The Retailer Spring Edition 2023

SPRING 2023

Enhancing retail shopper experiences using location based services DIGITAL TRANSFORMATION

Delivering sustainable value to customers SUSTAINABILITY

INSIGHTS & ANALYTICS

THE FUTURE OF RETAIL

Applying data analysis to help retailers through the cost of living crisis

Welcome to the world of influencer marketing

FAREWELL FROM THE RETAILER This will be the last edition of The Retailer that we host. Moving forward, we will be sharing our member articles directly via our Community hubs and e-newsletters. This approach allows for more timely sharing of relevant content, without the constraints of deadlines. We want to express our gratitude to all our Associate Members for their invaluable contributions to The Retailer throughout the years. We look forward to continuing to showcase your thought-leadership via the BRC website.

THE IMPACT OF THE WAR IN UKRAINE

Helen Dickinson OBE Chief Executive British Retail Consortium

The new year did not exactly bring a new dawn for many retailers. The challenges which kept the industry on its toes last year – from the rising cost of doing business and inflation to the resulting drop off in consumer confidence – have certainly remained over the first few months of this year. And of course, they’ve been joined by a few new friends, with new regulation and border processes for imports coming down the line. Energy prices remain stubbornly high and government support has tapered away. Production and packaging costs have grown across supply chains. Labour market shortages continue to make their presence felt, placing pressure on wages. Expectations were low going into 2023, but things have not turned out quite as badly as many would have predicted. There are reasons to be optimistic. Shop prices may have jumped during 2023, with our BRC-NielsenIQ Shop Price Index for April recording record levels of food inflation. But annual inflation has started to slow: the price of some essentials is beginning to drop; and, with a cut to wholesale food prices, it looks like we may be cresting the hill. Looking at other key retail metrics, there are more glimmers of positivity to be aware of. In March, total footfall increased by almost 7%. Although still below pre-pandemic levels, there are signs of a return to established consumer habits like the weekend shopping trip. And although shop vacancies have not yet climbed back to where they were in 2019, they do appear to have stabi lised in the first quarter of 2023, with improvements across shopping centres and retail parks. Consumer confidence appears to be on the rebound, too. According to GfK, there was improvement in all tracked measures, with overall confidence up six points in April compared to March. Though still sitting at -30, consumer confidence is now higher than at any time in the last 12 months. We’ll all be hoping that this momentum is maintained, and with summer and a range of events from the King’s Coronation to Eurovision taking place, there is certainly plenty to be hopeful about. There’s also plenty to be aware of and plenty to be preparing for. As retailers, you’re all in the business of selling goods. And those goods tend to come in packaging, which needs to be managed and recycled after its disposed of. This of course has a cost attached. But that cost is going to rise – considerably – under new government regulations known as Packaging Extended Producer Responsibility (EPR). A recent member survey found that 95% of you aren’t confident or ready for EPR and now is absolutely the time to start getting up to speed.EPR will mean that businesses pay the full costs of managing and recycling their packaging material which ends up in household and street bins, or is littered. Your packaging recycling costs could rise by up to ten times what they currently are and there are new obligations to report data on your packaging twice a year from this October. We know that the data reporting element will be challenging and time-consuming but it’s vital that you start looking at this now, not least as your data will inform the fees you pay under EPR. One positive to note is that from 2025, packaging which is easier to recycle will attract lower fees. There’ll also be changes to recycling labelling. By March 2026, all consumer-facing and shipment packaging will need to be labelled as ‘Recycle’ or ‘Do Not Recycle’ and have a specific logo, although this won’t be required on plastic films and flexible packaging until March 2027. I mentioned that new checks on goods imports will be introduced this year. From October, the Border Target Operating Model comes into effect, bringing with it new checks on food products. We’re working with government to ensure that they are engaging with you and overseas suppliers in preparation. The Windsor Framework, which applies to movements between GB and Northern Ireland, also starts from October and we’re engaging with government to feedback your views. And although 2024 may still seem an aeon away, we’ve already begun our engagement with the main political parties ahead of the upcoming General Election – likely to take place next autumn. We’ve been working with Labour and the Conservatives to set up member meetings with key figures in the parties’ apparatus (keep an eye out for more details) and starting to develop our manifesto for the industry. So, there’s lots going on to keep me (and I’m sure all of you) busy in the months ahead. Remember, the BRC team is here to help so do reach out if you need a hand.

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Consumer confi dence appears to be on the rebound, too. According to GfK, there was improvement in all tracked measures, with overall confi dence up six points in April compared to March.”

