Current retail trends and considerations

June 25, 2014

Executive summary

Meteoric changes in technology are changing the way consumers shop, transact, and acquire goods and services. The most glaring change is the way people shop — particularly anyone under the age of 45. Buying decisions are now largely made without ever setting foot in a store, and brand loyalty has never been tested to the extent it is today.

The retail industry has long been able to sidestep the need to invest in systems and leading edge technology in the storefront, but is now poised to witness rapid returns on these advances. There is a great opportunity for retailers to emerge as industry leaders and, more importantly, gain competitive advantage by harnessing the potential of this new technology.

Retailers now need to ensure that their business strategy includes a strong component of IT or technology in order to stay relevant in today's market.

Service providers will need to meet the expectations and budget requirements of retailers by providing out-of-the-box rapid implementation solutions and embedding best practices in their systems. We feel these business opportunities will be critical considerations for retailers to include in their business and IT strategies going forward for 2014 and into 2015.

The retail industry has been hit with a series of events which will have a transformational effect over the next 36 months. The power of technology has found a home in the middle of retail needs and requirements; rarely has the functionality of technology been so neatly dovetailed into the needs of a user community.

For many years the industry had the concession to avoid heavy involvement with retail technology, preferring to invest in warehouse solutions, supply chain initiatives and inventory management projects. However, the recent wave of smartphones, tablets and the growing popularity of the ‘app' world has made it essential for retailers to embrace technology or be left behind. The following is a list of the current trends which we believe will be critical considerations for all retailers who aim to take advantage of these recent strides in technology for growth and profitability.

Multi-channel retailing

The omnichannel experience will be driven by the new consumer demand for accessibility anytime, anywhere. The next stage of multi- channel retailing is a more thorough technology overlay that provides a seamless experience for the consumer by offering access to all viable shopping channels, i.e. traditional stores, mobile devices, computers, television, radio, etc. Retailers who embrace omnichannel retailing will be able to reach out to connected customers regardless of their preferred channel. The key to this experience is making sure all channels are accessing the same database, which will maintain up-to-date information on the “three P's”: products, pricing and promotions. By doing so, the customer gets to experience the entire brand, not just a portion of it driven by a particular channel. Retailers will need to allow customers to interact and complete transactions on their own terms. If a customer wants to view an item online, purchase it from a mobile device, and physically return it to the store, there will be no disruption of service or customer interest.

Best-in-class retailers will allow customers to have their products shipped to them from any location, including the option to pick up their purchase at a store. They will also allow their sales staff access to mobile devices to assist shoppers with merchandise look-ups, product comparisons, feature sets, pricing and payment transactions — all while willingly trading this service for access to key personal data.

The customer service experience

If you want a prospective client or customer to visit your website, you will need to make it inviting, interactive and value-adding to get their attention. There is no difference between a storefront and a landing page. Retailers want people to opt-in regardless if they are shopping in a virtual location or bricks & mortar store. There must be a focus on allowing the inventory to be tested or evaluated, product questions need to be answered promptly and with accuracy, and transactions need to be completed on the spot without line-ups. Think of what happens in a Microsoft store. Products are available to be touched, investigated and tested. Associates are available to answer questions and then stay with you if you wish to pursue a transaction. More often than not, the customer has already done most of their research online before entering the store. The ability to touch and feel the product confirms this research. The attentive associate answering your questions transforms into a stock manager and has your new product hand-delivered while completing the transaction on the spot.

It is time to take a hard look at your virtual store layout: is it inviting, is it adding more to the customer service experience, is it visually appealing? It is also important to note that annual mobile payments will crash through the $100 billion barrier in the next few years. This will require retailers to employ the most flexible payment options available to ensure customer satisfaction and allow transactions to be completed in the shortest time possible.

Consider the value to your business and the customer service experience if a shopper could enter the store, select merchandise they know is in stock through an earlier online search, and scan a smart device to purchase it (or engage in any other personal form of payment) upon exiting the store, all without any other interaction?

There are attempts in retail and accomplishments in retail. The consumers will recognize the accomplishments every time.

Loyalty will go a long way

As a result of the population's ability to carry around a device that has as much computing power as a laptop, retailers will need to be directly communicating to these buyers if they want to catch and hold their attention. The exchange of voluntary data based on earned consumer trust will allow retailers to collect relevant information about shoppers without infringing on privacy codes. Stores will then be able to tailor specific offers to their customers at a time when they are willing to shop, thereby reducing their overall marketing spend by eliminating the ‘shotgun' marketing approach. This will have a ripple effect through to the supply chain by reducing inventory carrying costs and increasing inventory turns and customer satisfaction. Given the right information, stores can create personal messages and prompt connections to associated merchandise or services. For example, an interest in sporting goods would generate an offering of tickets or team schedules.

