The Retailer Summer Edition 2021

SUMMER 2021

THE FUTURE CONSUMER

What will digital identity mean for retailers and their customers? RETAILS DIGITAL IDENTITY

Find out about the consumer trends shaping the way we’ll shop this Christmas RETAIL CONSUMER TRENDS

Commercial operations and sustainable development are top of the action list TRANSPARENCY AND TRACEABILITY

Retailers must adjust to customers changing behaviors and priorities

developing retail leaders since 1923

Our goal is to develop and grow the most talented leaders imaginable for our industry. The retail sector has historically been a breeding ground for talent and has gifted British industry with great leaders. In these volatile, changing times, our sector faces huge challenges, and it is time to shape a new generation of talent, equipped with the skills and capabilities required to survive and prosper in the transforming world of retail. This is the role BRC Learning plays.

Explore our programmes

The BRC Leaders’ Summer School Redesigned OSS programmes for the emerging and established retail leaders

The Retail Masters (ex OSS) A short experiential leadership development programme for strategic decision makers

Retail Regulation and Policy Landscape for senior leaders Specialist skills course focusing on policy & regulation for the new and aspiring retail board members Customer Needs Solution (RCx) A customer’s needs analysis based on proven methodology to get tangible and measurable results

Inclusion Masterclass A series of workshops to remove barriers around inclusion and deliver against the BRC D&I Charter

People Analytics for HR Leaders Learn to use People Analytics data effectively to drive commercial results

Levy-funded Data Apprenticeships

Level3 Data Essentials

Level 4 Data Analyst

Level 7 Data Science & Machine Learning

We can deliver bespoke and open training to suit your company’s priorities, requirements and budget. Visit our website to find out more about our programmes or get in touch. brc.org.uk/learning brclearning@brc.org.uk

TACKLING VIOLENCE AND ABUSE IN RETAIL

Helen Dickinson OBE Chief Executive British Retail Consortium

Even before Covid there was an epidemic of retail violence and abuse – one that had been getting progressively worse with each passing year. By the start of 2020, there was over 450 incidents of violence and abuse every day, a 7% rise on the previous year. And like so many issues – the pandemic made the situation much worse. Since the start of the pandemic, the number of incidents has skyrocketed. One retailer reported a 600% increase in incidents, and they are not alone. I regularly hear the shocking stories of shop workers being spat at or intimidated with weapons, call centre workers being threatened, and delivery drivers being racially abused. And all for trying to keep the public safe – asking people to wear face coverings, asking people to socially distance, asking for ID. It is no wonder that so many retailers have put a focus on de-escalation training for their staff. If the government wants shopworkers to be gatekeepers – for age restricted items like alcohol and knives, and for safe customer behaviour in a pandemic – then theymust provide better protection for them in law. The Home Affairs Select Committee agrees, recently concluding that a new crim- inal offence is needed to protect retail workers from a “shocking upsurge in violence and abuse.” A whopping 55 MPs, from all political backgrounds in Westminster signed the BRC’s Shopworker Protection Pledge – promising to support legislation to better protect retail workers. North of the border, Scottish Parliament recently enacted Daniel Johnson MSP’s Protection of Workers Bill, which creates a specific, new criminal offence of assaulting or threatening a retail worker. This means our shop workers are better protected in Dumfries than 30 miles South in Carlisle. This can’t be right. One hundred retail CEOs wrote to the Prime Minister on 2nd July urging him to act. They were calling for the government to back an amendment to the Police, Crime, Sentencing and Courts Bill that would have created tougher sentences for violence or abuse of retail workers. While none of the amendments passed it was really encouraging to hear two government ministers – Victoria Atkins, the Minister for Safeguarding, and Robert Buckland, the Justice Secretary – acknowledge concerns about rising violence and abuse against retail workers and commit to bringing forward a government amendment to address these concerns when the Bill reaches the Lords. While there is a still some way to go, this was a positive outcome for the industry and reflects the hard work in recent years of the BRC and many of our members in shining a light on this issue. Many retailers are concerned that the easing of restrictions that took place from 19th July could provide further flashpoints for violence and abuse. To combat this, government messaging needs to be clear and consistent so that people understand what’s expected of them. The public clearly has a part to play too –while the pandemic has been hard on everyone, we all have a responsibility to be kind and considerate to shop staff and fellow customers alike, and allow others to make their own personal choices. We cannot allow colleagues to be put in the firing line because of this change in government policy. Tackling violence and abuse in retail is one of the highest priorities for both retailers and the BRC. Our colleagues have played a vital role during the pandemic, keeping customers safe and ensuring we all can access the products and services we need. Now is the time to give them the protection they deserve.

‘‘

Even before Covid there was an epidemic of retail violence and abuse – one that had been getting pro - gressively worse with each passing year”.

