Retail Systems looks back at a hugely eventful and, dare we say it, gamechanging 2015

2015 was dominated by retailers attempting to bring the digital and physical experience together for continuous, seamless shopping. Some made great strides and yet legacy systems and various other issues stopped many others in their tracks. Against this backdrop, we saw a sector in a period of radical transformation with consumers now driving the engagement agenda, which in turn is impacting massively on merchants grappling to generate profits from their increasingly omnichannel operations. That was a key message at this year's World Retail Congress (WRC) where Asda CEO Andy Clarke said that, although online is only a small percentage of sales (less than 10 per cent), it has prompted the company to recognise that it needs a "low cost, efficient format for its store portfolio because whatever forecasts you look at the large format is decreasing [in relevance]".

He added that Asda will continue to see its store proposition change but that omnichannel retailers must not forget about their core traditional businesses when they undertake such changes: "If all you do is look for the new then you'll just have a deteriorating [overall] business. You cannot forget the core."

Retail used to be so simple, well, relatively simple, even up to a few years ago. People travelled to their nearest store, handed over their money and took their goods home. "Back in the 1990s retailers were very much in control. Online has changed everything and put the customer in control," observed Martin Newman, founder and CEO, Praticology, at the 2015 Retail Systems Multi-Channel Conference, which took place in London during September.

"2015 will become known as the year the master shopper came of age," declared John Lewis managing director, Andy Street. "Shoppers are now more enabled and more in control than ever. It's an exciting time in retail history."

Exciting for some, maybe, but daunting for others. Some retailers are responding accordingly, upping technology spend in such areas as websites and mobile apps and improving IT systems and ensuring that different systems talk to eachother. According to Gartner, technologies that help understand customers better, improve engagement through omnichannel experience and facilitate the buying process were high priority areas in 2015. Within stores, creating IT infrastructure to accept various mobile payment systems and digital wallets were at the top of agendas in the second half of the year.

Others, however, have fallen behind. eCommera recently issued research, collated from interviews with 100 top-tier retailers, showing that 70 per cent agree omnichannel is important enough to warrant further investment. However, only 25 per cent could see a strong ROI today. "If you need to be 100 per cent sure, you will be 100 per cent late. If you have to prove a business case for every innovative thing you do, you're probably in the wrong business and you will probably be out of business within five years," argued Practicology's Newman. "I can order from Asda before 12pm and collect at High Barnet tube station after 4pm on the same day. What is the ROI for something like that? You wouldn’t do innovative things if you only worried about ROI.”

In addition to Asda, and the always on the move Amazon (more on them later), 2015 saw the likes of Argos, House of Fraser and John Lewis surge ahead. In fact, it proved to be the year of the omnichannel retailer as pureplays faced slow growth (the IMRG Capgemini e-Retail Sales Index for October showed that online retail sales recorded their lowest year-on-year growth since the Index launched 15 years ago). Argos became the first British retailer to offer same-day store collection and home delivery, up to 10pm, seven days a week. The service covers 20,000 products; customers choosing free of charge Fast Track collection can collect their products from 800 Argos store locations, at specially marked counters. Those opting for home delivery can choose from four slots: 7am-10am, 10am-1pm, 2pm-6pm and 7pm-10pm. They can order by 6pm to have an item delivered by 10pm the same day, or schedule a time on the next day or future days, for a fee of £3.95. The retailer says that all of this is possible because of behind the scenes improvements it has been making during the past two years to its stocking, distribution and digital systems, such as the hub & spoke stocking model it deployed in stores last year.

House of Fraser's online sales increased by 30.8 per cent for the 26 weeks to 1 August. Online now represents 17.5 per cent of sales (against 2014/15: 14.2 per cent of sales), boosted by an updated version of the retailer's iPhone app to include the ability to scan barcodes in-store, and enhancement of its delivery proposition, including a midnight cut off for Buy & Collect delivery to store by midday the following day.

John Lewis opened its new 250,000 sq ft, £35 million Birmingham store, part of the new Grand Central shopping centre which sits above New Street station. It was the company's largest brick and mortar opening in four years and one of its biggest department stores in the UK. "This sends a clear message that we are firmly committed to the British High Street and that physical shops remain as important to us as they do to our customers," said John Lewis's Street.

It wasn't all plain sailing for the old guard, though. Many struggled with issues which, in some cases, were arguably of their own making but, in others, beyond their control. The growth of digital brings with it many opportunities but also various significant challenges, according to Tesco chief executive Dave Lewis. Speaking at the CBI conference during November, he said that high up on the grocery giant's agenda was, "how to make our online business of tomorrow as profitable as our offline business yesterday." He added that digital operations have no real community footprint; there are far fewer employees and a far lower tax contribution. "That should be a dilemma for the Exchequer. Without rebalancing to reflect digital business models the physical side of retail pays a higher and higher proportion of the total tax bill. Furthermore it will incentivise a swifter shift to infrastructure light, low employment business with little interaction with communities."

