Alan Giles The Lecture 2016 Saïd Business School, University of Oxford

Never mind the quality, feel the personalisation. The future of retailing Alan Giles is an Associate Fellow of Saïd Business School, University of Oxford where he chairs the Advisory Board of the Oxford Institute of Management. He is also a non-executive director of Rentokil Initial plc, Perpetual Income & Growth Investment Trust plc and the Competition & Markets Authority, having been a non-executive director of the Office of Fair Trading from 2007.

Alan has extensive retail sector experience, having been Chairman of Fat Face from September 2006 until July 2013. Earlier in his career he formed HMV Group as Chief Executive in 1998 as a leveraged buy-out and led the Group through its London Stock Exchange IPO in 2002 before retiring from the Group in September 2006 to develop a portfolio of non- executive and teaching roles.

He graduated in Physics from the University of Oxford and holds a Masters in Management degree from The Graduate School of Business, Stanford University, California. The Brands Lecture 15th November 2016

Never mind the quality, feel the personalisation. The future of retailing

Alan Giles Saïd Business School, University of Oxford facing thesector. structural changes [...] focussedonthe ... mostretailers are Never mind the quality, feel the 2 personalisation. The future of retailing differentiation of thediscounters?TheGerman for FMCGbrands,butwillthey blur thebasisof moves tobroadenrangesarea hugeopportunity wider rangesandbetterpresentation. These andLidlaremovingtolarger storeformats, categories likefrozenfoods.Across Europe, Slough, whichisallowingittomove intonew format atthenewPoundland&Morestorein Poundland hasmovedawayfromitssingleprice But thediscountersaren’tstandingstill. sectors andmostgeographies. to discounterscanbeseeninmostproduct established mainstreamretailerslosingground primarily toAldiandLidl,thispatternof lost nearly3percentagepointsofmarketshare, two yearsalone,thebigfoursupermarketshave to trytheseultra-lowcostformats.Inthelast 2008 financialcrisispromptedmanyconsumers amounting tomuch.Buttheaftermathof Aldi, LidlandNettointhetwentiethcenturynot of course,withthefirstwaveattackfrom assortment discounters.We’vebeenherebefore, The firstistherelentlessriseoflimited facing thesector. much morefocusedonthestructuralchanges for society’sills.Butintruthmostretailersare feeling that,rightlyorwrongly,theyareblamed where, morebroadly,retailerscanbeforgivenfor as scrutinyfromparliamentarycommitteesand with someremarkablyhighprofileissuessuch It’s beenaverysoberingyearforBritishretail, some ofthethingswewillseeinfuture. responses andthenconcludesbysettingout facing retailers,considerstheirprincipalstrategic This lectureexaminesthestructuralchallenges discover suchbrands? However, theproblemishowdoconsumers good opportunitiesforsmallbrandstogetlisted. and the“elasticshelves”ofsuchretailersallows are goodnewsforbrandswithhighawareness In myviewpureplayonlinechannels centres. from crowdedBritishhighstreetsandshopping penetration ofcreditcardsandapushfactor early adoptionofdigitaltechnology,greater for thisleadership,includingUKretailers’ today it’scloserto20%.Therearemanyreasons the UKthananymarket;in2013itwas14%and the world,butonlinehasgreaterpenetrationin China isnowthelargeste-commercemarketin flat, withtheconsequentsqueezeonprofitability. value ofsalesthroughstoresintheUKisatbest all retailsalesgloballyareonline.Asaresultthe regions stillshowingdoubledigitgrowth.7%of globally up20%thisyear,withmoremature The secondstructuralchangeise-commerce: run itscourse. suggest thatthisstructuralshifthasbynomeans of thefoodmarketisbetween30%and43%, and Scandinaviancasestudies,wheretheirshare facilitated disruptive newentrantsinallsectors, course customerinsight.Secondly technologyhas across supplychain,storeoperations andof change hasheraldedhugeefficiency benefits of newtechnologyandtheaccelerating paceof For centuriesretailershavebeen earlyadopters Technology isdrivingchangeon threefronts. opportunities inthesetenorganisations. will needtodevelopstrategiesseizethegrowth illustrates whothebigplayersare.FMCGbrands B2C sales,notjustgrocery,butnevertheless in thischannel.Thechartaboveshowsall Globally wewillcontinuetoseerapidgrowth Largest onlinegrocery retailers Source: PlanetRetail,2016 CAGR, 2016-21 Retail banner sales (USD bn) 100 200 300 400 500 600 700 800 0 24 +22.2% Alibaba 280 710 Amazon +16.8% 51 high ambitionsby2021. past fiveyears,withextremely and JD.comhasexplodedover marketplaces suchasAlibaba non-grocery) ofChinese-based