THIS ISSUE

18

Future of retail

06

CUSTOMERS HAVE CHANGED – AND SO MUST RETAILERS Sarah Friswell / Red Ant

DATA & ANALYTICS

08

RETAIL PROPERTY AND THE REAL ESTATE ECOSYSTEM Graeme Bradshaw / Burness Paull LLP

18

THE GREAT HIGH STREET REVIVAL: DATA AS THE GLUE TO LURE SHOPPERS BACK FOR GOOD Ross McKenzie / Addleshaw Goddard

10

GOVERNMENT NEEDS TO RETHINK PROPOSAL TO CLOSE STORES AT NEW YEAR David Lonsdale // BRC

20

MACHINE VISION – IMPROVING OPERATIONAL EFFICIENCY AND MAINTAINING BRAND STANDARDS David Nicholls // Fujitsu

12

PREPARING FOR CHANGE: STRATEGIES TO BOLSTER YOUR SUPPLY CHAIN Lemi McAuley, Bethan Moore / Shoosmiths

22

5 CONSUMER TRENDS SHAPING THE WAY WE’LL SHOP THIS CHRISTMAS Becky Power / Google

14

IT’S TIME FOR RETAILERS TO ‘THINK DIFFERENT’ ABOUT CUSTOMER EXPERIENCE (CX) Stephen Hewett / ICG

24

KEEPING IT SAFE: PRODUCT SAFETY Adrian Simpson // BRC

16

BUSINESS RATES – THE ROAD TO REFORM NEEDS A BRIDGE NEXT YEAR Dominic Curran / BRC

38

FINANCE & PAYMENTS

26

HOW DIGITAL PAYMENTS CAN HELP THE BOTTOM LINE, BEYOND LOCKDOWN Moshe Winegarten / Checkout.com

08

28

THE CAT AND MOUSE FOR RETAILERS AND RENT PAYMENTS Michael Lewis // Sherrards Solicitors

SUSTAINABILITY

30

ARCUS FM HELPS LIGHT THE RETAIL PATHWAY TO NET-ZERO Kathryn Ebrey / Arcus FM

32

THAMES FREEPORT: A NEW LOW CARBON HIGHWAY Hop Ming Chen // DP World

34

WHAT DOES SUSTAINABILITY MEAN FOR THE UK CONSUMER? Kyle Monk // BRC

36

WHY YOU SHOULD CARE ABOUT THE DIFFERENCE BETWEEN TRANSPARENCY AND TRACEABILITY TomWoodham // IBM

38

THE ENVIRONMENT BILL: WHAT MIGHT IT MEAN FOR RETAILERS AND MANUFACTURERS? Alan Hunt / The Collective by Lewis Silkin

DIGITAL SOLUTIONS

40

THESE AREN’T THE DROIDS YOU’RE LOOKING FOR Amir Nooriala // Callsign

42

DIGITAL IDENTITY: WHAT WILL IT MEAN FOR RETAILERS AND THEIR CUSTOMERS? Tom Brewin / Emerging Payments Association

44

The productivity trap: Quality vs quantity in retail performance Brian Walsh / Roubler

brought to you by

46

DIGITAL HUB / BRC

THE RE TA I L ER

6

CUSTOMERS HAVE CHANGED – AND SO MUST RETAILERS

Sarah Friswell CEO Red Ant

A s customers come out of the pandemic, some of their behaviours and many of their priorities have permanently changed, The path back to normality for both shoppers and retailers has more or less been set, risk-based derailments notwithstanding, and those with robust recovery strategies will have centred the customer in all of their plans. The general outlook is optimistic: • GfK’s Consumer Confidence Index reports increases across all of their measures. Their Client Strategy Director commented: ‘It’s highly likely this upward trajectory on all measures will build over the next six months and beyond.’ • Ernst & Young reports that 48% of consumers globally believe post-vaccine life will be better than before the pandemic. According to Silvia Rindone, EY UK&I Retail Leader: ‘As consum - ers look for a return to in-person engagement and the in-store shopping experience, retailers need to engage customers with store events and activities. They simply can’t underestimate the power of the store and the consumer desire to re-engage with the social aspect of shopping.’ • Euromonitor’s ‘Top 10 Global Consumer Trends 2021’ backs this up - along with increased interest in sustainability, social issues and post-pandemic changes to behaviour when it comes to safety, convenience and spending, shoppers will be looking for ‘a hybrid of physical and virtual worlds where consumers can seamlessly live, work, shop and play both in person and online.’ Navigating the future But, despite the positive predictions of business analysts and pundits, it won’t all be plain sailing. All the evidence suggests that, while many are happy to return to in-store experiences, post-pandemic customers won’t necessarily revert to the shopping behaviours they favoured pre- covid – as the Ernst and Young report points out, they need to ‘redesign [their] business around how people live, not what consumers buy’. In its ‘Connectingthedots’ consumer trends report for2021, GlobalWebIndex highlights some key areas of concern for retailers: • ‘More than lockdown blues’ – preserving mental health and well - being is a major motivator for customers • ‘It’s a kindness magic’ – they’re more likely to shop with retailers that actively demonstrate kindness and empathy as part of the customer experience

• ‘A green awakening’ – similarly, they’re looking for evidence of ethical and sustainable sourcing and responsible business practices • ‘The digital storefront’ – the pandemic proved to be the perfect incubator for tech-based transformation, and shoppers will expect developments in both online and offline experiences to provide both entertainment and a sense of community Delivering happiness through choice The onlyway to acknowledge and leverage customers’ newly-established behaviours and concerns is to meet themwhere they choose to engage. Once retailers have committed to putting customer choice at the heart of their strategy, with the accompanying investment in omnichannel processes across the business, the next step towards re-energising retail is to actually listen to what they have to say. And leading analysts PwC have provided the insight to do just that – in their March 2021 Global C---onsumer Insights Survey, they asked more than 8,000 shoppers from around the world how they felt, which habits adopted during the pandemic they intended to keep, and which they were going to abandon once a little more freedomwas within their grasp. Broken down by product category, it’s clear that for some experiences, while online filled the gapwhen shops were closed, customers are happy to leave their laptops, tablets and mobiles at home for the opportunity to engage with an in-store advisor.

