The Retailer Winter 2018/19

Winter 2019

Government action needed on the apprenticeship levy

// Approaching the midnight hour for Brexit

// Prepare your emerging talent for tomorrows retail world

// KPMG Retail Sales Monitor - A muted end to a tough year

‘‘At a time when business costs are outpacing retail sales growth, it is a real concern that retailers are unable to draw down essential training

funds they have already paid in”

NEWS FROM THE BRC Government action needed on the Apprenticeship Levy

Helen Dickinson OBE Chief Executive British Retail Consortium

Data published last month showed that just 14% of funds paid into the apprenticeship levy have been spent. And with less than three months before the levy payers’ funds begin to expire, it’s obvious it’s not working, and government’s 3 million apprenticeships target looks like a pipe-dream. Starts overall in England have fallen by a quarter since 2015/16, with retail starts falling by a fifth in the same period. Nearly two years in, this simply isn’t good enough. Retail is the largest private employer and is paying £160m-£180m per year. Despite this, the vast majority of retailers I speak to have spent no more than a quarter of their funds in the first year. Many are simply writing it off as a tax. It is the inflexibility of the system itself, the administrative burden that sits around it and a lack of any apparent desire by government to act on the wider concerns raised by retailers. As Retail Week reports week in week out, the industry is in the midst of a transformation. The apprenticeship levy, when announced, was regarded as an opportunity by many. It would put employers in the driving seat and ensure that training met the needs of a rapidly changing industry. Apprenticeships can provide an entry route to work, enable existing staff to develop new skills, and support those returning to the workplace after time away. Everybody I speak to recognises our collective need to develop better jobs in retail, jobs that are more productive, have clearer progression routes and are higher paid. We need more analytical and digital skills at all levels. Apprenticeships should be part of the solution, not the problem. We are not here because of lack of appetite. The commitment from the industry is clear to see – four new trailblazer standards have been developed, facilitated by Retail Trust, The Fashion Retail Academy and others, and there are more in the pipeline. We have also worked with our members to offer two new retail apprenticeships which are now available in the market. But the government must make the system easier to use and enable the levy to be used to cover some of the additional costs related to supporting an apprentice, like the need to provide business cover for the apprentice’s role while they are doing their 20% required off-the-job training. Government must also recognise that apprenticeships are not the only means of providing the in-work training that retailers need. For retailers with a large levy bill, vital learning and development budget has been diverted to cover levy costs. At a time when business costs are outpacing retail sales growth, it is a real concern that retailers are unable to draw down essential training funds they have already paid in. The joint review by HM Treasury and the Department for Education announced at last year’s Budget was welcomed by employers in retail and beyond. Our calls for additional flexibility looked like they might be answered. But the pared back commitment – a series of regional roundtables – has left many in our industry seriously doubting the government’s commitment to fully engage. It’s not just retailers, businesses across the economy have raised concerns. Training providers, big and small, are calling for greater flexibility. If this government is serious about their commitment in the Industrial Strategy to help people develop the skills needed for jobs of the future, they must work with industry to support in-work training, development and lifelong learning. Retail provides more than three million jobs in every corner of the UK. We have an open invitation to government to engage with our members and help us all improve the jobs of the future. Surely an offer that is worth taking up!

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this issue


News from the BRC British Retail Consortium response to the Chancellor’s Budget // Helen Dickinson, BRC BRC–KPMG RETAIL SALES MONITOR DECEMBER 2018 A MUTED END TO A TOUGH YEAR




07 Shop prices edge upwards, despite discounting


Approaching the midnight hour for Brexit // William Bain,


Two Years of Stormont Stalemate //Aodhán Connolly

12 Protecting the bottom line, come rain or shine //Dan Fox //Paul Ramiz, AON


PSDII will make ease of payment the next battleground for innovative retailers //Philipp Gutzwiller, LLoyds bank commercial banking

16 Preparing for the 2021 Rating List as Brexit Looms //John Webber,Colliers international


Lessons from Place // John Percy, cushman & wakefield

20 Why your local marketing should extend to digital // Pratik Mungasuvalli, google


Tax impact of IFRS 16 – are you up to speed? // Emma Thomas, Grant Thornton


PRICING ALGORITHMS // Alan Davis //Richard Snape, Pinsent Masons

26 Put a Number on theWeather’s Impacts to Improve Performance //David Frieberg, planalytics


The Purple Pound - how to access its £249m spending power? //Michelle Norman, pwc research