The GMC(mostofwhichis 126 274 JD.com +35.1% 5 110 403 Walmart +21.4% 4 e-commerce growth. its ambitionsof›20%CAGR the channelinordertoachieve to injectfurtherinvestmentinto in 2015and2016,promptingit Online growthslowedatWalmart 17 44 +12.2% Casino 4 7 bargaining power. has giventhemunrivalledprice transparencyand distance fromlimitingconsumers’ optionsbut not onlyeliminatedtheissueof geographical reduction. Last,butnotleast,online accesshas growth ofAmazonisforcingafurther 15-20% their costbaseandthatnowthe subsequent prompted otherretailerstoremove33%from that inearlierdecadesthegrowthofWalmart of disruptivecompetition,McKinseyestimates their orders.Justtoputafigureonthescale in avanequippedwith3Dbodyscannertotake retailer thatgoestoManhattanofficelocations for exampleArdenReed,aNewYorkcustomsuit 13 4 +7.3% 6 8 Carrefour +10.4% 2 5 7 +14.8% 1 its internationalportfolio. albeit growingpresenceacross and thechannelhasasmall, approached onlinecautiously mortar retailer,Costcohas second-largest bricksand Despite beingtheworld’s 4 7 +11.3% 2 Target 3 7 Leclerc +10.0% 2 2011 3 2016 5 2021

The sixteenth Brands Lecture 3 credentials. about theirprice provide reassurance as retailers setoutto powerful position, consumers are ina friend [...]So available, shopping informed, always is theultimate The smartphone Never mind the quality, feel the 4 personalisation. The future of retailing napkin sketchofhistwinflywheel businessmodel. clearly stillbelieving,22years on, theJeffBezos support Amazon’srelentlessdriveforgrowth, Amazon, wherecapitalmarketscontinueto investment ofpureplaycompetitors,mostnotably to contendwiththefocus,agilityandsheer Bricks andmortarretailersarealsohaving track pricemovementsoveraperiodoftime. in thecaseofCamelCamelCamel,toallowyou or partiallyautomatethosecomparisonsor,as markets therearepowerfulonlinetoolstofully on theretailertodothatforthem,andinmost competitor comparisons,notneedingtorely digitally-enabled consumerscandotheirown the differenceisreturnedviaagiftcard.But customer couldhavepaidlesselsewhere.Ifso, receipts andhaveWalmartdetermineifthe program whichallowsshopperstoscanintheir 2014 Walmartintroducedits“SavingsCatcher” reassurance abouttheirpricecredentials.In powerful position,asretailerssetouttoprovide knowledge ofstorestaff.Soconsumersareina transparency butalsoraisesexpectationsofthe shopping friend.Thisnotonlyincreasesprice is theultimateinformed,always-available and seekadvicefromfriends.Thesmartphone prices, lookforreviewsandproductinformation consumers areusingsmartphonestocompare conversion doublingtoabout2%.Instore, smartphone aregrowingmuchfasterwith on mobiledevices,ofwhichsalesmadeby About halfofUKonlinesalesarenowmade phone accessories. and AmazonBasicsincomputer andmobile strategy, including“Pinzon”linens andtowels a morewell-developedandglobal private-label for private label. Outside ofFMCG,Amazonhas food, thelatteroneoftoughestcategories Happy BellycoffeeandMamaBearorganicbaby there isalow-keymoveintoprivatelabel,with conditioning, unblockyourlooormovehome,and Home Servicestocleanyourhome,installair compare cars.AlsointheUSyoucanuseAmazon a newplatformtohelpcustomersresearchand young professionalcustomer,andhaslaunched early stagewhatwillultimatelybeanattractive offer studentloans,anopportunitytorecruitat Amazon recentlylinkedupwithWellsFargoto Etsy andNotonthehighstreet.com.IntheUS, for personalisation,rivallingartisanetailerslike and homedécor,athirdofwhichwillbeavailable will sellproductsincludingjewellery,furniture Germany, France,ItalyandtheUK.Theplatform products fromover1,000artisansellers,across its Handmadeoffer,whichwillfeature30,000 their firstTVadlastmonth.Amazonwillrollout Fresh, butalsofashionwheretheyscreened sectors: notjustgrocerythroughAmazon Amazon isrelentlesslyattackingnewmarket large pureplaycompetitors. are severelylaggingtheinvestmentdriveof of courseshopwithAmazon.Traditionalretailers play music,provideinformation,news,sportsand your voicetoconnecttheAlexaVoiceService like theEchohands-freespeakeryoucontrolwith 10% ofitsrevenuesonR&D,creatingproducts Amazon isattheforefrontofinnovation,spending delivery driversthroughtheAmazon Flex impacting impulsesales.Recruiting self-employed frequency ofvisitstophysicalstores adversely was abrandownerIwouldworry aboutreduced advantage -immediateonsiteavailability. IfI and mortar’sremainingsourcesofcompetitive implication isthefurthererosionofonebricks 20% oftheAmazonPrimetotal.Thestrategic service whichsomeestimatewillaccountfor Amazon PrimeNowisatwo-hourUSdelivery and halffullerrangeconveniencestores. stores, halflargelyrestrictedtoclickandcollect, It