SUMMER 202 1

7

While many are happy to return in-store, post-pandemic customers won’t necessarily revert to the shopping behaviours they favoured pre-covid”. ‘‘

• 53% said they would shop more in-store for health and beauty products • 54% chose in-store for homeware and DIY • 51% would do more in-store shopping for fashion and footwear But the effects of the pandemic will have a long-lasting impact on what customers expect from their in-store experience –while 65% of respond- ents reported that they are likely to visit a shopping mall or equivalent in the next six months, their key requirements for returning are: • Increased health and safety measures, from controlled numbers in the physical store to protective screens and hand sanitising stations • Being able to see and touch products • Ability to quickly and conveniently navigate the store to find the products they’re interested in • Knowledgeable and responsive store associates • Access to the full product range As Kingston University’s business and consumer expert Dr PatriciaHarris puts it, ‘Some shoppers…find it easier and more convenient to go to a physical shop, look at/touch/try merchandise and talk to sales staff than to search for and compare products online. There are significant cognitive costs associatedwith online shopping – its scope and flexibility are appreciated by shoppers, but it can also be bewildering, leading to frustration, fatigue and a sense of reduced self-efficacy.’

It all comes down to one simple emotion. What shoppers want is to feel happy - with their visit, with their purchases and with their experience, wherever it happens. Delivering happiness depends on being able to offer the best of both worlds – the range, convenience and safety of shopping online coupledwith the social, personalised, human experience of shopping in-store. A good experience is centred around where they feel safe making pur- chases. Retailers’ strategies for the future must embrace the concept of customer- and clienteling-driven service delivery, from ensuring that store associates have all the tools they need to answer questions about sustainability and social responsibility to providing customers with the same high-quality experience wherever they choose to engage with it.

Sarah Friswell sarah.friswell@redant.com

What shoppers want is to feel happy - with their visit, their purchases and their experience, wherever it happens”. ‘‘

THE RE TA I L ER

8

RETAIL PROPERTY AND THE REAL ESTATE ECOSYSTEM

Graeme Bradshaw Partner and Head of Retail Burness Paull LLP

H ow the real estate sector will be vital in bringing back the spark of life to our city centres.

In the officeworld, since constructionworkers were allowed to return to site following the first lockdown, our cities have seen the con- tinued emergence of fresh structures of glass and steel. Thousands of square feet of new office accommodation has been added to city centres across the country. All will be awaiting their office worker occupants. These newoffices often comewith enticements such as electric car charging stations, basement gyms, cycle ramps and stores, even roof top running tracks. Investor and developer con- fidence in the office sector remains firm – but transaction volumes are significantly down on 2019 comparisons. Predictions that our days in offices are at an end may be wholly of the moment. How will things look in six months or twelve months as the nation comes to termswith Covid? Reports from Israel, which is a global test case following its trail blazing vaccine programme, suggest that office life can surge back to normality rather quickly once restrictions are lifted. There has been a high level of activity in the restaurant sector. With the established high street names in retreat, landlords are fighting back by seeking ambitious new tenants free of CVA baggage. Look out for a fresh mix of res- taurant brands and concepts on our city streets. Hospitalitywill be experiencing a summer like no other. With international tourism unlikely to return to normal for some time yet, there is a chance to impress the domestic market as staycation is the only vacation for many. Live events – a boon for accommodation providers - are also back on the agenda. The next question will be around conferences and business travel. In retail we are continuing to see robust interest from investors. Local investors are seeking bargains and opportunities including at com- mercial auctions (where there has been a clear upswing in activity). International investors are seeking out properties occupied by Covid resilient occupiers. So what does all of this mean for real estate going forward?

Stakeholders must join in planning for a sus - tainable, balanced future for towns and cities. That will include commercial property owners, retailers and local authorities (particularly their planning departments). City centres could be re-thought to become greener, cleaner and more pedestrianized – all helping reach those environmental targets. This can become about seizing the opportu- nity presented by the pandemic. For many cities that will mean bringing back people on a permanent basis – creating vibrancy from a resident population rather than relying on visiting workers and tourists. Glasgow, for example, has become one of the slowest cities to recover post pandemic principally due to the lack of a substantial population within its central areas. All those pre-pandemic plans to ‘repurpose retail’ are still on the agenda. Empty department stores converted to newuses. The importance of logistics in a world of online shopping will also drive alternative uses as more centrally located delivery depots are required to fulfil online orders.

