ACHIEVING TOTAL RETAIL SUMMARY OF PWC GLOBAL MULTICHANNEL SURVEY

 
ACHIEVING TOTAL RETAIL SUMMARY OF PWC GLOBAL MULTICHANNEL SURVEY
Advisory Consulting

                   Achieving Total Retail
                   Summary of PwC Global
                   Multichannel Survey

Strictly Private
and Confidential

February 2014
ACHIEVING TOTAL RETAIL SUMMARY OF PWC GLOBAL MULTICHANNEL SURVEY
Agenda
                                           Page

  1   With you today                         1
  2   Introduction                           3
  3   Key messages and implications          6
  4   Russian retailers and Total Retail    20
ACHIEVING TOTAL RETAIL SUMMARY OF PWC GLOBAL MULTICHANNEL SURVEY
Section 1
With you today

Achieving Total Retail • Summary of PwC Global Multichannel Survey   February 2014
PwC                                                                              1
ACHIEVING TOTAL RETAIL SUMMARY OF PWC GLOBAL MULTICHANNEL SURVEY
Section 1 – With you today

Natalia Kozlova                                            Martijn Peeters                        David Kovacic
Partner, Tax Services, Retail &                            Partner, Consulting, Retail and        Director, Consulting retail and
Consumer Industry Leader                                   Consumer products                      consumer products
• Natalia joined PwC in 1997 and                           • Martijn leads the Retail &           • David is a retail specialist in
  currently leads the Retail and                             Consumer Consulting practice in        Moscow consulting practice
  Consumer practice in Russia                                Moscow                               • He has over 8 years managerial
• Natalia’s focus is the corporate tax                     • He has over 15 years of experience     experience on top positions in
  issues including tax optimization,                         in strategy and operations             European retail
  efficient management and                                   consulting
  ownership structures and tax risk                                                               •    As a consultant he worked with
                                                           • He advises retail and CPG
  management                                                                                          electronics, food and fashion
                                                             companies in various areas,              retailers in Russia and abroad on
                                                             including multichannel
                                                                                                      themes like process optimisation,
                                                             management and on-line strategy          strategy and multichannel
                                                                                                      management

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                               February 2014
PwC                                                                                                                                          2
ACHIEVING TOTAL RETAIL SUMMARY OF PWC GLOBAL MULTICHANNEL SURVEY
Section 2
Introduction

Achieving Total Retail • Summary of PwC Global Multichannel Survey   February 2014
PwC                                                                              3
ACHIEVING TOTAL RETAIL SUMMARY OF PWC GLOBAL MULTICHANNEL SURVEY
Section 2 – Introduction

PwC conducted a global survey to understand and compare consumer
shopping behaviors across 15 territories world wide

                              Global research                                                                     Methodology

                                                                                              • Significant (15,080) number of responses received
                                               Netherland
                                                                                                from 15 different countries
                 Canada
                                                                                Russia
                                                                                              • In order to survey the most appropriate
                                                                                                demographics the following factors were taken in
                                     UK               Germany

                                                                                                account:
                                 France             Italy
                                                                  Turkey
                                                                                   China/HK
           US
                                      Switzerland

                                                                Middle East                     - Age
                                                                        India
                                                                                                - Gender
                  Brazil
                                                                                                - Employment status
                                           South Africa

                                                                                                - Region

                Survey was conducted across 15 territories

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                                        February 2014
PwC                                                                                                                                                   4
Section 2 – Introduction

Russia was included in the global survey for the second year in row – we
interviewed over 1000 on-line users from all federal districts