As for the physical world, the growth of limited range retailers and a rise in convenience shopping have both affected profitability and growth. And shopper habits have changed during the recession. Basket sizes have reduced. Weekly shops have split into multiple occasions. The convenience channel is therefore growing (up five per cent again this year). "Our big stores are also seeing a high proportion of convenience shopping trips – 76 per cent of Tesco convenience trips take place in our Extras or Superstores," Lewis said. "But I don’t see this as a challenge per se – I see it as a shift in what customers want or need – and it’s our job to respond. What I do see as a challenge is that whilst the customer was heading in one direction the industry was heading in the other…between 2007 and 2014 it added around 35msq ft…The market didn’t grow. Inevitably it couldn’t go on and in January this year we called a halt. It was painful – colleagues and communities were affected as we closed stores and decided to halt construction on others. I suspect, however, that our competitors were relieved because their announcements followed in pretty short order."

"But it isn’t just the Big Four. More independent shops were closed than opened in the first six months of this year," he added. "As the first CEO in Tesco’s history to be criticised for not opening a shop or for closing some existing stores, I can tell you that this trend you are seeing is no longer down to us."

Lewis called for reform of business rates in return for implementing the government’s National Living Wage. "Our own business rates bill has increased by well over 35 per cent in the last five years. It’s the biggest tax we pay and it is now three times OECD average. For every £1 we pay in corporation tax large UK retailers pay £2.31 in rates. It’s unsustainable and needs urgent reform. I believe government needs to be careful and strategic on regulation and taxation. Recognising changing dynamics. Taking account of those new realities. Consulting to iron out unintended consequences. With the ultimate prize: more stable, sustainable growth and a better deal for taxpayers."

Shaking the High Street blues
Amazon caused a stir when its first physical bookstore opened for business in November. Amazon Books at University Village in Seattle (the company's hometown) will stock about 6,000 books, with the selection based on reviews, sales data etc from the e-tailer’s site. Prices will be the same as online. It isn't the only online outfit looking to have a physical footprint. Many others have been testing out the likes of lockers and pop-up shops.

Peter Veash, CEO at The BIO Agency, said: "Most retailers move from physical stores to the online world to extend their reach. It will come as a surprise to some that Amazon has opened a physical store in the US. But it shouldn't be. Our recent YouGov study showed that 22 per cent of Brits had shopped on the High Street within the past day versus 18 per cent that had shopped online. The brand recognition of Amazon is massive and visiting its physical store will attract both book lovers as well as people that are intrigued by the move. It is interesting to see that the company will be using its online store data to choose the books to display and I'm sure as time goes on they will be also utilising technology to enable in-store orders and deliveries enabling a seamless shopping experience marrying the online and offline worlds."

Whilst the growth of digital undoubtedly has raised questions about the future of physical retailing, there has been a shift back to recognising that we are social animals and, as such, shopping remains for many a key leisure activity and a source of enjoyment. Having bought into the 'online is everything' hype, retailers, it would seem, have finally woken up to the fact that, in order to stay relevant, every aspect of their digital experience – site, mobile, app, email – must have an in-store component. Many High Streets and shopping centres are being rebooted with cafes and leisure outlets, parcel collection points and shared work-spaces filling vacant lots. And just as major retailers are now content to be in less locations, new companies and chains are picking up the slack, including the likes of Doddle, which allows customers to send and collect parcels via its network of stores.

Much of the aforementioned Multi-Channel Retail Conference went old school, or more specifically put a new twist on an act that has been going for years. There is no shortage of buzzword brandishing consultants in retail, but ultimately it is still all about getting the basics right, selling a good product at the best price and offering great customer service. Or, as Practicology’s Newman put it, "putting customers at the heart of what we do." At previous gatherings, online enthusiasts had been quick to predict the death of the High Street; clicks beats bricks, farewell old timers, make way for a brave new world etc etc. In their rush to embrace this new world some omnichannel players have perhaps been guilty of neglecting their stores, of using them as glorified online picking warehouses or showrooms. But overall e-commerce has in fact shown itself to be the saviour, rather than the destroyer, of brick and mortar retailers.