Grabbing a coffee, shoe repairs, topping up on groceries, picking up a prescription – all things that conveniently fill our lunch hours during a working day. But what is ‘convenient’ has changed. Previously all these tasks were discharged at shops within a few blocks of our city centre work places. Thework from home era has seen this trade migrate to shops in the suburbs and commuter towns. As retail reflects on the last 18 months it is clear that there has been positivity for local businesses. Retail parks too have been resil- ient. The biggest casualties then have been in city centres. Our city streets remain eerily quiet – even after all this time. In real estate no sector is an island. Retail, leisure, hospitality and offices stand together as an ecosystem that once disrupted cannot function as successfully as before. This can be seen more clearly than ever as we continue through the Covid recovery phase. Retail works better when restaurants, pubs and cafes are at full strength and vice versa. One real estate use complements another. And for any of these sectors to operate successfully they need footfall. That means busy city centres. That, in turn, requires the return of our workforces to their offices. The connections are inescapable. As with retail, the revival of our city centres is crucial for the real estate sector. But how will the real estate sector respond and can it help nurture the green shoots that will see the property ecosystem find a new equilibrium? For the moment investors have shifted focus from retail to warehousing and life sciences and away from offices to student accommo- dation. Existing portfolios however, remain heavily weighted with retail, leisure and hos- pitality properties and so their importance is undiminished.

by the pandemic”. ‘‘

This can become about seizing the opportunity presented

Tactics employed by retailers will inevitably play a part too. Amulti-channel approach that sees online purchases fulfilled in-store byway of click and collect not only saves on last-mile fulfilment costs and retains relevance for bricks and mortar locations but brings the additional benefit that customers make additional pur- chases while in store. Initiatives will be endless and many of the key changes may already be well underway as a result of pre-pandemic planning. A sustainable city centre ecosystem can be re-established but it will require all stakeholders and sectors to work in partnership.

SUMMER 202 1

9

“In real estate, no sector is an island. Retail, leisure, hospitality and offices stand together as an ecosystem…”. ‘‘

Graeme Bradshaw graeme.bradshaw@burnesspaull.com

0141 273 6976 07525 038 535

THE RE TA I L ER

1 0

NEWS FROM THE BRC

GOVERNMENT NEEDS TO RETHINK PROPOSAL TO CLOSE STORES AT NEW YEAR

David Lonsdale Director Scottish Retail Consortium

S hops in Scotland could be prohibited from opening to customers on New Year’s Day It has been sixteen enormously difficult and tumultuous months since Scotland entered the first Covid lockdown. Retail has faced some of the toughest restrictions. The majority of Scotland’s shops have been compelled to close twice – for at least 220 days - to aid the national effort against Covid. For those stores in west central Scotland or located in shopping centres the figure is even higher, given local lockdown restrictions imposed last November and the lengthier lockdown for shopping malls last summer. Even now, with stores permitted to open, shopper footfall is down by a third and shop vacancies are at a six-year high and climbing. Overall, the Scottish Retail Consortium (SRC) estimates that shops have lost out on £4.5 billion of retail sales since the onset of the pandemic. The situation is improving; however, shops remain unable to trade at capacity due to physical distancing constraints, and lack of footfall remains particularly acute in our city centres. Given this backdrop, it is extraordinary and frankly bewildering that Scottish Ministers could even countenance the introduction of a per- manent prohibition on shops opening to customers on NewYear’s Day. However, that is exactly what is happening with the publication last month of the devolved government’s consultation paper on banning New Year’s Day trading. Most people I’ve talked to within the industry and business community more generally are flummoxed as towhy government is progressing this. Unfortunately, it may be the thin end of the wedge. Those agitating for the trading ban are elsewhere in the UK also seeking the closure of shops

on Boxing Day, as well as fresh legislative curbs on trading hours on Christmas Eve and New Year’s Eve. How long would it be before other sectors of the economy are in their sights? For SRC it boils down to this – where there is demand from customers and the availability of staff then shops ought to be free to choose to open on New Year’s Day if they so wish. Banning trading permanently on New Year’s Day is illiberal and short- sighted, especially considering customers can already shop online whenever they choose. Indeed, if ever a government proposal epitomised an outdated analogue solution in a digital age this is it. It is strange shops are being uniquely singled out whilst other consum- er-facing businesses such as hotels, restaurants, pubs, petrol stations, and cinemas can carry on. Why is retail being treated differently to these other consumer-facing sectors, or for that matter our public services? Apermanent prohibition on trading also flies in the face of the strenuous efforts that have made over recent years - prior to Covid - to promote Scotland as a visitor destination at NewYear. Are we seriously going to invite the world to come to Scotland for Hogmanay, but then prevent revellers spending their money in our stores the next day? The economic legacy of Covid will be with us for a considerable period. It will take time for the sector to recover, to repay the various govern- ment Covid loan schemes, and to pay down the rent and other debts incurred whilst trading has been halted or curbed. The recovery needs to be helped, not hobbled. What is needed is a holistic approach from government policy making towards Scotland’s largest private sector employer, not a piecemeal approach exemplified by this proposed trading ban. Ministers have shown admirable support for the sector during the crisis, especially on business rates relief and grants. The focus now should be entirely on kick-starting recovery, not closing shops.

Retail has faced some of the toughest restrictions.