The main characteristics of our respondents:                                 Frequency of on-line shopping              94% shops
- Our survey included 1047 respondents in Russia                                                                        on-line at
- All of them are internet users                                                 Daily   42    4%                       least once
                                                                                                                          a year
- Representative sample of internet users in terms of
  age, place of living and level of income
                                                                               Weekly                186   17%
Number of respondents by geography:
                    Moscow                                     388   36%
                                                                             Monthly                                   395    37%
          Privolzhsky FD                   124     12%
                   Urals FD               116      11%
                                                                           A few times                                  31%
        Saint-Petersburg                105       10%                                                            337
                                                                                a year
               Siberian FD              83      8%
               Central FD
            (exc. Moscow)             78      7%                           Once a year   46    4%
              Southern FD             78      7%
          Far-Eastern FD             66       6%
                                                                                Never     68    6%
      Northwestern FD
(exc. Saint-Petersburg)            36        3%

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                      February 2014
PwC                                                                                                                                 5
Section 3
Key messages and implications

Achieving Total Retail • Summary of PwC Global Multichannel Survey   February 2014
PwC                                                                              6
Section 3 – Key messages and implications

E-commerce will continue gaining importance in Russia, having a large
impact on retailers
 E-commerce will continue to gain relevance…                                        This will disrupt retail, but the magnitude
 % of e-commerce in total retail value by country                                   of impact will vary by categories
                                                   10%           CAGR 2008-2013
                                                                                    Share of online sales in total retail value by
                                                              Russia       16%
                                                                                    different consumer categories in UK , 2013
                      6%                    6%
                                                          Germany          17%      Consumer Electronics
              3%                   3%                                                                                                    18%
                                                                                       and Video Games
      1%
                                                                     UK    13%
                                                                                                 Apparel                           15%
            2008                            2013
                              Russia          Germany          UK                   Consumer Appliances                      11%

 …supported by growing internet penetration                                                   Traditional
                                                                                                                        9%
 % of people using internet in total population                                           toys and games

                                            85% 89%                       89% 93%       Consumer Health                7%
             78% 78%
                                                               70%
                                  57%                                                        Beauty and
                                                                                                                   6%
                                                                                           Personal Care
     27%
                                                                                         Food and drinks          5%

            2008                            2013                      2018F                    Home care        4%
                              Russia          Germany          UK
Source: Euromonitor; PwC analyis
Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                                 February 2014
PwC                                                                                                                                            7
Section 3 – Key messages and implications

Retailers need to adapt, otherwise they jeopardise their business future
 Key issues resulting from the development of the e-commerce:
1                                                          • Pure players (with lighter cost structure)
     Entrance of new competitors                           • International players (the costs of physical spread presented barrier before)
                                                           • Manufacturers (can sell directly to end consumer)

2
     Falling revenues per m2 in                            As revenue migrates on-line, stores are left with the same costs, but
     physical stores                                       lower revenues.
                                                           What role should a store play in the future?

3
     Managing operations with                              Margins are usually lower on-line because of high price transparency
     on-line margins and                                   and ease of comparison, while operating physical stores incurs costs,
     off-line costs                                        which some pure on-line players do not have (in-store labor, rent…)

4
                                                           It is a much bigger challenge optimizing delivery to numerous and
     Managing fulfillment                                  unpredictable individual end-consumers than to own stores, especially
                                                           in terms of inventory management and transport optimization

5
                                                           With increasing connection among the channels, sometimes within the
     Measuring the performance                             same customer journey, measuring performance becomes a much
                                                           more difficult task

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                                 February 2014
PwC                                                                                                                                            8
Section 3 – Key messages and implications

Consumers are becoming more internet savvy rapidly – as a consequence
their behaviour and expectations change rapidly

  Consumers are rapidly becoming more advanced on-line
     % of active adult population in developed countries
     100                                                                                 Traditional customers
     90
                                                                                         •   Use internet occasionally
     80
                                                                                         •   Traditional media remains their
     70                                                                                      main source of information
     60
                                                                                         Digital converts
     50
                                                                                         •   Born before internet spread
     40
                                                                                         •   Adopted internet to become a
     30
                                                                                             relevant source of information
     20

      10                                                                                 Digital natives
      0                                                                                  •   Born in time when internet has
           2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
                                       Transitional   Digital Natives
                                                                                             already been a significant part of
                 Traditional consumers           Digital converts     Digital natives        life
              Up to 2013                         2013-2019           2020 and beyond     •   Have always been using it as the
       Traditional consumers                 Digital converts        Digital natives         main source of information
           are the majority                   are the majority        are the majority

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                       February 2014
PwC                                                                                                                                  9
Section 3 – Key messages and implications

For this reason we focused on customer centricity in our survey – we
analysed what customers want and assessed implications for retailers

                                                                     What does this mean for retailers’
              What are customer expectations?
                                                                            business models?