Loyalty programs have flooded the market in a short period of time and are now being rejected. Consumers feel there are too many cards to carry, inflexible redemption policies, and the length of time it takes to accumulate enough points for a reward is unrealistic. Despite these issues, retailers will beef up their efforts to maintain these programs and increase their focus on getting their customers to continue to opt-in. The key will be leveraging technology. Smartphone apps will reduce or eliminate the amount of cards consumers need to physically carry. These apps will also allow stores to target customers with special pricing and, if consumers choose to share their location, retailers will be able to entice shoppers with just-in-time specials when they are in close proximity to a store using geo-fencing technology. Stores who allow shoppers to carry their loyalty credentials outside of their wallet, will have an advantage in getting customers to share information through an interactive platform.

Big Data: nothing comes for free

What is Big Data? Simply stated, it is a densely populated accumulation of statistics detailing actions, behaviours, trends and measurements. When analyzed, it uncovers ways to leverage and link relationships. This allows the development of predictions to understand what is likely to occur given a specific set of parameters or behaviours. What does this mean to retailers?

Buying into Big Data will allow marketers and retailers to create models which will closely shape the behaviour of shoppers in a multitude of buying scenarios. Big Data will allow retailers to customize pricing, buying dates and product suggestions at the exact time these consumers are most likely to purchase or source these items. This, in turn, will be viewed by the consumer as a ‘personalized happening,' making them feel unique and closer to the retailer who is reaching out to them. Big Data will include as much information about as many transactions as possible, including: buying patterns, locations, pricing models, in-store sales, online sales, pre-shopping, traditional buying and any other special features (i.e. free delivery) associated with the overall purchase or event.

As a result, the old saying "nothing comes for free" has never been more relevant. While Big Data collections will allow for unique and customized shopping experiences, it will mean that consumers will need to let go of their private information. In order to get Big Data, you need to track Big Sources and plenty of them. Every time you connect to a Wi-Fi location you are providing a database with Big Data input. Pre-shop inside a mall, check pricing while shopping at a big box store, use your GPS to locate a store at a specific hour on a certain day — all of this feeds into the Big Data warehouse. Retailers who offer something back in return for the privilege of having your data will ultimately be more successful. Consumers may opt to be excluded from tracking unless they are actually getting something worthwhile in return. Trust between both parties will be the key to the launch and adoption of this strategy.

Going Mobile

Mobile devices are literally changing the way we do business. If you are old enough to operate a mobile device, you are old enough to run commercial transactions. There are already stories of children under the age of ten racking up huge bills (many unintentional) as a result of online gaming. Mobile technology will continue to evolve and the ability to transact will become faster, easier and more convenient. The prediction is that these devices will replace cash and wallets. Every commercial transaction, particularly retail, will soon be supported by a mobile device regardless of the retail sector. This flexibility will allow retailers to open satellite stores with minimal set-up time and little inconvenience, for special events like the recent Olympics or seasonal festivals — regardless of location.

The more prevalent the use of mobile devices, smartphones or tablets becomes, the faster people will want to see results. Whatever the acceptable response speed was last year, it needs to be faster this year. Waiting for answers, data, comparisons or any other request for information will not be tolerated. Retailers will be punished as the consumer leaves for another site. The lack of speed will be akin to poor customer service in a bricks & mortar environment. Retailers need to understand the new breed of customer is always online and, as the population ages and generations other than Boomers start to have more disposable cash, the need for speed will only increase. Businesses will need to have strategies to maintain 24/7 access to live agents and social media, all the while supporting physical locations with in-house access to information.

Speed does not just apply to accessing information but to all aspects of the consumer experience. Placing orders, making payments, tracking shipments and receiving orders all need to exceed the expectations of the consumer. Retailers will be investing heavily in fully integrated ERP/POS solutions in order to facilitate the best experience possible for their customers who can easily leave for another offer with the simple swipe of a screen.