appearsthattherewillbeatrialof20these grocery itemsisunderconstructioninSeattle. with anopportunitytosellshort-lifeandimpulse pick-up pointforAmazonFreshgroceryorders service. Aconveniencestorewhichcombinesa most significantlyofall,fortheAmazonFresh delivery suchasthecampuspick-uppointsor, Echo andKindle),helpreducethecostofphysical Prime, selldigitaldevicesandservices(suchas models thathelpthemdriveupmembershipof clear thatAmazonisexperimentingwithbusiness stores, whichlookswideofthemark.Butitis and SanDiegohavepromptedrumoursof400 Amazon’s bookstoresopeninginSeattle,Portland higher too. suspicion thatpricestoendconsumersare ranges from8%to15%.Thereisalsosome on topthenormalcommissionwhichtypically button soldand15%ofeachDashproductsale, consumables. BrandspayAmazon$15foreach button toautomaticallyreplenishhousehold Amazon Dashenablescustomerstohita membership levelat2.4million members. But itcurrentlyhasjustoneseventh ofPrime’s million afterattractinginvestment fromAlibaba. from 150retailersandearning avaluationof$500 is aUSmulti-partycompetitor, offeringdeliveries Prime istoughtocompeteagainst:Shoprunner products; 55%useAmazon,upfrom44%in2015. engines astheirstartingpointforresearching consumers intheUSnolongerusesearch £2,400 uponbecomingmembers.Furthermore annual spendincreasingbyafactorof2.5to are currentsubscribers,withtheiraverage in; some60%ofUSand36%UKhouseholds Prime isaverypotenttoolforlockingconsumers the benefitofPrimesubscriptions.However shipping coststhroughrevenues,despite other thanretailinganditfailstorecoupits operating profitnowcomesfromrevenuestreams Amazon. of majority The costly. very is this All anticipation offuturelocaldemand. they canusedataanalysistoshipitemstherein fulfilment centre.Indeedatsmallerlocalcentres US populationlivewithin20milesofanAmazon square feetofwarehousingspace.44%the true. LastyearAmazonopenedwellover5million having toownrealestate,butthatisonlypartly that pureplayretailershaveanadvantageinnot Despite theseexperimentsyoucouldconclude UPS andFedex. jets tospeeddeliveriesandreduceitsrelianceon has juststartedaprogrammetolease40cargo higher levelofserviceandtoreducecost.Amazon innovations Amazonisusingtobothprovidethis programme isjustoneofanumbersupplychain com’s com’s impulse sales. adversely impacting to physicalstores frequency ofvisits about reduced owner Iwouldworry If Iwasabrand

The sixteenth Brands Lecture 5 Never mind the quality, feel the 6 personalisation. The future of retailing Non-food retail exposure to Amazon exposed aretothebottomright. that retailer’srangeisdifferentiated. Thosemost Marketplace) andtheY-axis degreetowhich degree ofrangeoverlapwithAmazon (including currently madeonline.TheX-axis reflectsthe the currentproportionofthatretailer’ssales has toAmazon.Thesizeofeachbubblereflects conceptualises theexposureeachlistedretailer general merchandisesales.Thechartabove basis andnowrepresentsaround20%ofUK food growthonagrossmerchandisevolume UBS estimatethatAmazontook25%ofUKnon- Source: UBSEvidenceLab,2016 10 0 1 2 3 4 5 6 7 8 9 0% Best placed 20% DFS Category exposuretoAmazon 40% Card Factory Kingfisher purchases usingbothchannels. ticket items,withaboutthreequarters ofmajor more complexthanthat,particularly forlarge store oronline,weknowthatthe realityismuch and describesalesaseitherbeingmadein some commentatorscontinuingtoover-simplify to developamultichannelproposition.Despite in e-commerceisforbricksandmortarretailers the obviousresponsetodouble-digitgrowth retailers’ principalstrategicresponses?Well, So withsuchfar-reachingthreats,whatare M&S 60% WH Smiths Carphone Dixons Halfords Dunelm 80% Debenhams Next NBrown ASOS 100% Rating Rating outof100 Evolution ofpropositionrating-pureplayvsmultichannel Successful multichannelcompetitors are narrowing thegaponpureplay competitors customer inaway whichmakeseconomicsense. finding aviablewayofgetting the deliveryto But multichanneliscostly,particularly in service andbrandtrusthaswidened. leadership initstraditionalstrengths ofquality, narrowed overfouryearsandJohn Lewis’s to pricesandwidthofrange,butthatgaphas You canseethatthereisstillagapinrelation against Amazonacrossanumberofdimensions. shows therelativeperformanceofJohnLewis closing theperformancegap.Thechartabove traditional multichannelretailershavebeen Despite thefocusandagilityofpureplayretailers, Source: OC&C,2015 delta 100 40 60 80 -8.1 Online rating -9.9 Wide product choicce -34.7 Low prices -11.9 Products that