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                        February 2014
PwC                                                                                                                  10
Section 3 – Key messages and implications

Customer expectation nr. 1
A compelling brand story that promises distinctive experience – critical to loyalty

                                                                     What does telling a compelling brand story
Number of retailers shopped with is decreasing
                                                                     mean for retailers?

 Percentage of retailers shopped with over the last 12 months        Survey outcomes:
                                        17%
                                                                     • Compelling brand story fosters loyalty
    Only 1 retailer
                                  9%                                    ─ The main reason why shoppers buy at their
                                                                           favourite retailers is because they trust the brand
                                                            52%
             2 to 5
                                                            53%         ─ Other relevant reasons include the service level
                                                                           (fast delivery, friendly staff, reasonable prices…)
                                             22%
            6 to 10
                                                   32%
                                                                     Implications for retailers:
                                                                     • Retailers need to on one hand differentiate their
           11 to 20
                                 7%                                    brand, so that it stands out in the crowd and targets
                                 6%
                                                                       specific group of customers
                            1%                                       • On the other hand they need to execute in line with
               21+
                           0%                                          their brand promise, so that customers can rely on
                                                                       them and hence trust them
                      0%               20%          40%        60%
                                                                     • If they succeed in this, they will be rewarded with
 Increasing share of Russian shoppers prefer to shop withy             loyalty, which will bind the customers to them
 limited number of retailers

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                   February 2014
PwC                                                                                                                             11
Section 3 – Key messages and implications

Customer expectation nr. 2
Customized offers based on totally protected, personal preferences
and information – a very good opportunity to sell more

Shoppers are getting less worried about                                           What does this mean for personalization of
personal data                                                                     retailers’ offers?

 Survey response to the question: “why don’t you buy                              Survey outcomes:
 products online?”
                                                                                  • Worry about personal data is becoming less of a
                                                                                    barrier to on-line shopping than before
     I prefer to touch/try the                                       74%
              product                                                75%          • While shoppers like to be recognised by their
                                                                                    favourite retailers (66% of respondents shop
                                                             62%
 I just prefer to shop in-store                      40%                            because of loyalty programme or points)
 I don't trust online payment                       38%                    2013
                                                                                  • And they also like to get personalised offers or
            methods                                  43%                            information (59% used a coupon they received on
                                                                           2012
    I'm worried about the                     22%                                   smartphone)
 security of my personal data                       36%
                                                                                  Implications for retailers:
   I don’t have a credit/debit         7%
              card                      11%                                       • Willingness to share personal data in return for
                                                                                    customised offering brings enormous opportunities
                                  0%    20%     40%       60%   80%
                                                                                    for retailers to tailor the value proposition to
                                                                                    individual customers
 Worry about data security is less and less of a barrier for on-line              • Tailored offer is more likely to be purchased by the
 shopping in Russia                                                                 customer than undifferentiated one

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                              February 2014
PwC                                                                                                                                        12
Section 3 – Key messages and implications

Customer expectation nr. 3
An enhanced and consistent experience across all devices – customised shopping
journeys for each device

Shoppers want to be able to shop through                                    What does “shopping anywhere, anytime”
various devices                                                             mean for retailers?