THIS ISSUE

DIGITAL TRANSFORMATION

SUSTAINABILITY

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HOW TO THRIVE IN RETAIL THROUGH THE PERMACRISIS David Perks // Objectivity

DELIVERING SUSTAINABLE VALUE TO CUSTOMERS Andrew Davidson // 4C Associates

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THE WORLD OF WEB 3.0 Wendy Saunders, JJ Shaw, Nicholas Buckland, Amy Earnshaw // The Collective by Lewis Silkin

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How Artificial Intelligence Can Future-Proof Brick-and-Mortar Retailers Andrew Fitzpatrick // BrainBox AI

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ENHANCING RETAIL SHOPPER EXPERIENCES USING LOCATION BASED SERVICES Todd Nicholson // Juniper Networks

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5 STEPS TO ENERGY EFFICIENT AIR CONDITIONING FOR RETAIL James Harman // Mitsubishi Electric

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Generative AI and Retail: The revolution is upon us Giles Parsons, Loren Hodgetts, Faye McConnell // Browne Jacobson

INSIGHTS & ANALYTICS

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BANKING & PAYMENTS

FIVE ALARMING INSIGHTS INTO RETURNS, AND HOW TO ACT ON THEM Katie Quarmby // Newton Europe

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WHY IT’S IMPORTANT TO KEEP THE CASH FLOWING Nicky Severn // Loomis

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WHAT’S IN STORE FOR RETAIL? Karen Johnson // Barclays Corporate Banking

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GROWTH OF BUY NOW PAY LATER Jarred Erceg // Grant Thornton

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THE NEW RULES OF CUSTOMER SATISFACTION Nicolas Hammer // Goodays

TECH & SECURITY

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HOW APPLYING DATA ANALYSIS CAN HELP RETAILERS THROUGH THE COST OF LIVING CRISIS Kate Shropshall // Cambridge Spark

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THE METAVERSE IN REVERSE Shruti Goel, Alice Wallbank // Shoosmiths

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THE RISE OF THE CONSCIOUS CONSUMER CREATES NEW OPPORTUNITIES Aled Patchett // Lloyds Bank Commercial Banking

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PSD2 AND SCA: WHERE ARE WE NOW - WHAT WILL FOLLOW? Jon Swan // Accertify

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THE DIGITAL TRANSFORMATION OF ORGANISED CRIME Xavier Sheikrojan // Signifyd

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CHANGE IS COMING TO AGE VERIFICATION – WELCOME TO THE NEW DIGITAL AGE David Nicholls, Iain Corby // Fujitsu

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THE FUTURE OF RETAIL

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COST SAVING PATHS LESS TRAVELED Manish Vora // WNS

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EMBRACING MACH ARCHITECTURE FOR FUTURE-PROOF RETAIL Josh Wills // CDW

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THE POWER OF INFLUENCE Diana Savory, Stephanie Jackson, Claire Cowen // Mazars

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MAJOR REGULATORY CHANGES FOR THE US COSMETICS INDUSTRY IN 2023 Tracey Fanning, Dr Claire Fordyce, Iain Brunning // Exponent International

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MENOPAUSE AT WORK: KEY TIPS FOR RETAILERS Ellie Gelder, Patrick Brodie // RPC

FROM THE BRC

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DIGITAL HUB // BRC

brought to you by

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HOW TO THRIVE IN RETAIL THROUGH THE PERMACRISIS

David Perks Director of Retail Services Objectivity

A guide to prioritisation and success. One thing I have learned from my 20 years in retail is that if you are standing still, you are actually going backwards. Permacrisis is the word that best describes retail and hospitality right now and it is likely to stick around for some time to come, so we better get used to it! A frustrating phenomenon I sometimes still see in retail is siloing. I find it confusing, as we are all supposedly serving the same customer. However, I have noticed a shift in mindset to a much more collaborative way of working across departments, and even across retailers, with recognition that we are all in this together and might need each other to cope and enrich retail. There are some fantastic growth stories out there, but they are few and far between with the vast majority being asked to cut costs and the inevitable squabble for who should cut how much from what budget to do “their bit”. Digital transformation is not a workstream, it is an enabler — but how do you turn a buzzword into tangible business value? The temptation when faced with budget cuts is to just pause everything. And yes, I have seen lots of that, but I have also seen very pragmatic approaches, which represent a shift away from the old way of simply cutting costs. Instead, retailers are choosing to be smart about costs and deliver small investments that improve productivity and ultimately deliver ROI and savings. Technology is clearly playing an ever-increasing role in streamlining busi ness operations with thousands of products available to solve just about every business problem — but, how do you know what is worth it and what is not? Product providers will all tell you that your business needs the solution they are offering, they will try to prove the ROI, etc., and in many cases this is true, but not always! So, how do you choose whether to buy or build while also influencing your peers and business decision-makers not to take a blanket approach to saving costs and look at things differently? 1. Invest in a transformation leader According to a recent report, 95% of companies surveyed by Accenture and Brightline believe that the Chief Transformation Officer role is critical for transformation success. This role has been growing in frequency and importance, with more board-level positions in place than ever before. The transformation leader’s role is pivotal in stopping siloing and helping companies step back and look at the business in a different way. They are highly collaborative and will deliver their own ROI (if they are any good).

