 stores • MOBILE TICKETING: swipe your phone on readers placed in buses, airlines, trains, stadiums and other entry points • ELECTRONIC KEYS: swipe your phone and open hotel doors or your house door • SMART POSTERS: use your phone to read RFID tags on billboards and other signs to receive additional information and to let the billboard know you are there
price comparison site Touslesprix.com launched a mobile site in order to allow users to access its comparison features on a smartphone in-store. And in yet another innovative development, Oasis recently launched a peer-to-peer SMS gift voucher service that allows customers to purchase vouchers through the website, to be sent to the mobile phones of friends and family and redeemed in-store. Th is technical development embraces the emerging mobile market and creates a roadmap for the future integration of online and in-store commerce. Such a wide range of differing approaches to mobile adoption suggests that the majority of retailers are still very much in an exploratory phase with regards to strategy development right now, but commentators insist that the fact they are doing so at all is encouraging, as it shows a willingness to get onboard at an early stage and that progress is being made. “Mobile is defi nitely a big deal,” confi rms Sri Shivananda, Senior Director of Platform Development at eBay. “We have to look at what consumer behaviour is – where and when people are spending their time and money – and make sure that we leverage consumer behaviour in building the right retail experiences. Mobile and social networks can certainly help, and are defi nitely here to stay.”
European e-commerce sales grew
22% In 2009
The next generation consumer And here is where the biggest driver for the further
adoption of mobile technologies within the retail environment comes into play: it is being driven not by the retailers themselves, but by consumers. As more consumers switch to smartphone technology and the increased features and functionality such devices offer, expectations will rise as to what retailers need to offer – and those that fail to adapt will quickly be left behind. “Mobile commerce is beginning to change the mobile retail landscape,” says Dr. Peter A Johnson, VP of Market Intelligence for the Mobile Marketing Association. “Rapid adoption of smartphones and use of app stores has provided fertile ground for mobile commerce growth to date and this will only accelerate in the coming years. Our research provides a clear indication of how the convenience of mobile commerce is gaining traction. As consumers become increasingly comfortable and confident with paying for goods and services through their mobile it is possible to see m-commerce becoming mainstream or perhaps even the dominant form of transactions.” “You have to be everywhere where the customer is,” agrees Anish Sheth, Senior IT Director for Retail Systems at video rental giant Blockbuster. “10 years ago you would come to a store for 15 minutes and we had you for 15 minutes only; now, you have an iPhone app for Blockbuster where you can virtually put movies in your queue and interact with us at any time of the day, and that’s opened up so much potential. If you leverage that in a smart way
MOBILE SHOPPING: A SCENARIO How mobile technology might transform the retail experience. A shopper enters the store and launches a mobile phone application provided by that retailer. The application automatically logs on, retrieves customer information (including loyalty programme information) and, based on their preferences and loyalty programme tier (or customer segment), may alert store employees to the customer’s presence in the store. The customer can check the application for any messages, alerts or offers of importance. It may tell them that their favourite salesperson is on duty (or not), that they have a US$20 rewards certiﬁcate available and/or that purchases in a particular department are earning double rewards points today. If the customer has been browsing online, it would enable them to retrieve products they were interested in, and direct them to where in the store to ﬁnd them. When the customer is looking at a particular category or product, they are able to use the phone’s camera to scan barcode information and retrieve product details, ratings and reviews, check compatibility with other items they’ve purchased in the past, or get more detailed product information than is available on the shelf tag. The application might allow them to assemble a bundle of items – for instance, an HDTV and its accessories, or a set of skis, boots and bindings – alerting them to product compatibility factors and bundle pricing that’s available.
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At any time, the customer could use a function on the application to call for a sales support agent in the store, or call a call centre. Many other features might be available, such as product return rates and information from product review services (to augment customer ratings and reviews), or the most popular accessories sold with a particular item, or the amount the customer must spend to get to the next tier or rewards level in the loyalty program. Because mobile devices store our contacts, this application could take advantage of social networking behaviours. Shopping is a social activity. What if the application allowed the customer to share with selected friends what they’re browsing, or what’s in their wish list? What if a customer could text or chat with a friend from within the application, sharing images and other product info, to ask which colour or style or brand they like? And, of course, this becomes a powerful real-time platform for presenting relevant offers and on-the-spot pricing deals to customers. Backend real-time analytics can utilise factors such as customer lifetime value, customer segment tendencies, inventory stock levels, available manufacturer
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and serve the customer what they want, be consistent and engage in a relationship where customers trust and like you, you’ll understand them better. You’ve met your goal and that customer is going to stick with you for much longer.” Much of the initial attention has been focused on retailers embracing new digital marketing techniques aimed at mobile users, such as sending text messages, using digital money-off coupons and on steps to make their existing websites function on mobile browsers. But retailers are also facing a world that is more profoundly altered by the fact that shoppers will now increasingly be online, via their phones, even as they visit a physical store. They will expect a unified shopping experience. “Mobile has great promise for bringing major, positive changes to the shopping experience, payments, marketing and other aspects of retail,” says National Retail Federation President Tracy Mullin. Her colleague Scott Silverman, Executive Director of the NRF’s Shop.org industry group, agrees. “People are going to be making decisions on what to buy in the store with their mobile phones,” he says. “What’s going on will affect the mothership – the store – and all of a sudden the store experience is going to completely change.” The mobile device is changing the way consumers pay for content, goods and services, and m-commerce essentially provides retailers a wealth of opportunities to motivate and enable their customers to purchase goods
“Mobile has great promise for bringing major, positive changes to the shopping experience, payments, marketing and other aspects of retail”
promotions, prior purchase behaviours, sales labour availability, the customer’s self-reported preferences and interests, and even social media information, to formulate highly relevant offers in real-time. Further, these messages and offers can be woven into a user-experience design in which they are relevant and timely in a way that traditional media and direct marketing – even banner ads and paid search – can never be. As the customer completes their decision-making process, the mobile application can save their selected purchases under their mobile account or loyalty programme account. At point-of-sale, all of the purchase details and customer offers are retrieved electronically and applied to the purchase. There is no need to present offers during the checkout process – which is too late and often annoying to customers. In addition, this type of application could create an expedited checkout, in which the customer has already scanned everything they’re buying and approved the credit card transaction. The cashier only veriﬁes that all items are correct, bags their purchases, removes or deactivates any security tagging, and the customer is ready to go. This type of application could help employees and employers as well. Every customer using the application will be known to the retailer’s systems and could be used to alert store employees – they would see who the customer is, what they’re browsing, and a basic ‘dossier’ summarising the customer’s past activity, preferences and loyalty programme status.
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and services whenever and wherever. “We have to be able to know where the customer is, be able to predict where the customer is going and respond to that proactively and quickly,” suggests Mike Hazell, VP of IT at Footlocker. “Anybody can create a website that sells somebody something, but I think customers are looking for more of an engagement point. And that’s the bottom line: the customer rules.” ■
Furthermore, retail organisations are under constant pressure to reduce labour costs. The availability of sales labour is shrinking as retailers cut costs. These mobile applications would enable customers to self-serve much more effectively, and to request service exactly where and when they need it (or for the retailer to anticipate when it is most needed). Further, utilisation of call centre personnel is enabled, providing retailers with a more efﬁcient labour model. Access to call centre employees may also provide customers with a better experience, as these agents can be more specialised, be more consistently trained, and have more tools at their disposal to answer questions and assist customers. Finally, not only will these mobile shopping applications leverage customer data much more effectively than current marketing systems and tools, they will generate massive amounts of rich customer data as well. Imagine having both web browsing detail data and store browsing detail data, an order of magnitude increase in the number of offers presented and responses observed, and permission from the customer to join (appropriately and responsibly) their social networks? Extracted from Transforming Retail Customer Shopping Experiences Using Mobile Devices, Open Architectures and Operational Business Intelligence, an HP Laboratories paper by Chuck Densinger, Mohamed Dekhil, Riddhiman Ghosh, Jhilmil Jain and Meichun Hsu.
Technology solutions for the modern retailer Next Generation Retail talks to a panel of experts about how a retailer’s point of sale systems can improve in-store operations. What challenges are retailers faced with when implementing point of sale (PoS) technologies? Tony Saunders. It’s all about choosing the right PoS technology for you – not because it’s innovative or hot but because it delivers real benefit now and potential returns in the future. Flexibility, security, scalability and configurability must be key. Issues are then largely associated with deployment – system integration and migration; and staff training. The challenge is doing all of this without incurring downtime or loss of sales. When it comes to choosing a PoS partner, consultancy, support and service are as crucial as technical features and benefits. Andrew Blatherwick. Replacing PoS is always a difficult decision as it is a business critical solution for a retailer. The change has to be managed well to create as little disturbance to the retail operation as possible. Invariably, a retailer will change his hardware at the same time as his PoS soft ware, thus out of hours working will almost certainly be required. The critical element is to make sure that the correct planning is in place, so the PoS selected is aligned to the business requirements and the staff can be trained effectively. Th is last point is always of high importance; with the high turnover of staff in retail, a solution like Argility’s that provides retailer specific process workflow and intuitive user interface is vital to ensure that new staff can be quickly and efficiently active on the shop floor. Smaller and independent retailers may not have the budget to utilise payment solutions. How can point of
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sale technologies directly beneﬁt a business and what advice would you give to retailers looking to improve their PoS solutions? AB. Smaller and independent retailers today have the ability to obtain and utilise much of the sophisticated PoS functionality of the major players. Argility have a solution that has been designed and developed specifically for this market which incorporates not only a PoS but a very rich back office and head office capability that effectively forms a total solution for small store groups with up to 50 stores. The PoS solution, large or small, can provide significant insight into the retail operations, ensure security is maintained, minimise fraud both internally and by customers, provide improved customer service and experience, not just in speed through the checkout but also in the prompting of the operator to make sure there are no missed opportunities, loyalty schemes and customer relationship management. With Argility’s larger solution this can also provide extensive account management and trade management if so required and significantly enhance the promotions capability and back office functions if a retailer has an old legacy merchandising solution they are not yet ready to replace.
Tony Saunders is the NEMEA Regional Marketing Director for VeriFone, the worldleading payment solutions provider. He has spent the past 10 years in product marketing for global industry leaders with the last four years in the payments sector. Prior to working in payments, Saunders spent over 19 years in the cabling and computer network infrastructure industry with senior roles in product engineering, production management, product management and marketing.
TS. Even if a retailer has a limited budget, they should still invest in payment technology for the many business returns. Offering expedience, convenience and versatility, today’s electronic point of sale systems can significantly improve footfall, by increasing speed of service and customer throughput so that you never miss a sale. They deliver a more positive customer experience and allow retailers
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to diversify their offering through loyalty programmes and cross selling. Another major advantage is that card based payment systems deliver better inventory control, reporting and tracking of fi nances, speeding stock management, bank and till reconciliations. When weighing up the returns, smaller retailers must make sure they assess PoS contributions to all areas of their business, and not look at the fi nancial impact of the investment in isolation.
“When it comes to choosing a PoS partner, consultancy, support and service are as crucial as technical features and benefits” Tony Saunders Obviously, in store payment technologies must be secure in order to protect takings. How can the correct PoS technologies increase protection from theft and/ or fraud? TS. For some time, VeriFone has been suggesting that current PCI requirements do not go far enough to protect merchants and acquirer, and that existing processes present many unguarded loop-holes that fraudsters could exploit. Indeed, the PCI Security Standards Council itself is now studying a number of emerging technologies and plans to issue a guidance document on end-to-end encryption when it releases the next version of the PCI Data Security Standards (PCI DSS), due out in October. Other technologies being considered include the use of tokenisation and Chip and PIN technologies to protect credit card data and how virtualisation affects data protection technologies. At VeriFone, we welcome this move. While we have invested extensively in developing our ground breaking VeriShield Protect E2E encryption system, which is now an integral part of all VeriFone’s new terminal products, we also believe it needn’t be preclusive. For example, E2E encryption and tokenisation could, in some cases, be used in tandem to address specific customer requirements such as loyalty and product tracking, where these exist. AB. With PCI DSS compliance today it is essential that to protect themselves, retailers must select a compliant solution. Th is obviously covers the electronic funds transfer (EFT) aspect of the security issue. Protection against other forms of fraud is largely resolved by good quality and timely data presented in such a way as to be able to identify anomalies, which can then be investigated. Argility’s full audit track of every user and every action provides the information and evidence to enable a retailer to take the necessary action against employees and customers that are independently or in collusion working against the retailer. Th is information can be linked to cameras if there is a real problem and this provides a very high level of security. How do you predict point of sale technologies will evolve in the future?
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AB. No matter how large multi channel becomes, PoS is still the most personal contact a retailer can have with their customer, so there is a move from point of sale to point of service. PoS technology is changing and moving to a more mobile and customer friendly environment. By this, I mean that eventually we will not have cash points or service desks that are sometimes seen as a barrier to good customer service; we will have retail staff on the shop floor with the customers. Argility solutions can already manage specifically targeted promotions down to an individual customer and deliver a very high level of personal customer interaction. The major element enabling this change is the removal of cash as a form of payment, this is a constant process as more and more people move away from cash towards cards, credit, debit or cashless but I believe this will take a further and much more important shift when payment by mobile phone reaches the mass market. The vast majority of people carry a mobile phone and research shows that this is now the most important and closely guarded item of personal possession, more so than a purse or wallet. Th is will, if the credit card companies allow, become the method of payment that will take us to a near cashless society; it is very secure, more so than chip and pin, personal and easy to use. From a retailer point of view it also has the benefit of being a communication device that could get them closer to their customers than ever before. Argility already has working examples of this with customers in South Africa, we are looking to extend this to the UK and I know there are also others doing so as well, this will be a major growth area for retailers.
Andrew Blatherwick has 20 years experience in retail with Boots and Iceland Foods as a director with responsibilities in the buying, marketing and supply chain. He moved into IT as President of E3 International then MD of JDA EMEA and is currently Executive Director of Argility (part of the UCS Group), an international software business focussed on supplying solutions to the retail industry.
“No matter how large multi channel becomes, PoS is still the most personal contact a retailer can have with their customer, so there is a move from point of sale to point of service” Andrew Blatherwick TS. Speed, availability and performance will remain vital. So will the ability to make transactions easier, more convenient and also pleasurable for a population whose attitudes towards technology have changed dramatically since Chip and PIN’s introduction. For example, touch screen penetration now dominates mobile phones, portable navigation units, gaming and other applications, redefi ning the ways in which consumers expect to interact with devices. VeriFone’s latest VX Evolution portfolio reflects many of the key trends for PoS over the next few years, such as more memory, more processing power, larger, colourful touch screens, multiple applications, flexible multi-connectivity and contact-less technology, reflecting both consumers’ aspirations and retailers’ stringent operational requirements. We will also see increased retail presence of unattended applications, self-service and kiosks as well as mobile PoS solutions as retailers strive to ‘queue-bust’, drive throughput and create multiple customer touch points. ■
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Raj Rawal, CIO at fast food giant Burger King, understands the need to deliver good service quickly. And as the 55-year-old ﬁrm looks to expand its technology menu, the IT specialist hopes he has found the right recipe for success. By Ben Thompson
op quiz: how many different ways are there to order a Whopper meal? “More than you might think,” laughs Burger King CIO Raj Rawal. “The different permutations are mind-boggling once you get in to all the various ingredients, styles and ways of cooking that are possible. Operationally, providing the customer with exactly what they want, the way they want it, is a pretty big challenge.” He’s not kidding. The answer, for all you trivia buffs out there, is 221,184. With annual revenues of over US$2 billion, the fast food firm is the world’s second largest hamburger chain with more than 11,100 restaurants spread across 65 countries. Every day, 11.8 million customers consume close to a million pounds of beef while over 37,000 staff – plus many tens of thousands more employed indirectly in the 90 percent of Burger King restaurants that are operated as franchises – work tirelessly to ensure the customer can ‘have it their way’. “The hamburger business is essentially a commodity business, and it’s primarily driven by operations, says Rawal. “So when you go to Burger King, you want a Whopper Sandwich the way you want it in every single Burger King, regardless of where you are.” To this effect, Rawal has implemented a number of measures designed to bring in an element of operational consistency across the organisation. He began a process of technology standardisation that would enable the
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company to grow its global capabilities, and cites the example of the fi rm’s point-of-sale (POS) system as indicative of the considerable progress that has been made in recent years – and of how far the company still has to go. “In many ways the register in the restaurant is the key piece of equipment for us, and yet until January 2006 we had no company-wide standard as to what register or system should be used,” he explains. “We’ve now established the very first standard POS across the company and the franchise restaurants, and are in the process of migrating to that standard – as a brand, we’re over 40 percent moved over to the new POS and have set January 1, 2014 as the date by which all restaurants must be on that new system.” With the standard POS in place, Rawal explains that the company can now start driving further system and process consistency across the organisation as a whole. “We’re implementing what we call a standard naming convention, so that a Whopper, for instance, has the same number identifier across any Burger King restaurant, whether company or franchise. That wasn’t possible with the old system,” he says. “Th is then allows us to do more in terms of collecting and analysing information, and enables us to see what we need to do to be better, to be faster, to be more successful as a corporation and a brand. Being able to really understand how the business is doing compared to last week, last month or last year, for example – by time of day, by a particular product or by a particular geography – are
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things that are very logical and reasonable to expect, but up until now we have not had the basics in place to be able to do that.” The ability to drive higher operational efficiency in the restaurants is another area set to benefit. “Labour scheduling, inventory management and many other things that were not previously available at the branch level are now becoming possible as a result of this focus on standardisation,” says Rawal. “If you look at a restaurant, food and labour are the top two costs. So if we can help manage that better – which is what we’ll do with the new inventory and labour management systems – we’ll be making a dramatic impact to our bottom line.” As well as revamping the customer-facing side of the business, the back office is also set for an overhaul. “One of the initiatives that we’re very actively engaged in is laying the foundation for consolidating what has historically happened in different parts of the world at each of the Burger King offices,” he explains. “We don’t need different people, different processes, different technologies – and all the associated costs – when we’re doing very similar functions, such as fi nancials, HR, fi xed asset management and other back-office processes. Now we have a platform in place to manage all of that centrally, we can absorb the work that was happening outside into that platform, leveraging the process capability and a shared services environment. That is making a huge impact to the corporation.” A key decision was to embrace the concept of outsourcing, which has long been a key strategic area for Rawal, a 20year exponent of the model. “We all have limited resources, whether that’s measured Raj Rawal in dollars, people or time, so we need to
“My view has long been that if they’re not core competencies, then we don’t necessarily have to expend the time, effort and resources doing them” think about how best we want to apply those resources,” explains Rawal. “And if I can get more value for my company by applying my limited resources to do something strategic rather than just keeping the lights on, then I have no problem outsourcing certain of those day-to-day functions. My view has long been that if they’re not core competencies, then we don’t necessarily have to expend the time, effort and resources doing them. “At Burger King, we have outsourced the data centre, the helpdesk and the break/fi x support; we’ve also outsourced all the soft ware maintenance and development,” he continues. “As a result, the IT team we have here is now primarily focused on project management and business analysis.” It’s an approach that has served Rawal well; outsourcing non-core systems and parts of the IT operation allows him to concentrate on delivering the long-term roadmap for Burger King’s reorganisation of its technology function. As he puts it, you need to “clean up the essentials” before embarking on anything bigger. “While innovation obviously has a huge role to
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play in the longer-term, I feel a responsibility to clean up the basic things that need to be done fi rst – standardise systems and processes, maintain cost-effectiveness and deliver stability on that over a period of time – before I feel able to jump into the latest buzz topic out there. We have to lay the foundation and then demonstrate success with that foundation before the business will seriously consider doing anything more ambitious.” Nonetheless, he is conscious of the fact that such restructuring, whilst important in terms of putting the right building blocks in place, is not in and of itself going to deliver significant value-add over the long-term. The second part of the challenge is to become a partner that develops and delivers new ideas. “Innovation is not just about technology, it’s about people,” insists Rawal. “It’s about having people with the capability to build a relationship to influence the business in a very credible way.” As Rawal points out, this sense of teamwork is a key reason for Burger King’s success – and thanks largely to the efforts of its soft ly spoken CIO, IT is an increasingly important part of the company’s corporate team. “Credibility is extremely important,” explains Rawal. “It’s important in everyday life, whether it’s at church or school or at home; it’s important at work. And I think it’s the foundation of any good relationship. It allows for a lot more opportunities once you have a decent relationship in place based on credibility, and so a major part of my focus has been on pushing the IT organisation to be more of a business partner.” Even so, he concedes Burger King still has much to accomplish. “We need to catch up before we start saying we’re going to lead,” he says. “A few years ago we didn’t even have a standard POS and didn’t collect any data in our restaurants; I could not have told you how many Whoppers we sold in the last hour in a particular restaurant. When you’re so far back in the pack, to start shouting, ‘Wait, I’m gonna lead’ is pretty crazy.” One area he is committed to looking at, however, is how to better engage the consumer. “We need to consider engaging them in every which way we can before they come into the restaurant, when they’re at the restaurant, and as they start leaving the restaurant,” he says. “And I think mobile apps and social networks are going to be the means by which we reach out and touch consumers. For example, we are already the leader in terms of allowing our guests to have their sandwich exactly the way they want it. But what we want to do now is allow that guest the opportunity to have it their way before they arrive, through their mobile device, via the internet at their desk, wherever; to start looking at, to start thinking about, to start planning their sandwich so it is just the way they wanted it when they come in; to really have the experience enhanced with things that we can provide based on their preferences from the past or other demographic information that they made available to us previously. And then how do you maintain that structure so it stays upright when people change, when menu items change, when price changes, when restaurant managers and marketing managers change? So we need to do everything so that it is sustainable long-term.” For Rawal and his team, such attention to detail is a no-brainer; after all, it’s an essential part of ensuring that the customer – as well as the burger – remains king.