 How often do you buy products using the following shopping                 Survey outcome:
 channels?
                                                                            • Use of smartphones and tablets for shopping is
                                                                              increasing rapidly
                                                                            Implications for retailers:
                                                                            • Retailers need to adapt user interfaces of their on-
                                                        41%                   line shops to mobile devices
  Through smartphones
                                               28%                          • They also need to adapt the content, as shoppers use
                                                                     2013     different devices for shopping at different occasions
                                                          44%
                                                                     2012   • Transition among devices must be smooth, enabling
         Through tablets
                                                 31%
                                                                              seamless experience during various phases of
                                                                              shopping journey
                           0%   10% 20% 30% 40% 50%

 Use of smartphones and tablets for shopping in Russia is
 increasing rapidly

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                        February 2014
PwC                                                                                                                                  13
Section 3 – Key messages and implications

Customer expectation nr. 4
Transparency, real time, into a retailer’s inventory – engaging customers in traditional
stores with digital

Russian shoppers believe technology can
                                                                           How can retailers use this for their benefit?
improve their shopping experience

 Percentage of respondents, who believe none of the listed in-             Survey outcome:
 store technologies would improve their shopping experience
                                                                           • Russians in large majority believe the in-store
                                                                             technology can improve their shopping experience
                                      In-store technologies to consider:
                                      • Ability to check other store or
                                                                           • Most of all they value ability to check other store or
     US                      33%
                                         online stock quickly                on-line stock quickly and in-store Wi-Fi with simple
                                      • In-store WiFi with fast, simple,     login
     UK                    29%           login                             Implications for retailers:
                                      • Sales associates who can take
                                         payment without going to the      • Use of in-store technology can help retailers to
 Russia          10%                     cash register                       differentiate
                                      • Sales associates with tablets to   • Given the shoppers’ preference for checking the
                                         show you alternative products
  China        7%                                                            stock in real time, they can use this to increase sales
                                      • Using your mobile phone to pay
                                         for your shopping Pay for an        due to better availability (virtual shelf)
          0%      20%        40%         item through the store's app      • However, sharing real-time stock level data with
                                                                             customers requires sophisticated system for
 Only 10% of the respondents in Russia believe none of the listed            inventory management
 in-store technologies could improve their shopping experience

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                                2014
                                                                                                                           February 2014
PwC                                                                                                                                  1614
Section 3 – Key messages and implications

Customer expectation nr. 5
Favourite retailers are everywhere and sell through multiple channels

Impact of e-commerce varies among                                            What does shoppers’ use of various channels
categories, but no category can ignore it                                    within shopping journey mean for retailers?

 Percentage of respondents, who prefer on-line channel for                   Survey outcome:
 researching and buying products in selected categories
                                                                             • Regardless of the category, a significant proportion
    Consumer electronics…                      51%
                                                         71%                   of shoppers use multiple channels at some stage of
     Books, music, movies…                     51%
                                                        65%                    their shopping journey
    Household appliances…                     47%
                                                         69%                 • In case their favourite retailer closed the nearest
         Health & Beauty…                   39%
                                                  52%                          shop, the majority of respondents (58%) would start
                    Toys                 35%
                                              45%                              visiting the next nearest outlet of the same retailer
    Clothing and footwear…              32%
                                              46%              RESEARCHING     or start/increase using its web-page for shopping
                   Sports…              30%
                                              46%              BUYING        Implications for retailers:
     Do-it-yourself/home…            27%
                                            42%
                                                                             • Retailers need to support this loyalty by offering
 Furniture and homeware              26%
                                              46%                              relevant information and enable purchase in all
       Jewellery/watches            24%
                                            39%                                channels and enable seamless transition among them
                 Grocery          17%
                                        30%
                                                                             • Once the retailer gains a “favourite” status among
                           0%   20% 40% 60% 80%                                its shoppers, it can count that majority of revenue in
 Around half of Russian internet users prefer to buy consumer
                                                                               case of required store closure will be transferred on-
 electronics, media and household appliances on-line.                          line or to another of his shops

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                          February 2014
PwC                                                                                                                                    15
Section 3 – Key messages and implications

Customer expectation nr. 6
To maximize the value of mobile shopping, both store apps and mobile sites must
improve

Mobile browsers are for now slightly more
                                                                          Does this mean retailers should abolish apps?
popular than apps