2. Consolidate what you have Before you start throwing money into silos again in order to fix “issues”, invest in a thought partner that can offer an objective view of your current landscape. The right partner will also advise where to consoli date, reengineer, or remove applications before you start creating more technical debt. A good transformation leader will know this! 3. Be ruthless but realistic about the projects that need to stop, start, and continue Assessing your capacity and capability to deliver digital transformation will determine your approach. Addressing point 2 will flush this out but be ruthless about which project will get priority and sign off. Strong collaboration across teams will be needed as some areas of the business may receive more investment than others. 4. I can’t stop but lack capacity Consider outsourcing if you can’t recruit. Contracting onshore can be flexible but expensive, whereas offshore, although cheap, may not provide thought leadership and may cost more in the long run. There are a few nearshore options to choose from that can prove both cost-effective and provide quality, flexible resources while delivering across a number of different skillsets and technologies. If you choose the right tech partner, they can also develop your teams’ capabilities. 5. A few areas to consider prioritising Cloud migration — a good partner will move you to the cloud, but a great partner will do this in the most cost-effective way for you and your business. Data strategy — this area can burn through money very quickly. I see many businesses recruiting data specialists and that is great, but without a clear data strategy in place, this could be a waste. In order to see the ROI, it’s important to get the right balance of data engineers, architects, and scientists. likely to stick around for some time.” ‘‘ Permacrisis is the word that best describes retail and hospitality right now and it is

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7. Lastly, communicate clearly and relentlessly

Digital transformation is not a workstream, it is an enabler — but how do you turn a buzzword into tangible business value?” ‘‘ This is a surprisingly common mistake that retailers make when needing to transform — they throw a load of change at stores and hope it will stick. Good business change managers can make or break your ROI. This does not have to be an additional headcount; you just need to find advocates of change and train them well — they will return their own value in landing initiatives right the first time around. Rapid app development — when proving in year benefit is the challenge, consider rapid application solutions such as low-code. This technology allows you to build quickly and efficiently and is now being widely used in retail for this reason. Support services — umbrella support for your applications can be a cost-effective way to manage multiple support agreements and devel opment days can be built in to ensure you are updating as you go. Testing — outsourcing your testing capability can be flexible and conven ient. Testing specialists can adapt to your needs and provide expertise, consistency, and strong governance to your processes. 6. Ensure you are set up for change management in store and across your business

Understanding why change is needed and how it is being prioritised and delivered is critical to success in digital transformation. The likelihood is that many in the business will be doing something differently than they did before, so it is crucial they buy into it. And, as we should all know, not everyone responds to change in the same way (see point 6). If you need help with any of the points raised in this article, Objectivity can help in all of the areas mentioned and has over 30 years’ experience in helping the retail and hospitality industry digitally transform from the smallest to the very largest engagements. We can be your trusted go-to partner to help you along the way. We are offering a free 1-hour workshop to help get you started — click here to contact us.

David Perks dperks@objectivity.co.uk

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THE WORLD OF WEB 3.0

Nicholas Buckland Legal Director Lewis Silkin

Wendy Saunders Head of Financial Services Regulatory Lewis Silkin

JJ Shaw Managing Associate Lewis Silkin

Amy Earnshaw Trainee Solicitor Lewis Silkin

T his vision of the future may not be that far away. The virtual world of products and services offers great opportunities for brands, but there are potential bumps in the road ahead, not least regulation and asset protection A new dawn for NFT technology? It’s fair to say the NFT market experienced a dark end to 2022, with freefalling cryptocurrency prices playing a significant role in the sharp drop-off in NFT transaction volume (a 97% nosedive since the dizzying heights of January 2022 Bloomberg reported , citing data from Dune Analytics). Whilst some sceptics may question whether the NFT market will ever recover, others posit that the 2022 crash was simply a much-needed shake-up to the system (akin to a financial or real-estate cycle) that will usher in a new dawn for NFTs in 2023. The development of blockchain applications remains strong and the core technological propositions behind NFTs (i.e. as digital authentications of ownership, with attached rights and economical efficiencies) still present exciting potential use cases for brands as we head into the new year.

Innovation of NFTs We are likely to see a shift away from the ‘bubble’ of expensive collect ible jpegs in favour of truly innovative deployment of NFTs across the worlds of fashion, gaming, music, sport, ESG, food and entertainment. Take for example: • The rise of ‘phygital’ NFT projects in the fashion industry – meaning physical goods that are tied to NFTs – such as Prada’s Timecapsule drops or Spatial Lab’s LNQ. The convergence between NFTs and wearable items will see clothing and apparel serve as points of experience or access to exclusive events for owners. • Increased integration of NFTs in the video games space – afford ing players greater ‘ownership’ over their avatars, skins and in-game items and entrenching brand loyalty for the new genera tion of avid gamers. • Philanthropic NFTs – big brands in the food industry such as McDonalds and Campbells, and luxury houses such as Louis Vuitton, Nike and Gucci, that are releasing limited-edition NFTs to raise money for charity. • The expansion in the NFT real estate market – whether to acquire a house, an island, or a piece of land, we are likely to see more opportunities to invest and buy living spaces in the metaverse using NFTs.