may suit me 2011 1.8 Quality of products 0.8 Trust -21.3 Value for money -3.5 Store look & feel -1.5 Service can operatewithin athreemileradiusofstore. be trialledinGreenwich;ittravels at4mphand your home.So-calledgrounddrones areaboutto called Gluewhichofferselectronic accessto grocer ICAhascollaboratedwith astart-up the parcelhasbeendelivered. SimilarlySwedish customer’s bootandsendsthem atexttosay gives theretaileraone-timekeytoopen follow. OthersolutionsincludeVolvo’sappwhich by JohnLewisandTescowhichotherswillsurely free either,hencetheintroductionofsurcharges stores orcollectionlockers,butthisisn’tcost us topickupthedeliveriesfromclickandcollect Unsurprisingly retailershavetriedtoencourage 100 40 60 80 -5.5 Online rating -8.2 Wide product choicce -22.4 Low prices -6.1 Products that

may suit me 2015 4.2 Quality of products Amazon (UK) John Lewis 7.3 Trust -9.9 Value for money 1.4 Store look & feel 3.9 Service

The sixteenth Brands Lecture 7 Never mind the quality, feel the 8 personalisation. The future of retailing The economic squeezeon stores the McKinseyanalysisinchartunderneath. inevitable squeezeonstoreeconomicsshownby some 95%infiveyears,whichwillleadtothe influenced bydigitalwillrisefrom64%todayto projection thattheproportionofUSretailsales physical stores.ThechartbelowshowsDeloitte’s that themovetomultichannelishavingon What isclearhowevertheeconomicimpact roof todeliverthepackage. select thecorrectpackageandthenflyoutof for adronethentoscanthebackofvan, package systemthattellsthevanwhentostop, powered VisionVanthatcontainsanautomated Meanwhile Mercedeshasunveileditselectric- Estimates forUSretailcompany,assuminga5%declineinsales persquarefootover5years(%ofsales) Percentage of in-store sales influenced by digital In 5years,ifoperations projected onlineand 100% 20% 40% 60% 80% 0% In 5years,given 2009 ∙201020112012201320142015201620172018201920202021 are optimised Starting point space trends Earnings beforeinterestandtaxes 5 6 8 14% 36% +18% -28% 49% 64% Return oninvestedcapital densities innon-foodversusfood. are opportunitiesarisingfromthefallingsales eBay collectionpoint.Forbrandownersthere business, togetherwithitsHabitatbrandand have beengiventotherecently-acquiredArgos ranges andsubstantialamountsoffloorspace space hasbeenallocatedtotheTuclothing an enhancedfreshfoodofferbutmuchmore first openedthirtyyearsago;notonlyisthere 61,000 squarefeetstoreinNineElmswhich stores. Sainsbury’shavereconfiguredtheir not onlytoomanystoresbutlarge That meansmostestablishedretailershave 16 19 24 Source: Deloitte,2015; McKinsey,2014 protection Digital influence +18% -32% coalesces with a changingconsumersentiment Arguably thismargin-drivenmove toservices not leastbecauseoflessprice transparency. and petgroomingthanonselling petfood, margins aremuchhigheronveterinary services merchandise and7.5%forservices. Ialsosuspect Home reportedLFLsalesgrowth of2.2%for than goods.IntheirlatestresultsPetsat Another responseistosellservicesrather meals andportionsizeswhichweretoosmall. not enoughlargepacksizes,toomanyready much privatelabel(50%vstheUSnormof20%), checkouts, pre-packedfruitandvegetables,too already knew:sotheydidn’tlikeautomated But Americanconsumerspreferredwhatthey about thetypicalUKshoppingexperience. imposing ideasthattheysawasbeingsuperior Tesco gotalotoftheexecutionwrong,perhaps Despite investinginethnographicresearch, than £1monitsdisastrousFresh&Easyventure. all thoughwasTescointheUS.lostmore The mostinfamousinternationalisationfailureof in emergingmarketsthatmanyhadhoped. hypermarket hasn’tprovedtobethekillerformat when internationalisingandinparticularthe stores havehadasmanyfailuressuccesses retailers suchasgrocersandhomeimprovement stores inteninternationalmarkets.Multibrand just lastweekM&Sannouncedtheclosureof53 But formostretailersit’snotallbeenplainsailing; in eightcountriesoutsidetheUKandIreland. internationally, nowhas45%ofitsspaceinstores Primark, whichhashardlyputafootwrong performance istoseekinternationalgrowth. Another responsetosluggishdomestic been convenience formats,drivenbychanging of fronts.Thefocusgrocery openings has Retailers arealsoinnovatingacross anumber surrounding facialrecognition. and socialclass,avoidingtheprivacy concerns assumptions abouttheirgender, demography that analysescustomers’footweartomake behaviour intheirstoreswithtechnology helping retailersbetterunderstandshopper latent demandforbrands.HoxtonAnalyticsis recommendations. Thispotentiallyleverages apps onyoursmartphonetoofferpersonalised pulls togetherinformationfromthevarious If ThisThenThatwhich,ifgivenpermission, Tesco haveannouncedatie-upwithstart-up individual versionsofthesite’shomepage. of offersforeachcustomer,generating1.2million