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Retail and the Good Work Plan //Matthew Lewis, squire patton boggs Take-back generates profitable returns //Matt Luntley,valpak



Bracing for Brexit //MARK ESSEX, kpmg


Surviving retail customer demand fluidity with ‘gig-style’ thinking // Neil Pickering, kronos incorporated

42 Retail Services Directory

brought to you by

the retailer | winter 2019 | 5


BRC–KPMG RETAIL SALES MONITOR DECEMBER 2018 A MUTED END TO A TOUGH YEAR Covering the five weeks 25 November - 29 December 2018

• In December, UK retail sales decreased by 0.7% on a like-for-like basis from December 2017, when they had increased 0.6% from the preceding year. • On a total basis, sales were a flat 0.0% in December, against an increase of 1.4% in December 2017. This is the lowest growth since April, excluding Easter distortions, and below the 3-month and 12-month averages of 0.5% and 1.2% respectively. This is also the worst December performance since 2008. • Over the three months to December, In-store sales of Non-Food items declined 2.8% on a Total basis and 3.9% on a Like-for-like basis. This is below the 12-month Total average decline of 2.5%. The decline of the month was the worst since April in both Total and like-for-like terms.

• Over the three months to December, Food sales increased 0.6% on a like-for-like basis and 1.8% on a total basis. This is below the 12-month Total average growth of 3.1%, which is the lowest since September 2017. • Over the three-months to December, Non-Food retail sales in the UK decreased 1.2% on a like-for-like basis and 0.4% on a Total basis. This is below the 12-month Total average decrease of 0.3%. December Non-Food sales experienced a decline. • Online sales of Non-Food products grew 5.8% in December, against a growth of 7.6% in December 2017. This is above the 3-month average of 5.5% but below the 12-month average of 6.9%. Online penetration rate increased from 29.1% in December 2017 to 31.2% last month.

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SEPTEMBER SUFFERS FROM SUMMER HANGOVER Covering the five weeks 26 August – 29 September 2018

• In September, UK retail sales decreased by 0.2% on a like-for-like basis from September 2017, when they had increased 1.9% from the preceding year. • On a total basis, sales increased 0.7% in September, against an increase of 2.3% in September 2017. This is the lowest since October, excluding Easter distortions, and below the 3-month and 12-month averages of 1.2% and 1.3% respectively. • Over the three months to September, In-store sales of Non-Food items declined 2.7% on a Total basis and 4.0% on a Like-for-like basis. This is in line with the 12-month Total average decline of 2.7%. • Over the three months to September, Food sales increased 2.3% on a like-for-like basis and 3.4% on a total basis. This is below the 12-month Total average growth of 3.7%. • Over the three-months to September, Non-Food retail sales in the UK decreased 1.6% on a like-for-like basis and 0.6% on a Total basis. This is in line with the 12-month Total average decrease of 0.5%. September Non-Food sales remained in decline.

• Online sales of Non-Food products grew 5.4% in September, against a growth of 10.7% in September 2017, the second- best growth of 2017. This is the lowest growth since January and below the 3-month and 12-month averages of 6.7% and 7.1% respectively. Online penetration rate increased from 22.7% to 24.2% in September 2018. Helen Dickinson OBE, Chief Executive, British Retail Consortium: “These figures lay bare the difficult operating environment for the retail industry. After a challenging August, constrained consumer spending in September has resulted in the weakest sales growth for five months. “Retail represents 5 per cent of the economy and pays almost 25 per cent of the business rates bill and this disproportionate cost burden is especially hard to bear given the current trend in sales. The effect can be seen in the fact that there have been 3,200 UK store closures in the past three years. “The Government has said it wants to “back business” and retailers are waiting to see if this is just talk or if there will be meaningful action - like a freeze in business rates in the Budget.”