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With the metaverse emphasising a new level of importance on brand image, brands must more clearly define their personality, core values and stance on social issues (if they choose to do so) more than ever.” Advertising Week

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The potential economic value of the metaverse could generate up to $5 trillion by 2030. McKinsey

Safer, like-minded communities and micro-communities

Brands like Tiffany & Co. (founded in 1837), Louis Vuitton (founded in 1854), and Gucci (founded in 1921) have managed to stay relevant for over 100 years because they know the biggest risk is taking no risk. Whilst brands in 2023 would be advised to approach NFTs with careful thought and some degree of caution, it may well be that those which are least afraid to experiment and meet the expectations of the new insatiable generation of the digital age will prosper most. How are brands evolving and taking advantage of the metaverse? Interest in the metaverse is growing at an exponential rate; less than five years ago, no one was talking about it. Then Facebook rebranded to ‘Meta’, adding weight to the next new phenomena in the digital media tech world. Now, businesses and brands are clamouring to be one of the first to engage and be ‘trend setters’ within this new hyper-interactive, digital environment. The likes of Disney, Nike, Warner Bros., Gucci, Coca-Cola, Louis Vuitton are all getting in on the action. What does the metaverse mean for brands? The metaverse as a digital space is largely influenced by gaming culture and values community, playfulness, and user empowerment. This shift in the dynamic between brands and consumers can offer opportunities for more creative brand positioning. The metaverse also offers brands opportunities to engage with a larger and more varied audience (in particular Gen Z) who might not have engaged with them in the real world. According to McKinsey, Gen Z average eight hours per day on screens. The metaverse is a virtual domain open to all. The value of communities Developing communities in the metaverse enables users to create an avatar to represent themselves which can meet fellow avatars to col laborate and interact in 3D environments, participating in and building communities together. The metaverse becomes valuable for businesses at this intersection – of tech, creativity and community – by capitalising on a deeper connection with their customers, brands can fulfil desire for value, community and experiences.

The future of the metaverse is also embedded in the unique opportunity it affords to build safer micro-communities – featuring inclusive and open engagement for their users, meaningful relationships, all guided by rules and responsibilities. This is a brand win, and a consumer win. This is an extract from The Collective by Lewis Silkin’s Business in 2023 Report. Click here to read the full article. This article was written by Lewis Silkin’s Wendy Saunders, JJ Shaw, Nicholas Buckland and Amy Earnshaw. The World of Web 3.0 – The Collective by Lewis Silkin (thecollectivebyls.com) NFT Trading Volumes Collapse 97% From 2022 Peak - Bloomberg

Wendy Saunders wendy.saunders@lewissilkin.com

JJ Shaw jj.shaw@lewissilkin.com

Nicholas Buckland nicholas.buckland@lewissilkin.com

Amy Earnshaw amy.earnshaw@lewissilkin.com

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ENHANCING RETAIL SHOPPER EXPERIENCES USING LOCATION BASED SERVICES

Todd Nicholson Director, Vertical Marketing Juniper Networks

C ustomers want to be treated as unique individuals throughout a seamless and well-paved shopping journey that caters to their distinctive tastes in real-time, with minimal shopping efforts and simplified solu tions for their demands. In today's retail climate, it is crucial to treat each customer as a unique individual. However, to deliver a personalized and engaging experience and maintain the shopper's interest to upsell and drive loyalty, it's essential to anticipate the demands of the customer. According to the 2022 Fifth Edition State of Connected Customers • 73% of customers expect retailers to understand their unique needs. • 62% of customers expect retailers to anticipate their needs. • 56% expect offers to always be personalized. • 56% feel they are treated as a number. Location-based services (LBS) technology is transforming the retail industry like never before. To maintain their competitive edge and stay relevant with their customers, retailers are adopting LBS technology to engage with customers more effectively, provide a personalized shopping experience, increase basket size, and drive higher in-store foot traffic. With the integration of artificial intelligence (AI) and an integrated Wi-Fi network approach, LBS technology can learn and adapt to changing customer behaviors over time, enabling retailers and their staff to predict customer preferences and personalize the shopping experience in real-time, with recommendations and promotions which best fit the profile of and interest of the customer. The adoption of LBS technology varies across different retail sectors. For example, the fashion and apparel industry are one of the leading sectors in the adoption of LBS technology. Retailers in this sector are using LBS technology to provide customers with real-time promotions, recommendations, and indoor navigation, which help elevate their shopping experience by making it more enjoyable and convenient. The grocery and food industry are also one of the earlier adopters of LBS technology to help improve store operations by tracking inventory levels, predicting demand, and optimizing their supply chain management. Grocery and food retailers are also using LBS technology to optimize warehouse operations and reduce cost. By tracking inventory levels in real-time and predicting demand signals based on customer location data, retailers can better manage their back-end operations and staffing. Location-based services are not limited to just the larger big box retailers. Small and medium-sized retailers are also leveraging LBS technology to compete with larger retailers to create a personalized shopping experience for their customers.