Payment solutions for the next generation retailer David Jokinen explains how retailers can implement payment solutions to maximise the efﬁciency of e-commerce retailing. What advice would you give retailers about the need for effective e-commerce solutions? David Jokinen. Our first objective is always to get a solid understanding of the business model so that we can advise our merchants how best to implement their payment process. More often than not, their business model needs to change to meet the increasingly stringent requirements of the payment card schemes, the merchant acquiring bank, the payment processing technology and, of course, the customer. The earlier they consult us during their planning process, the sooner we can point them in the right direction so that the act of getting paid is a natural part of their business model. Obviously online payments are often a prime target for fraudulent transactions. How can the correct e-commerce payment technologies ensure a secure ﬁnancial transfer? DJ. A single risk management strategy doesn’t work in all circumstances. That’s why it’s important to work with a payment service provider who fully understands the business model. When advising our clients, we first take into account the real-world fraud patterns we’re seeing in their particular industry, as well as their transaction volumes, profit margins, geographical considerations and other aspects unique to their business. For example, if a merchant sells expensive products, implementing a two-step payment process is a simple yet very effective way to incorporate manual review for some or all orders; when confi rming the customer’s order they first obtain an authorisation from the card issuer, but don’t actually charge the card until are ready to fulfi l. If they need to roll back the order for any reason, then they will never charge the card, which eliminates any possibility of a chargeback. Conversely, if a merchant sells downloadable products, or services that are instantly fulfi lled, then manual review is unlikely to be practical or cost effective. Full automation is usually the order of the day here. Today we are seeing increasing numbers of retailers setting up online due to the lower costs involved compared to walk-in stores. Are you experiencing a lot of competition in the e-commerce market as a result of this and how do you stay ahead of the competition? DJ. As a payment service provider focused on meeting the unique needs of e-commerce retailers, we obviously welcome this trend and we expect it will continue to acceler-
ate as e-commerce becomes practical and accepted in an increasingly broad range of market sectors. One competitive issue that we fi nd many retailers fail to fully appreciate is the potentially catastrophic erosion of their margins due to the relatively low barrier to entry in the online environment; the same low barrier that attracted them will inevitably attract others. For example, if you’re the only consumer electronics shop on the high street of a small town, your customers may be willing to pay a little extra for the convenience of dealing face-to-face with a local dealer; this competitive advantage will of course be of no use when you decide to take the business online, where consumer electronics is one of the most fiercely competitive sectors dominated by well-established retailers with massive buying power. Your most obvious weapon is pricing, but you are unlikely to win the war on this basis.
David Jokinen manages Optimal Payments’ European subsidiary, with regional oversight of business development, marketing, sales, compliance, risk, customer service and technical support. He has more than 20 years’ experience in the information technology and ﬁnancial services sectors.
“One competitive issue that we find many retailers fail to fully appreciate is the potentially catastrophic erosion of their margins due to the relatively low barrier to entry in the online environment”
What challenges do you predict the e-commerce payment solutions industry will face in the coming years? DJ. The future will see merchants getting out of the payment acceptance business and outsourcing the job to increasingly specialised payment service providers. They have so much else to worry about; they should be spending their limited resources on being better retailers, not on detecting fraud or blocking hackers. For this reason, we foresee the growth of niche payment service providers, such as Apple’s App Store, which manage the payment acceptance process and many other merchandising functions on behalf of thousands of businesses, ranging from sole traders to large companies. The businesses pay a premium on each sale for this all-inclusive e-commerce service; however, the benefit of being free to focus on their core business of making and marketing great soft ware cannot be overstated. ■
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Digital Signage – Personalising the retail experience Many retailers have moved from asking: “Should I deploy digital signage?” to: “How do I use digital signage to maximise performance and create sustainable long term impact?” Dynamic behavioural merchandising is delivering the answer for retailers. Jason Palmer, STRATACACHE’s Director of Business Development, outlines the key features to consider.
etailers are continually looking for ways to increase store performance. Shopping is now an experience where services and products are targeted at each individual customer and their unique requirements rather than a one size fits all approach. Whilst many businesses are implementing digital signage, few are utilising it fully to achieve maximum return and create a sustainable, compelling experience for customers. In a simple form, digital signage gives retailers benefits over traditional in store marketing through speed and frequency of change of content; localisation of content and of course the inherent brightness and movement of content that catches the eye and powerfully conveys messages. However, traditionally the scheduling of content has been based on historical knowledge of what was happening in the store, not what is happening in real-time. New advancements in digital signage have changed this to reach the customer in real time, giving greater un-
derstanding of the store behaviour and creating enhanced profitability. Audience measurement and traffic analysis tools embedded in digital signage can be used to gain realtime knowledge of the store and create real-time tailored messaging. If you knew, for example, your customer’s age, gender, where they have been in store, what they are looking at and touching, whether they were moving or in a queue, would your message to them vary? Now the message can vary. When deployed as an integrated part of the marketing mix, advanced behavioural digital signage uses dynamic triggers of what is actually happening in the store to present customers with the most relevant, personalised messaging. Th is creates a unique and individual experience, leading to increased customer satisfaction and improved purchase profi le. The increased knowledge of customer behaviour has also led to greater use of multiple small displays in stores that can provide a personal rather than mass broadcast message. The use of devices, such as the SPECTRA PopTouch, takes this a step further with integrated response to touch, movement and near field communications. These interactive triggers can be used to further engage the customer with tailored content appropriate to the purchase. We are now also finding that customers are now increasingly engaging with technologies such as Quick Response (QR) codes. The popularity of smartphones and customers’ ability to use built in cameras has allowed retailers to provide personalised offers, coupons, instant product information, real-time questions and answers or even product-related games via digital signage. This can increase immediate store performance but also allow the engagement with the customer to be extended beyond the shop door. Digital signage is delivering the promise it has offered retailers to speak to customers as individuals. Retailers fully engaging with dynamic behavioural merchandising are receiving strong sustainable profit, along with detailed proof of performance for digital signage. Customers are getting an exciting and compelling shopping experience. Using our experience from many large deployments, systems and research-based approach, STRATACACHE is helping retailers globally achieve great results today.
Jason Palmer is Director of Business Development at STRATACACHE, the leading provider of innovative, efﬁcient, scalable and cost-effective digital signage. Jason has a strong background in creating digital media propositions for retailers that enhance the customer relationship.
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Experiencing tomorrow’s retail landscape Technology is bringing about some of the biggest changes to a customer’s shopping experience ever seen. Next Generation Retail spoke to IDC’s Ivano Ortis to ﬁnd out. “I think probably the biggest change we are seeing in the industry – and it’s an industry that is quite reluctant to change – is really the opportunity, and the challenge, posed by precision retailing strategies” Ivano Ortis
here was once a time when one’s experience as a customer depended largely upon luck. The mood or amiability of a shop assistant, the time spent waiting in a queue at the checkout, even being able to fi nd the product you are looking for, such elements left up to fate could make the difference between a boycott or a customer for life. But today, with consumers more selective than ever about where to spend that hard earned cash, improving the customer experience has proven one of the most effective ways to protect a business when times are tough, and to allow a business to flourish when the market is ripe. “Customer service is really only the latter part of the customer experience,” explains Ivano Ortis, EMEA Research Director at IDC Retail Insights. “Normally what we see best in class retailers doing is fi rst, fi nding better ways to attract customers; second, trying to influence their customer behaviours; and third, servicing and supporting their customers as they want them to remain happy customers, and retain them, potentially forever. We have seen an increasing attention on what we now call generat-
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ing ‘immersive shopping’ experiences, and the customer service is only part of that.” Ortis explains that this is the next generation of shopping experience for the customer, dependant upon not only an inspirational and intriguing array of products and displays, but also upon instant and accurate delivery of information from the retailer. Most importantly, he adds, the experiences can, and indeed must, be generated across any retail platform, be that in-store, online or even on a mobile device. Th is last point is becoming increasingly crucial for retailers today. As the statistics show, e-commerce retailing faired well throughout the recession and all indications from the industry are pointing to the fact that mobile commerce is the next big thing. With this in mind, a strong multi-channel presence will be necessary for retailers looking to maximise profitability in the coming decade; and indeed, ensuring that customers have the best experience within each of those platforms will prove paramount. “What we fi nd in our research is that there is a major shift occurring today in the industry,” reveals Ortis. “The
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retailer focus is really shift ing more and more to improving same shopper sales; so more and more retailers are recognising the need to attract their existing in-store customer to a different channel, maybe because not all of them are in proximity to your store and therefore there is a better opportunity to make those customers really use and leverage your other channel assets. “There are of course a number of IT implications as well, in the way you are really looking at your segment and customers, deciding on the different promotional activities that ideally respond to those customer needs.”
Ivano Ortis is the EMEA Research Director for IDC. Ortis analyzes and anticipates key trends and forecasts on IT strategies and spending in speciﬁc retail and transportation sub-vertical industries in Western Europe and provides consulting and advisory support to end-user organizations as well as to IT vendors.
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Just how to orchestrate an experience, whether in-store or online, that is suitable to a specific customer demographic poses the next challenge. More and more now, technological advancements are enabling stronger and more frequent conversations between these days retailers and customers, so that the best strategies might be put in place. “It’s all about engaging better with your customers,” offers Ortis. “So, while clearly effective marketing and communication management, as well as important, store-level competitive intelligence capabilities, remain very important, we also see increasing emphasis in the way retailers are positioning themselves.” He goes on to explain that this again comes down to development in technology; retailers can now utilise technologies that reduce the complexity of managing processes such as promotion optimisation or assortment optimisation while simultaneously improving the effectiveness of promotional campaigns. “I think probably the biggest change we are seeing in the industry – and it’s an industry that is quite reluctant to change – is really the opportunity, and the challenge, posed by precision retailing strategies,” Ortis highlights. “In other words, target the marketing down to individual one-on-one customer communication and customer interaction. So the point is really for the retailers to change from a mass-market type of operating company to a very targeted type of company, which is the biggest opportunity to really try to influence down at the customer level.” Indeed, this point resonates as one of the key tools that technology developments are enabling in the retail marketing sector. Now, using IT, retailers can analyse intricate characteristics of their customers in order to make sure that the right customer is seeing the right product, with the right price at the right time to ensure a sale, or in other words, the customer is having the best possible experience. “I think the other very important factor is to be relevant to the consumer. If you think of mobile as one example now, pretty much every retailer is evaluating how to engage with customers through their own mobile devices. That’s an unstoppable trend. Still, there is quite a fi ne line between influence and intrusion, and you don’t want your mobile interaction to be too intrusive. You want that to be really relevant, down to the context of your customer, their location, their buying behaviour, their preferences, even as far as their mindset.
“For example, promotions. So, once you have understood your customer behaviours, and you have forecasted demands accurately in compliance with your business objectives as an organisation, you then have the opportunity to plug this information and this insight into your business to try promotional campaigns that can really generate some very good returns.” Ortis explains that with these targeted marketing strategies, it does not matter which platform the retailer is operating from. “It really depends on the consumer you are talking to,” he says, “what time of day it is, where the consumer is. I think the underlying technology infrastructure that needs to be put in place should be really working regardless of the channels.”
Sector speciﬁc The specific technologies used to improve the experience really depend on the sector in which each retailer is operating, as Ortis explains. “For example we have seen in food retail across Europe a bigger usage of self-service checkouts. Self-scanning seems very interesting at the moment because it not only combines the self-service benefit that you can get with self checkout, but it adds on top the ability to really try those targeted communications. So on a self-scanning device, the retailer can push a relevant promotion in real-time to the user, which is identified by their loyalty card and their current basket.” He goes on to highlight that in the fashion sector, interactive digital signage is a more popular tool for enhancing the customer experience. Retailers are beginning to move away from the traditional display screens that we are used to in stores, and embrace the opportunity to interact with customers, be it on a simple level like sending a coupon via a text message to a customer in store, to more complex interactions that leverage wireless technologies. “An interesting example of creating this consumer interaction that is largely used today in the fashion sector is called the quick response code. They look like a 2-D barcode, and basically you take a snapshot of the barcode on your smartphone, and you are directed to some content provided by the retailer. It could be a video, an audio fi le or a webpage; whatever piece of information that may give the consumer a better product description. And this again goes to creating that immersive experience, which makes the customer happier.” Ultimately for Ortis, it is paramount for retailers to utilise these communications, which had previously been impossible, with its customers. “Of course the retailer’s ability to gather feedback and to make that feedback a company asset will be instrumental to developing, and continuing to develop, the customer experience,” he says. It is not something that can happen overnight, he points out, and it will require a continued improvement program put in place by the retailer. Still, an immersed and interactive experience for the customer can only mean improved revenues for the retailer and those taking the time and effort to improve their customer experience tools will reap the benefits. ■
Experience counts With multichannel retailing now a reality for most retailers, ensuring a positive (and more importantly seamless) customer experience is more pivotal than ever.
ith the after-effects of the economic downturn continuing to bite, looking after your customers – both those loyal to your brand and those new to it – must be a key area of focus for retailers everywhere. Customer experience is not an altruistic endeavour; executive teams should focus on it because they believe that it will help their organisation’s long-term business results. But how can retailers exploit the latest toolsets and solution to help improve the customer experience, both in-store and across multiple channels? Here, a leading panel of experts provide their views.
The industry debate about enhancing the customer experience has been going on for over a decade, but very few retailers deliver that capability. What are the key challenges and what is your company’s focus going forward? Ronen Levkovich. Today’s retail world is undergoing a significant and rapid transformation, leading to multiple challenges for retailers. In keeping pace with the technological challenges, retailers are trying to overcome being bound to suppliers and shift their focus to the customer. On one hand, retailers are looking for solutions to help increase revenues and enhance their customers’ experiences. On the other hand, retailers are looking to reduce costs and increase efficiency. To meet the challenges, Retalix is providing customers with an increasing number of channels and customerfacing touch points, which empower them with more information and greater control over their shopping experience. Retalix is improving the customer experience by standardising all channels and touch points, and allowing for transparency throughout. Retalix is using a single and unified engine for planning and management, which assures the right offering by using ‘Demand-Driven Retailing’, whereby the shopping demand is optimised with the customer, supplier, and market data. Th is approach provides retailers the tools to personalise their customer’s experience, by focusing on loyal customers and targeting promotional offerings using behavioural driven promotions. In light of all these challenges, Retalix’s aim is to put the ‘custom’ back into the customer, by providing the know-how and systems, which enable ‘anytime, anywhere’ and personalised shopping, with technological diversity.
information and a better understanding of their own requirements. This means retailers need to raise their game to retain and expand their customer base and ensure a greater, more effective relationship with their customers. There are, of course, many retailers, that can still compete and survive on the key attributes of price, availability and choice, as their customer base still demands these basic elements. However, many retailers now need to differentiate themselves from their competition outside of these three fundamentals, particularly if they have desires to become a market leader or gain significant market share. Retailers will need to address areas such as innovation, personalisation, loyalty, new shopping experiences, new channels et cetera if they are to deliver on an enhanced customer experience.
Robert Teagle. In many ways customers are evolving their demands due to increasing competition, greater access to
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Kate Whittaker. The key challenge is to try to understand the real customer experience in our stores. We use customer feedback to identify areas where store managers should focus on improving. To do this you need buy-in from the store managers and staff – they need to believe the feedback and understand that it is an honest view from our customers – as ultimately they are the ones who will be making the changes in-store.
Ronen Levkovich joined Retalix in 2000 and has ﬁlled various roles; in January 2010, he was appointed to EVP of the International Business Unit. Prior to his employment in Retalix, he held project management, sales and marketing, business development and operations management positions in various organisations.
What is the evolving role of technology as it relates to customer experience improvement programmes? RL. As communications technology continues to evolve and IT systems move from closed to open architectures, retailers are improving the customer experience in the store and beyond. In the store, which will continue to dominate the retail environment, technology enables the creation of multiple touch points to help customers become more informed, independent, and savvy. Wireless technologies, meanwhile, assist retailers in better targeting of their customers before, during, and after their shopping experience, by seamlessly connecting their actions to in-store and out store touch points and the central systems. Retalix assists its customers to transform shopping beyond traditional brick-and-mortar outlets to ‘anytime, anywhere’ retail channels such as in the store, web, and mobile devices using Retalix’s one single and unified engine. RT. One of the first steps in developing a better relationship with your customers is to understand more information about your customers and their requirements; this suggests collating data such as spending patterns, customer information, customer preferences etc. With this process comes a significant amount of information and the ability to report, analyse and leverage it for developing a better customer relationship. Technology can play a key role in collecting, storing, analysing, reporting and providing this information for various groups within the enterprise to utilise. As more retailers fi nd a need for technology, we’ll see it evolve over time to play a greater role in this area; at present we see the biggest evolution around the use of the internet and business intelligence or analytics. KW. At Debenhams we have implemented a customer care measure programme that uses the medium of the till receipt to invite customers to complete an online survey. Results are then fed through to an online reporting site where the data is collated and produced into reports for each level of the business. Which in-store tools can retailers implement to enhance the customer experience? RL. Retailers enjoy a host of new touch points beyond the traditional POS to interface with customers. For example, self-checkout terminals, self scanners, and area scales provide customers with up-to-date tools for a faster, more efficient, and intelligent shopping experience. Kiosk, mobile (POS) and digital signage devices expose customers to virtually focused product and retail information, enabling
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retailers to better target their messages. Wireless-based tools and Bluetooth devices help retailers better serve their customers from the moment they interact with the retailer’s touch points, across multi-channels. RT. Tools fall into a couple of categories; fi rstly, tools to be used by the employees and secondly, tools to be used by the customers. Retailers can enable employees to develop better relationships with their customers through providing them with access to meaningful information that gives them insight and facts about customers and their spending patterns. Th is can also mean improved centralised and localised marketing initiatives, empowering employees to innovate within the four walls of the store based on their customers’ requirements and preferences. Tools that can be used/utilised by customers include mobile, digital media, kiosks and couponing. Many of these won’t be relevant for all retailers, and in some instances retailers will need to create a demand for these services and identify which approach best suits their customers.
“In many ways customers are evolving their demands due to increasing competition, greater access to information and a better understanding of their own requirements” Robert Teagle KW. Our stores receive a score each month on the overall customer satisfaction rating, based on staff, dressing rooms, till point and store presentation. The stores are given a benchmark of 50 percent to try achieve – meaning 50 percent of customers are extremely satisfied with each of these areas in store. We also combine all of the scores into regional ranking and overall score. When we launched the programme our overall company score was 47 percent, which has increased to 56 percent since the project started, and the focus is to continue to improve this score. Store managers are responsible for their own store’s score and if it falls below the target of 50 percent they are challenged to identify areas of weakness and ensure a plan is implemented to improve the customer experience. How can retailers enable proﬁtable multichannel operations? RL. By better understanding customer’s needs and shopping habits, Retalix’s one core engine allows retailers to leverage multi-channel operations, from the store and mobile devices, to the catalogue and web, offering targeted promotions, discounts, upselling opportunities and information through multi-channels touch points. In addition, through Retalix’s ‘Demand-Driven Retailing’, retailers can act and execute more effectively at both the store and central office levels. Take, for example, Retalix
Store Replenishment (DAX), which optimises market and supplier data that is generated during shopper interactions at multiple retail touch points. Retalix Store Replenishment (DAX) enhances inventory management and facilitates data sharing between suppliers and retailers. Retalix’s one core engine for sales and store operations synchronises activities across all outlets through one accurate source. As such, retailers are able to reduce ‘out of stock’ and optimise store inventory levels, which improves operating efficiency. Moreover, retailers enjoy lower hardware and maintenance costs, and greater control over customer experiences and operations. The Retalix approach is to offer centralised applications in order to improve retailers’ operational efficiency and decision-making effectiveness. For example, centralisation reduces total cost of ownership and the time to market by reducing costs by utilising the availability of online data. The decision to centralise less critical applications is straightforward, but centralising critical applications requires satellite locations or other backup means to ensure near-100 percent availability.
“In the store, which will continue to dominate the retail environment, technology enables the creation of multiple touch points to help customers become more informed, independent, and savvy” Ronen Levkovich RT. Most consumers operate across more than one channel, and if retailers can get it right, moving from one to many channels can provide significant profit, through greater economies of scale. The key for retailers is to provide an environment, which allows customers to operate in many different channels with seamless integration. Retailers need to be able to adapt their technical, and if necessary organisation, to operate in multiple channels without requiring customers to change their spending patterns too dramatically. Therefore, if old technology or significant organisation change is required, moving to a multi-channel approach can be a considerable ask. Therefore, retailers will need to prioritise which channels are most important. KW. The challenge is to ensure that a consistent customer experience is given across all channels as customers expect the same high level of customer experience online as they do in-store. After customers have completed the customer experience online survey they are directed to Debenhams’ website. We are also signed up to our supplier’s Facebook application GoRecommend – so customers that leave positive feedback in the online survey are given the opportunity to go to the GoRecommend application, which enables them to document their positive brand experiences on Facebook and recommend Debenhams to their friends.