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Helen Dickinson OBE, Chief Executive, British Retail Consortium: “Squeezed consumers chose not to splash out this Christmas with retail sales growth stalling for the first time in 28 months. The worst December sales performance in ten years means a challenging start to 2019 for retailers, with Business Rates set to rise once again this year, and the threat of a No-Deal Brexit looming ever larger. “The retail landscape is changing dramatically in the UK, while the trading environment remains tough. Retailers are facing up this challenge but are having to wrestle with

mounting costs from a succession of government policies – from the Apprenticeship Levy, to higher wage costs, to rising business rates. “Retail makes up 5 per cent of the economy, yet pays 10 per cent of all business taxes and 25 per cent of all business rates. This is neither fair nor sustainable. The Government should urgently look into reforming the broken business rates system and champion the future of retail in the UK.”

Shop Price Index: BRC–NIELSEN Shop prices edge upwards, despite discounting Period Covered: 03 - 07 December 2018

• Shop Price inflation accelerated in December to 0.3%, up from 0.1% in November. This is the fourth month of inflation in five years and the highest inflation rate since April 2013. • Non-Food deflation decelerated in December to 0.4% from 0.8% in November. This is the lowest rate of deflation since March 2013. • Food inflation decelerated to 1.5% in December from 1.6% in November. • Fresh Food inflation slowed to 0.9% in December, down from 1.2% in November. • Ambient Food inflation accelerated to 2.3% in December from 2.1% in November. • The easing of Fresh Food inflation is likely to be the first indication of the downward pressures for the category from lower international food prices. Global food prices have started declining (except for Cereals) in May 2018. As it takes about 7 to 10 months for those changes to filter through into final consumer prices, we expect food price increases to subside, notwithstanding political turmoil in the UK. • Non-Food prices stabilised over 2018, leading to a slowing of the rate of deflation of Non-Food prices. This has been the result of both delayed impacts on Non-Food Shop Prices of the post referendum exchange rate adjustment and a change in the promotional strategies deployed by retailers.

Helen Dickinson OBE, Chief Executive, British Retail Consortium: “December’s Shop Price figures only serve to underline how tough conditions are in the retail industry. Despite Non-Food goods being cheaper on average than last year, early indications suggest that retailers faced a challenging environment throughout the festive season. “Shoppers may have become accustomed to great value, but Brexit uncertainty means that a continuation of the low prices is by no means guaranteed. Without a trade deal with the EU, the cost of importing many of the goods we buy day to day will go up significantly and retailers simply do not have the room in their margins to protect consumers from those costs. Unless Parliament comes together behind a deal that ensures frictionless, tariff free trade we could see prices paid by UK households rise substantially.”

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NEWS FROM THE BRC Approaching the midnight hour for Brexit

William Bain Policy Advisor , Europe and International British Retail Consortium

It’s increasingly clear that the political and business cycles around Brexit have become badly detached. Businesses are clamouring for certainty in both their trading terms and the laws which underpin them well before the scheduled date for UK exit from the EU onMarch 29. Companies in the retail industry are doing everything possible to improve the efficiency of their supply and sourcing chains, check that their contracts with suppliers and others are Brexit-proofed, and prepare their key delivery teams on VAT, excise, product standards, compliance, and customs. But what are they preparing for? In the absence of a ratified deal from the UK Parliament with fewer than 50 days to go until departure day, millions of pounds and countless working hours have been spent on preparing for the worst – a no deal outcome. Unless circumstances change, a no deal outcome wouldmeanMFN tariffs as high as 45% on cheddar, 39% on beef, and 28% on tomatoes applicable to cross-border trade between the UK and EU27 fromMarch 29. Furthermore, the UKwould fall out of the majority of the existing trade agreements negotiated by the EUwith 75 other territories and countries, meaning tariffs on imported clothing and textiles rising from zero currently to an average of 12%. Added to the overnight establishment of step non-tariff barriers to UK-EU27 trade from customs, VAT, and particularly sanitary and phytosanitary requirements on the movements of fresh food produce, new hurdles to trade would arrive as the UK falls out of