One of the key benefits of LBS technology is the ability to leverage customer location and other contextual data to provide real-time infor mation, in-store greetings, promotions, and shopping recommendations. Retailers can use this technology to deliver relevant offers and promo tions to customers in real-time based on shopper location. For example, if a customer is in a shoe store, the shoe store can provide real-time promotions and recommendations for shoes based on their historical shopping behavior, lifestyle preferences, and purchasing habits. Taking a personalized approach can help retailers build stronger engagement and relationships with their customers, increasing loyalty, basket size, and ultimately driving higher sales. LBS technology is also driving innovation within retail operations. By tracking inventory levels in real-time and predicting demand based on customer location data, retailers can better manage their back-end oper ations and staffing levels. This technology is becoming an integral part of supply chain management by enabling retailers to predict inventory levels and demand based on customer location data which can help reduce overall operating expenses and improve profitability. In addition to enhancing the in-store experience, LBS technology offers many ben efits to retailers and their staff by providing real-time data and insights, to assist in optimizing workstreams and improve staff performance. For example, retailers can use LBS technology to track employee location, and productivity which helps them better manage their staffing needs and respond to changing patterns in customer footfall traffic. Staff members can be redeployed to other departments based on the busier areas of the store by using LBS to track the density and location of customer in-store traffic patterns which helps drive staff productivity and ensure that customers are enjoying the highest quality experience possible during their store visit. In conclusion, location-based services technology is transforming the retail industry by providing retailers with the tools they need to engage with customers more effectively, provide personalized shopping expe riences, increase in-store foot traffic, and enhance retail operations, which ultimately drives better top and bottom-line revenue. As the LBS market continues to evolve and grow, retailers that fail to adopt this technology may fall behind their competitors. Todd Nicholson is the Director of Vertical Marketing at Juniper Networks . He is responsible for leading vertical go to market strategy in Juniper’s target industry verticals. Todd has an extensive 25+ year tech industry background working in executive level sales, marketing, and product management roles for small emerging startups and large enterprise IT industry leaders including IBM, EMC, and Gartner.

Todd Nicholson tnicholson@juniper.net

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before.” ‘‘

Location-based services (LBS) technology is transforming the retail industry like never

may fall behind their competitors.” ‘‘

As the LBS market continues to evolve, retailers that fail to adopt this technology

THE RETAILER

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GENERATIVE AI AND RETAIL: THE REVOLUTION IS UPON US

Giles Parsons Partner Browne Jacobson

Loren Hodgetts Senior Associate Browne Jacobson

Faye McConnell Senior Associate Browne Jacobson

G enerative AI is changing the world, and will change retail. Some ways are obvi ous; but it is so powerful and its impact will go far beyond what we can predict today.

• This creates copyright issues, both in how the AI is trained, and when it generates content. There are already claims saying that AIs were trained on copyright works: Getty Images has sued Stable Diffusion for copyright infringement, and some artists have also brought claims against Midjourney and DeviantArt. Generative AI can also be used to create infringing content. AI can create stories featuring famous characters and in the style of famous authors; images of Buzz Lightyear and Mickey Mouse; and paintings in the style of Warhol and Hockney, so there are many arguments about copyright infringement yet to come. • European data regulators are looking at ChatGPT’s use of personal data. The European Data Protection Board has established a task force; Italy’s regulator temporarily had restricted access, and reg ulators in Spain and Germany are also investigating. Lots of what retailers will want to do with AI will involve personal data. Aside from legal issues, very eminent computer scientists are concerned that the pace of AI developments poses serious risks for society and perhaps humanity more broadly. The 2018 Turing Prize was won by three godfathers of AI, one, Yoshua Bengio, recently signed an open letter calling for an immediate pause in the development of AI systems more powerful than GPT-4. Another, Geoff Hinton, has resigned from Google Brain so he can speak freely about his concerns.

The progress of generative AI in the last year may be as significant as the invention of the printing press. Generative AI creates content; ChatGPT is probably the best-known example. Released in November 2022, this chatbot can compose poems, pass legal exams, invent cocktails and plan your holiday. It is particularly good at writing code, and has become a useful tool for software developers. However, it also “hallucinates” – it confidently states things which are just not true. Chatbots like ChatGPT have been primarily trained to write impressive and plausible text, rather than to tell the truth. (Of course, it can also be a human trait to prioritise providing any answer over the correct one). Image generators, like Dall-E 2, Midjourney and Stable Diffusion have astonishingly good artistic ability, and in a few months have forever changed stock imagery. Need a photograph of a unicorn in front of the Eiffel Tower at sunset? No problem. Music and video are following. So, for idea generation for marketing campaigns, writing marketing copy and product descriptions, SEO optimisation, or for generating imagery, generative AI is fantastic. It is a hugely powerful aid to creativity. If one wants to see what a dress with waves crashing over it could look like, or design a logo for a new bakery, or create a poster for a festival, or create a planting scheme for a garden, it can quickly generate images and ideas. Virtual changing rooms and augmented reality are already here, but AI will make it much better. AI is changing the way we search the internet; ecommerce websites are currently engineered to work well with search engines like Google – retailers will need to adapt this as consumers search and understand things differently. Chatbots more broadly will be used for customer service such as dealing with website queries. AI will manage stock levels, and provide person alised recommendations – Netflix already tells us what film we will like next. Pricing can be adjusted, within parameters, to react to competitors. There is a lot of money at stake and there will be a lot of disruption; there are also a lot of legal issues to consider. Expect 1) lawsuits, 2) investigations, and 3) new laws and guidance from regulators. Foundation models, like GPT-3 and GPT-4, on which Dall-E 2 and ChatGPT are based, have been trained on a huge amount of data. OpenAI have not disclosed what training data was used for GPT-4, but GPT-3 was trained on, amongst other things, “Common Crawl” – which is a lot of the internet. This means problems relating to copyright and personal data:

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Legislators across the world are playing catch up in considering how the law needs to change. The EU’s AI Act is currently going through the European Parliament, and is evolving significantly as it does so. Its requirements include stringent obligations on “High Risk AI”, including implementing Risk Management Systems; lawful, relevant, representative, error-free and complete train ing data sets; human oversight and transparency. There is debate at the moment as to whether generative AI will be classed as “High Risk”. Most obligations are on the providers, but retailers should take note of the fundamental principles and consider their own implementation. For example, consider whether you should be telling consumers when you are using AI generated content, especially for marketing campaigns. The UK government has published its own white paper, proposing less regulation and a “common sense” approach, but without any specific details yet. With no new specific regulator proposed, the current plan is that UK businesses will need to answer to existing regulators, including the data regulator, the ICO. The ICO has taken a more business friendly approach than its EU counterparts on some issues, such as international data transfers. However, retailers should not wait for guidance; there are steps they should take today, including implementing a policy on permitted uses of generative AI.

Giles Parsons Giles.parsons@brownejacobson.com 020 7337 1505 Loren Hodgetts loren.hodgetts@brownejacobson.com 0330 045 2376 Faye McConnell Faye.mcconnell@brownejacobson.com 020 7871 8538

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WHY IT’S IMPORTANT TO KEEP THE CASH FLOWING

Nicky Severn International Marketing Manager Loomis

E xploring the Importance of Cash in Today’s Retail Environment For some time now, financial experts have been predicting the death of cash as a means of paying for the goods and services we enjoy. And as contactless cards, mobile payment platforms and other digital payment options proliferate, the need to carry cash, for many people, is significantly diminished. And yet, as a company whose core business is offering secure and effective solutions for man aging payments, cash and valuables, Loomis is uniquely placed to offer a different perspective.

“Cash is still incredibly important to society” says Nicky Severn. “It provides inclusivity and accessibility for many people . For example, there are many sectors of society who are less comfortable with technology, in addition there are those in rural communities who may expe rience poor digital connection. Alternativley, those with challenging financial situations, or those in debt might all be heavily reliant on cash and less able, or willing, to use digital payment for a myriad of reasons. What’s more, in the light of the recent cost of living crisis, there’s whole new swathe of people who have found that cash is the best way to budget effectively in challenging times. Paying digitially can often mean we are tempted to spend above and beyond our preferred limits – with cash you can’t go over budget and that’s why ideas such as ’envelope cash stuffing’ have become a social media phenomena!

Importantly too, we should remember that there are individuals who are reluctant to spend digi tially due to their preference for privacy. Some do not like the possiblity of ’big brother’ traking our spending habits and the potential control this gives card companies over our daily livess. With all these factors in mind, it is obvious that there are many people for whom cash is their preferreed method of payment and for many others who like to use it combination with digital transactions.” For retailers therefore, refusing to accept cash could prove to be extremely damaging. In the vast majority of scenarios providng customers with the flexibility and payment choice is the optimal solution – in fact many people consider and expect the right to choose to pay in cash if they wish - as a basic human right.

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People want to choose how they pay for goods, and for many, the ability to pay in cash is seen as a basic human right.”

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‘‘ Alongside the importance of providing customer choice, there is another reason why the accept ance of cash remains important. Imagine the scenario - a cyber attack, natural disasters or other significant events that knock out digital banking and payment systems. Businesses would still need to sell and people would still need to buy - if there were no physical alterna tive to digital payment, businesses, and society, could be left high and dry!

"When you stop to think about it, money is indeed one of the prime movers in modern society” says Nicky Severn “In its many forms, money is constantly on the move - changing hands, ebbing and flowing, supporting businesses and charities, migrating across countries and currencies. And, in an environment where bank branches are closing at a steady rate, Loomis is proud to provide an alternative way for transactional businesses in sectors such as retail to get their cash takings secured in their business bank accounts quickly and efficiently. From secure money safes to intelligent smart safes, cash in transit and cash processing, coin and note collection and delivery services, Loomis UK supports businesses throughout the UK by providing safe, secure and effec tive access to cash and comprehensive cash management solutions” “Here at Loomis, we firmly believe that it’s still vital to keep the cash flowing” concludes Nicky.

Without the ability to pay in cash, many marginalised groups in society could be left high and dry!”