promotion affinityscoreswhichranktherelevance behaviour. Thealgorithmproduces200million consumer develop anin-housealgorithmtopredict data, includingknowledgeofwhereyouare,to scientists usedtheetailer’swealthofcustomer to providepersonalisedoffers.ShopDirect’sdata retailers likeTargetarenowusingdataanalysis perhaps throughyourmobilephone.Many leveraging technologieswhichrecogniseyou, to bettermeettheneedsofindividualconsumers, And afurthertrendistopersonalisepropositions cannot repairityourself. your owngarmentanddoingitforyouif natural conclusion,encouragingyoutorepair clothing brandPatagoniatakesthistrendtoa decade. Environmentallyconsciousoutdoor throw awayculturewhichpervadedthelast towards outrightownershipofgoodsandthe consumer behaviour. algorithm topredict develop anin-house where youare -to and knowledgeof of customerdata– the etailer’s wealth data scientistsused offers. ShopDirect’s provide personalised data analysisto Target are nowusing Many retailers like

The sixteenth Brands Lecture 9 physical stores. experimenting with pure playsare retailers, some of multichannel relative success Perhaps notingthe Never mind the quality, feel the 10 personalisation. The future of retailing shopping bagsandsmartphone apps. using acombinationofRFIDchip-enabled and eliminatingthecheckoutline altogether, companies likeQueueHopare going evenfurther consumers toscantheirownpurchases and But nowKauflandhasintroducedanappfor andreducedretailers’costs. sped-up theconsumerexperienceatmany innovate. Self-scancheckoutmachineshave Retailers continuetousenewtechnologies standing throughaddingphysicalstores. and Missguidedarealsoimprovingtheirunder- mentioned earlier,butinthiscountryMade.com The mostnoteworthyisAmazon’sbookstore pureplays areexperimentingwithphysicalstores. relative successofmultichannelretailers,some cart usingasmartphoneapp.Perhaps noting the and addthegroceryitemstoavirtualshopping Utrecht. Customerscanquicklyscantheimages shop, temporarilytransformingabusshelterin Jumbo hasopenedapop-upbus-stopvirtual meatballs areavailable.Dutchsupermarket sets andabistrowhere,ofcourse,Ikea’sfamous wardrobes andsofas.Ithasanumberofroom as astudiotoplanpurchasessuchkitchens, It doesn’tcarrythefullrangeandactsprimarily third orderandcollectionpointinBirmingham. Carpetright inClapham.InAugustIkeaopenedits live animals,ToppsTilesinWimbledonand which at2,500sqfthasagroomroombutno Whiskers ‘n’PawsbyPetsatHomeinDorking to othersectors.Amongrecentopeningsis recently, risingfuelprices.Thisisnowspreading multiple jobholdersperhouseholdand,until consumer habits:smallerhouseholdsizes, consumers according topre-setparameters. to makeautomaticpurchaseson behalfof Commerce’ wheresmartdevices willbeable which isalogicalprogressionto ‘Programmatic who marketsafridgewithdoor-mounted camera Woolworth Australiahaslinked upwithSamsung delivered totheirhotelroomwithin90minutes. products areavailableforgueststobuyandbe the SandersonHotelinLondon,whereluxury stylist whileinacompletelydifferentlocation, enables acustomertobuyitemsfrompersonal designed anaugmentedrealitymirrorwhich are inyourownhome.SimilarlyWestfieldhas talk youthroughproductsinthestorewhile internet-enabled glassessotheycanshowand retailer Gear4Musicequipsitssalesstaffwith assess safetyimplications.Musicalinstrument shrink themselvesdowntothesizeofachild kitchen cabinets,walkaroundtheareaandeven trial allowstheusertochangecolourof out newkitchensbeforeyoubuy.Thecurrent Virtual realityisnowbeingusedbyIkeatotry staff tooperateit. that thecurrentiterationofrobotneedsthree their livelihoodsjustyet,becauseDartyadmits human salesassistantsdonotneedtofearfor the nextgenerationofcustomerservice.However NAO intoitssalesteamasitexperimentswith F&F. Dartyhasdraftedahumanoidrobotcalled to keepshelvesstockedwithitsclothingrange with RadioFrequencyIdentification(RFID)robots pay themavisit.Tescoiscurrentlyexperimenting Lowe’s hopestoencouragemoreconsumers stores functionmorelikeawebsitesearchbox, into 11storesinCalifornia.Bymakingphysical Lowe’s hasintroducedcustomerservicerobots more than200synthetic ingredientssuchas rolling outanewprivatelabelline thatexcludes paid totheproducers.Texasgrocer H-E-Bis price willbesetbyconsumers and apremium producers called‘Whoistheowner?’, wherethe in conjunctionwith95Normandy-based milk Carrefour Franceistointroduce anewmilkbrand secondary andtertiarybrandsaredelisted. present opportunitiesforpowerfulbrandsas presenceontheirshelvesbutcould That isgoingtoraisethestakesforcontinuing will increaseinspaceallocationasmuch14%. more prominenceonprivatelabelproductswhich