hundreds of pieces of legislation underpinning the EU SingleMarket and Customs Union which have been the hidden wiring of cross border trade for decades. This is especially pressing in terms of its implications for Northern Ireland and its land border with the Republic of Ireland, given that many goods moving to and fromNI do so via the Dublin- Holyhead route – possibly crossing different regulatory territories several times in the journey to get goods on the market. Toomuch of the debate occurs in a bubble atWestminster, disregarding the effect on incomes and choice of goods for consumers on the average wage in England, Wales, Scotland, and Northern Ireland, where the impact of a no deal on living standards would be the worst of all. Decisionmakers need to know the more they run down the clock, the greater is the burden of lost investment by retailers and other companies as more cash and resources have to go into ensuring no deal preparations are completed as prudent businesses must do. Above all, what companies want is clarity, so they can do what they are best at – providing quality goods at affordable prices, and investing for the long-term in their staff and their businesses. Without a clear view of a post brexit, retailers still need to ensure a timely and efficient transit of goods from the EU to the UK. Join our roundtable discussion ‘Unpacking Brexit’ at DPWorld London Gateway on the 20thMarch

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NEWS FROM THE BRC Charity at Christmas

Ewan MacDonald-Russell- Head of Policy and External Affairs scotish Retail Consortium

It’s perhaps understandable retailers can be caught in the crosshairs of the debate over the commercialisation of Christmas. With an eighth of retail sales taking place in December the festive period is a crucial economic event which canmake or break the year’s trading figures. Away from the tinsel and decorations in store, ever-present in almost every store over the festive period is the presence of charities and good causes. From young people collecting for the Scouts, Guides, Cadets or sports team through to fundraising for national charities, supporting Giving Tuesday, or just making space for charities, every retailer will be using some of their vital store time and space at this time of year to help those causes. For those charities, the funding and support they get from the industry, and it’s ever-generous customers, can be a vital lifeline. Whether it’s a bag pack or some small items for a raffle, or a charity partnership which raises millions of pounds, working with the third sector is an intrinsic part of retail life. That’s why the SRC publishes an annual report into charitable giving and community work every Christmas. We wanted to take a closer look at the work done by our members, to understand what all those individual activities amounted to in the round.

The overall figures are incredible impressive. Since we started reporting on this in 2016, our Members have raised over £41million for good causes in Scotland. In the last twelve months twenty-six retailers, including department stores, coffee shops, food to go, and grocers, have provided us with the details of their community work, raised £14.7 million. The range of charities is just as immense. We tried to calculate how many groups had been supported, but it proved impossible to accurately estimate as somuch work was done locally by individual shops. In fact, our experience is most of the charitable work done by retailers is driven not by marketing teams but shop floor colleagues. It’s those people who live in the local community who are most invested in supporting good causes; because they see why they matter. It’s their parents, spouses, siblings, and children who benefit from fundraising or donations. Retailers are involved in a enormous number of projects to help support communities. Employing refugees, supporting schools in Scotland and across the world, providing crucial capital funding to charities, developing sustainable projects, and supporting Government campaigns. Retailers make financial donations, but just as importantly donate staff time, food, and other supplies, often helping people in desperate need.

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Much of this work aligns with objectives Government support as well. Indeed, reporting on charitable work is one of the ways the Retail Industry, through the Better Retail BetterWorld project, is supporting the UN Sustainability Goals. As well as the direct support for the Government and public bodies, through providing space in store, and communications channels to customers, much of this work helps to support broader public initiatives, for example in encouraging food waste reductions or more active and healthy lifestyles. It’s not just money and products either. Over 12,000 hours of volunteering was provided by the industry last year in Scotland – worth £120,000 to those charities who were supported by retail workers. That’s people from all aspects of the industry being supported in giving up time to help good causes. Of course, there are good business reasons for this. By putting time and effort into supporting good causes, retailers get better more engaged colleagues. The teambuilding benefits of fundraising events, the sense of place which running charity events in store brings, or just the camaraderie of forcing the manager to dress up, all help to create better more productive workplaces. Those benefits are real but are ancillary rather than the core reason for supporting these causes.

There can be little doubt the retail industry continues to face challenging times. Trading is challenging, and we’re seeing year-on-year reductions in the number of shops and shop workers. It’s also true the industry continues to evolve and embrace new technology and ways of serving customers. It’s a dynamic, every changing, highly competitive industry which is adapting to a complex world. Yet for all the change, that determination tomake a difference to the local community remains undimmed. Cynics might look at retailers trading in the run up to Christmas Eve and think there was something of Mr Scrooge about them. In fact, the end of Dickens wonderful story is more apposite, with the determination tomake sure Christmas is a time of generosity and kindness the priority. No doubt in another century’s time, a very different retail industry will still be working throughout the year to help good causes, charities, and tomake a real difference.