The customer buying cycle has shifted and product knowledge will be highly desired

Consumers now have the power to make a buying decision how, when and where they like. Salespeople will no longer be the influencers in the deal as they were in the past. Consumers now know the price, where to buy the product, all its features and any other related information to help make their buying experience more efficient. This means the retailer will need to develop a different kind of relationship with the customer. Retailers will have to promote positive customer interaction. They will need to provide more knowledge or information about the product that other sources, such as tips on how to use the product or how to accessorize it versus an overview of features and specifications. These positive interactions will occur via the retailer's website by showcasing videos and testimonials, as well as in physical locations. Think of how big box hardware stores operate. They have experts to show you how to ‘do-it-yourself' and host multiple product and material demonstrations daily.

Retailers are presently collecting information to analyze and monitor activities, behaviour and buying patterns. Social media will provide a direct connection to consumers by increasing interaction and engagement. By allowing customers to provide feedback and get involved with the creation of ads or new products, the retailer will create a stronger bond than ever imagined.

Data will finally be turned into information

In the past, most retailers have not operated a truly integrated system where each part has an impact on the other. ERP systems, fixtures in the manufacturing world for decades, have now become mission critical in retail environments. As the competition for consumer business continues to intensify, the need for timely, relevant and accurate information becomes a highly sought-after commodity. Stores will need to react swiftly, information needs to be at hand in order to make those quick decisions. If a store wants to take on an e-commerce strategy, they will need impeccable accuracy in inventory. They also require the agility to react to an order and ensure the product leaves the shipping area in good condition and on time. It will become increasingly important for retailers to consider open solutions that have breadth in functionality versus deep functionality from industry- specific solutions which only cover a portion of the business requirements.

Brands will boldly go where none have gone before

Thanks to technology and improved logistics, companies can get their products and brands into markets which are virtually untouched. Markets where a new middle class is starting to emerge are huge opportunities to penetrate this white space and introduce consumers to a new set of products with features that have been touted in North America for decades. Think of the potential to open markets and be an early entrant internationally. Companies with a solid infrastructure and commitment to leveraging technology will have an early advantage in getting their brands introduced to tech-savvy and eager consumers.

Out-of-the-box & rapid deployment required

The degree of sophistication now being delivered in standard ERP products is astounding. Software vendors are finally delivering on the connectivity, system speed and ease to access data which has been "soapboxed" for the past 20 years. The complexity of product coding and inventory management made many companies look to custom developed solutions in the past. In today's world, the key is getting the system running as soon as possible. This is required to make sure the software delivers the biggest return on its investment. Technology is changing so rapidly that the desire for long, costly, customized implementations will no longer deliver the required ROI before an upgrade is required. The more you customize, the more expensive the upgrade will be in terms of time and cost. Today's systems have solid pedigrees and tens of thousands, if not hundreds of thousands, of users. Smart retailers will be looking for ways to augment their processes to fit the solution rather than trying to reinvent the software to match

their previous operations. An out-of-the-box solution has a lower overall total cost of ownership (TOC) and is more responsive to integration with outside technology. Following the integration of out-of-the-box solutions ERP, providers will start to partner with CPM (Corporate Performance Management) and BI (Business Intelligence) providers to offer a fully integrated BI/ERP solution. In the past, BI was an afterthought once the initial ERP implementation was completed (usually in excess of budget and timeline). The second wave of implementation work usually went over like a lead balloon and many projects were put off or shelved as a result. The challenge with this is the BI project actually delivers huge value and is a fantastic tool when linked with a solid ERP solution. Therefore, to overcome implementation fatigue and deliver more value earlier on in the life of the ERP solutions, ERP providers — especially providers of Retail ERP solutions — are looking to partner with BI products in order to incorporate dashboards, KPI's and analytic reviews of the data collected. This will be a great solution and will also reduce the TOC to deliver higher levels of value to the end users.

No RFID today please

Radio Frequency Identification (RFID) was the darling of inventory management and warehouse solutions in the 1990's. It has been a great technology but never caught on in the way the industry expected. The cost of implementation and infrastructure required was deemed too high and this has not changed as of 2014. While the use for RFID keeps expanding and the ideas for use in retail are fresh, the cost benefit is not where it needs to be at this time and we do not expect to see a big demand for this technology in the short term.

About BDO Canada

BDO has over 100 years of experience providing value-added assurance, accounting, tax and advisory services to a broad range of clients across the country. Our team of more than 3,000 partners and professionals has the industry knowledge and expertise to understand your professional needs. From Vancouver, British Columbia to St. John's, Newfoundland, we build strong relationships with businesses and communities coast to coast.

CONTACT: Christopher Johnsen Partner/Principal, Solutions 416 396 4360

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