It is for a combination of the reasons above that the UK government is keeping a close eye on protecting access to cash. Wider policy and political discussion has focused more generally on the future of access to cash and an inde pendent Access to Cash Review was established in 2018. While not advocating “a view on the merits of a cashless society”, the Review high lighted the risks to millions of people of such a situation and called on Government, regulators, financial services and others to work together to keep cash viable for the foreseeable future. In the 2020 Budget the UK Government made a commitment to legislating to protect access to cash and there have been a number other measures taken and action groups established aimed at preserving access to cash for con sumers and businesses over the long term. It’s vitally important that we don’t sleepwalk into being a cashless society”. “Let’s take a look at Norway for instance. On the verge of being a cashless society and yet now the Norwegian government is applying the brakes, with pro posals planned to force businesses to accept cash. Why? Not everyone is comfortable with digital solutions and there have been issues

with payment systems going down in recent years. And of course, there are issues for tour ists who do not have access to all the digital payment systems. There have also been some significant problems when electronic systems are interrupted, one such event which actually happened the day before Norway's constitution day in 2022 and caused chaos for consumers stocking up on champagne, beer and food for the big day. Consumers were forced to use cash where possible or miss out and the gov ernment said the experience “showed us that the ability to pay with cash must be preserved.” Whilst this scenario demonstrates a temporary consequence of digital payment failure, we should rememer that consequences could be far worse. In a cashless society, where people are solely reliant on digital payments, times of crisis could leave nations in a highly vulnerable position. For example, in war time any perpetra tor with power and ill intent could potentially use the digital pyamnt system to take control of the economy resulting in a huge impact on national security . Any suspension of digital payment systems, either by accident or intent could bring a nation to its knees. So all that being said, what is the role of Loomis in helping to provide access to cash?

Nicky Severn nicky.severn@loomis.co.uk loomis.co.uk/our-solutions/safepoint/ safepoint-compact

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GROWTH OF BUY NOW PAY LATER

Jarred Erceg Director, Financial Services Restructuring & Insolvency Grant Thornton

T he Buy Now Pay Later 25% a year between 2022-2028, against a backdrop of sharp increases in the cost of liv ing. Jarred Erceg explains what this means for retailers. We're seeing new entrants to the market all the time, including Apple announcing in March 2023 that their BNPL product will be integrated with Apple Pay, increasing competition among existing market leaders such as Klarna, PayPal, Laybuy, and Clearpay. According to research from Bain & Co, while there's significant usage of BNPL among most age groups, it's more popular with Gen-Z and millenials. BNPL is used by people across all demographics, typically for purchases under £100, although the cost-of-living crisis means it's being increasingly used for ‘necessity’ items. (BNPL) sector is forecast to grow approximately

How do retailers benefit from BNPL? BNPL products generally don't carry interest, but BNPL providers charge retail merchants a fee. Some, but not all, charge late fees to the customer. Importantly, the customer relation ship is owned by the BNPL provider, rather than the retailer. A BNPL offering is now a key part of many retailers growth plan, bringing various benefits, including: • being paid in full at the point of purchase, with credit and fraud risk passed on to the BNPL provider • increasing the affordability of the retail ers’ products by spreading the payment over installments • attracting new customers by offering flexible payment options and leveraging a BNPL provider’s customer base to drive website traffic • customer loyalty, particularly when they have a positive experience with BNPL

FCA regulation on the horizon

Following the Woolard Review in 2021 and subsequent FCA consultation in 2022, BNPL is due to come within the regulatory perimeter, although final rules aren't expected until 2025. In the interim, the FCA has proposed that rules on creditworthiness assessments and how to treat customers in financial difficulty should be introduced, and customer complaints should be referred to the Financial Ombudsman Service. BNPL firms will also need to develop workable solutions with credit reference agencies, allow ing a consumer’s BNPL debt to be viewed by other credit providers as part of their required affordability assessments.

in the market.” ‘‘

BNPL is here to stay. But retailers should be cognisant of challenges

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‘‘ What does this mean for retailers? BNPL is here to stay. But retailers should be cognisant of challenges in the market. It's possi ble that it could promote impulse spending and, as the sector matures BNPL providers may look to charge higher merchant fees. In the event your BNPL provider fails retailers may need to quickly stand-up an alternative provider to minimize the impact on sales.

Challenges ahead for BNPL BNPL providers have been buffeted by slower consumer spending, higher funding costs, increasing delinquency rates and intensify ing competition. Valuations have suffered as a result. For example, in July 2022, Klarna’s valuation was cut from USD 46 billion to USD 6.7 billion and Affirm’s stock price is down 77% over the past year. Australia’s OpenPay, which only floated in 2019, went into receivership in February 2023 after suffering heavy losses. Many BNPL firms have already started prepar ing for regulation, but the sector will still need to navigate significant change. Ensuring adequate affordability assessments, processes to identify vulnerability, and complying with regulation will take time and require significant resource.

BNPL providers have been buffeted by slower consumer spending, higher funding costs, increasing delinquency rates and intensifying competition.”