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NEWS FROM THE BRC Two Years of Stormont Stalemate

Aodhán Connolly is Director Director Northern Ireland Retail Consortium

Reaching two years without a sitting Assembly or Executive is an ignominious accolade. We, in Northern Ireland, have been falling behind our neighbours to the south and to the east on a range of issues that affect retail and the 90,000 people we employ as Northern Ireland’s largest private sector employer. There are those who will argue over who is to blame for the collapse of the Assembly as well as the abortive attempts at its resurrection. A blame culture is a huge part of the long standing political problems that have led to this impasse. Nomatter where the fault rests, the simple fact is that this stagnationmakes it harder to do business in Northern Ireland. In this past two years across the UK, we have seen the debate on business taxation drive forward, due in no small part to our colleagues at the British, Welsh and Scottish Retail Consortiums. Headway coming from the Barclay review in Scotland, such as three-year revaluations of business rates, is now being delivered and the same happening inWales and England. They have also set the poundage rate or multiplier for Scotland at 49p in the pound, while here we in NI have a poundage of up to 63p in the pound when both district and regional rates are collated. The fact that retail in Northern Ireland is 12% of the economy but pays almost a quarter of business rates is simply unsustainable. We also have no access to the millions of pounds that we are paying in to the Apprenticeship Levy which has become nomore than a tax. We need reform to allow us to remove barriers such as apprenticeships in NI only being delivered until the age of 25 or the length of time required. These barriers mean that the system and the Levy do not work for our industry. This is in stark comparison to Scotland, where not only is there a FlexibleWorkforce Development Fund but Levy payers can claimback £15,000 of their fees.

Both the reforms needed for business rates and for the Apprenticeship Levy could happen very quickly if we had our Assembly back up and running. But the stalemate is not just affecting the competitiveness of our industry. It could affect our frontline colleagues. According to the last British Retail ConsortiumCrime Survey, nearly 51 retail workers were injured every day in the UK. Attacks on retail workers are intolerable, that is why our sister organisations, the Scottish, Welsh and British Retail Consortia, have been supportive of legislation in their jurisdictions to protect workers. In Scotland, Daniel JohnsonMSP’s proposed Shopworker Protection Bill is calling for more to be done to protect vulnerable retail workers by creating a new statutory offence for abusing a worker carrying out actions required by Government (for example enforcing age-restricted sales such as alcoholic products). InWestminster there is a major push to ensure the OffensiveWeapons Bill provides to create a new offence for assaulting or threatening a retail colleague. What do we have in Northern Ireland? Nothing. No Assembly, no Executive, noMinister, and nomeans to ensure that retail workers here are afforded the same protection as in Great Britain. This is not to say that we in the Northern Ireland Retail Consortium have not been working diligently onmembers’ behalf. The lack of the Executive has made influencing policy muchmore complex than simply meeting withMinisters and Special Advisors. We have had to build up solid relationships with the permanent secretaries, directorate heads and lead officials across a range of government departments.

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We have garnered a commitment from the Permanent Secretary of the Department of Finance tomove the setting of the NI poundage rate to allowmembers to plan as well as a commitment to revisit radical reform of the business rates systemwhich she agrees is not fit for purpose. We continue to push for reformof the Apprenticeship Levy and have gained a place on the Northern Ireland Skills Advisory Board to do just that. We continue tomake our concerns heard and robustly defend our industry on areas as diverse as supply chain and the environment. We have also worked hand in hand with our London colleagues on our Brexit campaign, bringing our key messages to Northern Ireland politicians, Ministers and officials in Dublin, Michel Barnier’s Article 50 team and the European Parliament in Brussels, as well as toMPs and 10 Downing Street. While it may have been a continuous Groundhog Day for the folks on the hill in Stormont, it has been all hands on deck for the Northern Ireland Retail Consortium.

