Current Trends in European Retailing

1. John Wheeler, Director, RMDP Tony Savage, Director, RMDP Current Trends in European Retailing RMDP Consulting C.2001

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

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

4. eroding "traditional retail" revenues • Many stores/brands • Fashion status • Age no barrier! The Mobile Phone effect

5. where else could you be seen with your new phone? Mobile Phones & Coffee Bars

6. Department Stores - the dinosaurs mutate! • strong loyal and now added BRANDS • Selfridges showing the way • international • aspirational • Young, and not so young! Department Stores - the dinosaurs mutate!

7. Discounters and off price • in fashion terms -"the new black" • everyone wants them! • permanently changing the margin model • "Walmartization" of European retailing! Discounters and off price

8. Brands and globalisation • Multi $ millions being invested • available everywhere • Massive advertising • desirable values • mass(ive) markets • Where do local (national) brands go?

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

10. Competition drives retailers back to the City Centre A full circle- back to the centre?

11. Traditional Retailers make E-tail work! • Critical success factors are no different in the E-conomy • right product, right place, right time • Customer Service • Brand Perception • Intelligent use of the Search engines reaches the global www market • Fulfilment not gee-whiz is the need! Direct Channels - clicks & bricks winning

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

13. The E-tailers continue to get better • sensible not over hyped • repeat purchases increasing • further erosion of "brick" based turnover • Retail Entertainment - "the Retail Theatre" • merchandise and people mix • "stage school " as a part of Associate Training? • Gross Margin pressures increase • Nett margins revived through intelligent supply chains What next?

14. November 2001 Sextant Management Services Ltd Retailing in Europe some critical management concerns

15. Brands • dot.com • Walmart • Issues • Interesting Sectors Agenda

16. Everybody shops where they feel comfortable • but comfort varies from customer to customer • I may feel fine in Littlewoods, but overwhelmed in Harrods • I believe that Waitrose is higher quality than Somerfield • Volvo make safe cars • I trust Marks & Spencer What do customers look for- store or brand?

17. Global, consistent • Sony • BMW • Kodak • Bennetton • Compaq • Disney • McDonalds Brands

18. Brands still growing in importance • Value • Cachet • Ownership aspiration • Lifestyle • Timeliness • Pride • Passion Brands attract the Customers

19. The power of the Brand • is a store good enough to compete with global brands • or is it just a shopfront! • A strong brand can go Direct • Sony • BMW • British Airways • Ralph Lauren Attracting the Customer

20. is most likely to have a "bricks" presence • has new low cost, high availability channels to their Customers. • provides personalised offerings to their profitable customers. • operates a quality service branded proposition. • is increasingly trusted by their customers or has become a dot.gone! In the Year 2001..a dot.com e-tail business:

21. new channels to existing markets • more customer oriented services • innovative "Super Niche" retailers • customers growing in confidence Where will e-tail businesses come from?

22. new channels to existing markets • Internet - Barclaysquare "Mk n" • has their time past? • Strong brands attract customers directly • some trade ("guild") groups are effective the jewellers.net • Specific - driven from a Brand • Tesco Direct • Dell • Marks & Spencer Sources of e-tail businesses:

23. Sector driven • Amazon • mature e-tail! • sold it's first book in 1995 • now >$1.2 billion • Entertainment Express • Kingfisher get serious • and undercuts its own stores • Intranet - Smartzone • cable • digital television Sources of e-tail businesses:

24. digital TV adds to broad appeal • secure, multiple channels • current TV standards to go by, say, 2005 • compulsive reason to buy new set! • Digital, cable and satellite = universal franchise Channels to e-tailing - some potential winners

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

26. Amazon: 1.7 million UK visits in September • Marks & Spencer • best "Traditional" Retailer • reliable, secure • on line stock availability of in store products • ease of use The E-tail Winners

27. Amazon • Marks & Spencer • Tesco • ebay.co.uk • Argos • Comet • jungle.com (Littlewoods) • qxl.com • W H Smith • colonize.com The E-tail Top 10

28. more customer oriented services • encouraging BRAND loyalty • unique personalised offers • cellular technology based • loyalty points • air miles • tradable points/vouchers • electronic purse • conventional voice and E Mail How some of today's businesses will respond ..