Retailers should use scenario analysis and stress testing to understand the potential impact across their business if this did happen. This will support a contingency plan, and give a level of comfort that there are adequate controls and procedures in place to mitigate the situation. For more insight and guidance, get in touch with Jarred Erceg.

Jarred Erceg jarred.h.erceg@uk.gt.com

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THE METAVERSE IN REVERSE

Shruti Goel Senior Associate Shoosmiths LLP

Alice Wallbank Professional Support Lawyer Shoosmiths LLP

t he use of artificial intelli gence in bricks and mortar stores 1. Artificial intelligence (AI and consumers) AI-powered systems are now becoming a primary asset of consumer-facing businesses. From chatbots for online interactions, to analysis of spending patterns, businesses are using AI to assist in processes from fraud detection to profiling. These techniques are now being complemented with individuals’ unique physical characteristics to enhance their retail experience. For example, the use of personal voice recognition as part of bank security protocols, or the tagging of customers’ characteristics as part of creating an alternative reality. 2. AI in bricks and mortar stores This innovation has extended to the bricks and mortar retail experience, with in-store biometrics being used to power payment and security techniques. Outside the payment and security domains; can retailers exploit algorithm-driven biometrics in the real world, to compete with the online retail ad space, and to enhance the customer experience? Already under consideration are techniques that identify and track shoppers in store in order to obtain insight into their preferences. For example, Amazon Go’s “just walk out” stores do not require the user to actively make an instore payment at a cashier. Instead, the customer’s shopping is tracked as they move through the store and select items, with the final bill being charged against their Amazon account.

Microsoft’s Dynamics 365 Connected Store program, also shows the potential of these systems. At present, in-store cameras assess how people browse, to drive decisions on where to put particular stock, and what lines are likely to run out and when. Nestle and its partners’ (including Visa and Samsung) have created a Payment Innovation Hub which aims to improve the customer experience, whilst increasing security, with the use of cutting edge technology. This includes an ATM facial recognition application that has been implemented by Caixa Bank (one of Nestle’s partners) which allows withdrawals at an ATM without entering a pin. This proved so popular due to increased customer experience and security it received international recognition and awards. Nestle has also deployed a facial recognition payment system in a grocery store in Spain, which interplays with a app that a customer downloads in advance including a selfie of themselves. This selfie is then matched with the customer’s face instore, providing a secure and seamless payment method. Nestle perceives this as enhancing customer experience by streamlining checkout payments in periods of high demand, such as Christmas. Additional potential of AI in bricks and mortar stores includes using systems for gaze and sentiment tracking, either through existing in-store cameras or through the use of customer smart phones. For example, tracking customer reactions to in store-advertisements through facial recognition which tracks micro-expres sions (facial expressions that last for a short moment). AI-powered systems are likely to be able to complete this more accurately than an experienced store assistant. The creation of a smart changing room, whereby a customer’s reactions, as well as tag information, can be analysed in real time to suggest more appropriate sizing, or particular colours that suit the customer, using information sensed through mirrors could pose another opportunity.

3. The drawbacks of AI in bricks and mortar stores Despite significant potential benefits for retailers and customers, these capabilities are being held back by several factors, including consumer pushback and privacy concerns related to biometric systems. For example in the context of the smart changing room, how comfortable would customers feel facing a mirror which was monitoring them: even if no human being was primarily involved? We know that in-store security cameras which use facial recognition systems are often subject to legal challenge around the world and have even prompted countries to implement privacy legislation to prevent misuse. For example, in the USA, Illinois now has strict biometric processing laws. In other parts of the USA stores that use facial recognition have been the subject of class action.

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4. The balance of AI with real data Consequently, developers are creating systems which bypass personal data by claiming it is not possible to identify individuals. However, this does not go far enough to conclude that no personal data is being collected and processed if an individual simply cannot be named. These systems also carry the risk of reputational pushback from privacy campaigners. From the retail sector’s perspective, not being able to identify customers after their in-store experience results in little or no promotional follow-up nor longer-term behaviour analysis or customisation.

5. The regulation of AI Despite AI technology continuing to develop at a rapid pace. the regulation of AI also continues to develop. Several drafts of Europe’s future AI Act considers that where systems are “at a distance”, and happen without the “active involvement” of participants, it will still be perceived to be a “high risk” system. Consequently such systems will still necessitate public authority notification and public consent in order to be compliant. Lessons can also be learnt from the lack of information provided to customers relating to existing biometric tracking experiments. Several of these have fallen foul of the law in the US, on the grounds that clear prior information was not given to customers entering stores.

As with the presentation of cookie banners, a delicate balance will exist between provid ing sufficient and excess information. Both approaches risk alienating customers at an opportune moment of engagement. In order to overcome the increased regulation of AI, whilst deploying innovative and insightful technologies, retailers will instead have to focus on their brand winning the hearts and minds of consumers for successful deployment.

Shruti Goel shruti.goel@shoosmiths.co.uk

Alice Wallbank alice.wallbank@shoosmiths.co.uk