2015 was littered with examples of traditional retailers taking the fight to the pureplays. Amazon, for instance, lost market share in non-digital films, video games and music for the first time in four years as the High Street, lead by HMV and GAME, came back to life. The e-tailer continues to be the UK’s biggest seller of CDs, games and DVDs but its share slipped by 1.2 percentage points to 20.4 per cent in the three months to 27 September, according to Kantar Worldpanel.

Ever the opportunists, Asda looked to cash in on shifting sands by allowing customers to collect orders from other retailers within its 614 stores. The grocery giant described the initiative, called ToYou, as a game changer. Missguided is the first company to sign up to the new service. According to Asda, if it grows the solution enough it could provide the supermarket with up to 40 million extra visits per year by 2019.

Ian Stansfield, vice president Asda Logistics Services and Supply Chain, said: “Demand for online shopping is ever increasing, with it grows the appetite from online retailers to have physical footprints their customers can access. Not only are we providing online retailers with a presence on the High Street we’re also bridging a gap for customers who want to collect or return their online orders while carrying out their weekly shop. This is an industry first: complete, real-time, individual parcel tracking – whether collect or return, every step of a parcels journey is tracked and visible to our clients and customers. This truly is game changing.”

Perhaps more than ever, retail is transforming, moving away from the rigid model of High Street stores with digital channels bolted on the side and online stores with no physical presence, towards retailers creating flexible, personable, engaging omnichannel experiences for their customers. Clearly, there is much work to done though. Visa Europe predicted a bumper Black Friday, with Brits spending £1.9 billion. Alas, as was the case last year, many websites couldn't cope when the big day rolled around. Various e-commerce offerings crashed before 9am on the morning of 27 November. The John Lewis and Argos websites also buckled under the pressure, the latter suffering problems throughout the day, with customers reporting slow loading times, pages timing out, and the following message from the retailer when they attempted to checkout: "Sorry for the delay. Demand for this part of the site is really high. The countdown is on. Once the timer runs out you'll be able to continue your Black Friday shopping. If you prefer open a new tab and browse other pages while you wait."

Unfortunately, these sorts of incidents still happen far too regularly. Connected customers, (sort of) connected retailers. With legacy issues and increasingly fickle customers looming large, the race towards omnichannel is proving to be longer and more challenging than many anticipated.

A good year for...
Loyalty programmes. Thought they were dead? Think again. Perhaps the most high profile launch this year came courtesy of Marks and Spencer who rolled out its Sparks members club nationwide on 22 October. During a three month trial, undertaken in the Wales & West region, the retailer recruited over 100,000 members from its customer base across 24 stores, to road test and refine the online and in-store experience. Patrick Bousquet-Chavanne, executive cirector at M&S, said: “Customers tell us they want to ‘be part of something special’ and that’s exactly why Sparks is a club. As a member you are more than a customer and you’ll get the most from M&S – with tailor-made offers, priority access and invites to exclusive events. It’s a two way relationship; members tell us what they enjoy, select their own tailored offers and are rewarded for sharing their views.”

ASOS, meanwhile, is set to launch its Rewards loyalty scheme in the near future, following a trial. The programme, initially for UK customers, allows shoppers to build up points on purchases, which become convertible into vouchers for use on its platforms. In addition to this, customers will unlock a wide variety of other rewards such as birthday discounts, free next day deliveries and exclusive content.

Contactless. Who'd have thunk it? Contactless cards, for so long all hype, no substance, are catching on. More and more people, of all generations, are climbing onboard, although as a delegate at our Payments Conference in October pointed out, TfL remains the main driver, having rolled it out across the London transport network. Research by Saga (involving 6,267 people) shows that seven out of ten Brits over 50 now have contactless cards. And 29 per cent use them up to three times a week to buy groceries, food and drink in restaurants or cafes (21 per cent) and coffee and cake in coffee shops (16 per cent). One in ten say they no longer dig around for loose change for the bus or have to rush to buy a ticket before hopping on the tube. And they like not having to carry cash with them (31 per cent) or having to remember their PIN (24 per cent).

Contactless might be coming good at long last but cash remains hugely popular and is still used for more than half of payments by UK consumers. The 'RIP notes and coins' brigade were, however, out in force again this year. The next generation of children born in Britain "will not know what money is", according to Tim Cook. The Apple CEO made the prediction during a November address to students at Trinity College Dublin where he became him an Honorary Patron of the University Philosophical Society. Cook, of course, has a vested interest here. He is placing his bets on the popularity of cash falling as more and more people switch to cards and mobile payment services such as Apple Pay.

Challenger companies. Angela Ahrendts of Apple topped the table of the Retail Insider Top 100 Movers & Shakers in Multi-Channel report for 2015. But the list was not just about big hitters; the leaders of challenger companies Graze, Rapha and Farfetch also featured prominently. And both Simon Mottram, founder of Rapha, and Anthony Fletcher, CEO, Graze, earned places in the top 10.