SUMMER 202 1

1 1

THE RE TA I L ER

1 2

PREPARING FOR CHANGE: STRATEGIES TO BOLSTER YOUR SUPPLY CHAIN

Lemi McAuley Partner Shoosmiths LLP

Bethan Moore Partner Shoosmiths LLP

E ven for businesses in full financial health, supply chain vulnerability can cause unwanted disruption

Plan of action Once the difficulties are spotted, you need a plan of action. This will depend on the cir- cumstances, but your starting point should be a series of questions such as: • Will you (can you) source another supplier? • If not, is it possible for you to help them through their difficulties? • If it is a customer in difficulties, have you got effective retention of title provisions in your agreement which will allow you to mitigate your losses? Is there any - thing which you need to do to make sure those provisions are more effective (e.g. insisting on separation of your goods in the customer’s warehouse)? Your questions will be specific to your business but thinking about them now will save a lot of time later. Having a plan of action will go a long way to helping you navigate any period of change ahead”. ‘‘

Distress processes There is now a range of rescue and insolvency processes which could affect either your sup- pliers or your customers. At one end there are processes designed to improve the financial health of the company so it can emerge fitter and better able to cope with the current eco- nomic climate and at the other they can bring the business to a close. • Moratorium – designed to give a com - pany breathing space while it finalises a rescue package • CVA and Restructuring Plan – two differ - ent processes which allow businesses to compromise even dissenting creditors to effect a rescue • Administration – usually results in a sale of the business and assets of the com- pany to realise monies to pay creditors • Liquidation – a terminal process in which the business is usually wound up and the assets sold off piecemeal to realise monies for creditors Depending on what process is affecting your supply chain, there are things you can do to limit the impact.

Whilst the feared “tsunami of insolvencies” arising out of the pandemic has not to date had the devastating impact on the economy that many had initially predicted, as we move into a period of easing of government support and lifting of enforcement restrictions, businesses need to be alive to potential weaknesses in their supply chain to put them in the best position to navigate this period of change. We take a look at what might happen to suppliers and customers, see what those events could mean for you andwhat you can do to mitigate against those effects. Earlywarning system Preparing for financial distress affecting your supply chain can go right back to when the relationship is first forged. The earlier you can spot it, the more you can do to mitigate the effects. If you can build performance reviews or reporting functions into your contract with a new supplier, you will be better informed as to howeach supplier is doing. Even if you don’t have those facilities available, spotting red flags and collating that information centrally during the life of the contract is key. Difficulty sourcing an order from a supplier could point to their difficulty in obtaining raw materials, which may mean they have not been paying their bills. Requests from them for you to pay sooner could point to cashflow issues. Changes in a customer’s ordering patterns may also point to an internal cost-cutting exercise. These are flags which can warn you of impending financial difficulty, but if your internal teams are not communicating with each other, the cumulative effect can be missed.

SUMMER 202 1

1 3

Distress effects If a supplier enters a Moratorium, CVA or Restructuring Plan (“rescue processes”), you should notice no real change in service. The purpose of these processes is that compa - nies continue their business in the usual way while they improve their financial position. If a company enters Administration, the business may well survive, and any new owner of that business is likely to want to continue the rela- tionship with you. Liquidation is the only real process in which you may find your supplier disappearing overnight. If a customer enters any insolvency processes (other than a Restructuring Plan), then you may feel concerned about continuing to supply them, particularly if they owe you money. Unfortunately, the government introduced new provisions last year which prevent you from terminating a contract to supply goods or services simply because a business has entered an insolvency process. It is possible to tweak terms and conditions to reduce the effect of this, and you are still able to terminate for late payment or other breaches. If your customer is in real financial difficulty, the likelihood is theywill also have breached a few contractual requirements. Remember, however, that the rescue processes are intended to rescue the company as a going concern, so it is important to engage with the company to understand fully what is happening and what the plan is before taking any steps to terminate.

Administrators’ mindset If the company has entered administration, the focus of the administrators is realising the business and assets of the company for as much as possible to maximise returns to creditors. Their primary duty is to act in the interests of creditors as a whole, so everything they do is motivated by that duty. Usually, the best realisations come in the form of a sale of the business as a whole as a going concern. If the administrators choose to trade the business while advertising it for sale, they will want to continue to supply the customers of the business and the business will need materials to do that, so it is not necessarily a bad idea to continue to work with them. Theymay expect a renegotiation of terms and your stance in those negotiations will depend on a number of factors including how important that business is to your supply chain and what the likely future of the business is. So once again, early communication with the administrators will be a determining factor in how you approach the negotiations. Preparation is all Essentially, as with most things in life, having a plan of actionwill go a long way to helping you navigate any period of change ahead.

Lemi McAuley 03700 86 7423 lemi.mcauley@shoosmiths.co.uk

Bethan Moore 03700 86 5573 bethan.moore@shoosmiths.co.uk

THE RE TA I L ER

1 4

IT’S TIME FOR RETAILERS TO ‘THINK DIFFERENT’ ABOUT CUSTOMER EXPERIENCE (CX)