appearance ofstoresin“ProjectReset”byplacing and Tescoissettomakemajorchangesthe over aquarterofshoppingbasketssincelaunch Tesco’s ‘Farmbrands’havebeenincludedin rural origins.Despitewidespreadcriticism, Aldi andLidlsuggest,misleadingly,British brands designedtobeprice-competitivewith Tesco’s “farm”range;sevennewentry-level year andaparticularlynotoriousexamplewas European countriestrackedbyNielsenlast label marketsharegrewin13outofthe20 the structuralchallengestheyface.Private- private labelmightbeusedtocombatsomeof Unsurprisingly retailersarelookingathow devices acrosstheglobe. and thatby2020therewillbe26billionconnected than fivebilliondevicesconnectedtotheinternet consumers. Ciscoestimatesthattherearemore as decisionsarenolongeractivelymadeby but mightchangethedynamicsofbrandchoice of convenienceandcost-savingintoeverydaylife Programmatic Commercecanbringnewlevels By enablingthedelegationofroutinepurchases, commercial opportunity. WhenIhaveseenthis as they seem peripheraltothemainstream confess tobeingscepticalabout theseinitiatives support ofmorethan70FMCG companies.Imust e-commerce platformforbrands whichhasthe Brands Group,DLF,haslaunched Shobr,an in Denmarkthelocalequivalent oftheBritish concert ticketsorUbergiftcards.Meanwhile remember aschildreninthegrown-upformof but bringbackthebelovedcerealboxtoyweall servings thatincludenotjustfancytoppings its ‘indulgence’brandpositioningwith$10cereal creations. InNewYorkKellogg’sisreinforcing in customerssharingsnapsofchocolate-laden sit attheheartofitsPleasureStore,resulting their brand;personalisationandexperimentation for customerstoengagemoremeaningfullywith their ownterms.Magnumsawanopportunity But someFMCGbrandsaretakingonretail removed andwashedinthedishwasher. a barbecuewithceramicgrilleswhichcanbe tool withabuilt-intorch.Theyhavealsodeveloped allow ittobeassembledin60minutesandapower bruised thumbs,pre-assembledshedpanelsthat magnetised grooveontoptoholdthenail–nomore different shapesandfoldsflat,ahammerwith as alampmadeofsiliconthatcanbemovedinto innovation centreinLille,developingproductssuch innovation. 50peopleworkinKingfisher’s£30m Non-food retailersarealsofocusingonproduct established brands? Can theydothismorequicklyandeffectivelythan ethical concernsthroughprivatelabelranges. to demonstrateleadershipovernutritionaland and Ithinkwewillseemoreretailersattempt high fructosecornsyrupandartificialflavours consumers. actively madeby are nolonger choice asdecisions dynamics ofbrand might changethe everyday life,but cost-saving into convenience and bring newlevelsof Commerce can Programmatic routine purchases, delegation of By enablingthe 11 The sixteenth Brands Lecture Never mind the quality, feel the 12 personalisation. The future of retailing Pureplay retail: doesthewinnertake all? implemented CustomerthroughPricing Specific Market. ThisupscalegrocerychaininOhiohas multi-tiered programssuchasatDorothyLane have aloyaltycard.Evenmorecontroversialare simply inflatedtofunddiscountsforthosewho two-tiered pricingwherethepricesinstoreare concerns, notjustaboutprivacybut 20% discount.Butloyaltyschemescanprovoke items fromalistofaboutthousandtoreceive been Waitrosegivingyoutheoptiontochooseten example intheUKlasttwelvemonthshas is promotions.Perhapsthemostnoteworthy The finalareaofinnovationIwanttocover trying tocommissionandpublishbooks. moving downstreamasbooksellershavebeenat their ownbookshops,theyseemashopelessat at firsthand,whenpublishershaveopened and USCommerceDepartment, 2015 Source :L2Intelligence fromInternetRetailer Omnichannel retailers $264.28 2013 Amazon 25.7% Amazon 1.6% Sears 3.8% Walmart 3.9% Staples 6.9% Apple Pureplay softwarecompanies includes Netflix,Systematec group ofcustomers. the plightofarelativelyunwanted,disadvantaged retail marketingbutregulatorsmightworryabout veteran retailer,thatsoundsliketheHolyGrailof you andofferapersonalisedprice.As could interactwithyourmobilephonetoidentify significant penetrationinFrancebuttheory Electronic shelf-edgelabelshaveonlyachieved regardless oftheidentitycustomer. Most physicalretailerssticktouniformpricing card customers. are usingasimilarmechanismfortheirloyalty Dorothy Laneshoppers.InCalifornia,Safeway this storeonlygototheidentifiedtop30%of Now, themajorityofalldiscountsavailablein to anumberofdistinctgroupscustomers. its DLMclub,wheredifferentpricesarecharged and GoogePlay $304.91 2014 Pureplay retailers 26.1% Amazon 1.9% Sears 3.7% Staples 4.0% Walmart 6.8% Apple employed consultants priortothecompletion of buying ofbrandsandownlabel. Bothparties the lion’ssharemustcomefrom moreefficient operating