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Th is is an effective way of spreading positive ‘word of mouth’ brand experiences to thousands of customers and potential customers via social media. How can retailers leverage real-time analytics and demand forecasting tools to drive customer-centric planning effectiveness and execution efﬁciency? RL. Understanding shopper’s demand at different levels of aggregation, from the single customer to the entire chain, is essential for making intelligent decisions. By focusing on the shopper, Retalix strives to drive, optimise, and execute real time decisions – from promotions, through pricing and assortment, to replenishment. Retalix’s ‘Demand-Driven Retailing’ balances the retailer’s buy and sell sides, by leveraging shopper demand signals. We accomplish this by providing system interfaces that enable data collection from multiple touch points, analysing data to gain customer insight, and tailoring our offerings to meet the customer needs.
Robert Teagle is the IT director for Europe, Middle East and Africa at Starbucks Coffee.
KW. Employees at any level can log into the reporting site and receive ‘real time’ data on Debenhams’ overall performance or the performance of individual stores. Head Office level get feedback on product range, store layout etc. and have used the reports to identify that store presentation could be improved. Th is led to further in-depth work at head office level to understand what customers wanted from the store layout and will ultimately change the way that Debenhams presents its mannequins and display mats.
“The challenge is to ensure that a consistent customer experience is given across all channels as customers expect the same high level of customer experience online as they do in-store” Kate Whittaker Store managers also receive immediate feedback on outstanding service so they can congratulate individual members of staff, as the survey asks customers if there was a member of staff that went above and beyond their expectations. If a customer answers yes, they are then asked who the employee was and why the customer experience was exceptional. Th is is known as a ‘customer wow’. Th is initiative helps raise the profi le of the project within our organisation by focusing and motivating store staff. The survey can also recognise when a customer is responding negatively and the customer is given the option of being contacted by the store manager to help resolve their issue – these are called ‘customer rescues’. Th is allows store managers to identify unhappy customers, and to react and respond to them in a timely basis. On average we receive 12,500 responses a month. ■
Kate Whittaker is the Strategy Manager at Debenhams.
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Finding the right ﬁt Why making the most of your costly retail space can pay dividends in terms of better branding and more active customer engagement.
t’s a golden rule of retail: never underestimate the impact of great store design on customer behaviour. How many customers walk into a retail store only to leave without buying anything? And how many stroll past a drab store entrance with barely a glance in its direction? Good store design can reduce walkouts, encourage existing customers to visit more often and attract new customers. Physical space is important, and the fi rst step is to assess how much you’ve got. Philip Mitchell is a founding partner of retail consulting company Discovery-Based Retail, which works with retailers both large and small to help enhance profitability by improving their customer interfaces. He believes that in terms of store design, bigger – or at least the perception of being bigger – is almost always better. “Make a store appear larger and people will perceive that its selection is better,” he says. “You can make a store appear larger by opening up the longest vistas that you can create.” His company often uses cascading aisles to create the illusion of space, he says. “Cascading aisles are ones that terminate at staggered intervals. By doing this we can expose more merchandise to the store's customers plus create pseudo angles to add interest to the layout. A couple of other ways of maximising the appearance of your store's sales space is by moving the taller things to the outside walls and widening aisles slightly to give customers more breathing room.” Ignaz Gorischek, VP for Store Development at USbased luxury retailer Neiman-Marcus, feels that creating a journey for the customer is also an important part of store design. He believes the possibilities offered by this in terms
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“As long as the customer is leaving with a smile on their face and a bag, I call that successful”
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“Make a store appear larger and people will perceive that its selection is better”
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of customer engagement are huge. “There are a lot of different things we do in our environment to create a way into our world,” he explains. “You want to lead people through an environment without them having to think about it. So we create what we call visual hotspots: about every 35-50 feet there’s something that’s attracting you. You may or may not decide to engage in it but your brain and your eyes will subconsciously take you there. And when you get to that Y in the road, you’ll make a decision. So we navigate you through the store.” For Neiman-Marcus, good store design is also about creating a unique experience. In the US, the retailer is wellknown for its slavish devotion to displaying art in its stores in an effort to constantly engage visitors to its locations. “Art is there not as just an enhancement to the space, it is there as a cultural experience,” explains Gorischek. “We have an art collection that’s over 4000 works strong. We’ve had it since 1951. And all the CEOs of the company over the years have supported it because it’s a true differentiator for our brand. So when you come to our store, we would love for you to purchase something, obviously, but if you’re coming to enjoy the space and possibly get educated on possible purchases further down the road then that’s okay too. The point is that we want you to leave more fulfi lled than when you came in.” The idea of building and sustaining a brand – and using elements of the store layout to reinforce those strengths and core values – is also critical. “The brand has to be created through three-dimensional objects we bring into it,” says Gorischek. “For instance, we are one of the only retailers who consistently uses live flowers. I’ve had people ask me why we would do that when we could just use synthetic ones. And my typical response is that we want to be a world-renowned brand that stands for luxury; someplace you wouldn’t think of as synthetic or fake. It also sends a subliminal message that you’re caring for the space on a daily basis. How many times have you walked into a store that’s dirty or dusty or something like that? By using live flowers, someone has to tend to that on a daily basis. So all of those little nuances go into sustaining the brand on a daily basis. Keeping it fresh, keeping it beautiful, keeping it entertaining and keeping it educational keeps us ahead of the curve.” Gorischek says his stores use a similar principle when thinking about the display. “You have to continually refresh and change the space – not only for the customer who walks in, but also for the sales associates working there,” he explains. “It’s important for them to feel excited about what’s happening in their area or department so that they can then share that excitement with the customers that come in. So moving the environment around is critical, but you don’t want to fl ip the environment to the point that people get frustrated. In other words, you don’t want to take Menswear and move it from the first floor to the third floor, and then next month bring it down to the second floor. That causes confusion and people are turned-off by that. But subtle movement within departments is defi nitely encouraged.”
As far as store planners and designers are concerned, it’s all about creating connection points with the customer. As an industry based on technology, the telecoms business has historically lived with a slightly cold and aggressive image; but Russian mobile phone operator MegaFon turned this on its head by creating a friendlier and more human in-store experience that enabled customers to feel comfortable and at home with technology. Designed to maximise customer traffic flow and exposure to products and services, while creating greater engagement between the customer and the MegaFon brand, the new interior is a mix of natural materials, fluid design and thoughtful application of colour that is welcoming and relaxed, yet at the same time bright, playful and even slightly cheeky. Materials such as real wood and natural-fibre textiles were chosen for their sensory appeal and texture; edges and lines on fi xtures, fittings and furniture are soft and curved; and the warm lighting creates a mood of peace and tranquillity. “We chose materials to add contrast, texture and interest, such as the surprise use of soft fabric to cover the digital information pods,” explains Craig Phillipson, Managing Director of retail design consultancy Shopworks, the company behind the store concept. A giant, asymmetrical lampshade, constructed by hand from individual plastic coated pieces of wire, provides visual texture and lightness to balance the strength and defi nition of the floor units below and the solidity of the natural stone floor. We also took inspiration from Japanese gardens, echoing the raked gravel pathways through the use of wavy lines on the slate floor, and using individually moulded, boulder-shaped, fibre-glass floor units in the centre of the store.” The design is fully functional too. Customers have access to almost every area of the store, guided through by careful placement of floor units and the gently curving wall, and drawn by the circular display wall (which is a direct translation of the circular brand), and by the stunning ‘forest waterfall’ feature and customer services counter at the rear of the store. Products and services are clearly displayed and well lit, the giant lampshade gives focus to key products, and the information pods address customer service needs, aiding understanding, stimulating interest and building engagement with the brand. Even the fun acrylic flowers, while adding to the theme, also serve to draw people inside the store and display products and information in a unique and innovative way. At the end of the day, measuring the success (or otherwise) of your store design is tough. “The metrics are hard,” concedes Gorischek. “There has to be money in the cash register, and I guess that’s your fi nal metric, and you either meet the metric for the day or not. And if you don’t then you have to go back and figure out what went wrong. Was it the product? Was it the hours? Was it my sales help? Was it the presentation? Maybe it was because the lights weren’t on or the technology wasn’t working properly. So it’s hard, but success is defi ned in many different ways. As long as the customer is leaving with a smile on their face and a bag, I call that successful.” ■
Virtual reality Fifth Dimension’s Michael Letchford talks to Next Generation Retail about the beneﬁts of virtual market research in the world of retail. What are the main challenges that retailers face when trying to attain accurate market research? Michael Letchford. It’s not unusual for retailers to commission primary research. Most often they’ll work in collaboration with a trusted vendor partner; perhaps their regular category captains, who might present new product opportunities or specific promotions, or volunteer insights gained from other work that has relevance to the retailer but needs further research. Here lies both benefit and potential difficulty. Retailers know their category assortments and how those products perform within the context of their own stores, but they don’t regard themselves as experts in any one specific product performance. They rely on their vendors for that perspective and also for inspiration and innovative thinking. The retailers’ concern, therefore, is the objectivity of the advice they get, and that they must always balance any recommendations in such ‘partisan’ advice with their own insight, which of course, is itself limited and biased by the retailer’s relative inability to conduct accurate research outside of its own store environments.
“Virtual environments provide secure opportunities to experiment with both evolutionary ideas and the more radical” Michael Letchford
How can virtual consumer research technologies ensure increased security of retailers’ market research data? ML. Running a programme of eight weeks, plus research projects in real stores is both a disruptive and very public way of finding out if new ideas are going to be successful or not, before rolling them out to hundreds, if not thousands of stores. One of the principal benefits of using virtual environments is that they allow retailers to conduct trials of in-store innovations in secret, away from the ever-watchful eyes of competitors. Virtual environments provide secure opportunities to experiment with both evolutionary ideas and the more radical; from implementing new merchandising displays that rework the presentation of an existing category, to the introduction of a new department within the same store space, with all the changes that would involve. Changes that would cause em-
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barrassing failures in-store and upset customers can be avoided by discovering any potential problems in the ‘privacy’ of a virtual store test. More importantly perhaps, for maximum impact in-store, the implementation of potentially ‘big win’ ideas can be refi ned and honed to perfection in a virtual store and then fully coordinated with major advertising without leaking the initiative to either the public or competitors. When implemented and managed successfully, what beneﬁts can retailers expect to gain from virtual consumer research? ML. There are a number of benefits to virtual consumer research. First, it is faster to test store innovations virtually than in real stores, and in addition competitors don’t learn of new ideas until they are rolled out, securing your brand’s competitive edge. Second, multiple concepts can
be tested in a single virtual environment, not only reducing costs but eliminating disruptions to store displays and routines. Th ird, virtual environments allow innovations to flourish that would be impossible or too risky to test in real stores, providing a greater range of products. Fourth, it allows for more control and improved accuracy, as virtual environments don’t need supervision to ensure accuracy as in real stores, and virtual products don’t go out of stock during the test period, test disruption through bad weather or competitive activity are no longer factors. And fi nally, virtual consumer research can allows more respondents in more locations to be tested, as well as more variants of the innovations or shopping scenarios, which leads to greater accuracy and flexibility. What advice would you give to retailers looking to succeed in this time of recovery? ML. In today’s trading conditions, driving store space more efficiently, lowering costs and prices is still the challenge. Retailers should seek out tools that rebalance optimised category space within the constraints of existing store layouts; solutions that analyse item level inventory and performance simultaneously with existing fi xtures, aisles, departments and store arrangements, redraw floor plans and create optimised plans to match the improved layouts. Of course, attracting and retaining customers is also about delivering a great shopping experience. Since customers increasingly shop on-line, or at least research their purchases before entering a store and often check pricing and product details on-line whilst there, or when they come to pick up purchases, today’s retailing challenge also includes improving and integrating the shopper’s mobile and on-line experiences with an exciting and satisfying instore experience. Virtual tools are very effective in refi ning the customers’ in-store experience. ■ Michael Letchford is Chairman and CEO of Fifth Dimension, with over 25 years experience as a successful innovator and thought leader in retail space planning automation, category and aisle management, store optimisation and virtual store based consumer research. His passion is providing powerful tools that deliver highly proﬁtable, shopper-centric retail solutions.
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Drive sales with in-store media marketing Why in-store media marketing solutions enhance branding, drive impulse purchases and increase foot trafﬁc by improving the shopping experience for consumers, by Lorne Abony.
hile brands face the challenges of ensuring a return on their advertising and marketing investments, Mood Media Corporation is keen to point out that in-store is an environment where you can truly influence your consumer, speak directly with them and drive your sales. Advertising your core messages on an in-store radio network can achieve as much as a 40 percent sales uplift . In-store media has evolved dramatically in recent years and the benefits to brands are becoming increasingly apparent. Mood Media Corporation is the only company working across the three main disciplines in the sensorial media industry – music, visual and scent – which can be used throughout stores and specifically at the point-ofpurchase. Th is enhances shoppers’ experiences, keeps them in-store for longer and helps drive incremental sales. Th rough linking your inventory to visual solutions, your customers will only view items that are in stock, so they are only enticed into buying products they can actually purchase. Not only does this help retailers to shift stock items but – when interactive, innovative and eye-catching digital signage solutions such as touch-screen technology, LCD screens, projectors or electronic point-of-sale systems are used – it can help to boost sales as well. Niketown’s flagship store in central London is a prime example of a client that is seeing tangible benefits from using tailored in-store music, a video wall and strong visual imagery. Another customer solution is ING Bank, where Mood Media Corporation has created and installed a digital signage network that promotes core services, communicates fi nancial news and provides entertainment. The visual system is integrated with the queuing solution and is used for staff communications. Mood Media Corporation’s solutions are driven by the core objective set by the brand and are often tools that will help increase sales in-store although not limited to just this achievement. Clients have used in-store media solutions to drive footfall, increase browsing times, communicate social messaging and even provide entertainment as consumers interact with merchandise. Mood Media Corporation does this through creating a comfortable environment for each brand’s particular customer demographic, which means they spend more time in-store. By working closely with clients to identify a music, radio, digital signage and scent solution to fit their individual brand, Mood Media Corporation ensures it provides a customised solution to fit that brand’s exact brief.
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Within each sensory competency, Mood Media Corporation has developed significant value add features for its customers. A leading music catalogue with over 1.8 million ‘rights-included’ tracks means those brands with budget restrictions can still offer consumers a great shopper experience, also saving significantly on public performance licenses. Another development within the media mix is the use of celebrity endorsement, which not only adds value to your brand but can also help to boost product sales – for example, Mood Media Corporation has arranged tie-ups between celebrities and retailers such as Lipsy and Pixie Lott as well as Thomas Pink and Gary Go. In addition, scent solutions can create a subtle, overall fragrance throughout the store, which is tailored to the brand’s particular customer base – clothing store Timberland, a UK client, uses a fragrance called ‘Porsche Nuevo’ in its stores, giving customers a subtle hint of a new car scent as they shop. We are an international business: Mood Media Corporation works with more than 650 international companies and supports over 155,000 business locations – from single-site to large, high-street chains – across 37 countries throughout Europe, North America, Australia and Asia. It was formed in June 2010 when Fluid Music Canada Inc. acquired Mood Media SA. The newly formed company will undertake a secondary listing on the London Stock Exchange’s AIM in September 2010. Where traditional advertising has lost much of its impact as consumers are bombarded with messages, instore media solutions are now seen as a powerful method of getting retailers’ messages across by being subtle, diverse, interactive and fun. ■
Lorne Abony is the Chief Executive Ofﬁcer and Chairman of Mood Media Corporation, the world’s largest in-store media specialist. He is a successful Canadian businessman, who has been voted one of the country’s top 40 business leaders under 40.
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Signs of the times Once the familiar back-drop of sporting events and skylines of major retail cities, digital signage systems are changing. Bringing quick, direct marketing campaigns right into the store itself, digital signage is paving the way for the stores of the future. Next Generation Retail spoke to the Retail Advertising and Marketing Associationâ€™s Mike Gatti to ďŹ nd out more.
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75% of retail purchasing decisions are made in store
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iccadilly Circus is one of the most iconic landmarks in London. It is also, unlike the other architectural gems that characterise the city’s landscape, defi ned more by the bright shining lights of the advertising billboards on display than it is any of the surrounding buildings or monuments. The boldly coloured digital signs for Sanyo, TDK and Coca Cola, have come to represent London’s West End. As with most advertising tools, digital display systems are nothing new. Consumers have grown used to seeing them at landmark sites, along high streets, at sports games, and in some cases have even come to identify a place with its digital advertising signs. But the notion of retail in-store screen marketing is today revolutionising the retail world, providing a whole new dimension to the consumer’s shopping experience. “We’ve been seeing an increase in the use of digital display,” explains Mike Gatti, the Executive Director of the Retail Advertising and Marketing Association. Indeed, interest in this marketing tool from retailers is beginning to spike after several years of misuse. “It wasn’t really any specific type of retailer [using digital signage],” Gatti explains. “I think it was more retailers who felt that this was something very important to their strategy. But what happened in the first few years was a lot of lessons were learned, and I don’t really think anybody was using digital displays correctly.” Gatti goes on to explain how early in-store digital display marketing was poorly implemented. Some retailers had screens that were hanging from ceilings, out of any customer’s line of sight; others used their screens to play a reel of, or a constant repeat, of an advertisement that could run as long as two minutes, much longer than any customer would be standing still to watch it. Conversely, research conducted back in 2007 indicated that around 75 percent of retail purchasing decisions are made in store, meaning that this is a largely under-utilised marketing opportunity for retailers. Digital advertising company Digicom then carried out a survey in early 2009 that found that 64 percent of the consumers asked believed that digital advertising screens could improve a shopping experience and 78 percent felt that digital advertising screens can make a brand or product seem more attractive. Only 54 percent, on the other hand, had seen digital signage in stores in the previous 12 months. All evidence stood to suggest that digital signage could be the solution to provide that much needed boost to struggling retailers, displaying direct and relevant campaigns direct to their own customers. “They learned a lot of lessons,” says Gatti. “Now what we’re seeing is that retailers are bringing their screens down to shelf level, they’re embedding them with a lot of products, and they’ve really tailored the messages a lot more so they are able to deliver the message quickly and a lot more effectively to the customer.” Th is point is, according to Gatti, imperative to a successful digital display marketing campaign. “They have to be really relevant to the product that’s around,” he explains, “whether it’s a sale, or
whether it’s something that really differentiates the product such as product information, which really takes having a good understanding of the customer that is shopping in your store.” Perhaps that product information might be its sustainability, or maybe a special offer or another competitive advantage, Gatti outlines. Either way, the direct, targeted and timely nature of digital signage marketing is beginning to provide very real results for today’s retailers. Gatti goes on to outline the numerous ways that digital signage can be implemented to enhance the shopping experience for the customer, highlighting the vast potential that digital signage has as a marketing tool and just how far it has come from the shiny Coco Cola or MacDonald’s digitalised bill boards that football pitches. “Depending on your demographic,” he says, “you might even want to have some games available on them, if say you have kids shopping. But retailers are making [their digital display content] more experiential, where you are able to interact with customers, or they can learn about products.”
“Now what we’re seeing is that retailers are bringing their screens down to shelf level, they’re embedding them with a lot of products, and they’ve really tailored the messages a lot more so they are able to deliver the message quickly and a lot more effectively to the customer” Th is new, interactive level of digital signage is a major development in the world of retail, and one that retailers still have yet to fully utilise. In addition to product marketing, retailers are now beginning to use interactive digital signage systems to take over some basic customer service responsibilities, therefore allowing customers more faster, more empowered shopping experiences, as well as freeing up staff to deal with more serious issues. “Maybe a retailer has a certain line of products,” says Gatti by way of an example, “say a certain type of furniture, and the retailer doesn’t have every product on display in the store. [The customer] can go to the kiosk, or the digital monitor, and look at what else is available. Product knowledge and comparison shopping has come from behind the scenes to the forefront when you go into a store now. Where you used to ask a customer-service representative to “tell me about these two different products”, now there is a digital screen that you use to do the comparison yourself.” These developments in the function of digital signage marketing tools in a retail environment are increasing the interest of digital solutions among businesses. “I think we will see an increase in its use,” explains Gatti. “It is becoming a much more essential tool.” He goes on to predict the kind of shopping experience that consumers can expect to have in the future. “In addition to trying out a game or learning some in-depth product knowledge, I think you’ll literally be able to walk into a store and say, “well, they
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don’t have my size or colour”, and you’ll be able to pop it up on a kiosk and order it right there and then and have it shipped directly to your home.” While Gatti’s assertion might be a little way off at the moment, the speed at which the digital signage sector has escalated over the last few years suggests that such a system is only just around the corner. A report carried out by Infrotrends found that in the US, the digital signage market had grown by 56 percent between 2004 and 2006 to a value of US$1.1 billion, and was projected to reach US$2.59 billion by 2011. In addition, the current success of e-commerce platforms suggests that this sort of real-time self-service retail experience is not far off. “There are going to be many more options for shopping and immediate ordering,” explains Gatti, and suggests that soon customers will be able to say: “Well, I don’t have to go shopping. I don’t have to run around to three or four different stores to try to fi nd the item I want. I can order it on the kiosk right now, and I know all about the product that I am buying.”