Stephen Hewett Global CX Thought Leader ICG

C X (Customer Experience) has seen a major shift away from product-centricity to customer-centricity, as befits the new, consumer-enabled digital world – especially true in retail today. A poorly implemented CX initiative is often worse than having no such initiative at all, for both customer and the retailer. Even worse, it can create apa- thy within the organisation, which in extreme cases can be ‘fatal’ - considering the dwindling presence on the high street of those major retail brands that failed to meet the customers’ evolving needs. We have seen that when CX is done well in retail, it is transformative. However, there are many well intentioned CX teams, putting in vast amounts of effort and cost that still result in products or solutions that customers do not need. We saw a retailer presenting a case where they had run an innovative CX programme to produce a technically excellent chatbot. Unfortunately, there was no evidence that it was addressing a real customer need. In fact, it answered the questions customers rarely asked. How could so many dedicated CX professionals spend so much time and money doing the right thing and yet getting it all so wrong? Perhaps, because no one understoodwhat the real customer needs were, as they assumed that their internal perspective mirrored that of their customers?! Apple’s “Think different” Campaign. In late 1990s, business leaders reluctantly embraced personal computing considering it a black art which did not deliver on its promise. Despite this, leaders instinctively felt the burgeoning computer revolution will permanently change the way everyone would work. It was against this backdrop that Apple launched its ‘Think different’ campaign. Instead of focusing purely on technology, they promoted a ‘counter-culture’ of fearless creativity, bending the rules and inviting creators from across the globe. It is well reported that this change in approach widened the appeal of their brand, moving from the tech-savvy to a broader audience, who wanted to be part of a different way of thinking. Apple’s success has been meteoric and ubiquitous.

So, what is the parallel between Apple and retail CX?

By popular definition, customer experience (CX) is “the sum of all expe- riences a customer has with a supplier of goods and/or services, over the duration of their relationship with that supplier.” As a discipline, CX has been around for almost two decades, duringwhich it has created tools, methodologies, metrics, and passionate influencers. Many business leaders have been slowly embracing the CX concept, yet they have not yet witnessed its full potential of creating customer satisfaction whilst delivering return to shareholders. As a result, many business leaders questioned the current approach to CX as a sustainable proposition with genuine business outcomes.

While...

and...

only...

15% of CEOs believe their organisation fully understand their CUSTOMER NEEDS

94% of CEOs say CUSTOMER NEEDS are the most important data

76% of customers expect companies to understand their NEEDS

Source PWC The data show it is time to overhaul the current approach and ‘Think different’ about CX by returning to simpler and more straightforward methods.We need a ‘back to basics’ approach that retailers often embrace, and which will help businesses to take full commercial advantage from the concept of customer-centricity. The Hierarchy of Needs After a decade of listening to tens of thousands of customer stories, we see that for any product or service, there are only three or four things that an individual customer cares about. When you aggregate these things across an entire customer base, you end up with a handful of needs that must be met. These can be defined as ‘core needs. A core need is something that must be there, otherwise the product, service or experience has failed. The delivery of core needs is vital to retain customers. These core needs must be delivered at the lowest possible cost, as they do not differen- tiate a business. In fact, if an organisation does themwell, the customer may not even notice them (and that is a good thing). Delivering core needs, though, is not enough to create a sustainable, growing business. If you wish to differentiate and lead the pack, your organisation must go beyond core needs. An analysis of tens of thousands of customer stories suggests that there are three categories of customer needs that enable organisations to deliver an exceptional customer experience. To fully understand how these three categories are applied, we need some clear definitions:

SUMMER 202 1

1 5

HIERARCHY OF CUSTOMER NEEDS

Innovated Needs Solutions that meet needs that change the behaviour and expectations of customers.

Preceived Needs The things customers notice, positively comment on and might even pay more for.

Core Needs The fundamental things that must be part of the Product, Service or Experience that are only preceived if they are unmet.

Needs are not static and over time move downwards, through the Hierarchy of Needs: • Innovated Needs become Perceived Needs e.g. The original Apple iPhone made a huge jump from existing mobile phones and catalysed the plethora of what became the premium smartphone category. • Perceived Needs become Core Needs e.g., the smartphone category became ubiquitous and exploded with a vast range of what is now standard functionality, high-quality cameras, music players, games stores, social media, apps, a marketplace for third- party accessories etc. To successfully deploy the Hierarchy of Customer Needs, one must prescribe a new set of measurements that showwhich needs are being met and those that are failing to be met.

Whilst this article sets out a newway to think about customer experience, through the lens of customer needs, it only scratches the surface of what focusing on the understanding of customer needs can achieve. It suggests some design principles that an organisation can consider supplying to its CX programmes. We have been working with BRC Learning on the Customer Needs Solution (RCX) which can be customised and deployed in any retail business. The solution is based on 10 years of experience and practical application and has already proven that thinking differently about the CX is a way to organisational success.