Two years of no Executive has slowed progress onmany issues to a snail’s pace. It is making Northern Ireland a less competitive place to do business not only now but for investment decisions being made going forward. But we in the business world have stood up to be counted on an unprecedented scale with leaders from farming, freight, manufacturing and even agri-food processing standing supporting our stance on Brexit which has trickled down to other issues. My biggest hope for when the Assembly inevitably comes back is that the business and civic genie is truly out of the bottle and the political parties listen more and react in a less knee jerk way. Change can only happen when our government deigns to sit. So, it’s time for our parties to get back to work and protect the economy, jobs and our workers. 2019 would be a better place for business in Northern Ireland if we have an Executive to take the bold decisions needed.

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BRC events

We deliver a wide range of events throughout the year - from our flagship lectures, to regular policy roundtables, webinars and conferences. Bringing together retail leaders, policymakers, influencers and industry partners, our events help you keep up to date and informed on key issues affecting the industry. Find out more at








We work in partnership for the benefit of all our members, and have a range of sponsorship packages on offer to suit our partners’ needs. Want to find out more? Contact us:






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save the date

spring reception


We want to thank you, our members, for being part of the BRC. Which is why we’re putting on drinks and canapes for you at one of the coolest spaces in London. 25 APR | GOOGLE OFFICES Exclusive To BRC members

Protecting the bottom line, come rain or shine



HOW PARAMETRIC INSURANCE CAN SMOOTH INCOME VOLATILITY FOR RETAILERS There are many external risks that retailers can do little about; risks that can have a big impact on the bottom line. Take extreme weather. Unseasonably cold, hot or wet weather has the potential to significantly reduce consumer footfall in stores as well as reducing demands for seasonal stock. If it’s not the weather, it could be a terrorist event or incident like the Salisbury nerve agent attack that reduces the number of shoppers in an area. What if a major transport hub like Heathrow closes at a critical sales period, or a sea port is hit by a strike threatening the ‘just in time’ delivery of a seasonally sensitive product? To try and smooth this volatility, retailers are increasingly taking advantage of parametric insurance solutions that can cover financial losses related to external events not covered by traditional insurance – or what the insurance industry calls non-damage business interruption (NDBI). Advances in data science means there is now enough information for insurers to offer financial cover for those external risks that, despite the best in risk control, a retailer can do little about. Rain stops play Last November, John Lewis blamed unseasonably mild weather for an 8% decline in sales, while earlier in the year clothing retailer H&M attributed a slump in profits in the first quarter of 2018 to cold weather hitting the sales of their spring clothing range. The long hot summer of 2018 – while a boom for food and drink sales – led to a decline in demand at clothing and non-food stores as consumers chose to enjoy the good weather on the beach or in the garden as opposed to sweating it out on the high street. Even England’s run of success in the football World Cup had the knock-on effect of damaging clothing sales (Gareth Southgate waistcoats being the notable exception). Storm Deirdre, which hit the UK on one of the most important pre-Christmas shopping days, is also blamed by retail analysts Springboard to have impacted footfall by 9% compared to the corresponding Saturday in 2017.

With climate change appearing to influence the UK’s weather, creating more extreme events from flooding to long hot dry summers, it’s likely that the weather will feature ever more prominently as a factor in retailers’ earnings announcements. But other factors have also served to damage sales. When singer Olly Murs tweeted there was a possible terrorist incident event during Black Friday shopping in Oxford Street in 2017, the resulting chaos and police lockdown is said to have cost retailers millions in lost sales. And, in the months after the Salisbury nerve agent attack, many businesses In the past, retailers have been at the mercy of ‘black swan events’ like these but the availability of high quality data when it comes to understanding and quantifying the impact on retailers of extreme weather or a terrorist incident, has led to the development of a new range of parametric insurance products. Parametric insurance pays out based on a pre-determined trigger point being met such as a specified weather temperature, level of snowfall, or a non-weather related event that could directly impact footfall and, as a consequence, a retailer’s sales. Similar weather derivative products have been a feature of the energy and agricultural industries for more than 20 years, but it’s only recently that these types of policies have been offered more widely. A retailer now has the opportunity to insure against the impact of good or bad weather on its sales, or a terrorist incident nearby affecting footfall. In turn, by transferring the risk to an insurer’s balance sheet, it can smooth its income and protect itself against any unforeseen losses. There is no long, drawn out claims process either with claims paid quickly as soon as the conditions of a policy have been met such as with a particular level of rainfall for example, or drop in footfall. Parametric insurance differs from indemnity insurance in that once the client has suffered and reported a loss following a pre-agreed trigger event – for example, there has been a verified level of rainfall or a decrease in footfall over a specified time period – then the policy will pay out. reported footfall down by as much as 80% 4 Pulling the parametric trigger