 How often do you use mobile browser or app on your mobile                Survey outcome:
 device for shopping?                                                     • Internationally applications are not very popular
                                                                            with shoppers
                Daily               11%
                                    11%                                   • For shopping Russian customers also use internet
                                            19%                             browser on their mobile devices more frequently
             Weekly                    16%                                  than they use apps
            Monthly                                28%                    • However, contrary to global peers, they do not find
                                              24%
                                                         Mobile browser     the apps inconvenient
  A few times a year                              25%    App              Implications for retailers:
                                              23%

                                 9%
                                                                          • Retailers need to offer both mobile browsers and
         Once a year           7%                                           apps for shopping
               Never           7%                                         • Long-term apps present a bigger opportunity, as
                                            19%
                                                                            they can have a “lock-in” effect for shoppers
                        0%    10%     20%         30%                     • Hence, retailers should improve the usability of
 While Russian internet users use mobile browsers more                      their apps and encourage the use of them, as first-
 frequently, they do not find apps inconvenient                             movers are likely to have a significant advantage

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                     February 2014
PwC                                                                                                                               16
Section 3 – Key messages and implications

Customer expectation nr. 7
Social media engagement – extremely important for brand communication and direct
sales

Use of social media for brand research,                                          What does increased social media activity of
engagement and shopping is increasing                                            their customers mean for retailers?

 Which of the following have you done using social media?                        Survey outcome:
                                                                                 • Use of social media in all stages of shopping journey
           Follow favorite                                            51%          is increasing rapidly in Russia
       brands or retailers
          via social media                                  37%                  Implications for the manufacturers and retailers:
                                                                                 • Retailers need to systematically communicate
                                                                43%
  Interacting with favorite                                                        through various social media platforms to deliver a
       retailers or brands                   17%
                                                                                   unified communication line
       Comments about                                                      56%
                                                                                 • This needs to be aligned with all other marketing
      an experience with
                                                       31%
                                                                                   and PR communication of the company, as well as
       a product or brand
                                                                                   with customer service in store and in call-centre
                                                                     48%         • Social media empowers shoppers to influence
          Bought products
                                               20%                                 success of retailer’s offering, which means they are
                                                                                   becoming very dependent on social media reviews
                                      2013         2012                          • This means they need to engage existing and
 Almost half of the respondents already used social media for                      potential customers in two-way communication and
 shopping                                                                          not just respond to potential complaints

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                             February 2014
PwC                                                                                                                                       17
Section 3 – Key messages and implications

Customer expectation nr. 8
“Brands” act like retailers, and we’ll treat them that way – a major threat to retailers

Shopping directly with producers is increasing                        Does this mean retailers will lose their reason
rapidly in Russia                                                     for existence?

 Share of respondents who have bought directly from the               Survey outcome:
 producer in selected categories
                                                                      • Shopping directly with manufacturers is increasing
            Clothing and footwear…                            49%       rapidly in Russia (in 2012, 70% of respondents
            Consumer electronics…                            45%        never shopped directly; in 2013 only 22%)
             Books, music, movies…                    28%             • As the main reasons for doing so they cite better
            Household appliances…                  26%                  prices and wider assortments
                  Health & beauty…                 25%                Implications for retailers:
                              Toys              19%                   • Retailers will need to clearly define the value they
         Furniture and homeware              14%                        bring to the shopper who buys with them, as
                Jewellery/watches            12%                        opposed of going directly to the brand owner
                           Grocery          11%                       • This can be impartial advice in comparing brands,
             Do-it-yourself/home…           11%                         the convenience of “one-stop” shopping, or other
       Sports equipment/outdoor             10%                         aspects of the shopping experience that the
                                     0%      20%       40%      60%     producers themselves cannot so easily provide
 Clothing and electronics categories are especially impacted by
 direct-to-consumer trend

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                  February 2014
PwC                                                                                                                            18
Section 4
Russian retailers and Total Retail

Achieving Total Retail • Summary of PwC Global Multichannel Survey   February 2014
PwC                                                                             19
Section 4 – Russian retailers and Total Retail