Stephen Hewett stephen.hewett@internalconsulting.com

THE RE TA I L ER

1 6

NEWS FROM THE BRC

BUSINESS RATES – THE ROAD TO REFORM NEEDS A BRIDGE NEXT YEAR

Dominic Curran Property Policy Adviser British Retail Consortium

L ast year held a few surprises, it’s fair to say. One of the smaller but no less remark- able ones was that Government kept to its promise to undertake a fundamental review of business rates. They had a once-in-a-century valid reason not to proceed but, to their credit, they allocated Treasury officials’ time to this hugely pressing issue for retail. Admittedly the timetable for the results of this review slipped from Spring to Autumn this year, but we can forgive this delay, particularly if we get a good result at the end. One of the Chancellor’s first announcements as the pandemic took hold last Spring was a 100% business rates relief for retail and other sectors for 2020/21. It is certain that this £7.5bn retail tax cut, alongside other measures, helped otherwise viable business survive, particularly those whose stores were required to be closed for longer than theywere able to be open in that financial year. In March this full relief was extended for a further three months in England, and for the full year (with some variations) in the rest of the UK. A more limited relief applies in England for the remaining nine months of 2021/22, with two thirds off business rates liability subject to a cap of £105,000 per business for non-essential businesses and £2m for essential ones. The relief has kept the rates issue at bay during the pandemic, and while Government conducts its review. But as its value (in England) tapers over time, and with any reforms emerging from the review not likely to take effect until 2023 at the earliest, many retailers are looking anxiously at 2022/23. A new ratings list, based on values on 1 April this year, takes effect from 2023. This should embed lower retail values into the rates system, reflecting not just post-pandemic retail rent levels, but the wider fall in rents since the last valuation in 2015 in much of England. But the rates burden in the year between the end of the current relief and the start of the new list could stretch many businesses to breaking point.

As things currently stand, the intervening year, 2022/23, will see a return to full rates liability based on estimated rental values as of April 2015 – an eternity away in the world of retail rents. Ratings consultants estimate that, excluding Greater London, retail rents in England since 2015 have fallen by at least 30% - much more in some locations. This in turn means that properties are extremely overvalued for rates pur- poses. Rates should be 51% of rent – a high enough figure in itself - but the fall in rents since 2015 means that the rates bill is now the same or more than the annual rent in many locations. This is making shops unprofitable, resulting in more closures and fewer new openings, with knock on impacts on local jobs, investment and high street viability. A return in April to full rates liability based on 2015 values across the UK will therefore cause a profound shock to the high street ecosystem. Many businesses that will have managed to get through Covid may find themselves undone by the sudden imposition of full business rates lia- bility. Unlike Covid, however, that economic shock is entirely avoidable. While we remain hopeful that the review of business rates will result in positive changes, that road to reform will only start after 2023. In the meantime, retailers need one last bridge to get them through to the lower rates burden of the 2023 list and the implementation of post-review reforms. That bridge needs to do in 2022/23 what we anticipate the reforms will begin to do afterwards, which is to better reflect current market values in business rates bills. That means that retail business rates bills should fall by at least the average fall across England - around 30%. This would effectively reset the system to a more sensible rate, bringing values in line with the real world, supporting investment, jobs and communities, and protecting future tax revenue for the Chancellor. Unlike major reform, this change will be relatively simply to implement. It could be in the form of a retail discount just as we have had in recent years, granted to local authorities byGovernment and disbursed in turn by them to local retail ratepayers. Alternatively, an approach for the longer term might be to set a separate retail multiplier – the effective tax rate in the business rates system – so that the tax rate for the industry could be set at a rate that was tailored to its profitability and growth, making it a more sustainable system that could be flexed as necessary over time. Whatever form it takes, a bridge from the current system to the post-re- view system is a vital part of the road to reform, and it is imperative that Government announces one alongside the outcome of the review in Autumn.

SUMMER 202 1

1 7

THE RE TA I L ER

1 8

THE GREAT HIGH STREET REVIVAL: DATA AS THE GLUE TO LURE SHOPPERS BACK FOR GOOD

Ross McKenzie Partner, Head of Digital Retail Addleshaw Goddard

T he UK’s high streets can expect a bounce in footfall with lockdown restrictions lifting, the summer weather returning and a craving for in store retail therapy. But for a sustainable high street revival, it’s time to think beyond traditional retail formats. Central to new retail marketing innovations will be consumer data and in particular the insights it brings. High street and digital retailers have learned from one another, informed by consumer spending behavioural trends and a privacy centric-ap- proach to data. The way people are shopping has been changing for some time – a change which has been exacerbated by the pandemic. The step change in behaviour has seen consumers base their shopping habits depending on what product they’re looking to purchase. Put simply, the items that people are shopping for will determine how they shop. Digital retail will continue to evolve into a commodity or service for purchasing life’s necessities, while the high street will be the preserve of luxury shopping and entertainment. Each can act as a catalyst for the other. Boohoo, the online fashion retailer that acquired the Debenhams brand and website for £55m in January, relaunched the website Debenhams recently. But, popular cosmetic brands, including Chanel and Yves Saint Laurent, were missing from the revamped website, as some brands reportedlywould only supplywhen there was a physical retail presence. It demonstrates the power of brands and, possibly, acknowledging that some products, such as fragrances and homeware, sell better in-store than online. John Lyttle, Boohoo’s chief executive, is reportedly in talks about opening “one store and one store only” outside London, acknowl- edging these consumer behaviour trends. Data privacy is power For high street retailers to sustain the anticipated post-lockdown bounce in footfall, retailers must understand their customer base and create a sense of occasion and community experience. Data can support both. Above all, data capture must be transparent. Brands that are clear about the nature and purpose of data capture can expect customer trust and confidence over time. Retailers that mutually align incentives do best. For example, loyalty cards offer customers discounts and tailored offers, including reminding customers when similar products and services may need to be purchased. This direct customer engagement can persuade shoppers to the high street for special events and newproduct launches, which are powerful catalysts for products with high brand loyalty.