Digital disputes Perhaps most pressingly, Gatti points out that retailers who have digital signage systems already in place are speaking positively about the effects they have upon the business, saying that they now consider it part of the brand presentation that they make to the customer. “At the same time, the retailers are really learning a lot,” he adds, “and as they apply more of this technology into their stores, they’re learning a lot more about how the customer shops. This will evolve into a more mobile presence, so it’s possible that digital signage could peak a little bit, and then you could start to see a decline as mobile picks up and people start to use their phones to learn more about products that they’re buying.” Th is last point raises the salient issue for both the marketing industry and the retail sector. With the increasing popularity of smart phones and the vast amounts of technology development going into both Apple and Android operating systems, all evidence points to the fact that mobile technology is set to revolutionise these industries, just as the Internet did before it. “There are companies now who are saying that they are monitoring Tweets in their stores, so they can fi nd out what customers are saying, such as “is the cash register line too long?”” Using social media in this way provides a glimpse of the future of retailer-consumer interaction. Such tools will take responsibility away from in-store personnel, in theory placing it under the control of a single person with a computer, who need not be any where near the store. Gatti suggests that soon, customers will be able to Tweet questions. “Where are the light bulbs?” “What aisle is the butter in?” Customers will be able to ask such straightforward questions with their mobile phone, and get a swift response without having to track down a shop assistant. “It’s going to expand the capabilities of the one-to-one relationship,” he says, pointing out that one day, customers will not even need to be in a store to interact with retailers in this way. However, Gatti explains, these developments still could be as far off as five to 10 years. The imminent progress
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Digital signage case study: Aker Brygge Mall Digital display systems are ideal for use throughout a shopping centre, providing an interactive service and advertising platform for a number of business that will target a large number of consumers efﬁciently and easily. The Aker Brygge’s shopping mall in Oslo is a medium sized shopping centre with 65 stores of primarily high-end retailers. Situated by the Fjord Pier, the unique surroundings have created a popular venue that attracts over 6 million consumers a year, as well as number of workers in the area. The mall needed a wayﬁnder system, and simultaneously wanted to show adverts. Double sided LCD signboards were used, with touch screen wayﬁnder systems on one side, and LCD screens on the other, showing adverts, as well as stock market information and weather. The system implemented used different zones within each screen, which could each be dedicated to different purposes and playlists. In addition, only one system was required for the commercials on both indoor (LCD) and outdoor (LED) installations.
The modern shopping mall of Aker Brygge on Oslo’s waterfront development. Oslo Harbour, Norway.
of digital display technology systems looks set to significantly shake up the retail sector, from the fundamentals of brand advertising to providing next generation platforms for customer engagement and in-store interaction. ■
Sign language Digital display systems are popping up in retailers’ stores across Europe. Next Generation Retail’s panel of experts give some insight into how retailers can improve their digital marketing in-store.
Kai Mildenberger is COO of VIDERO AG, Germany and President of VIDERO LLC in the US. A serial entrepreneur, he founded the IDEA Group, implementing and extending ERP solutions across customers worldwide. He also served in key positions heading the Engineering and Technology efforts at GLOVIA International, Access360 (now a unit IBM Tivoli) and others. Most recently, Mildenberger served as founding CEO of SupplyFrame Media.
“The entire retail store is becoming a virtual canvas for digital content with heavy use of interactive stations or experiences” Digital signage is becoming increasingly popular with retailers. What are the greatest challenges facing retailers in terms of implementing their in-store marketing solutions? Kai Mildenberger. The biggest challenges in digital signage for retailers include the current lack of content portability, deployment issues, the inability to perform scale changes, high IT requirements and the lack of appropriate business models. Currently, we see that the market is built around a heterogeneous distribution of endless small and non-interoperable soft ware solutions. The heterogeneity means that for retailers, content cannot be ported easily across platforms and cannot be easily updated, deployment
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is difficult and capital expense is high. There is hope that with new open technical standards promoted by industry organisations, communication across digital signage networks made by different vendors could be possible. Interoperability across systems and media players could increase competition in the supply chain, significantly lowering costs and making the ROI on building networks vastly more attractive for retailers. Additionally, future consolidation of the value chain throughout the industry could potentially send new solutions to the retailer. Nico Colijn. First of all, retailers need to consider the question, where do I as a retailer add value to my customer?
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Then, retailers need to defi ne what they value the highest and why they want to implement digital signage. A good plan with clear goals and expectations about ROI is the first step towards a successful implementation. When implementing digital signage, it is important to fi nd out how to integrate it in the existing marketing mix. In order to make it easier for retailers, we have divided the use of digital signage at retailers in eight different zones. A good example is the lunch area of a local shop, which is a very interesting area. Here, local staff can be influenced from a head office that physically might be far away. The screens can show follow up of sales performances and benchmarking with other shops with a similar profi le. Campaigns can be launched in the same way across borders, and basic training can be offered. Once you have decided to implement in-store TV, I strongly recommend you to ask your supplier to make a site inspection before implementation. And remember to leave a nice part of your budget for making relevant, professional content.
cent in additional sales through the use of DOOH media. On top of that, prices of digital signage installations have gone down (half the price in comparison to five years ago). I have seen calculations where selling three professional hair care products more per week paid for the installation! Th is means that all the other effects like informing your customer better, branding and creating a better shopping experience actually comes for free.
Denise MacDonell. One of the main challenges for retailers utilising digital in-store marketing technology is to make sure it is deployed as a part of their overall marketing campaign and not just as a standalone venture. Thought must be put into defi ning and measuring the success of the solution and using that data to rectify targeting as needed. Lack of scale across digital out-of-home networks has also been a factor in slowing adoption rates for advertising purchases. For an advertiser to seek out a network, it must be measurable and have enough scale to provide significant reach and reliability of delivery. Understanding the core differences between static and dynamic signage is also key – and a core part of the success of such a deployment. Planning the content so it stays fresh and relevant or planning the location of digital signs are all part of the challenge. There is a significant difference between static content (the historic store signage we are all used to) and digital signage – which allows endless possibilities when it comes to taking advantage of video content to maximise the value of the signage. Finally, understanding and implementing the technology correctly is also key to success. Th is allows the retailer to ensure they are selecting the right tools and making the most out of the capabilities of the infrastructure whilst investing wisely with future growth in mind.
KM. Solutions are currently focusing on content portability, so as to bring down the cost of content, and on the ability to scale up and down as required by the retailer. Given the economic times, solutions also have to be costsensitive. New solutions that allow content portability will provide completely new scenarios and marketplaces that do not exist today, such as third party content application exchanges for up-to-date content. At VIDERO, we are addressing retailers’ needs with a new product that allows content to be considered as an application with deployment over the internet – VIDERO C4, a carrier-class content computing network. Low monthly fees for this soft wareas-a-service are a timely alternative to major capital investment, hard to come by at the moment.
How are digital signage solutions evolving to meet retailers’ marketing demands in this tough economic climate? NC. In this tough economic climate, it is important for marketers to spend money where it generates the highest return. A shift to using advertising money at the place of purchase is here to stay. The return is easily measurable, and it has been proved that price product spots close to the product have a positive effect. A consumer survey by the Nielsen research fi rm reveals that four out of five product brands experienced significant increases of up to 33 per-
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DM. The digital signage market is maturing and becoming more flexible with solutions such as fi nancing, managed services and other alternatives to capital expenditures. The technology is becoming increasingly integrated with existing systems such as point-of-sale (POS) technology. There is also a far greater understanding of all points of ROI within the business nowadays, and a growing focus on advertising and campaign management. Tools such as Harris Punctuate can help understand and maximise the return on investment gained from running a dynamic marketing campaign.
Nico Colijn is Marketing Director at Mermaid. He holds an MSc in Business Studies. He was born in Belgium, but has been living in Denmark since 1998. He started his career in banking. In the past decade he has worked with sales and marketing management within hardware and digital signage.
“A shift to using advertising money at the place of purchase is here to stay. The return is easily measurable”
Are you experiencing greater interest in digital signage solutions from some sectors of the retail market rather than others? Which types of retailers are using DS solutions and why do you think that is the case? DM. We have seen great demand for digital signage solutions from sub-segments such as quick-serve restaurants (QSR) in the US; in Europe from shopping centres, convenience stores, mass merchandisers and increasingly from specialist stores (sports retailers for example). An excellent example of this is our recent installation at Stadium, the largest sports retailer in Scandinavia. Over 60 million consumers a year visit Stadium sports retail stores and they are using Harris InfoCaster digital signage across their 110 stores to enable dynamic communication on the shop floor. In conclusion, retailers who experience national footprint, high audience count and visit frequency are seen as the ideal candidates for digital signage; advertisers can maximise reach and frequency at the point of purchase, so direct sales impact can actually be tracked. KM. We see strong demand from truly ‘next generation retail’, seeking to provide a much more immersive expe-
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rience for the consumer that is constantly fresh. The area where we are seeing the highest activity is that of the ‘immersive retail experience’, where digital signage is present at the retail level but virtually hidden from view. The desired experience has theme park like elements that is all content driven. The entire retail store is becoming a virtual canvas for digital content with heavy use of interactive stations or experiences. Digital signage soft ware can drive a multitude of in-store systems, which are all aware of each other, almost like a digital mesh. For example, a particular event might be triggered in one section of the store, affecting store-wide colour temperature, ambient sound and projection-based signage content change. After several moments, conditions might smoothly return to standard. We are seeing this type of approach to the retail environment not in just a single project, but as a larger trend. A second new interest seems to be a global approach to retail, even in the early planning of content: new concepts for global deployment are engineered into the project directly from the starting block. NC. Supermarkets and kiosks are very interested. Th is is the consequence of the importance of impulse buying in this environment. We can see that we have difficulties in getting fashion chains as customers. Their interest is limited, primarily due to a lack of a clear and large fi rst mover in Scandinavia. I am convinced though that there are several good reasons for them to apply in-store TV. From a brand point of view, portrait screens can inspire with recommended combinations of people dressed from top to toe, where details make the difference. Th is will for example increase consistency between stores and augment the sales of accessories. It is our experience that other retail sectors show interest in implementing digital signage, specifically fast moving consumer goods stores, since impulse purchases are likely. A way to measure is to look at our customer base. We have customers within the following retail areas: supermarkets, DIY stores, health and cosmetics, shoes, furniture, toys, electronics, telecom, furniture and other speciality stores. First movers within a sector often give us the blue print for that sector. Today, there is a long list of killer applications within different sectors that generates the necessary ROI in order to implement digital signage. I am of course available for the discussion about the reasons why you should implement in-store TV in your store.
own and operate a digital signage system. Secondly, the concept of scale is no longer terrifying, as content computing allows industrialised roll-outs instead of custom implementations and the customer can scale from one to thousands of stores without any additional engineering. Finally, large capital expenditure is no longer required, replaced instead with low monthly operational fees. The VIDERO C4 system provides the first example of content computing available on today’s market. DM. Apart from an increasing ability to measure the effect of digital signage content on the behaviour of viewers, I expect to see digital signage become an important component of marketing campaigns, with inventory being sold as part of multi-medium campaigns. IPTV streaming will become more commonplace and take on an important role as a source of content for digital signage displays, smartphone interactivity will expand and extend the engagement factor. Finally, as digital out-of-home networks mature, additional automation in the production, management and delivery of content will be essential. As with other media platforms, automation tools for digital signage will enhance network ROI not only through the operational efficiency provided but will also by enriching the customer experience through improved quality, reliability and automated targeting of content. NC. In the near future, we will see an increased amount of engagement of the customer: touch, barcode and RFID scanning, etc. also linking the third, the fourth and the fi ft h screen via Bluetooth, QR codes or SMS will become a standard. Measurement is expected to be an integrated part of all digital signage solutions. Mermaid sells free media space on DOOH screens. Th is can largely ameliorate the ROI for some sectors, facilitating decisions.
As Director and General Manager of the Digital Out-Of-Home (DOOH) business for Harris Broadcast Communications, Denise MacDonell oversees global strategy and business direction, product development, partnerships and client service/ support. MacDonell directs the growing Harris DOOH enterprise in the development of tools to help businesses leverage compelling content to operate proﬁtable digital out-of-home networks.
“Retailers who experience national footprint, high audience count and visit frequency are seen as the ideal candidates for digital signage”
What further developments to digital signage can we hope to see in the future? Will the industry will be moving towards content computing to ﬁnally fulﬁl the original promise of digital signage? KM. At VIDERO, we believe that content computing will revolutionise the way retail and other customers deploy cutting edge digital media technologies in at least three significant ways. First, new technology is no longer seen as a burden, as the customer does not need to build and maintain an expensive organisation of rare skill sets in order to
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It may be winning the war for customers in the ultra-competitive supermarket segment, but the UK retail giant has set its sights on a much loftier objective: saving the planet. By Ben Thompson
n 2006, a two-minute sketch on a UK comedy show called Time Trumpet featured a spoof of War of the Worlds in which three-legged fighting machines levelled Copenhagen and set up Tesco retail stores on every street corner, having already seized control of the UK market. “For years, Tesco had yearned to create a superstate, the world’s fi rst retail country,” intones the deadpan narrator with tongue planted firmly in his cheek. “Then, at noon on January 31st, 2013, Tesco invaded Denmark with 2000 superstores and 1500 Tesco Expresses.” Surreal it might have been, but the short hit the spot in terms of capturing prevailing consumer sentiment: that the retail giant was hell-bent on nothing less than global domination. The numbers certainly back up such an impression. The world’s third-largest retailer has 4811 stores worldwide and rang up global sales of UK£57 billion in 2009, putting nearly UK£1.1 billion through the tills every week (it takes fellow high-street ubiquity Starbucks 10 weeks to generate the same amount). Pre-tax profits were a massive UK£3.2 billion, meaning that Tesco earned a whopping UK£8.7 million every single day of last year. And in the UK alone the fi rm employs over a quarter of a million people, making it the country’s biggest private sector employer. Make no mistake, Tesco is a giant in every sense of the word.
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Cars stop for fuel at a Tesco service station in Carlisle, England. The company has vowed to slash carbon emissions from its own fuel use in half by 2020
But Tesco is not just content to dominate the world of retail; it also wants to change it for the better. And while continuing colonisation of new territories is certainly a large part of its strategic focus, the fi rm’s ambitions also stretch to something much bigger: developing a carbonneutral operation. “The battle to win customers in the 21st century will increasingly be fought not just on value for money, range and convenience, but on being good neighbours, behaving responsibly and seizing the environmental challenges,” said Tesco Chief Executive Sir Terry Leahy in a 2007 speech in which he set out a number of green goals for his company, the most notable of which was a 50 percent reduction in emissions from 2006 levels by 2020. And with the chain already achieving a 13 percent reduction in the two fi nancial years since that initial projection, Tesco has now upped the ante and is committed to becoming a zero-carbon business by 2050. State-of-the-art technology, energy-saving lighting and a big team of so-called ‘Energy Champions’ means Tesco is saving thousands of tonnes of CO2 a year. The company has revolutionised the way it designs and builds its stores so that they are as green as possible: combined cooling, heat and power plants are helping stores generate their own electricity, while an advanced metering system helps keep a close eye on how much energy and water is
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being used. Elsewhere, refrigeration systems are cooled with carbon dioxide, which is thousands of times less damaging to the climate than traditional refrigeration gases, while the new store template has been designed with a more energy-efficient heating, lighting and air-conditioning system at its core. Changes are being made right across the store environment, and extend back through the supply chain, too.
Tesco earned a whopping
UK£8.7 million every single day of last year
The value of technology But it is in the fi rm’s approach to its IT architecture that some of the greatest strides are being made. Tesco’s technology infrastructure consumes about 75 percent of the company’s total energy use – and Mike Yorwerth, Head of Global Technology and Architecture, is the man charged with bringing that figure down. “In 30 or 40 years time, people will need to live on possibly a fi ft h of the carbon they use today,” he explains. “We’ve got to be leaders in climate change and help drive the move to a low carbon economy. We’re reducing our carbon emissions on a like-for-like basis by 50 percent compared to 2006 figures. That means for every single store, we need to reduce the emissions in that location – whether from energy, from lighting, from heating, from refrigeration, or from transportation – by 50 percent. We also said we’d reduce emissions on every case of goods that we ship by 50 percent as well.”
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With checkouts proving a signiﬁcant contributor to Tesco’s carbon footprint, the retailer is currently replacing much of its POS architecture with a lower energy use infrastructure
“In 30 or 40 years time, people will need to live on possibly a fifth of the carbon they use today; we’ve got to be leaders in climate change and help drive the move to a low carbon economy”
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It’s a big commitment and, as Yorwerth explains, IT has a big role to play in meeting those targets. “If you look at IT as a proportion of the carbon footprint of Tesco as a whole, IT is quite a small proportion,” he says. “It’s only somewhere in the order of 2-3 percent of the overall carbon footprint. However, it plays a critical role in reducing the carbon footprint of the other 98 percent.” As a result, Yorwerth’s team – alongside meeting its own 50 percent reduction targets – is also focused on what it can do to help Tesco reduce its carbon footprint across the organisation as a whole. The opportunities are numerous, as he explains. “Technology can play a role right the way through the supply chain, whether it’s providing better forecasting information to suppliers so that they produce less and thus ship less so that we store less, or whether it’s in the distribution end of things so that we get better transportation and routing and things like that.” It also plays a crucial role in the store environment, too. Yorwerth says that the biggest energy users in stores are systems such as refrigeration and HVAC. But by looking at those physical assets as IT systems – and by implementing many of the same monitoring and measuring tools usually associated with the management of IT – Yorwerth believes his team is better able to understand where the inefficiencies lie. “We can see where they’re working out of tolerance, when they’re using more energy than they should
be, whether somebody has left the lights on and things like that,” he says. “There’s lots of work we can do to reduce the carbon footprint of Tesco by using IT.” The first step, he says, was to recognise that IT can have both a negative and a positive impact on the carbon footprint of the business. “We set up a programme to focus on both of these things together,” he explains. “It’s not just about reducing the energy use of IT.” The second element was to run the programme as a six sigma project. “The biggest part of that is understanding – and being able to measure – what our carbon footprint is,” says Yorwerth. “You need to define the problem, define the scope, measure where the baseline is, and analyse where you can make changes. The really crucial thing for IT is to put some controls in to make sure you understand where you’re going, and as things change, how you are going to do things differently in the future. We’ve put carbon controls in place so that we can make sure that as projects come in we can measure their potential carbon impact. We look from a design, an architectural and an infrastructure point-of-view at how we can minimise the carbon footprint of a particular project or programme, and then we measure it once it’s gone in and set a carbon budget for the year for the department based on those measurements.” Of course, as IT increasingly takes responsibility for managing and reducing the carbon footprint of the entire
organisation, there is a danger that its own carbon emissions will rise as a result; after all, the more systems and functions that fall under the IT umbrella, the greater the potential for a rise in IT’s energy use. Yorwerth concedes it’s an area of concern, but believes he has the processes in place to counter any such issues. “We’re working with people like Intel, HP, Microsoft, Cisco and other big providers around where they’re going in terms of technology and how they can help reduce our carbon footprint,” he says. “We’re also looking at where we will be using more technology in the future. It’s a careful balancing act, and we know we’ve got to ensure we put those controls in place to make sure we make the right decision every time.”
Building a green culture Building sustainable relationships with suppliers, partners and other organisations in the value chain is a key element of greening the enterprise, and choosing the right technology partners is no exception. Tesco provides clear guidance to its corporate purchasing teams around procuring products and how to engage with suppliers regarding their commitment to sustainability, and has worked extensively with analyst firm Gartner to look at how green various organisations are. “I think it’s important for us that we look to build lasting relationships with our suppliers,” says Yorwerth. “We typically focus on around 10 key suppliers within the group, and will give each other a lot of attention, a lot of focus and a lot of support to help us drive benefits for both organisations.” He explains that there are three essential qualities Tesco looks for in every supplier: service (providing great products that work); delivery (doing what you say you will do on-time and to budget); and innovation. “Continual innovation is really critical to us at Tesco. As we continue to grow, we need to constantly be able to innovate and have processes in place to do that. Increasingly, we also look for a focus on retail. We work with a number of key suppliers who’ve got a real focus on the retail industry and can help us in improving business processes, with our customer interactions and things like that.” One such example is at the checkout area. “If I look at the carbon footprint for IT, a big proportion of it is checkout,” he says. “So we work with two organisations on checkouts, Wincor Nixdorf and NCR, and we align very closely with them on how we can reduce the carbon footprint through the devices themselves (i.e. the hardware) and the soft ware too. We’ve got a significant investment programme at the moment around replacing our till estate in order to move to a lower energy use infrastructure. We also work with an organisation called Retalix that provides the soft ware that sits on top of the checkouts; it’s all about providing control.” Such visibility into processes, systems and workflows is essential when you run an organisation with over 472,000 staff members – as is getting employee buy-in for any largescale corporate initiatives. Indeed, its huge workforce is integral to the success of Tesco’s sustainability drive, according to Yorwerth, who is adamant that the greening
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GREEN GROCER It’s made from timber, uses sun-pipe lighting and collects rainwater to ﬂush the toilets and run the car wash. And Tesco’s revolutionary eco store located in Ramsey, Cambridgeshire – opened in February – could provide the blueprint for the sustainable store of the future. As the ﬁrm’s ﬁrst zero-carbon store, it generates its own renewable energy on-site using renewable fuel, producing more than it needs and selling the excess back to the grid. The store also incorporates a number of environmentally friendly design features and technologies, including:
Tesco plans to be carbon neutral by
• Sustainably sourced timber frame • Roof lights and sun pipes that allow natural daylight into the sales ﬂoor and staff areas • Energy-efﬁcient heating and air conditioning systems • Rainwater collection to ﬂush the toilets and run the carwash • Combined heat and power (CHP) plant to generate electricity using renewable fuel • No harmful refrigerants in the refrigerators, heating, ventilation and air conditioning systems • The ﬁrst LED-lit car park in the UK • Solar-powered streetlights • Energy-efﬁcient equipment, such as low-energy bakery ovens The company has pledged that for each new store it builds, it will include as many of the environmental features from the Ramsey store as possible, within the limitations of the location. Tesco’s aim is that by 2020, the average carbon footprint of its new stores will be 50 percent smaller than in 2006.