Russian retailers are more and more facing the challenge of how to deliver
profitable growth to the ‘connected shopper’

                                                                                 Russian customer is empowered:

                                                                                 - Has a   choice
      Stores and                                                                 - Has transparent information
        in-store                                                      Smart
      technology                                                     Marketing   - Can change a retailer with a
                                                                                   couple of touches on his PC, tablet or
                                                                                   smartphone

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                 February 2014
PwC                                                                                                                           20
Section 5 – Russian retailers and Total Retail

   We believe the answer to this challenge is Total Retail concept, which
   places focus on seamless consumer experience regardless of the channel

                                                                           Unified brand                  Integrated
                                                                           story across all               back office
Evolution of shopping experience                                           channels which                 which supports the             Total Retail
                                                                           promises consistent            delivery of that
                 Connected                                                 customer experience            promise
                 experience

                                               Total Retail

                                         2000s- Omnichannel                                                                   Omnichannel
                                         Present
Product centric                             More channels
                                                                                                                                      • Retailers start
                              1990s-            Customer centric                                               More
                              2000s                                                                                                     connecting the
      Pre-                                                                                                    Channels                  channels with
     1990s
               Dot.com                                                                                                                  services like virtual
                                                                                            Dot.com                                     shelf, click and
                                                                                                                    • Legacy retailer collect and similar,
                                                                        Brick & Mortar                                start offering    but still manage and
    Brick and mortar
                                     One-way                                                                          products on-      monitor them
                                     experience                                                  • ‘Pure players’     line, not         separately
                                                                              • Only off-line      start building     related to
                                                                                                   web-shops          their off-line
                                                                                                                      offering
   Source: PwC Global Total Retail survey 2012-2013
   Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                                           February 2014
   PwC                                                                                                                                                     22
Section 4 – Russian retailers and Total Retail

The most advanced Russian retailers provide real-time stock information
to customers, which is an indication of a sophisticated back office

                                                                                  • Retailer 1 has only one pick-up point for
         Different Russian retailers provide different options                      internet purchases in Moscow
    regarding connection between on-line and off-line and among                   • Checking the stock in other stores or on-
                                stores                                              line is not possible in stores
                                                                                  • Retailer 2 has several pick up points in
          Retailer 1                        Retailer 2               Retailer 3     Moscow, but not all of their shops are
                                                                                    also pick-up points
                                                                                  • It also offers access to its inventory in
                                                                                    other stores and on-line via store
                                                                                    terminals in particular stores
                                                                                  • Retailer 3 is the closest to Total Retail
                                                                                  • Shoppers can pick up their on-line orders
                                                                                    in all of their stores
                                                                                  • It is possible to check the stocks of all
                                                                                    stores and on-line in any store

                                                                                   Our experience shows a clear connection
          Consumer                         Consumer                  Consumer       between the maturity of multichannel
                                                                                     offering and business success of the
             Internet store            Point of sale
                                                                                               Russian retailers
Sources: Company website, RRG Consulting research, PwC Analysis
Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                     February 2014
PwC                                                                                                                               24
Section 5 – Russian retailers and Total Retail

The change is happening fast.

To win, retailers will need to
get it right.

Achieving Total Retail • Summary of PwC Global Multichannel Survey   February 2014
PwC                                                                             24
Section 4 – Russian retailers and Total Retail

Thank you!

© 2013 PricewaterhouseCoopers. All rights reserved. "PricewaterhouseCoopers" and "PwC" refer to the network
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the acts or omissions of any other member firm nor can it control the exercise of another member firm's
professional judgment or bind another member firm or PwCIL in any way.

This presentation is provided solely in connection with this event. Any liability PricewaterhouseCoopers (“PwC”)
will assume will be governed by a contract to be agreed. In the meantime, this report is provided on the basis that
PwC accepts no liability (whether in contract, tort (including negligence), or otherwise) to any person in respect of
this document.

Achieving Total Retail • Summary of PwC Global Multichannel Survey                                                      February 2014
PwC                                                                                                                                25
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