In smart products, data can also extend the relationship between brand and customer beyond the point of purchase, where product usage data can inform brands when a replacement is needed. For example, a runner that tracks exercises through an affiliated appwill, as a by-product, create data that indicateswhen running shoes need replacing, which could prompt a special offer from a related retailer. High street retailers may entice shoppers to physical stores with special discounts to premium brands. There is a power in data privacy. The data exchange is palatable when paired with a tangible benefit and can even cultivate further brand loy- alty. This area becomes problematic if data is harvested and sold onto third parties, with little transparent upfront statements delivered in a clear and understandable way. Consumers are live to this and making choices with brands based on privacy - they do not like to be the product unknowingly. Brands like Apple are leading the way putting consumers in control of what data is shared in a consumer centric approach. Back on the high street, though, retailers are working out how best to realign relationships between brands, landlords, and consumers in a post-pandemic environment, mindful of the sector headwinds. FÖMO Store, a pan-European pop-up and flex-retail operator, has created a fresh template that blends physical and digital retail. FÖMO Store works as a micro-department store alongside affiliate, We Are Pop Up, a platform that directly connects brands with flexible retail spaces. The FÖMO Store concept consists of a rotation of diverse brands – across clothing, home accessories, DIY, skincare, sports and even wellness products. Hosted brands can invite shoppers and distributors to FÖMO, which function as the brand ambassadors to promote the products, in a retail-as-a- service (RAAS) format, which can simultaneously reach B2B and B2C. FÖMO hosts events ranging from performing musicians, dancers, book readings, workshops, meditation and wellness sessions. The emphasis on active community engagement draws parallels with coworking. This ‘event venue’ format also helps to create energy and vibrancy on the high street, while data collected can inform brands on shoppers’ preferences, keep consumers engaged, provide insight on what products are most successful, while store revenues can be pegged to flexible leases. Moreover, as emerging brands mature and grow, they may become direct tenants in future, providing landlords with access to potential future tenants. Reviving the high street will require retailers and landlords to look beyond the traditional retail formats and capture and keep shoppers’ attention. Experimenting with data-driven marketing may help a retailer, and a particular high street, stand out in a crowded sector.

Ross McKenzie Ross.McKenzie@addleshawgoddard.com +44 (0)791 876 7330

THE RE TA I L ER

20

MACHINE VISION – IMPROVING OPERATIONAL EFFICIENCY AND MAINTAINING BRAND STANDARDS

David Nicholls CTO Retail & Hospitality Fujitsu

M achine vision makes the store of the future, the store of now. The new Amazon Go stores demonstrate technology can deliver a convenient expe- rience for customers and at the same time reduce operating costs. Many retailers facing a similar challenge of demanding customers and squeezed margins will be watching how this venture progresses closely. Most might not be ready to dive-in with fully automated stores just yet due to cost or practicalities like size of store, but they could benefit from one of the key technologies behind Amazon Go. Machine Vision. Machine Vision applies artificial intelligence to visual data, captured by cameras that could range from your existing CCTV systems, to specialised heat sensing cameras that can spot variations in fridge temperatures or electrical cabling at distance. Recent advances in this technologymean that if it can be seen by camera, in most cases it can now be recognised bymachine. This turns cameraswithmachine vision into ‘Omni-sensors’ removing the need for multiple store technol- ogies, such as thermometers, gate controls and footfall counters. For a while, algorithms have been able to tell us not just that a person has walked in, but also their gender, and approxi- mate age. Today the technology has advanced considerably so not onlywill it recognise phys- ical characteristics, but it will also identify over 100 different behaviours. Want to knowwhen someone is getting agitated and there may be a risk of violence? Want to identify a mobil- ity-disabled customer who might need help? Want to spot an item going into a coat rather than a basket?Want to be certain promotions are displayed correctly? All these can be iden- tified by Machine Vision. Fujitsu’s technology can even ensure that staff are completing all six stages of handwashing. Even though hands come in different sizes, and the movements are complex, subtle and obscured with soap. The recognition of detailed observations will make Machine Vision an indispensable tool for delivering operational efficiency and brand standards for retailers.

Colleague Safety The BRC Crime Survey found there were 450 incidents of abuse and violence towards shop staff every day. No surprise then that 90% of retailers say colleague safety is a top three concern for the board. A challenge for store colleagues facing an agitated member of the public is that remaining calm is essential to de-escalate the situation, but at the same time signalling for help can be seen as the very oppo- site of this. Machine Vision could help here, as it is able to spot or even predict an escalating situation. It could even spot pre-agreed signals from colleagues to raise a silent alarm or even an automated announcement warning of risk of prosecution. This makes it clear that the situation has been spotted, but in a way that draws focus and hopefully danger away from the colleague.

Better and Faster SCO experience

With each Self-checkout unit on average losing over £11,000 a yearwith non-scans many retail- ers would be glad of an extra set of eyes here. Machine vision can spot non-scans and product, bar code replacements and immediately offer customers the opportunity to re-scan or fix the error. This automation can avoid a potential flashpoint with a colleague. Profit protection isn’t the only way Machine Vision can benefit the SCO process. Product recognition can cut scanning times for improve- ments in productivity and reducing basket abandonment. Fujitsu has already deployed MachineVision at SCOwith two major French supermarkets to classify non-barcoded items such as produce and bakery and offer custom- ers a ‘Top 3’ dynamic menu with an accuracy of 97.66%.

In 2021 Fujitsu successfully achieved the world’s highest accuracy against the world standard

benchmark in the field of behaviour recognition.