In-store analytics. Like, so, hot right now as digital natives begin to make their presence felt in the retail sector and look for more than simple footfall monitoring. Dune, for instance, implemented a Walkbase solution based on Wi-Fi analytics and video monitoring. Zoe Owen, retail sales director at Dune Group, said: “The solution provides us with real-time insights into customer conversion, visit patterns and customer journey and loyalty. This enables us to further improve our customer engagement and experience in our stores. A new conversion metric is one of the innovations we’ve already taken into use. As well as of tracking transactions of all visits, we can now use transactions per engaged visits as one of the key performance indicators for our store teams.”

A bad year for...
Black Friday. The National Police Chiefs’ Council urged retailers to have the right levels of security in place for Black Friday, whilst suggesting that they look to run their festive sales over a longer period than just a day. This followed unsavoury scenes from last year when police were called to supermarkets around the country as crowds surged and people started acting like mentalists at the first sniff of a bargain. A man was arrested in Salford after he threatened to smash a staff member’s face in. Shoppers in Stretford decided to have a fight and a woman suffered minor injuries after being hit by a falling TV. Yes, it truly was a delightful affair showcasing everything that is great about this country.

Asda, meanwhile, announced its intention to bypass Black Friday 2015 despite being one of the retailers that bought it here from the US. Whilst a third of major retailers labelled it unprofitable and unsustainable, an LCP Consulting report noted.

In the end, the figures were impressive (total UK online spend for the four-day weekend reached £3.3 billion, according to IMRG and Experia), but it's hard to escape the feeling that Black Friday in its current form is all smoke and mirrors, sucking festive sales from elsewhere and draining November trading margins.

Personalisation. A top buzzword last year, thanks to the advent of digital shopping and Big Data analytics. But in 2015 the deluge of hacks on retailers’ data and misdirected personalisation initiatives had a dramatic effect on consumers’ trust. They are now strongly negative about retailers’ privacy initiatives, according to a Capgemini Consulting report, Privacy Please: Why Retailers Need to Rethink Personalisation, based on a social media sentiment analysis of 220,000-plus conversations over six months and covering 65 large global retailers.

Walmart suffered its worst stock decline in nearly 30 years during October after it revealed that earnings will decrease 6 per cent to 12 per cent in fiscal year 2017. The announcement came as it laid out a three-year strategic framework, intended to strengthen its e-commerce businesses, enhance the in-store experience and boost its supply chain. Investments in e-commerce and digital initiatives are expected to total approximately $1.1 billion in fiscal year 2017.

The Big Four supermarkets have continued to struggle in the face of declining sales, changing shopper habits, reduced basket sizes, and the rise of the discounters. Aldi and Lidl’s combined share of the British grocery market reached 10 per cent for the first time in 2015, according to Kantar Worldpanel. Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, commented: “If you look back as recently as 2012 Aldi and Lidl only held a five per cent share of the market, and it had previously taken them nine years to double their combined share from 2.5 per cent. In the last 12 weeks the two retailers have attracted another additional million shoppers compared with last year while average spend per trip has increased by four per cent to £18.85, which is 78p ahead of the total retailer average. The discounters show no sign of stopping and with plans to open hundreds of stores between them, they’ll noticeably widen their reach to the British population.”

And to add to the woes of Tesco et al, Amazon now has them in its sights. The e-tailer recently launched Amazon Pantry for its Prime members, offering more than 4,000 everyday essentials, including food and drink, household supplies, baby and child care, pet, and health and beauty products. Customers can fill up as much or as little of an Amazon Pantry box as they wish for one-day delivery with a £2.99 fee for the first box and 99p for each additional one in the same order. Be afraid, be very afraid.

A mixed year for...
During October, AO.com (along with LizEarle.com) emerged as the best online shop, according to a Which? poll involving more than 10,000 people. But a month later AO World saw its shares tumble after reporting an £8.9 million operating loss for the first half of this year, compared to a profit of £900,000 at the same stage in 2014. This was despite the online appliance retailer seeing its UK sales surge 23.7 per cent to £214.8 million, while total group sales increased 22 per cent to £264.3 million. The company attributed its operating loss to "ongoing investment in German operations and startup costs in further Europe territories."

Nick Glynne, managing director at rival BuyItDirect Group, could not hide his glee: "AO's terrible results show that you cannot make profit if you spend all your money on building a brand and driving in revenue. Buying revenue or market share is so easy in the online game - you just need to throw a lot of money at Google or other advertising medium and along comes the revenue. However, making a return is more difficult."

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