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To encourage customers to go green, Tesco has a website on a greener living, a range of products centred around helping customers save energy and information on low-carbon products
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process has played a big role in bringing disparate parts of the enterprise together. “It’s a great cross-functional leveller because you’ve got to look at how to optimise across the supply chain rather than at just one bit of it,” he says, before adding that because the idea of going green is such an emotive subject, it gets people more emotionally engaged. “You start to build relationships across the business rather than just within a function. Everything we do from here on in is part of the greening of Tesco. Within many stores we’ve created the role of community champions, people who are focused on the local community and carbon footprint reduction. They’re the people who say, “Do you really need that light on? Can you switch that off ? What about this? What about that?” We try and engage everyone right from the grassroots level. “We’re really good at getting simple messages out to staff and getting them engaged,” he continues, citing the company’s Steering Wheel management tool as a good example. Divided into four quadrants – customer, operations, people and fi nance – the Steering Wheel provides a set of key performance indicators, based on demanding but achievable targets, against which each store is measured. “It provides a very clear picture of what our targets are and how well we’re doing, so on a weekly and a monthly basis staff in every store will see whether we’re meeting our energy targets or our carbon footprint targets within their store and within the company as a whole.”
Every little helps What is needed is a change in mindset – getting people to see the inherent value in what you are doing. And for Yorwerth, that starts in the IT department. “In most organisations, the IT group has no real understanding of its energy use; if you start by talking about how to bring that down, the first thing that people get their heads around is that there’s a cost benefit to this,” he says. He believes the challenge is then to change the conversation from one focusing on kilowatt hours and energy to one that talks about carbon, because “it becomes much more emotive” and gets people engaged in the bigger picture. “It’s more about attitude and approach,” he says. “At the end of the day it’s all about efficiency. The way we have run IT in the past has been terribly inefficient. It’s well known that server utilisation in the days before virtualisation was of the order of 2-5 percent. A server that was 10 percent utilised was probably quite busy, but even that’s incredibly wasteful.” And while big ticket technology advances such as virtualisation and energy management solutions are critical to reducing such inefficiencies, just as important is to start making changes where people are able to quickly see the value. “Such schemes may not have a significant impact on the carbon bottom line, but they have emblematic value,” he explains, citing a rollout he implemented that involved removing individual printers and replacing them with one centralised machine. “When there was a number of printers per department, you’d print a document off, forget about it, then print a duplicate by mistake. But by remov-
LEADING CHANGE IT departments often struggle to take the lead on signiﬁcant cultural change programmes. Yorwerth’s advice? Use technology as a foundation, not an end-state. “Make sure that you are credible as a technologist, both within the organisation and outside the organisation, but be able to translate that into non-technology speak for everybody,” he says. “IT leaders need to be great translators, people who can interpret difﬁcult technical problems into simple language for the business and vice-versa. The other crucial thing for leaders in IT is to learn about the business they’re in. Although technology is a great leveller, actually what stands people apart is an understanding of the industry they’re in. So I’ve got 20 years in IT, but I’ve also got 20 years in retail, and I never underestimate the importance of the customer, the importance of information and the importance of making sure we know how we’re doing throughout the day and throughout the year.”
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ing that ease-of-use, people think more about what they are printing.” Now staff members are required to swipe their badge at the printer itself, and only at that point will the document print off. “It’s a very quick and simple change that enables people to understand what we’re doing here. And we’ve actually significantly reduced our energy use as a result.” Such an approach is equally important when it comes to engaging customers in the value of going green. “I think it’s incredibly important to show the customer that we’re being more carbon-efficient, because it shows that we’re taking a lead,” says Yorwerth. “And if customers feel comfortable with it – if they feel it’s important – then they are more likely to make an effort themselves. Going green is not something odd and it’s not something different; it’s something we’ll all be faced with in the future. So the importance of things like solar panels and wind turbines in our stores as part of a carbon reduction programme is really important to us.” Tesco recently opened a zero carbon store in Cambridge, and while it doesn’t look radically different to the company’s regular stores, Yorwerth maintains that it does have some subtle differences. “It has much more natural light, and uses more natural building products like wood, and there’s wind turbines, solar panelling and things like that to help reduce the carbon footprint. It might be subtle, but it’s very clear to the customer that we’re making a statement with it, and that’s important.” For Yorwerth, it’s all about making sustainable choices easier for the customer – reflecting the Tesco motto of ‘Every Little Helps’. “It’s about providing customers with simple information,” he says. “For instance, we’ve carbon footprinted a few hundred of our products so you can look on the back of a carton of orange juice, say, and see what its carbon footprint is to help you decide whether you can make those trade offs. We have a website on a greener living. And we’ve got a significant range of products centred around helping our customers save energy. It’s about encouraging our customers that it’s okay to be green and providing the information to do that. It’s about democratising it as well, making being green affordable for everybody.” And if customers and staff are as enthused as Yorwerth clearly is about the sustainability journey Tesco is currently embarked upon, expect to see plenty more green initiatives coming soon to a high street near you. “It’s a bit like a rollercoaster sometimes; it’s got its ups and downs, but it’s great fun,” he laughs. “There’s never a dull day. We’re continually raising the bar in terms of performance, in terms of what we expect from ourselves and what we expect from our people. We don’t stand still.” It’s an attitude Tesco’s founding father, Jack Cohen – whose legendary catchphrase was “You Can’t Do Business Sitting On Your Arse” – would no doubt have approved of. And at a company famous for setting – and achieving – ambitious growth targets, it would be fool who bets against Tesco setting the green agenda for the retail industry for many years to come. ■ Mike Yorwerth was speaking to Meet The Boss. For more information please visit www.meettheboss.tv
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Future home improvements
Home improvement retailer Kingﬁsher was one of the ﬁrst retail chains to bring sustainable principles into its operations. Now 20 years on, in an increasingly environmentally conscious society, how have those practices survived and developed? Lucy Douglas spoke to Ray Baker, Director of Corporate Responsibility, to ﬁnd out.
he retail landscape has always been something of a competitive field. Stores and brands across the world all strive to offer their customers better service, a wider array of products, cheaper prices than their neighbours, and the recent recession has made the business environment for retailers more cutthroat than ever. But today the sustainability agenda looks set to take over as one of the key drivers for businesses in the coming years. With green products enjoying one of the greatest growth rates of any sector in the European retail market, global brands such as Tesco pledging to eliminate carbon emissions from their operations over the coming years, and consumers becoming ever more environmentally conscious, sustainability is fast becoming the latest musthave for retailers. “If you think about it,” says Ray Baker, Director of Corporate Responsibility
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at home improvement retail giant Kingfisher, “sustainability principles should be good business principles. So if our sustainability strategy says for example we should be saving energy, we should be saving waste, we should be giving better advice to our customers, in turn that’s going to save us money and increase our sales.” Kingfisher is something of a pioneer of sustainability in the retail industry. Almost 20 years old, the Kingfisher sustainability programme was borne from the company’s UK operating brand, B&Q. “It was in the early 90s that [B&Q] started to look at social responsibility,” Baker explains, telling me how a journalist asked the then marketing director how much tropical timber B&Q sold. “The response was, we didn’t know, and the journalist said, ‘If you don’t know, you don’t care,’” he explains. Th is incident was one of the factors to spark the sustainability practices that have set the fi rm up a market
leader in this area today. Following that phone call, B&Q embarked on a programme to know just how sustainable its timber was. “Other initiatives were also brought into place at that time,” Baker adds “such as the pioneering of paints with low volatile organic compounds (VOCs). But I suppose the kick start was the sustainable timber, and at the time there was a real push.” Baker explains how B&Q was instrumental in the forming of the Forest Stewardship Council (FSC), the international, non-government organisation dedicated to promoting responsible management of the world’s forests. Today, he says, the FSC is the best-recognised certification process for ensuring legal and sustainable timber; in 2009, over 95 percent of all the wood B&Q sold came from responsibly managed sources. Fast forward to 2010, and Kingfisher is still a market leader in this sector, with its sustainability practices still heralded as some of the
best in the market, earning the firm a number of awards in recognition of this feat. In June of this year, the company was awarded the Business Commitment to the Environment (BCE) ‘Peter Parker’ Award 2010, one of the world’s longest running international environmental awards, for its commitment to sourcing sustainable timber. Within the same month, the company was also awarded fi rst place in the Environmental Leadership category of the Business in Community (BITC) Awards for Excellence, for its work on ‘spearheading sustainability and delivering value’. “Within our operating companies in the UK and France, there have been some big initiatives,” Baker tells me, “and I suppose the one that we’re pioneering at the moment in the UK is the eco-shops within stores.” Eco-shops, he explains, are specialist areas within a store that specifically promote an extensive range of eco-products, as well as give thorough, and often much needed, advice to customers about how best to implement sustainable practices into their homes and save money by reducing their energy bills. “And indeed,” he adds, “what they’re doing to ensure that the staff within the stores are trained, is to reintroduce the City & Guilds Qualification for eco-advisers. The idea is to have, in the UK, about 1700 in place by the autumn of this year.” The first of these eco-stores began operating in January last year, in B&Q’s flagship branch in New Malden. Indeed, the B&Q brand, as a pioneer of sustainable practices in the retail market, has been established as the guinea pig for Kingfisher’s sustainability initiatives. Baker explains that once such initiatives have proved themselves successful in the British market they will then be rolled out into Kingfisher’s other operating platforms. The eco-stores initiative, for example, has already been implemented in the French market, within Castorama, under
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“If our sustainability strategy says for example we should be saving energy, we should be saving waste, we should be giving better advice to our customers, in turn that’s going to save us money and increase our sales” the name La Maison Eco, and the group hopes to be able to implement similar ventures across all its operations.
Sustaining the future The eco-store venture is part of Kingfisher’s wider Future Homes strategy, an action plan for sustainability that has two main aims: to help consumers create greener homes (through initiatives such as the eco-store) and to embed sustainability across the company’s business operations. Baker explains that it helps the company to focus, giving a system of comparison across the board. “It is focused on seven key goals,” he explains. “These are business driven goals, but they relate to sustainability. And underpinning these goals is a management system that we call ‘Steps to Responsible Growth’.” The ‘Steps’ system requires each of the Kingfisher operating companies to progress
towards sustainability along a prescribed path by achieving a number of goals and objectives outlined within the system. Th is method allows the company to ensure a consistent and realistic progress of sustainability, taking into account the cultural differences of the individual markets in which each brand operates. Indeed, cultural differences within a company that has five operating brands, across eight different countries, with around 80,000 employees present a big challenge when monitoring sustainability practices. In order to ensure continued high standards of sustainability across the organisation, Kingfisher implements a fairly rigorous, three-tiered auditing system. “We audit the progress both through our own internal audit programme,” explains Baker, “and through an external business, who audit the data, but also we have an independent stakeholder panel made up of NGOs, investors, suppliers, and they look at what we achieve in our reporting progress, critique that and tell us whether things should improve, where we should strengthen up, where we should go faster.” Clearly Kingfisher pulls out all the stops to demonstrate that it is at the forefront of the sustainability movement; Baker explains that the firm has the same meticulous attitude to its products, ensuring that everything branded and sold as an ‘eco-product’ has been verified by a partner company. B&Q had about 4000 such products – products that essentially reduce the overall impact that a building has on its environment, such as low-energy light bulbs – on its shelves last year, and Castorama just over 5000. “What we certainly don’t want to do is be seen as green washing,” Baker explains, reiterating the importance of having such certification standards. And it is a necessary protocol with the consumer market becoming increasingly sustainability-conscious. Last year Kingfisher racked up UK£1 billion in sales of eco-products, the equivalent of 10 percent of its total sales, and Baker reveals that the company is looking to increase that figure. “What we are working on at the moment,” Baker reveals, “is a range of products that will be, if you like, the best of the best of all the eco-products.” Ultimately for Baker, sustainability is not just one initiative; it represents the way that Kingfisher should do business. “I think that, to me, sustainability goes hand in hand with the growth of an organisation,” he says. “I think there’s only one growth, and that’s sustainable growth. And I think that what will happen and what is already happening is that the challenge of individual sustainability initiatives will just be the way of a business.” ■
Retail revolution Evolution in technology is revolutionising the retail industry. Itellium’s Jens-Uwe Holz explains how retailers can utilise technology to maximise turnover in today’s mobile market. What are the everyday challenges for retail companies? Jens-Uwe Holz. More than any industry, the lifeblood of retail is keeping a steady flow of goods and products moving along a highly complex supply chain. Forget about holding stock. Responsibility for the availability of goods is being pushed back up the supply chain to partners using a variety of different models. Macroeconomic performance, resulting consumer behaviour, competitive pressure and new technologies are all making themselves felt very strongly in the retail space. With this in mind, people are especially looking to IT to help retailers and retail managers handle the high speed at which they must respond to changes. This calls not only for an in-depth knowledge of IT, but also a proven business capability. Many of our 270 employees have spent over 20 years handling IT issues in retail and other sectors with complex supply chains. Th is knowledge – together with our focus on quality and proximity to the customer – are key enablers helping us win in a competitive world. From the IT point of view, what are the most important issues for retailers at present? JH. Pretty much every IT project is about boosting our customers’ competitive edge. We’re especially seeing this in Germany, one of the most demanding retail markets in Europe. If you can make it here you can make it elsewhere in Europe too. Itellium has been an established IT partner of the German retail industry for years. We have the benefit of really mastering the complex processes at work in the retail sector and, as a supplier of end-to-end services, delivering joined-up IT solutions along the full length of our customers’ supply chains. As well as a full span of process capability, Itellium’s strength also lies in our size. We’re able to use efficient, slim-line organisations to ensure our ability to deliver quickly. We also work closely with SAP and are involved in specialist retail development of SAP soft ware as a special expertise partner, providing SAP with our market expertise. What do retailers stand to gain from fully integrated IT processes? JH. We’re using fully integrated business process designs to lay the foundation for the retail industry of the future. Decisions on key strategic directions are being made here; in ten years’ time the interaction of online stores and bricksand-mortar retailing will have shifted fundamentally. High-street stores will be set up in such a way that their
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proximity to the customer will benefit online retailing, which will in turn contribute a greater percentage of a big retail company’s total revenue. Equally, if the online retail outlet is positioned properly in the market, the high-street store stands to benefit too. In our IT projects, indeed, it’s primarily about synchronising sales channels and optimising order logistics. In many instances we’re seeing a lot of catching-up that needs to be done with regards to the use of online retailing. Other ‘could do better’ areas are proper use of mobile equipment such as smart phones and tablet PCs. Building intelligent applications around these tools as part of full-scale integrated solutions is the challenge we’re addressing for several companies. These smart devices are where the future is because they’re all about applications – from requirements planning at the point of sale through to ringing up sales both online and in the high-street – that can be opened up for mobile use. What sort of technology will have an impact on retail business in the near future? JH. I’m convinced that mobile payment methods are set to transform shopping behaviour. Retailers are looking for intelligent solutions built around this shift in user behaviour and expectations. Whoever can demonstrate the best prospects early in the world of mobile payments will enjoy the plum opportunities the market has to offer. That’s why we unveiled our new mobile payment solution ItelliPay this year, to great interest and acclaim. It’s a flexible, low-cost mobile payment method that doesn’t require any special hardware investment, so it’s a born winner for online and bricks-and-mortar retailing alike. ■
“High-street stores will be set up in such a way that their proximity to the customer will benefit online retailing, if the online retail outlet is positioned properly in the market, the highstreet store stands to benefit too”
Jens-Uwe Holz is head of sales and product portfolio. He has more than two decades in the IT industry proving his credentials, among other things, as a CEO at EDS Germany and Gedas Deutschland GmbH, where he was responsible for entering new markets and establishing central business divisions.
INTELLIUM AD.indd 1
TECHNOLOGY PARTNERS John Keeling, Head of IT for the John Lewis Partnership, talks to Next Generation Retail’s Ian Clover about how the constant demands of an increasingly tech-savvy consumer places new challenges at the door of the IT department.
ondon’s Victoria train station is a busy place at any time and on any day of the year. As one of the main transport hubs in and out of the largest city in Europe, this is understandable. But visit in the middle of a weekday at the height of summer (do not let England’s perennially grey outlook fool you; London in late June can be stifling) and you’ll soon fi nd yourself embroiled in a battle against the elements, the traffic, the noise and the army of commuters and tourists fighting their way to their destination. Amid such organised chaos stands the John Lewis Partnership’s HQ. Here, in the heart of London, you would expect the headquarters of one of the nation’s most prestigious high street names to be equally hectic; but once through the glass doors and into the foyer, the traffic horns, pneumatic drills and sound of the street melts away. Calm envelopes you as the organisation’s smooth professionalism takes over. High up on the tenth floor is where John Keeling and his team work. Panoramic views towards Buckingham Palace and Hyde Park in the distance immediately draw the eye, but what is most striking is just how peaceful and relaxed the office is. In John Lewis a way, it is hard to believe that this is the IT hub of an Partnership is organisation that has experienced healthy growth in the made up of last quarter, driven in part by strategies developed in the IT departments that were designed to help the partnership gain a better insight into the shopping trends and staff habits of its loyal customers. John Lewis, along with its upmarket supermarket brand Waitrose, are much-loved high street names throughout the UK. John Keeling, as IT Director for the partnership, is tasked with the challenge of helping drive the company to greater heights through the implementation of better, bolder and more inventive IT strategies. As he relaxes into his seat – eyes sparkling and a contented air settled assuredly on to his shoulders – it is hard to imagine how a man laden with such responsibility can appear to take it all so easily in his stride. But his easygoing exterior belies the tough, results-oriented business acumen within. “We’re business-driven,” he asserts, putting to bed any lingering notions of IT professionals being technical specialists hiding away in an ivory tower. “We work very closely with the business and system teams and the underlying technology these departments use. It’s a very close relationship that enables us to look at not only new technologies that we are implementing, but also identify how reliant we are on our technology. So whether this is the point of sale system or customer systems that we rely on – and we
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do – they have got to be resilient; they have got to be robust; and they have got to be available.” Indeed, he explains that technology is now such a valuable part of the company’s DNA that it has got to a point where customers expect high standards of reliability and service as a minimum requirement. “There is an expectation that people want instant service now; they are not going to wait around, because they will go off somewhere else very quickly if your systems are not reliable and fast,” he says. Such thinking provides the bedrock upon which all the company’s IT architectures and systems are built. Whether it is keeping the lights on or investing in new technology innovation, the focus is clearly on meeting the needs of today’s increasingly demanding customer – and improving the customer experience is a key element of this. “The John Lewis Partnership doesn’t just use technology to become more efficient through better supply chains or more efficient administration procedures,” explains Keeling. “We also use technology to create differentiation, particularly around the way we conduct customer service and the way we provide a different experience to our customer. It’s more of a strategic thing.” He uses the example of the company’s gift list wedding service as evidence of this customer focus. “If you go into a John Lewis store today you see the John Lewis Gift List system, which used to be the old wedding list system. Customers can go in, they take a scanner and walk around the shop, scanning items they’d like to put on their list, and then that list can be put online for people to view and purchase from. That system was, and still is, a market leading product that uses technology to actually provide a real different kind of service. And if you Last year the go into our Waitrose supermarkets you will see many with company turned our self-scan hand scanners, designed for quick scans that over nearly can also drive increased footfall to our stores. These types of technologies make a difference for us. So from this point of view, technology provides improved customer service, which enhances our reputation of delivering great customer service and great value.” Keeling believes that the company’s unique partnership approach enables it to harness the full range of employee skills it has at its disposal – something that has proven invaluable for his department in ensuring that it is seen as more than just a cost centre. “I think we have a great advantage here at the John Lewis Partnership in that we are coowners in the business,” he says. “The Partners in our IT departments take a huge interest in not just their own functions in the business but also in the company as a whole. As a result of that, we have developed a working culture that allows us to become natural collaborators with the business.” He explains that one of the firm’s core principles is that of working together. “Our IT departments work very well with our business, which is a really big plus, helped by being co-owners of the business; there’s a common goal and common interest there that makes a big difference. But to be taken seriously and to be trusted by fellow business partners, you’ve got to be able to deliver the basics. Once you start doing that then there are more opportunities to develop thought leadership. But this has become more difficult in recent years because technology in general has started to get closer to the customer, which presents a whole new set of challenges.” He reveals that the growing number of people outside the IT community showing an interest in technology today provides his department – and the business as a whole – with some of its biggest challenges. “The internet has made people more technically savvy, which leads to increased security risks, added expense, different types of training and recruitment – all sorts of challenges are evolving for the IT department,” he says. “As a result, I think it is important for the IT community to be a trusted partner.