costs,especiallyathead office.But is tobeachievedthroughtheoptimisation of synergies byJuly2019.Around 25to30percent where thereisatargeted along thelinesofAholdDelhaizemerger wouldn’t surprisemetoseemoreconsolidation In thefaceofsuchdramaticindustrychangeit the supplychain. some ofthatnewinsighttoreverberatebackup and shippingcoststomaximisemargins.Expect algorithms whichclaimtooptimisewarehousing Well, Jet’skeycapabilityistheirdynamicpricing the target.WhatpersuadedWalmarttobuyit? outrageous rateofcashburnandanexitalways Walmart. Itwasneveraviablebusiness,withan going. Nosurprisethereforethattheysoldoutto a further$550millionlastautumnsimplytokeep already had$225millionoffunding,ittoraise hoped todoby2020.Crucially,eventhoughithad $20 billioninrevenuestobreakeven,whichit said itneeded15millionpayingcustomersand Even suchahighprofilenewentrantasJet.com Scale continuestobecriticaline-commerce. trending towardsfurtherconcentration. account forthreequartersofthemarket,whichis for 40%ofallUSe-commerceand50firms Amazon, Apple,WalmartandStaples,account is thisawinnertakesallgame?Fourcompanies, top 50USe-commerceretailers.So,ultimately, previous pageshowstheconcentration among the extreme levelsofconcentration.Thechartonthe a tendencyformanydigitalmarketstoexhibit So whatmightthefuturehold?Firstlythereis 1 500 millionin Instagram istesting anewfeatureintheUS commercial dynamicoftheirsites. Nevertheless but reluctanttounderminethe relaxed,non- are keentomonetisetheirhuge customerbase case isn’tyetproven;socialmedia siteowners month onthesite,Facebookfourteen. Butthe shopping; WhatsAppusersspend eighthoursa of theirsiteswhichmightgivethemarouteinto number ofcustomers,it’stherelativestickiness to monetisetheirbusinessmodel.It’snotjustthe customers butinmanycasesarestillstruggling unclear. Thesesiteshavehugenumbersof The roleofsocialmediainshoppingisstill electronics retailer. with Boulanger,aleadingFrenchconsumer merchandise offerthroughabuyingpartnership Auchan isstrengtheningitsFrenchgeneral (both whiteandbrowngoods).Similarly international suppliersofhouseholdappliances to optimisepurchasinginFrancefromthemain joint centralpurchasingagencywhichwillaim food; ConforamaandCasinoaretocreatea buying power.Thisisnowspreadingtonon- alliances, leadingtoasubstantialincreasein grocery retailersinFranceformedthreebuying trust regulators.During2014sixofthetopeight buying alliances,despitethescrutinyofanti- Short offullmergers,wemaywellseemore annual e-commercesaleswouldbringsuppliers. combining 6,500storesandnearly increased distributionpotential”thatamerger surprise thereforethatAholdDelhaizestress“the less thanaharmonisationofbuyingterms.No every lineintheirassortments,aimingforno listing thetermsandconditionsforeach the dealinordertocreateso-called“playbooks”, 1 2 billion in2 billion of theirsites. commercial dynamic relaxed, non- to underminethe base, butreluctant huge customer to monetisetheir owners are keen social mediasite is stillunclear[...] media inshopping The role ofsocial 13 The sixteenth Brands Lecture produced items. versus domestically considerable cachet goods, whichcarry on branded particularly focuses this population the country- rural regions of targeting the places are now Chinese market- Never mind the quality, feel the 14 personalisation. The future of retailing they areauthorised tosellbrandedgoods. marketplace inanefforttoforce sellerstoprove to getapprovalsellbranded itemsonthe Amazon sellersmustnowpay $1,000 ormore there areissueswithcounterfeit brands. business intheUS.Likeallmarketplaces, to doublethesizeofitsdirect-to-consumer Gross MerchandiseValuebasisisalreadyclose Amazon Marketplacegrewby53%andona Amazon’s Alexa,allofwhicharevoice-controlled. against Apple’sSiri,Microsoft’sCortanaand chatbots willbringtheirownershead-to-head population. Buttheuseofartificialintelligence billion regularusersworldwide,22%oftheglobal the explosivegrowthofmessagingservices–1.6 official Facebookpage.Thekeydrivershereare Facebook has15millionbusinesseswithan this way.Messengerhas900millionusersand third partiescancreatechatbotstointeractin up Messenger,itsownmessagingapp,sothat In AprilFacebookannouncedthatitisopening artificial intelligencetodrivetheconversation. have withaninformed,fashionablefriend,using to replicatethesortofconversationyoumight US mobileshoppingstart-upSpringattempts an attempttomonetisethattrend. about torolloutitsowne-commerceplatformin currently aboutshoppingandagainthesiteis At Snapchat,alotoftheconversationsare the productpageonretailer’swebsite. click a‘shopnow’linkthattakesthemdirectlyto Instagram