29. Innovation • "super niche" retailers gain ground • Seattle Coffee • definitive range + books • The Link Physical retailing moves into new areas..

30. Revenues >£2 billion per week • Proven operator • occupying the "wrong" sector • always avoid lowest cost • Harvard • Henley • Ashridge etc.etc • Has broken out of its middle US image • still some US site potential • product range extension - groceries • Acquisition hungry Walmart - why worry? -1

31. Economic power • monthly revenues over £9.5 billion • c.f. largest European retailers • LfL growth exceeds sector • Supply Chain ability • provides 10X more processing capability than its nearest competitors (anywhere) • shares store based sku sales data with suppliers • and trains them on how they may use it! Walmart - why worry? -2

32. Creates unprecedented value based competition • driven by global buying • volume driven • lower gross margins accepted • Public/government sentiment has moved to support lowest cost Walmart - why worry? -3

33. We had said: " UK Retailers margin model under threat! could be reduced by circa 50% potential for many casualties! not just supermarkets......" • We do not like being smug, but • margins are falling • the middle market is being squeezed • there are many casualties • and more to come! Walmart - why worry? - 4

34. In the face of • overt price based competition • aggressive promotional activity • new channels Issue: Maintain Customer volumes

35. How to protect the Nett achieved margin? • lower buying prices • seek (retrospective) discounts • reduce the cost of holding inventory • smaller commitments • more replenishment • faster stockturn • lower markdown • reduce wastage • lower operating costs Issue: Price based competition

36. Smarter competition • new entrants have no legacy problems • global buying and negotiating • alliances driving customer loyalty • Smarter consumers • know the value of loyalty • increasingly discerning • more knowledge • less time Issue: Everybody getting smarter!

37. Maximise the potential from promotions • needs active collaboration with suppliers • precise and timely execution • accurate measurement • Advertising and communication effectiveness • measurement Issue: Promotional Activity

38. Targeted communication technologies • digital TV & set top box • www • Satellite and telco Hybrids • Social Pressures • Travel • Parking More drivers of change....

39. How to become a player - when I understand their potential? • what must we do differently? • How to integrate their operation within my core business? • I do not need to break the bits which work well • we have lots of customers in our stores • How to avoid this becoming another late, over budget IT project?! • I cannot wait for IT to learn the new skills Issue: New Channels

40. a clear and unified focus on the customer • supported by • efficient and integrated processes • superior knowledge • consistent execution Loyal and profitable customers are retained because of:

41. Mobile Phone retailers • high quality web sites • call centre operations • integration with service suppliers is critical requirement • Music/Video Programme material • early direct channel • mainly established High Street retailers • already under threat from new entrants • Books - if they haven't already noticed! Some interesting Sectors: -1

42. Travel and Ticketing • the perfect direct product? • needs integration with suppliers • digital TV could cause take-off! • Toys • Learning element translates well to e-commerce • Brands already established • take on Toys'RUS Some interesting Sectors: -2

43. Leisure & Sports Brands • strong consumer loyalty • desire for information • opportunity for direct channels • Motoring & Service Organisations • Call centre based • integration required to many systems/sources • provided a focus for consumer services businesses Some interesting Sectors: -3

44. Increasing competition • new entrants • established retailers & suppliers extending reach • global information creates consumer knowledge • Pressure on costs • product • operations • store • people Summary : Retailing today

45. the operational necessities e-tail or retail! Information Technology in Retail Sextant Management Services Ltd.

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

47. Throughout the whole process • Plan • Order • Supply Chain • Warehouse • Distribution • Sales Measuring and monitoring the SKU

48. CONSOLIDATE PROMOTE REPLENISH • Retail, and most consumer goods wholesale businesses work to a very similar basic process model: The Retail Cycle PLAN BUY RECEIVE SELL DISTRIBUTE

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

50. EAN 13 digit barcode • world wide standard • the world's most successful standard • basis for b2b e commerce • Robust • Reliable • Universal • Retail & Wholesale • Hypermarket to Corner shop Accurate Data Capture