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TECHNOLOGY FOCUS 99
When you are, people will come to you for solutions, and that is one of our challenges – to make sure that we can be seen to be responding to requests for assistance in a positive way.” Of course, such consumer acceptance – and adoption – of new technology is nothing new; Keeling sees it as just the latest gamechanger. “There are three things I look back on over the last 15-20 years that have had large impacts on how we work,” he says. “The fi rst was the PC, people having their own desktops at home. Then there was email communication; people creating documents, sending them, becoming more technically savvy, linked up to an online community, things like that. The internet created so many commerce opportunities, but also instant access to information and increased security threats. Then the third wave is the one we face now, which is the mobility and connectivity offered by smartphones. Over the next few years we expect to see enormous growth in this area, where the ‘phone’ element is secondary and people use it for Facebook, Twitter, GPS, geo-location, games, TV etc. I see huge potential here, and huge challenges too. I see a changing face in the way our customers, and indeed society, will behave and shop. Even today people can walk into one of our stores armed with an iPhone app that scans prices and it gives them the three best prices on the market. Or you can download vouchers on to your phone and then a store knows where you are and offers you a real-time deal. The expectations on service this brings is completely different to what we know. Technology is forming new habits, and we have to react to that.” So from an IT perspective, how is Keeling and his team ensuring that the John Lewis Partnership is ready for the evolution that the smartphone market is driving? “I think we have to recognise that there is a lot of innovation going on out there,” he offers. “Companies like Apple and Google, as well as Microsoft , are changing the landscape, which is something we’ve got to be mindful of. In this aspect, it is the mobility issue that is most challenging; people now have increased access to the internet through mobile devices, and the way they are communicating with one another through Twitter and other forms of social media will change the face of commerce. We are faced with a generation that is constantly online, so the trick is how to manage that rather than fight it.” As a result, Keeling is constantly monitoring the marketplace for new social media tools that may have some impact upon the business. “The implications at the moment are that if people are Twittering away about the Partnership then we’d like to know what they are saying,” he explains. “Th is is something we need to begin to consider. It’s like having an ongoing real-time customer survey. So as smartphone users become better able to go into our stores and scan our goods in order to fi nd the best price, we need to be there, reacting to this change in consumer behaviour. Not only that, we need to maintain what our customers expect from us, which is good customer service, good quality in all we do. The challenge is not just ‘getting it’, but doing it well, too.” It’s a technology revolution that will alter not just the way that the John Lewis Partnership operates; all major commerce outlets will need to revisit the way they do business and decide whether they are equipped to deal with the next wave of change. “Our business is becoming a multi-channel business, and we will continue to refi ne that so that it is a more seamless experience for the customer,” says Keeling. “We are what you would call ‘clicks and mortar’, in that, whether it is a click of a mouse, a swipe of an
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iPad or an actual physical shop, we can deliver what our customers want. “As a business we are looking at different ways of engaging customers, so we have large stores, smaller format convenience stores, catalogues, the internet, some franchises in the Middle East, smartphone access; basically everywhere the modern consumer expects us to be, we’re there. The IT department has had to learn to adapt to this change. We need to know what our customers are connecting to. Are they connected via 3G? What system are they coming through to? How can we identify this customer? Challenges like this are forever coming at us, so we have to understand our customers, understand availability, which links to the core traditional systems a normal retailer has to know, just on a larger, slicker and real-time basis,” he adds. Naturally, this leads to challenges around the types of systems and architecture required because, as Keeling says, in the end IT is about data and how you deliver it. “IT is no use if you cannot deliver it and understand it,” he asserts. “It has to be available anytime, anyplace, anywhere. One of the largest investments we have made in the IT department is in ensuring our data centres can provide real agility. We host a lot of websites, and we have the capability to do this because our data is virtualised, it is green, it is
“We also use technology to create differentiation, particularly around the way we conduct customer service and the way we provide a different experience to our customer. It’s more of a strategic thing” efficient – we have really underpinned our technology, which is something I’m extremely pleased about. We also have a communication network that has converged data and voice. By implementing this, we have created a digital landscape that enables us to do many things, such as putting out our own Wi-Fi to link into our networks. There are many more digital infrastructures that we are looking at that we are not doing yet, but are now in a good position to do so.” According to Keeling, The John Lewis Partnership has made big investments in technology in order to be ready to face the challenges of a digital, tech-savvy world. “Th is commercial consumerisation of IT that is starting to appear is one of the main challenges, and I think our modern and agile infrastructure is extremely capable and a big plus for the John Lewis Partnership,” he concludes. “Our fit and ready IT department is constantly evolving to meet the challenges posed by the consumers and support the needs of the business. “ ■ John Keeling graduated from London University in 1979 with a degree in computer science. He has spent the last 18 years at John Lewis Partnership, initially for Waitrose Systems and then for Computer Services. After being Head of Technical Support for two years he became Director of Computer Services in 2002. His responsibilities cover shared IT infrastructure (including the John Lewis Partnership’s Data Centre), shared systems (Finance and Personnel), and shared IT services for both the John Lewis Partnership’s major divisions of Waitrose and John Lewis.
Safe and sound In today’s business climate, security is a paramount concern, as retailers cannot afford the crippling costs that theft and fraud can bring. Next Generation Retail takes a look at the loss prevention industry.
o matter what steps you take to secure your business, fraudsters are only ever one step behind. Sometimes they are even one step in front. Th is has become one of those unfortunate facts of life that businesses have to accept, an ongoing game of cat and mouse played between the security industry and criminals with no end in sight. Regardless of the developments for better, safer security solutions coming on the market, theft still contributes a huge proportion of retailers’ loss every year. So perhaps now more than ever, security is imperative to the retail business. According to figures from Financial Fraud Action UK, a total of £1006 was lost every minute to fraud in 2009, and the British Retail Consortium indicated that crime against retail cost British retailers a total of £1.1 billion in the 2008 to 2009 year, marking a 10 percent increase on the previous year and the equivalent of 72,000 jobs. Many industry experts are citing loss prevention as the paramount concern for retailers looking to protect themselves against the recession. Indeed, with so many retailers looking to reduce spending wherever possible in the economic downturn, loss of this sort can have a crippling effect. The Centre for Retail Research found that spending on security from the retail sector was down in the year end June 2009 to £771 million from £785 million the previous year, with retailers looking to reduce outgoings in the tough climate. Th is figure was mirrored in the rate of retail shrinkage, which increased during that same period, indicating the importance of good quality, accurate security solutions for retailers. While some have attributed the rise in store theft to the recession, Stephen Robertson, British Retail Consortium Director General, said: “The increase in retail crime during the recession can’t be justified as a move from ‘greed’ to ‘need’. Whatever the motivation, shoplift ing is never victimless or acceptable. The cash costs are met by honest customers who end up paying more and the human costs by shop staff who intervene.” So where has the retail security budget been going? Th is industry may have taken a slight set back in the last year, but loss prevention still takes a significant proportion of a retailer’s spending. And the increase in crime against retailers suggests that the current security solutions are ineffective. A paper published by the Retail Loss Prevention division of business solutions fi rm Richards International Group suggests that 56.2 percent of retail security budgets in the 2008 to 2009 year went on security personnel. The
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research also found that in only two percent of cases did retailers report a return on investment in security personnel. By contrast, a mere 6.8 percent of budget goes on correctly training employees to deal with breaches in security, and this method boasted a 50 percent return on investment. The paper recommended that the costly and largely ineffective security costs might better be replaced with a more systematic approach to loss prevention. Thorough internal inventory checks of all merchandise in a store, regulated procedures for receiving stock and reporting theft or damage, and training to ensure competency of sales staff were all cited as steps retailers could take to improve loss prevention, as well as constant and accurate account management across the organisation. British mobile phone retailer The Carphone Warehouse implemented such a system to monitor and ultimately decrease loss throughout the business. While not directly improving front line security procedures, the technology that The Carphone Warehouse developed, in conjunction with The ORIS Group, included a dashboard system that keeps shrink figures and margin erosion constantly in the eye line of the loss prevention specialists. The dashboard monitors employees’ compliance with business procedures, and the effects on the overall business. Justine Firlotte, the European Loss Prevention and Fraud Support Manager for The Carphone Warehouse said: “There is a risk to the business from non-compliance and the ‘Margin Erosion Dashboard’ (MED) is there not to catch people out, but to empower them to proactively look at the risks in a detailed line-by-line and contract-by-contract way. Also, because it is all in one place, it allows the business to manage loss and risk in a way we have not been able to do before.” The firm’s award-winning, bespoke ‘anti-shrink’ technology is being rolled out to nine countries across the European region. As with many sectors in the retail industry, technology is playing a pivotal role in the development of tomorrow’s security solutions. Systems such as The Carphone Warehouse’s dashboard are founded on next generation platforms. However, technological developments pave the way for problems just as they do solutions. Internet fraud has risen to £153.2 million in 2009 from £3.8 million back in 2000, and card fraud has near tripled between 1999 and 2009. Ultimately, it seems the changing face of retail will always lead the way for a change in theft and fraud, and systematic, low-cost solutions are proving just as effective to tackling this on-going issue in times of fi nancial difficulty. ■
“Whatever the motivation, shoplifting is never victimless or acceptable. The cash costs are met by honest customers who end up paying more and the human costs by shop staff who intervene”
A new report released this week revealed that more than 15,000 people in the UK have become victims of fraud in the ﬁrst six months of 2010. Recent ﬁgures also state that in 2009, total fraud losses on plastic cards was over £440 million, fraud losses on cheques reached almost £30 million and online banking fraud losses increased by 14 percent to £59.7 million.
SECURITY FOCUS 101
FRAUD: THE REAL SECURITY ISSUE
£620 BILLION IN TRANSACTIONS 143.7 million cards in issue 11 billion transactions
£188.4 MILLION 1999
53% OF INTERNET USERS BANK ONLINE That’s 24 million adults in 2009
£440.3 MILLION 2009
CARD FRAUD LOSSES BY TYPE
EVERY 60 SECONDS IN 2009...
CHEQUE USE HAS DECREASED, HOWEVER
Lost / stolen Mail non-receipt Counterfeit Card-not-present (phone, Internet etc) Card ID theft
£56 was lost in cheque fraud
3.5 million cheques issued each day, 2009
£113 was lost in online banking fraud
11 million cheques issued each day, 1990
£837 was lost in plastic card fraud
Counterfeit Cheques £4.7 million
Fraudulently Altered Cheques £9.3 million
Forged Cheques £15.7 million
UK CARD FRAUD ABROAD
PHISHING WEBSITES TARGETING UK BANKS
FORMS OF CHEQUE FRAUD
£54.2 million in 1999
1,700 in 2005
£122.7 million in 2009
51,161 in 2009
Plastic Card Fraud Card-not-present Fraud Internet / E-Commerce Fraud At UK Retailers
Lost and Stolen Fraud ID Theft
At Cash Machines
1999 - £14.4 million 1999 - £79.7 million
2009 - £38.2 million
2009 - £47.9 million
1999 - £12.2 million 1999 - £93 million 2009 - £72.1 million
1999 - £72.9 million 1999 - £188.4 million 2009 - £440.3 million
2009 - £36.7 million 2000 - £3.8 million 2009 - £153.2 million
2009 - £266.4 million
THE RISE OF FRAUD IN THE UK 1999
Graphic for Meet The boss TV | www.meettheboss.tv Source: Financial Fraud Action UK Graphic by T Farrant
Security ED.indd 101
Welcome to the
You have to find ways
in which your customers can be more efficient at what they
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want to do
TECHNOLOGY MATTERS 103
Amazon’s Chief Technology Ofﬁcer Werner Vogels is focused on transforming the internet behemoth into the world’s most customer-centric organisation – and is using innovation to help him get there. By Ben Thompson
he Amazon rainforest contains the largest collection of living market decide what’s hot and what’s not has played a key role in helping plant and animal species on the planet – and like its jungle to make the company such a trusted seller – even non-customers admit namesake, the world’s largest ecommerce platform holds a to checking out the user reviews before eventually buying elsewhere. But similar wealth of weird and wonderful specimens just waitas other retailers jumped on the user review bandwagon, Vogels and his ing to be discovered. As well as everyday items such as clothteam decided to take the concept a stage further. By adding a simple button ing, music and consumer electronics, the internet explorer asking ‘Was this review helpful to you?’, Amazon prioritised the most can also find a huge range of rarer treasures. Want to reduce your carbon relevant reviews – those that had helped customers make a decision over footprint? How about a 400W self-assembly wind turbine to help get you whether or not to buy a particular product, both positive and negative – started. Looking for that unusual gift? Check out the original Andy Warhol and provided a simple way for customers themselves to regulate the quality screenprints in the ‘Everything Else’ department. Fancy getting married? of the reviews. A recent article in Business Insider suggests the move has Try the 10x18-foot wooden wedding chapel, complete with front porch and had significant business benefits. In 2008, Amazon brought in US$19 bilsteeple (sorry, bride not included). Shopping has never been this easy. lion, of which 70 percent came from media products such as books, movies Yet while some may still think of Amazon as and music – products that also make the best simply an online retailer, the reality is very differuse of the reviews feature. The study suggests Amazon.com fast facts ent. From its bookseller origins, the company has that promoting the most helpful reviews has grown to become one of the world’s biggest techincreased sales in these categories by 20 percent FOUNDED: 1994 nology organisations, a platform that attracted (one out of every five customers decides to comHEADQUARTERS: Seattle, Washington over 615 million visitors last year and on which plete the purchase because of the strength of the AREA SERVED: Worldwide more than one million active retail partners do reviews) – adding a projected US$2.7 billion to business worldwide. An increasing number of Amazon’s top line. CEO/CHAIRMAN: Jeffrey Bezos diverse businesses are built on the Amazon.com It is often said that the best innovations REVENUE: US$19.16 billion platform – including the online operations for are the ones that seem so obvious. And while OPERATING INCOME: US$842 million Target, Lacoste, Marks & Spencer and Timex Vogels is at pains to stress that such developNET INCOME: US$645 million Corporation – and the company’s relentless focus ments don’t just happen without a considerable on innovation helps Amazon maintain its status degree of effort, he does concede that all AmaEMPLOYEES: 20,500 as a high-tech pioneer. From new hardware develzon’s technology improvements start from a very WEBSITE: Amazon.com opment to the definition of new business models, uncomplicated concept. “You have to fi nd ways from building ultra-reliable storage services to a in which your customers can be more efficient at massively scalable computing cloud, from pervasive monitoring and perforwhat they want to do,” he explains. “We have a number of high-level goals mance control to revolutionary efficient soft ware architectures, Amazon is around how quickly customers can fi nd items, how easily they can browse, recognised as being on the bleeding edge of technology development. how they can check out and how they can purchase things, and making “We have three different businesses,” explains the company’s CTO that as efficient as possible for our customers is key for us.” Werner Vogels. “One is the retail business, and that’s the one that people If you focus on the customer, continues Vogel, you take the long-term are most familiar with. Then there’s the seller business, which consists of view. “You’re not looking at the next quarterly success; you’re looking at three major streams – the seller-only Amazon website, the enterprise serhow you can make sure that Amazon is the world’s most customer-centric vices business where companies launch ecommerce operations on top of our company over the long-term, and how you can innovate on behalf of the platform, and services such as Fulfilment by Amazon that enable businesses customer to make sure that the things you do really matter. In this sense, to take advantage of one of the most advanced fulfilment networks in the everything from reviews to web services can be thought of as supporting world. And then there’s the developer business. For all of those, we take the tools for doing the right thing for the customer. In terms of technology, it same approach: we want to be the world’s most customer-centric company.” means seeing whether we can take a more cost-effective approach or have For Vogels, this means focusing on continuous interaction with the better scalability and better reliability, or whether can we help our customcustomer-base – generating what he calls a ‘feedback loop’ – to ensure that ers make sure they make the right purchasing decisions.” the services Amazon provides are the right fit for its customers. “We have a Of course, efficiency is one measurement of success, but there is also a process that we call ‘working from the customer backwards’ to develop new more intangible quality that must be achieved for such a platform to be loved technologies, where we start with what the customer needs and then work by its user-base: ultimately, it must also provide an enjoyable experience. backwards from that point to make sure that the technology we implement “Customers are very vocal with what they appreciate and what they don’t,” really does what we want it to from a customer standpoint,” he explains. he continues. “So while our customer service is known for being excellent, customers also have the power and the tools to actually give feedback directly Plotting a path to the technology teams. In terms of innovation, we make sure that all these Take Amazon’s popular and much-copied product review system, for small experiments that are going on all the time with new technologies, with example. The site had reviews from the outset, and the idea of letting the new customer-facing functionality, can be continuously measured.”
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Measuring value Amazon has taken a number of steps to ensure any improvements to the platform add real, measurable customer value, and has built a large infrastructure to ensure it can monitor and assess the impact of changes to the site. For instance, all Vogel’s teams have been given the instruction to innovate continuously on behalf of the customer, constantly looking at where improvements can be made. What makes a particular service a best seller? Is it better information, better presentation or different sources? “Our goal for customers is that they can fi nd what they are looking for as fast as possible, in the most efficient way, in the minimum number of steps,” he explains.
“In terms of our personnel, we look for a very particular individual: they need to be able to think in the way that the customer thinks” Vogels maintains that this is only possible via constant monitoring of the customer experience. Consider the following example. A customer wishes to download a movie to watch on the long Seattle-NYC fl ight, and sends Amazon an email with a question about its video-on-demand service. Not only does the service team answer within the hour, they also include a link to indicate whether the answer solves the question or not. Choosing ‘yes’ takes the customer to a ‘Th anks for your feedback’ message, which not coincidently puts them back onto the Amazon site and
contains a further link to provide additional feedback. If you respond ‘no’ to the original question, you are taken to a similar page to rephrase the question. Th is simple feedback mechanism provides a number of important benefits. First, it demonstrates Amazon actually cares whether the user’s problem is resolved satisfactorily; it allows the customer to easily submit another question if not satisfactorily resolved; it allows Amazon to quantify the performance of the service department; it identifies areas where better answers are needed; and fi nally it helps identify tricky problems that can be corrected. Such attention to the minutiae of customer service interactions helps the company refi ne its offerings and continuously improve. And while conceding that the management team makes most of the long-term big technology bets, Vogels insists that many of the ideas actually come up through the organisation. “Amazon is very flat in terms of its organisational structure and we have a tremendous focus on innovation, so we’ve got all sorts of paths in which key information and ideas can travel to those who actually make the decisions,” he says. “I think most of the technologies as you see them in Amazon – whether it is reviews, whether it is Listmania, whether it is Gold Box – have come out of the grassroots.” Such a meritocratic hierarchy, where the best ideas rise to the top, is essential to the company’s reputation as an innovator. Encouraging ideas that add value is a philosophy that is nurtured right through the company culture, from the C-suite down to the recruitment of new hires, as Vogel elaborates. “In terms of our personnel, we look for a very particular individual: they need to be able to think in the way that the customer thinks,” he says. “It’s very important to have a culture where everybody understands what the core values of the company are. New starters are often surprised at how important focusing on the customer is to us and how good Amazon is
Amazon’s logotype is an arrow leading from A to Z, representing customer satisfaction (it forms a smile) and the goal is to have every product in the alphabet. “If your catalogue becomes larger, more customers will come to your site, which makes it more interesting for sellers,” explains Vogels. “That means more sellers come to your site, which means your catalogue grows. It’s what we call a ﬂywheel, and the more energy you put into innovation in the ﬂywheel, the better you’re actually able to execute.”
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at doing that. So having a core value throughout the company that everybody signs up to is essential.”
It is a challenge Vogels relishes. “I think you can have brilliant ideas, but taking them from the idea phase to the stage where they really mean something for your customers is much more challenging than I anticipated The importance of teamwork when I was still in academia,” he continues. “I did some start-up work The other essential trait that Amazon tries to instil in all staff is the alongside my academic work, but even so the path going from idea to actual ability to collaborate effectively – something that is particularly imporimplementation is a long journey, and when you have to operate at the scale tant in the technology function, which by its nature involves small teams of Amazon that’s a whole different story again. Suddenly, issues like relifocused on specific projects. “Our development teams talk to each other ability, performance, availability and cost-effectiveness play a major role in all the time,” says Vogels. “Even though we work in very small teams, all of the decisions you make along the way.” Amazon itself is a very large technology operation and it is essenAnd in contrast to Google, which famously encourages tial that everyone cooperates and collaborates all the time.” developers to spend 20 percent of their time on individual According to Vogels, teamwork is key to delivering projects outside their day-to-day responsibilities, the team Target, fully rounded ideas that really work for the customer – ethos rules at Amazon. The motivation comes out of the Marks and Spencer whether that customer is internal or external. Coming idea that the things that you do have a direct impact on and Lacoste use from a background in academia (prior to joining the customer. “Doing things that matter to people is the Amazon.com Amazon in 2004, he spent a decade as a research scientist tremendously motivating, and so most of our engineers platform in the Computer Science Department at Cornell Univerand programme managers – and indeed everyone else sity looking at scalable reliable enterprise systems), Vogels that is working on our products – fi nd tremendous reward admits to being energised by the way business organisations in making sure that our customers have a better experience. approach the issue of R&D. “In academia there’s a real focus on We often have meetings where we start off with a ‘customer voice’ individual achievement,” he says. “Although there is some collaboration – a success story, even sometimes a negative story, of a customer’s experiamong faculty and there are student teams working together, the work ence of buying on Amazon – and use those stories to drive our services to is still rather individual, as is the reward structure. In industry, however, become better.” building real technology is a multi-disciplinary activity. First of all, you Once again, it all comes back to the customer. “We don’t just want need good engineers and programme managers to build something that to be the most customer-centric company on the web; we want to be the really works. But there are also legal implications, there’s an impact on most customer-centric company on the planet, period,” concludes Vogels. tax, there’s impact on PR, on marketing – all of those functions make up “I think that if you look 10 years from now, you’ll see that many of the a team, and you can only build and deliver a product to your customers innovations Amazon has implemented have had a tremendous impact on as a team.” how customer-centricity is viewed.” ■
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Brand owners call for stronger protections against net giants Google and eBay – and predict the next digital battleground for brands will be fought over social media.
he internet is viewed as a “double-edged sword” for businesses, according to the latest brand research from leading international intellectual property group Marks & Clerk. Nearly three-quarters of respondents to its annual survey – based on the views of 266 business executives responsible for brand ownership, marketing and control – argue that while the digital age has brought tremendous opportunity for brand promotion, intellectual property abuses and threats to brand integrity are more numerous and difficult to protect against. In particular, 73 percent claim that brands are more likely to be subject to unfair treatment online than offline, with almost two thirds revealing that the internet has made it harder for them to police and protect the reputation of their brands. Eight in 10 claim that the internet fosters a culture in which companies and individuals are more prone to exploit each others’ intellectual property, “whether consciously or not”; at the heart of their concern is a belief that brands are not afforded adequate or appropriate legal protection in the digital age. Over 80 percent believe that intellectual property law has failed to keep up with the challenges posed by the rise of the internet. One of the primary concerns to emerge from the survey centres upon the boost that e-commerce has given to counterfeiters. An overwhelming 95 percent of respondents believe that the internet has “transformed” the nature of the threat posed by counterfeiting, with almost nine in 10 arguing that the rise of e-commerce necessitates stronger intellectual property protection as a result.