app.Iftheydowanttobuy,can product informationwithouthavingtoleavethe will openwhichallowstheconsumertoaccess selected anewmoredetailedviewoftheproduct where brandscantagproducts.Onceais 234 warehouses andatotalof6,756delivery logistics coverageofanyChinese pureplayer: WeChat andQQmobileapps.JD hasthebiggest given itaccesstothe1billionpeople onthe JD.com’s partnershipwithTencent hasalso in logisticsanditsgrowingconsumer base. is expectedtogainfurtherground byinvesting still gigantic;withnetrevenuesof$10billionit JD.com maybethenumber2inChinabutitis brand daybackin2014. million ofsalesin24hourswhenitheldasuper now availableonTmallandCostcoachieved$3.5 More than100Sainsbury’sbrandedproductsare access tothemarket. of FreeTradeZones,designedtofacilitateeasier them. Itcomesintandemwiththefastroll-out years ofdevelopmentandqualitycontrolbehind countries areperceivedasbeingbetterforhaving state controlwheregoodsfromfreemarket in societiesemergingfromlongperiodsoftight but italsospeakstobehavioursobservedbefore result ofarecenthistoryfoodsafetyscandals produced items.Toalargeextentthisisthe carry considerablecachetversusdomestically particularly focusesonbrandedgoodswhich rural regionsofthecountrywherepopulation Chinese marketplacesarenowtargetingthe nearly $1billionandgrowingat27%perannum. desktops entirely.B2Ce-commercesalesare place onmobiles,peopleherehaving“skipped” them 4Genabled)and56%ofe-commercetakes urban consumershaveasmartphone(mostof e-commerce market.Around65%ofChinese T-mall andJD.comhave90%shareofthe will bedrivenbymarketplaces;inChinaAlibaba’s By 2018,morethan50%ofe-commercegrowth impartial, pan-retaileradvice. upstream IPandinnovationor those whooffer future thegreatestrewardswill gotothosewith from brandedmanufacturingtoretailing.Inthe move again,justasitdidinthelastfortyyears the mostlucrativepartofvaluechainwill a goodbusinesstobein?OC&Chasarguedthat retailers createthisexperience.Isretailingstill Eataly. Brandshavearoletoplayinhelping at LululemonAthleticaandpuretheatrelike by Applestores,communityinvolvementas brands, providinginformationasillustrated which presentsmoreopportunitiesforimpulse focus onconvenience(includingclickandcollect) the physicalstore?Wellyes,butrolewill So, toconclude,doIbelievethereisafuturefor hypermarkets. two-hour grocerydeliveryfromaninitial20 platform. Aspartofthisdeal,Walmartwillbegin on-demand logisticsandgrocerye-commerce investment inNewDada,China’slargestlocal Walmart hasalsomadea$50millionstrategic offer Chineseshoppersviaitsonlineplatforms. for thesizeanddepthofassortmentitcan for warehousing.Thishashugeimplications without needingtousecoastalFreeTradeZones across itsglobaloperationsdirectlyintoChina network, Walmartcannowimportgoodsfrom consumers. UsingJD.com’snationwidelogistics China. Walmartcannowreach90%ofChinese to 10.8%andisontrackopen115storesin Walmart increaseditsstakeinJD.comfrom5.9% and pick-upstationsacrossChina.InJune pan-retailer advice. who offerimpartial, innovation orthose upstream IPand will gotothosewith greatest rewards In thefuture the move again[...] the valuechainwill lucrative partof that themost OC&C haveargued 15 The sixteenth Brands Lecture Never mind the quality, feel the personalisation. The future of retailing Previous lecturesinclude: This isthesixteenthinBrandsLectureseries. Lord BilimoriaCBEDL,CobraBeer In brandswetrust Martin Glenn,BirdsEyeIgloGroupLimited They thinkit’s allover… Kevin Roberts,Saatchi& The Lovemarkseffect Simon Anholt,Earthspeak Brands beyondbusiness David Aaker,Prophet and purpleketchup Hybrids, theheavenlybed Rob Malcolm,Diageo 100% marketing Jeremy Bullmore,WPPGroup Posh SpiceandPersil Tim Ambler,LondonBusinessSchool Are brandsgoodforBritain? at www.britishbrandsgroup.org.uk. downloadable inelectronicformfromthewebsite available fromtheBritishBrandsGroupandare Hard copiesofeachBrandsLectureare Professor PatrickBarwise,LondonBusinessSchool Brands &CEOs Peter Vicary-Smith,Which? bedfellows oranewpyramidofconflict? Consumers, brandsandtrust:happy Rita CliftonCBE,BrandCap Brands, capitalandcrises The Procter&GambleCompany Austin Lally,BraunandAppliances marketing–unleashingthepassion Sports Rory Sutherland,OgilvyGroupUK Accountability isnotenough… Fiona Dawson,MarsChocolate challenging world Brand new:Innovationina Richard Reed,InnocentDrinks Can brandssavetheworld?Let’s hopeso. 01730 821212 |[email protected] |www.britishbrandsgroup.org.uk British Brands100 VictoriaEmbankment,London EC4Y0DH 01730 821212 |[email protected] |www.britishbrandsgroup.org.uk British Brands100 VictoriaEmbankment,London EC4Y0DH

The sixteenth Brands Lecture