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eBay and counterfeiting Respondents reserved particular criticism for eBay, which has been at the centre of a recent storm of court battles with luxury goods companies over the abundance of counterfeit goods for sale on its auction site. 86 percent claim that eBay should be at least partly liable for the distribution of counterfeit goods on its site, while 59 percent claim eBay’s current efforts to combat counterfeiters using its site are insufficient. Two-thirds describe it as “unreasonable” to expect brand owners to police individual items on the site themselves. A sizeable majority believe that stricter conditions and penalties ought to be directly imposed on secondary markets such as eBay, to combat counterfeiting. “For many brand owners, the assertion that eBay encourages counterfeiting is probably politely described as an understatement,” says Pam Withers, Partner at Marks & Clerk. “Platforms like eBay offer the counterfeiting industry one of the most effective distribution channels we have ever seen, while the size and scale of online marketplaces makes constant monitoring and the detection of crime almost impossible for brand owners.” Withers believes this reflects a much wider theme: that while the internet presents a vital means of distribution for companies, the free-flow of goods and information creates a dimension of risk that brands have never had to deal with until now. “Never before has it been simpler to steal ideas and editorial and avoid being caught; never before have the negative effects of word-of-mouth discussion been felt so quickly; never before has it been so easy to distribute counterfeits or attack companies from behind a veil of
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anonymity,” she says. “This is a serious challenge and ultimately one that Almost 60 percent of respondents argue that Google’s dominance may well be borne by the consumer if brands are continually abused online.” within the European online search market puts the search engine in too Already, the increasing protectionism of brands is becoming familiar powerful a position. Meanwhile, although the courts have more recently reading. Luxury goods companies including Louis Vuitton owner LVMH sided with Google over potential trademark infringement in allowing have responded to the threat of counterfeiting by relying on ‘selective words protected by a trademark to be bid upon by rivals, brand owners distribution agreements’ that restrict where their products are sold. In view this activity rather differently. 71 percent of respondents are uncomNovember 2009, the French courts fi ned eBay €1.7 million for selling profortable with businesses making commercial use of a rival’s brand name hibited LVMH goods – both counterfeit and genuine – on its site in breach in this manner, with 63 percent believing this to be “not at all” acceptable of an earlier injunction. Notably, over half of the respondents to Marks when the brand name in question is protected by a trademark. & Clerk’s research predict brand owners will increasingly deploy such reA majority of 61 percent suggest that both the search engine and thirdstrictions. Furthermore, 62 percent support the right of brand owners to party advertiser should be held legally responsible for the commercial use restrict distribution of their goods and services in this manner – although by rival businesses of a brand owner’s name in the keyword service. By this has a clear potential impact on competition and pricing for consumers. contrast, less than a quarter (23 percent) take the view of the courts that the Above all, the research reveals an urgent call for reform of intellecadvertiser alone ought to bear the brunt of the liability. tual property law to protect brand owners and reflect the challenges of “Online advertising is not new in itself, but the sophistication of the digital age. Respondents are clear, too, as to the dangers of inaction techniques combined with the dominance of Google in Europe and recent by policymakers. 76 percent suggest that legal decisions means that it is taking on unless the law responds to the challenge of newfound significance,” says Gilbert. “For e-commerce, the damage will ultimately major brand owners, activities of this sort be borne by the paying consumer. may appear a clear-cut case of free-riding off Respondents are almost unanimous their reputation and investment. To ensure • 91 percent of brand owners support in their desire to see more consistent and that your search engine listing appears at the imposition of stricter conditions stiffer penalties levied directly on infringthe top of search results is no small feat, and and penalties on platforms such as ers, while 96 percent would like legislation often requires millions in advertising and PR eBay, to combat counterfeiting enacted to spell out the distinct responspend over time. What incentive is there for sibilities of brand owners and online such investment when users searching for your • Over 8 in 10 state that intellectual commercial players. Over nine in 10 are name may easily be diverted to the competition? property law has failed to respond to in favour of further harmonisation of EuFor many, it means spending yet more time and the challenges posed by the internet ropean trademark and copyright law, to money – defensively – merely to stand still.” • Nearly two-thirds believe that Google increase efficiency and consistency. search-advertising is unacceptable In particular, the research reveals Social media: the next big threat? when businesses bid on the name of a support for fundamental change to tradeMarks & Clerk’s research suggests that the rival’s trade mark mark law – which is based upon the origin challenges brand owners face online are likely • Almost 70 percent predict that social of goods and services and there being only to be exacerbated by the rise of social media. media will become the “next big no confusion in the public mind. Nearly The importance – and indeed commercial threat” to brand owners in protecting three-quarters argue that there is a case opportunity – of social media to brand owners their brands online for trademark infringement applying in is striking from the research. 62 percent believe certain situations even when there is no that social media will migrate from a popular possibility of public confusion – such as communication channel to a “substantiated sales when a rival is seen to exploit or tarnish the original brand. and revenue source” for businesses within the next two years. One-fi ft h “Such a strong call for reform reflects the frustration felt by brand argue that this is already the case as social media cements its position as a owners over the nature of the threat posed to brands in the digital age,” valuable commercial channel-to-market. says Kirsten Gilbert, Partner at Marks & Clerk. “Much of the action we However, with the growing use of social media comes a corresponding have witnessed in the courts has centred upon the “free-riding” off brands threat to brand owners, particularly if social media looks to search-adverwith reputation. In short, those that have considerably more invested in the tising to establish a stronger and more viable business model to sustain quality and profi le of their goods and services have considerably more to itself. Nearly 70 percent believe that social media sites such as Twitter, lose in terms of the reputation of those brands.” LinkedIn and Facebook will become the “next big threat” for brands, as This is made more complex by the thorny question of the neutrality of social media follows in the footsteps of internet giants like Google. popular online platforms, she explains. “While no-one would argue against “With the nation now held firmly within the grip of social media, our the benefit for the consumer of online channels, the need for them to be research shows clear concern that the digital threat to brand owners is most commercially viable – typically funded by advertising spend – sits awkwardlikely to increase, rather than recede, in the future,” concludes Withers. ly with a claim for neutrality and immunity from any legal responsibility.” “Search-advertising revenue is hardly new, yet the prevalence of online search is certainly a growing facet of business marketing and likely only The growth of search-advertising to extend over the coming years as social media platforms begin to monMarks & Clerk’s research revealed particular criticism in relation to etise their impressive reach. With Facebook reportedly having the world’s Google, which has benefited enormously from the rise of search-related ‘third-largest population’ – recently reaching 500 million users, compared online advertising. Its AdWords sponsored keyword service allows adverto a population of just over 300 million in the US – it is little wonder we are tisers to bid on keywords that relate to a competitor’s brand name. seeing increasing protectionism and nervousness from brand owners.” ■
Findings at a glance
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Times are still tough for the retail industry, and with companies shutting up shop across the region, Next Generation Retail takes a look at some of Europe’s best places to work to investigate how looking after your staff can protect your business.
our company’s reputation is a precious and fragile commodity. It can take lifetimes to build but can be shattered in the blink of an eye. A favourable reputation will most likely equal a booming intake and ample profits; a bad reputation will result in a crippled business with little hope of recovery. Placing that reputation in the hands of your employees can therefore seem a highly risky move. According to research, some 78 percent of consumers still trust customer recommendations and feedback over a company’s own marketing message. With this in mind, a single bad day for one member of staff can have an alarming knock on effect on your business. One rude, grumpy or irritable shop assistant could be responsible for a missed sale, for a series of dissatisfied customers, or for a bad review that will pass by word of mouth through an endless chain of friends, colleagues and social networks, haunting your business for disproportionately longer than is necessary. The environment for retailers these days is less than pleasant; in fact it is downright hostile. The recent economic maelstrom that rippled throughout the world has instilled in consumers across Europe a reluctance to part with their hard-earned cash, and next generation retail
platforms have exposed old-fashioned and out-dated retailers. Independent businesses have succumbed to the crippling overhead costs and reduced sales. Stores that lined our streets throughout our childhood, stores we assumed would be around forever, have stagnated and withered into administration. Now is the time for minimising risks, not allowing them to fester. With all attention turned to developing a strategy for success in hard times, that man management cliché of ‘look after your staff and they’ll look after you’ has become a secondary concern. The benefits of an engaged, positive and well managed workforce are so unquantifiable that it is often overlooked in favour of a new marketing strategy, better display or improved product range. However, according to a survey carried out over a four-year period by American market research fi rm BIGresearch, knowledgeable, available and friendly staff were the most important things consumers looked for in a retailer. Around 80 percent of consumers asked claimed that they would travel four miles for excellent customer service. Similarly, 17 percent of consumers stated that they would never return to a store after a single instance of poor service; 40 percent would boycott a store after two bad experiences and 28 percent would ignore a store after three. With this in mind, those corny human resources mantras seem a little more urgent.
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COMPANY PROFILE: CREATIV COMPANY “We’re trying to run a business where every employee sees the work as though they were self employed,” explains Anders Lindhardsen, Director of Sales at Creativ Company, a Denmark based arts and craft retailer. The 10-year old company has grown from m two people to a 130-strong staff base since August 2000, and during ring that time has regularly found itself a frequent award winner for its workforce management practices, cited as one of the best places to work in Europe. While Creativ Company is certainly small, and a workforce of this size is far more manageable than one 10 times as big, Lindhardsen argues that not only is this level of growth unheard of for this industry in the tiny country of Denmark, but it has only been made possible by the strength and ﬂexibility of the workforce. “When you grow fast, sometimes you need to really workk hard, and then you’ll have other periods when it’ss more quiet. You need a ﬂexible work force. There’s ’s a lot of trust in this.” Trust seems to be the biggest issue for employers such as Creativ Company. As Lindhardsen reiterates throughout our conversation, the retailer’s success has resulted from a practice of empowering its employees to take responsibility for their own work rate. “[The employees] actually have a lot of power in designing their own jobs, and designing their own tasks and team and that sort of thing,” he explains, “and then we try to be aware of creating a good work place.” There seems to be an underlying competitive and ambitious edge ed to the Creativ Company business sentiments. Lindhardsen explains to me that the company was w founded on a desire “to create the best workplace in the world”. Indeed, creating a strong, employee-focused work environment has certainly employee been a deliberate business tactic for Creativ de Company, Company however its success has not merely been born from fro strong management practices. “It’s something that starts, when we hire a person,” person says Lindhardsen. “We are very much aware that we are looking for the skills that ﬁt the jo job, but also we want to hire people that want more out the job than just a job.” He goes on to tell me that the company is fairly rigid in its system of employing people with the right s att attitude and work ethic, demanding that new ne recruits are positive and willing. “I think we’re quite honest about our expectations w in our company,” he adds. One of the foremost practices that the company undertakes in order to generate such a positive working environment is to s help its employee employees strike the right balance between their home life and professional life. Lindhardsen highlights that in order for the balance to be met, both the employees and management must understand that it is a matter of give and take. He likens
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the th he system to a personal savings account for each sa employee. When the e sstaff work harder or g give a little extra to the business they save up in their busin savings account, he expla explains, and then they have something to draw from when they need to. t Lindhardsen goes on to outline that Creativ Company has been reaping the beneﬁts of this system during the ﬁnancial crisis that has destroyed so many similar businesses in the last two years. “The crisis has been hard on our industry in Europe, and we are still supplying some good results ﬁnancially. We have been able to actually increase our turn over and still employ more people during the crisis. And I think that’s because we have employees that are willing to go the extra mile when it’s needed.”
Social diversity While Creativ Company’s engaged workforce has undoubtedly helped the retailer to ﬂourish throughout the recession, Lindhardsen touches on another beneﬁt of running a company in this way. “From a marketing point of view, the customers like businesses that are taking a social responsibility and doing more than just focusing on money,” he says. While this may seem like slightly cynical ploy, it is impossible to deny to company’s social standing. Between 10 and 15 percent of its workforce are employed under a special needs programme; this includes staff with a disability that would ordinarily hinder their capacity in the workplace, or staff who suffer from stress related illness and struggle to cope in a working environment. In addition to this, the company operates a rolling 12-week internship program, during which it takes on 12 interns who have been out of the workplace for a long time and help them to adjust to life in a working environment. Lindhardsen tells me that Creativ Company will take on a number of the interns on a permanent basis at the end of the programme; for those that are not offered a job, the company also runs an agency through which these interns can be placed in employment in businesses in the surrounding community. “We also do a lot of conferences where we participate and tell them how we’re doing things,” he says. “And it’s not that hard; if you just want to do a little bit extra, you can actually help a lot of people. We try to inﬂuence a lot just by being a good example.”
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Operating in this way has presented its share of challenges. “Conservative businesses think that it’s a bit odd that you want to put that much effort into creating a good workplace,” Lindhardsen reveals to me, explaining that it has been something of an uphill struggle to be taken seriously in the business world. “Now we have shown the results and growth,” he says, “there is nobody that doesn’t take us seriously anymore.” Interestingly, Creativ Company’s motives behind this work ethic are more than simply increased revenues. The brand only runs one walkin store, in Denmark, and conducts the majority of its business online. Though it is undoubtedly important, positive staff interaction with customers is minimal given the limited amount of exposure the ﬁrm’s customers have to its staff. Rather, this approach is born of the belief that improving the happiness of the employees will encourage them to work harder and better, thus improving the business itself.
31% of staff use the payroll giving scheme
COMPANY PROFILE: BEAVERBROOKS
elative veterans of the retail world, UK base jewellers Beaverbrooks, demonstrate that it is possible to implement the same workforce management tactics on a wider scale. Like Creativ Company, the 770 person strong jewellery retailer, which operates almost exclusively in northern England, is another regular on the Great Places to Work in Europe lists. Also, like Creativ Company, the retailer’s success has been attributed to its employeecentric business tactics. “It’s our ethics, it’s our values, it’s our culture,” explains Mark Adlestone, Managing Director of Beaverbrooks. “It’s something we’ve worked very hard on. And I guess it comes from a passion for people, and caring for people, and treating people as adults, with respect.” Beaverbrooks has faced some challenging times in recent months. For a retailer of luxury jewellery, a market that has been hit particularly hard by the recession, maintaining high sales ﬁgures is no mean feat. Compared to Creativ Company, a retailer that sells inexpensive products and operates largely from the booming online platform, Beaverbrooks faces some big challenges. “We’re very customer centric.” Adlestone tells me. “Our external customer mantra is to make jewellery to make them feel special. Because jewellery is a special purchase; it’s really important that the customer has a fantastic experience. There’s no doubt whatsoever that there is an absolute link between employee engagement and satisfaction, and the customer experience and their satisfaction.”
Of course taking this liberal approach to staff management can leave a business open to exploitation. One problem the company has to deal with on a regular basis is an idea among staff that they can put in minimum effort. “Sometimes we attract people that think this is a nice place to be and they don’t really want to do anything, people who think they can get a job here and just sit and have fun,” Lindhardsen highlights, admitting that the company must attack those expectations and help the staff to realise that it works both ways. Ultimately, he explains, it is not that hard to create a positive working environment that is conducive to a successful business. “It’s a matter of willingness to try new things,” he tells me. “And then it creates a fantastic environment for your customers. We get enormous positive critique from our customers because they can feel that our employees are happy.”
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Adlestone quite clearly understands the value of an engaged workforce, but stimulating that mindset amongst employees is not something that can happen immediately. “In order to get to this point, we have to make sure that our people onboard are actually part of this journey,“ he says. Like Lindhardsen, Adlestone explains that he begins at the recruitment process, looking for that inherent sense of responsibility. “There are a number of people that we take on who are the best ones in the world with all the best interviewing, but not quite right for Beaverbrooks. And that becomes quite apparent. “We have a six-month transitional period. We’ll advise you along the way but not everybody makes it through that transitional period. Sometimes they feel they’re not right for us; sometimes we feel we’re not right for them.” As he continues to unfold the practices of his business I can hear Adlestone exposing in Beaverbrooks that characteristic so commonly found in companies with a successful workforce management strategy: getting your foot in the door is the hardest part. As he talks about the company with the air of a ﬁrm but fair headmaster, it is becoming apparent to me that recruitment at Beaverbrooks is markedly more stringent than one would expect in an industry with one of the highest rates of staff turnover. “We’ll tell you if you’re not making the grade, or if your attitude, your mind set or your philosophy isn’t right for Beaverbrooks.” Such bald honesty is a surprising quality, and one that in itself has helped to establish the jeweller as such a strong employer. “We’re very transparent, very truthful, very to the point,” he tells me proudly. Later, I ask him why he thinks that a strong focus on workforce management is important for retailers; the candid and sincere response betrays a refreshingly genuine desire to run a business that is moral, and not just ﬁnancially lucrative. “I don’t necessarily think that it is important,” he tells me openly. “There are two ways to run a business. You can run a business through autocracy and fear, with hierarchy and structure, which a lot of companies do and they’re very successful. It depends on what your outcome is. If your outcome is to maximise proﬁtability and return on investment and you don’t give a shit about the people that work for you, then what I’m talking about is irrelevant. It can only happen if people have one right mindset and want to.” He outlines his feeling of responsibility for the 770 people under his command that rely on Beaverbrooks, aware
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that the quality of the lives of his employees, and of their families, depend upon his business.
People promotion Adlestone’s ﬁrm attitude is offset by the company’s longstanding motive behind this workforce management practice. “What would not be good for us is to just make money and not feel good about what we do and the way we do it,” he tells me. “And not feeling good about the way we interact with our customers, our suppliers, our people. And we actually, genuinely try to make lives of those people around us better by being involved with them.” He outlines some of the practices in place at the company used to develop such a positive working environment, highlighting a focus on development and self-development for his employees as key to promoting a positive attitude within his workforce. “A lot of people have a lot of negative self-beliefs,” he says. “People will say, ‘I can’t do that, I’m not good enough.’ We try and deconstruct those beliefs by really getting to the root cause. One of the things we do is promote from within. We are very, very keen on that; people develop through the business through our own management development programme.” In addition to promoting positive emotions among the staff, Beaverbrooks has a longstanding reputation as one of the most socially responsible companies in Britain. Adlestone explains that the commitment to the community is all part of the company’s philosophy, and is integral to the development of his staff. He tells me that the company puts aside 20 percent of its proﬁts on an annual basis for charitable funds and community and welfare projects. “It helps them [the staff] grow as individuals, because one of things that we do – as well as giving money – is we give people money to give to a local charity of their choice. So, each of our 66 stores and each department’s head ofﬁce have this opportunity to give money to a charity and get involved with that charity.” Philanthropy is promoted heavily within Adlestone’s organisation. In addition to dedicating such a signiﬁcant proportion of proﬁts to charitable causes, Beaverbrooks’ staff are each granted two days of paid time off every year to spend working for an organisation of their choice, and can beneﬁt from a match funding scheme, whereby Beaverbrooks will double any money raised for a registered by one of its employees. Its payroll giving scheme is used by 31 percent of its workforce, indicating that just under a third of all employees are donating to a charity through this
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Beaverbrooks puts aside
20% of proﬁs for charities each year
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method, which is the highest of any organisation in the country. “There’s so many ny different things that we do to engage our people in that whole process,” he summarises. “Since 2000 we’ve actually given over ﬁve million pounds to over 400 different charities. It’s very much about being part of the community and encouraging the stores to become part of their community, as well.” These ﬁgures are impressive to say the least, made even more so when one remembers that the discretionary products market has taken a massive hit in recent years. However, Adlestone explains the ﬁrm has not had to compromise its workforce in order to stay aﬂoat. “We’ll see how the land lies because we don’t know what’s around the corner economically,” he tells me, pragmatically. “We could be in for a sustained, long period of austerity, which isn’t going to be
easy We’re being cautious easy. cautious. We’re cutting costs – successfully. We haven’t made any redundancies, which we’re very proud to say. “There’s only ourselves to be answerable to. We’d rather have a safe and sustainable business, with solid asset base and cash reserves, than plough on and be irresponsible.” ■
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Logical man management QBIS Business Systems Ltd Andrew Johnston reveals to Next Generation Retail how an improved work force management protocol can eliminate errors and boost a retailer’s bottom line. What are the main challenges that management and employee administrative processes present for retailers, and what are the immediate beneﬁts of automated systems? Andrew Johnston. In today’s economic climate retail businesses have a greater challenge than ever before to be more efficient, accurate and lower their costs, while improving quality. Depending on the size and nature of an organization, it is commonplace that staff are dispersed over several locations making the administrative processes more cumbersome. Payroll processing demands more engagement and resource planning can take a large effort. Communication between employee and management isn’t as good as in other sectors. One of the most challenging and time-consuming administrative processes within any organisation is payroll. All employees and management are involved with this process to some extent, with time and expense reports, management approval or payroll administrative routines. It is a challenge to collect this information from employees accurately. We see that it is easy to reduce administrative costs and improve quality by using automated systems. Procurement of these systems brings benefits such as lower administrative costs and increased production, standardised administration, improved communication flow and reduction of manual work giving more accurate results. How can effective time management technology beneﬁt the retail industry speciﬁcally? Is the technology suitable for retailers? AJ. It is absolutely suitable for retailers. There is much manual administration that can be easily improved by using technology. Manual time management carries heavier administration than that of an automated system. The disadvantages of handling time manually are potential duplication problems, the increased risk of manual errors and, most importantly, the fact that it is a slower process that requires more administrative staff and thus is more costly. When using an effective time management solution staff will spend less time with the administrative process and therefore be able to use this time for more productive activities. One of the most tedious tasks in payroll preparation is the collection and validation of staff timesheets. Retail sector staff often have different time schedules and are
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spread out over different locations, which makes it more difficult for management to speak to staff and easily address any issues. Providing an automated solution to the business will lessen this overhead and reduce manual errors along the way. We have seen that customers who have automated solutions have reduced their payroll process by 75 percent and achieved more accurate results. Are you experiencing any resistance from retailers who are reluctant to make administrative processes automated? How do you respond to those concerns? AJ. No, in fact the opposite. Once you show the benefits of such technology we fi nd retailers are very open and favourable to the introduction of such systems. We have even seen that staff in the retail sector welcome the introduction of technology and fi nd it motivating, even more so than in other industries. Employees benefit too from such a system, with accuracy of information, overview of their vacation and flexi-time. At the end of the day, the main concerns, like with all business sectors, are the costs and the effort involved in implementing such solutions. From our perspective it is not how much the introduction of such a system costs, but how much a company will lose in profit by delaying the introduction of such technology. Our soft ware solutions focus on taking advantage of technology that is already available and familiar such as internet, web-browsers and mobile telephones. We therefore see even less technical people getting started very quickly. How do you predict that automated workforce management systems will evolve? What features can retailers expect to see in the future? AJ. More and more organisations within retail will move over to automated solutions, sooner rather than later. We already see this transition. Automated systems will take advantage of readily available and familiar technology such as internet, web-browsers and mobile telephones. Soft wareas-a-service (SaaS) makes use of this technology and is the way systems will evolve. With SaaS there is no hardware to buy, no system maintenance, no soft ware to install and upgrade, making return of investment immediate. Time and attendance management, expenses reporting, vacation planning, resource planning, automatic payroll, employee global positioning, social and information sharing will be features that the retail industry can expect to see. ■
“With SaaS there is no hardware to buy, no system maintenance, no software to install and upgrade, making return of investment immediate”
Andrew Johnston is the CEO and Product Manager for QBIS Business Systems Ltd. He is the co-founder of the Swedish-based parent company QLogic AB. Johnston brings more than 20 years of experience from developing business systems and IT solutions for both private and public sector.
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TRAVEL A retailer’s guide to Hamburg p122
GADGETS Technology for today’s executives p124
EUROPE’S BEST Flea markets p126
PHOTOFINISH Sowing the seeds of future growth p128
Details. Designer defence As the recession took hold it seemed inevitable that high fashion would take a hit. But luxury brands took it in their stride and tackled the economic situation head on. Next Generation Retail takes a look at how the industry survived, and what other sectors could learn from the success of luxury.
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DETAILS DESIGNER DEFENCE
ew York Fashion Week is one of the most pivotal events in a fashion retailer’s calendar; the culmination of a long season of intricate artistic work for the world’s fashion powerhouses, with each individual piece requiring scrupulous design, meticulous manufacturing and innovative styling in order to enchant the crowds of critics, journalists and retail buyers. But the two most recent events, in September last year and then February, were different; while the designs exhibited were no less astonishing than in previous years, rumours were rife that the “mass luxury movement” was dead and buried, and many were quietly apprehensive about the future of the industry. With both Europe and America suffering from the worst recession in decades, and consumer spending hitting an all time low, many believed that the luxury retail sector was about founder. And indeed, one could be forgiven for assuming that sales of €500 Hermes scarves, or €1500 Balenciaga bags would take a nose dive given the decreasing levels of disposable income among the upper middle class demographic previously found sporting such goods. But rather than meekly accepting its fate, the luxury industry came back ﬁghting. High fashion houses diversiﬁed products, platforms, and marketing tools, telling the world that by hook or by crook, this multibillion euro industry that relies on complete consumer indulgence was not going to be beaten. And it worked. British luxury department store Selfridges announced a proﬁt growth of eight percent at the end of 2009, with proﬁts reaching £88.1 million (€106.6 million). Mulberry’s operating proﬁts for 2010 are projected at £4.9 million (€5.9 million), higher than they were in 2008, and the trading revenue is put at £72.1 million, compared to £51.2 million two years ago. PPR, the French holding company in charge of the Gucci Group, generated €16.5 billion in revenue for 2009 across all platforms, with the ﬁrm noting that the Gucci Group has made “strong improvements” in its gross margin during the ﬁrst half of this year. But how have such companies continued to ﬂourish in this climate? Some cynics have put the resilience of the luxury retail industry down to the rising price of oil, a claim that seems both unjust and untrue, given that the success of the luxury was less down to luck than it was strong business strategy, and in any case only a small proportion of luxury fashion consumers are funded by oil wealth. Nonetheless, the average level of unemployment across the EU region was 19.6 percent in 2009, the highest it has been since 1997, and GDP shrunk in every nation except Poland. So what was needed
to keep couture in business? Well longevity is a good starting point, according to Marigay McKee, Fashion and Beauty Director at British luxury retail store iconic, Harrods. Consumers are no longer interested in seasonal trends, McKee told Reuters at Fashion Week in February. “If it really is a throw away purchase they’re not as likely to buy into a momentous trend,” she said. “Certainly buying teams have been a lot more cautious and probably they would be looking at a little bit less frivolity than in previous seasons and probably looking at more staple pieces, must-have garments, must-have trends,” she said. This practice is one that seems to have been embraced across the industry. Brands, bloggers, stylists and journalists all began to send out the same message: lose the frills and stick to the classic ‘investment’ pieces that will last you a lifetime. Within months of the recession setting in, high-fashion publication Vogue had re-started it “More Dash Than Cash” editorial, a feature that exhibits affordable outﬁts, combining high-street and high-fashion garments. And just as consumers are being urged to be more selective when choosing their high fashion pieces, retail buyers are taking care over their stock for the coming seasons. “We have all become much more edited and selective in the way we that we buy,” Colleen Sherin, Fashion Director at New York based luxury department store Saks Fifth Avenue explained back in February as Fashion Week began.
Shoppers queue outside Selfridges in London on Boxing Day 2009 hoping to secure some designer bargains.
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of fashion houses have over the years developed ‘second lines’ of products, collections created by the same designers but produced at lower costs in order increase market presence and consumer interest. Vivienne Westwood’s ‘Anglomania’, ‘See’ by Chloe and the ‘Marc by Marc Jacobs’ lines are well-established, more affordable ranges that generated a signiﬁcant amount of revenue for their parent companies. This year has so far welcomed the ‘Sonia for Sonia Rykiel’ line, which will be opening an exclusive store in Paris, as well as the Valentino ‘Red’ line, launched in addition to its cut-price casual wear. With the purpose of such collections to increase interest in a brand through affordability, fashion houses inevitably caught the attention of a younger demographic, which in turn lead on to a shift in marketing strategies. Luxury fashion retailers had previous to the recession been notorious for their reluctance to embrace the rise in e-commerce and technological advances in retail platforms. Many felt that the exclusivity of a luxury shopping experience could not be transferred to an internet platform. However, once the downturn set in, high fashion houses were quick to bring operations online to keep sales up. While most already
“Everyone is aware of the economic situation and there’s a need to really speak to the customer in a voice that is going to get her excited and ignited when the season rolls round to come into the stores and shop”
The intention of this muted approach to retail buying is two fold: to encourage the sale of investment pieces, and also to inspire shoppers to buy items immediately, as opposed to waiting for end of season sales. Ken Downing, Fashion Director at American retailer Neiman Marcus, said, “Everyone is aware of the economic situation and there’s a need to really speak to the customer in a voice that is going to get her excited and ignited when the season rolls round to come into the stores and shop. We want clothes that are so enticing that she wants them at regular price and is not waiting for them to be marked down.” Couture fashion house Valentino sought to increase revenues by lowering prices and introducing a line of casual products such as jeans and t-shirts. Valentino CEO, Stefano Sassi, said at the Reuters Global Luxury Summit, “Valentino was too exclusive ... Being more affordable means you are trying to get new customers on board. [But] we are not stretching down the brand.” However, critics of the move have said that by lowering prices and making the products affordable to a bigger market, Valentino will lose its exclusivity factor and therefore much of its appeal. While this particular method may have an adverse effect upon the business, the thinking behind it is a tried and tested strategy in the luxury sector that has proved itself successful in the past. A number
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had sleek and glossy websites showcasing collections, it has only been in recent months that brands have established e-commerce stores. Hugo Boss launched its online store in Europe last year, expanding into the US in April. Marc Jacobs, a fashion house famous for its stylish collections of handbags, notably embraced the online movement, both setting up an e-commerce platform and developing innovative marketing strategies utilising social media tools. During February’s New York Fashion Week, the brand partnered with location-based social media platform Four Square to create a game where by consumers who “checked in” at a Marc Jacobs store could win tickets to shows at Fashion Week. Jimmy Choo launched a similar campaign in London in the spring, giving its fans the chance to win an exclusive pair of Jimmy Choo trainers by following the shoes around the city, and posting a photo online of themselves with the shoes online. In a more low key approach, Gucci has established a strong social media presence, having built up a fan base of over 400,000 members on Facebook with consistent stream of news, photos and interaction with its social media community. Shari Dohery, a consumer marketing consultant explained that “with the advent of location-based services, there are even more exciting opportunities for fashion retailers and brands to deliver entertaining and interactive experiences.” Embracing potential change as opposed to fearing the fall of the business allowed fashion houses to ride out the recession smoothly, leaving them in a position to enjoy considerable growth in both established and emerging markets as the recovery sets in. Indeed, the luxury industry has proved, arguably more so than any other sector, that dealing with a recession should not mean lying low and waiting for it to blow over. “The industry is feeling optimistic. People feel like they are past the worst of it,” explained Fern Mallis, senior vice president of Fashion Week organisers IMG Fashion, back in February. “It’s been a very healthy restructuring of our industry.”
DETAILS CITY GUIDE
A shopper’s guide to… Hamburg Time: GMT +1 | Country: Germany | Country code: +49 | Population: 1,800,000
Overview Vibrant, hedonistic and dynamic, Hamburg is a cultural melting pot. An ancient port city that enjoyed free trading and exemption from customer duties for many centuries, merchant trading is integral to Hamburg’s history, and a number of the city’s oldest markets still operate today. The harbour still provides a strong boost to the city’s economy, along with the booming media sector. Hamburg’s popularity with immigrants has attracted a diversity of cultures, and in the multitude of restaurants, art galleries and museums can be found a fusion of resilient Hamburg history and international spirit. Today’s retail scene in Hamburg reﬂects that rich character, and the city is commonly recognised as one of the ﬁnest shopping destinations in Europe.
Luxury Hamburg is the home of Jil Sander, a catwalk regular and one of Europe’s ﬁnest designers. Her ﬂagship store exhibiting her latest collections of neutral, streamlined and chic designs is in the Dammtor district. Sander deals in men’s clothing as well as women’s, though for a more thorough collection of high fashion men’s wear visit the Thomas-i-Punkt ﬁve-storey outlet in the Gansemarkt shopping centre. Also, the Stilwerke shopping centre is packed with designer brands for furniture and jewellery as well as clothes. Located along the banks of the Elbe, this former malt house is deﬁnitely worth a visit.
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Markets A port town, Hamburg still plays host to the traditional weekly Fischmarkt (ﬁsh market) that has lined the streets between Hexenberg and Grosse Elbstrasse every Sunday morning for generations, selling the freshest catches. Stalls open for business at 5am during the summer months and 7am in the winter; the hours may be antisocial, but be sure to get there early to get a bargain. For more culinary variety head to the Isemarkt, Germany’s oldest market. Found below the Eppendorf station, it runs bi-weekly, on Tuesdays and Fridays, during the rather more agreeable hours of 9am to 3pm, and is bursting with fresh delights.
Food and drink Finding traditional German food outlets is not difﬁcult in Hamburg; picking one is perhaps more of a challenge. As well as the street food markets there are plenty of delightful gastronomic retailers around the city offering diverse and high quality food stuffs. Close to the university, those looking for an unusual culinary treat can ﬁnd Viola’s, a retailer of ﬁne dried food goods. Rich vinegars, myriad herbs and condiment delicacies are all on offer. For something sweet, Beren-Treff has two outlets across the city, both treasure troves of sweets and all things delicious. Even diabetics can ﬁnd suitable treats there. For something less traditional, Adronaco is an Italian food wholesaler that sells delicacies such as cheeses and cured meats, as well as 650 varieties of pasta.
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Independent Meister Perfumerie is one of Hamburg’s best kept secrets; a charming family-owned independent vendor that has been serving its customers since 1888. The store sells rare, luxury perfumes imported from France, and while not a traditional German gift, is a delightful alternative souvenir for Hamburg’s visitors. For something a little more personal, and practical, head to Druckwerkstatt Ottensen. Here you can purchase delicately handmade diaries and photo albums, as well as ﬁne writing sets, gift paper and post cards. If on the other hand jewellery is what you are looking for, Kunst und Gemuse by the Feldstrasse underground station is open between Wednesday and Saturday in the afternoons. This cosy basement gallery exhibits handmade gold, silver and pearl jewellery as well as ornaments of reused glass.
Arts An emporium of vintage music, Rekord is packed full of artists from all generations. Hidden among the cafés of downtown Hamburg, the store buys and sells both vinyls and CDs. Be sure to have a rummage through the bargain buckets for some real aural gems. If Rekord doesn’t have what you’re looking for, you can always try Zardoz around the corner, which sells books as well. For something a little different, try Dr. Gotze Land & Karte. A specialist retailer in travel books, this store is teeming with guides, atlases, maps and now also travel electronic devices.
Technology for today’s executive Nokia N8 The Nokia N8 could give Apple’s iPhone 4G something to worry about. It is Nokia’s ﬁrst Symbian 3 smartphone and as well as having a 3.5-inch 640 x 360-pixel touchscreen and 16GB of onboard memory, it boasts a 12 megapixel camera and 720p HD video. Unlike Apple’s products that are generally hampered by the lack of external connectivity, the Nokia N8 features an HDMI connection so you can easily show off your images, videos and music on compatible televisions and projectors.
Desirability rating: ✮✮✮
Toshiba Libretto W100 Tablet The ﬁrst dual screen tablet PC, the Libretto W100 is powered by an Intel Pentium Processor U5400 running at 1.2GHz and consists of two WSVGA multitouch screens that are LED backlit. With tablet technology becoming more and more popular, Toshiba have pulled out all the stops for their device ensuring it is not ignored by those in the market. The dual screen tablet also featues 2 GB of RAM, 62GB SSD, 1 megapixel camera, Bluetooth 2.1 + EDR , USB 2.0 port, micro SD slot and 8-cell battery, and runs under Windows 7 Home Premium. The only question is whether a dual screen tablet is as appealing to the consumer as a single screen sleek device such as market leader, the iPad.
Desirability rating: ✮✮
iPhone 4G Arguably one of the most desired pieces of technology, the iPhone 4G is the next generation model of Apple’s smartphone. The item has made headlines around the world when tech blog Gizmodo managed to get their hands on a unit after an Apple employee drunkenly left it in a bar and then again following its launch as 1.7 million units were sold in its ﬁrst three days on the market. Boasting a higher resolution screen, longer battery life, multitasking capability and larger storage space, it is expected to be every bit as successful as its predeccsor. Of course like all Apple products, there are still some drawbacks. Due to Apple’s dispute with Adobe, the iPhone 4G will not be able to play Flash animation or access Flash-based websites, leaving a high percentage of websites still inaccessible. The new design is also said to not be the most comfortable for left-handed users.
Desirability rating: ✮✮✮✮
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Europe’s best: Flea markets
Everyone loves a bargain; pick up the best with our guide to Europe’s top bazaars. Just don’t forget your haggling skills…
02 Kadıköy Market, Istanbul A world away from the elegance and calm of the designer stores of Teşvikiye and Nişantaşı, this teeming market offers shopping as sightseeing – a veritable feast for the senses. The main market on the Asian side of the city, it runs along the streets around Mahmut Baba Sokağı, selling clothes, antiques, food and spices – and many other goods besides.
El Rastro, Madrid A colourful street market in one of the city’s oldest working-class neighbourhoods, El Rastro has been going for well over 100 years. While it’s best known for its ﬂea market – the most famous in Spain – there are also dozens of stalls selling new clothes, furniture and antiques. Dropping away from the square, Calle Carlos Arniches marks the beginning of the ﬂea market proper. Among the bric-à-brac are watches, cameras, rugs, hats, oil lamps and record players.
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04 Monastiraki Flea Market, Athens Small, seedy Plateia Avissynias comes alive on Sunday mornings with the arrival of Athens’ biggest and most colourful ﬂea market. And it’s here you’ll ﬁnd everything you didn’t know you needed: pink cut-glass Turkish liqueur sets, 100-year-old phones, beautiful carved-wood desks, and piles of fantastic kitsch memorabilia and junk.
Marché aux Puces de St-Ouen, Paris
Portobello Road Market, London Long before the area was made famous by Hugh Grant and Julia Roberts, this Notting Hill market was widely recognised as a reputable source for second-hand goods and antiques. What’s more, the Portobello Antiques Dealers Association provides vendors with a tightly regulated code of ethics – comforting for those who know nothing about antiques. If you’re not looking to buy, street entertainers, great neighbourhood pubs and excellent food stalls should keep you busy.
Every Saturday to Monday, the jewel in France’s ﬂea market crown comes alive. There are actually 13 markets here: the oldest, Marché Vernaison, is the most charming; Marché Malik sells vintage clothing; others offer furniture, jewellery, paintings and assorted knickknacks. As this is the largest ﬂea market in Europe, it’s best to pace yourself and take frequent breaks at the numerous hole-in-the-wall cafés in the area.
07 Die Nolle, Berlin A German institution, this unique ﬂea market is housed in 16 old railway trains at Nollendorfplatz. You’ll ﬁnd a huge array of collectibles to thumb through: antique dolls, furniture, sewing machines, kitsch lamps, model cars, books and records. One note of warning: traders are known to pack up and leave before closing time, so show up early for best results in the bargaining scrimmage. Opening hours are every day except Tuesday; if you’re lucky, you may catch a street performance by a jazz band.
Porta Portese, Rome On Sundays, the massive Porta Portese opens for business. Not a place for the faint of heart, this popular market attracts thousands of aggressive shoppers, gypsies, pickpockets – and you, the unwitting tourist. Well schooled in the art of haggling, the market’s veteran vendors drive a hard bargain, but deals are there to be had on one-of-a-kind items and oddities. For a ﬁrst outing, why not just observe the expert shoppers and vendors duke it out?
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08 Feira da Ladra, Lisbon Some 300 years ago, female thieves known as sovaqueiras, concealed illegal goods and sold them at a market in Lisbon’s Rossio Square. While the present day market is on the up-andup, you can still ﬁnd a real steal here, particularly when it comes to bronze, copper, and gold items. This market is jam-packed with antiques, rugs, new and used clothes, vintage tiles (these are great), riding spurs, pottery, as well as a lot of rather useless junk.
Sowing the seeds of future growth Over the past three years, Forbes magazine has measured the sales growth of major retail chains using data compiled by the National Retail Federation, Stores Magazine and company annual reports to develop its ranking of the Top 10 FastestGrowing Retailers. Companies that derived sales growth primarily from acquisitions were omitted. Snagging the No. 1 spot for strong organic growth and revenue per square foot is Apple, whose store sales have nearly doubled over the past three years to $9.6 billion. Here, Apple employees greet customers stepping into a new store near the Opera Garnier in Paris during the public opening. The company has made great in-store service part of its success story, with plenty of knowledgeable staff circulating the shopďŹ‚oor, asking questions and performing product demonstrations. And the reason people keep on coming back for more? Shopping in an Apple store is actually great fun.
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