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Bringing certainty As many retailers grow their intangible assets, insurance is having to respond with new products that move away from simply covering a shop building that’s been flooded or burnt down. Parametric insurance meets that coverage gap and can apply equally to a retailer with a strong physical presence, pure online presence, or both. Additionally, as the parameters of each policy can be flexed to suit each retailer, the pricing of these policies can also be very competitive, particularly given the level of confidence they provide for retailers when it comes to managing their earnings volatility. Only a few years ago, cyber insurance was seen as a ‘nice to have’ but not the essential purchase that it has become today. In the same way, we expect to see parametric insurance take up a growing place in every retailer’s risk management programme as businesses look beyond traditional risks and use insurance to help them bring more certainty to their business. For further information on parametric insurance solutions contact Dan Fox, UK Retail Practice Leader, Aon. Whilst care has been taken in the production of this article and the information contained within it has been obtained from sources that Aon UK Limited believes to be reliable, Aon UK Limited does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the article or any part of it and can accept no liability for any loss incurred in any way whatsoever by any person who may rely on it. In any case any recipient shall be entirely responsible for the use to which it puts this article. This article has been compiled using information available to us up to 14.01.19. Aon is authorised and regulated by the Financial Conduct Authority.

Catch our webinar on

demand to find out more about parametric insurance for the retail sector. click here

DAN FOX // // +44 (0)7769 742803

the retailer | winter 2019 | 17

PSDII will make ease of payment the next battleground for innovative retailers

Philipp Gutzwiller Managing Director, Head of Retail Large Corporates Coverage LLOYDS BANK COMMERCIAL BANKING

NEW EU REGULATIONS ARE SET TO ACCELERATE THE ALREADY RAPID INNOVATION IN PAYMENTS AND MAKE OFFERING THE EASIEST CHECKOUT EXPERIENCE THE NEXT KEY BATTLEGROUND BETWEEN RETAILERS. HERE, PHILIPP GUTZWILLER, HEAD OF RETAIL AT LLOYDS BANK COMMERCIAL BANKING, EXPLORES HOW RETAILERS CAN TAKE ADVANTAGE OF THE LATEST INNOVATIONS TO ATTRACT AND RETAIN NEW SHOPPERS AND BOOST SPENDING. How shoppers make payments has changed dramatically in recent years – from the introduction of chip-and-pin to contactless cards and the advent of mobile wallets such as Apple Pay and Android Pay. Even online, where cashless payments are the norm, checkout experiences have evolved rapidly to become as easy and as convenient as possible for customers who increasingly expect nothing less. Now, the introduction of new European payments regulations are set to catalyse these innovations and drive even more rapid change to the process of checking out. Shoppers in the UK increasingly see the final transaction – repeatedly keying in credit card numbers and other verification details – as cumbersome and are willing to trust retailers with their finances to make their next purchase more quickly and easily, whether online or in-store. Unlike elsewhere, UK shoppers are generally willing to trust their favourite retailers and online platforms with their data. The UK is ranked third in the world for its adoption of mobile wallets, and is the out-and-out European leader for the total value of cashless payments it makes. As such, British retailers can expect consumers to remain among the most receptive for innovations in payments – and therefore lead demands for continued improvements in the customer experience. Keeping up with these demands is challenging. Deciding where best to invest efforts and resources is difficult – especially amid strong headwinds and fears around backing the wrong technology. This year is set to see the start of a process in which PSDII will combine with two other areas of innovation to transform the way retailers engage customers, boost loyalty and generate new sales.

Harnessing data to boost security The use of data has already transformed retail – particularly online and omnichannel – allowing businesses to target customers with more tailored offers and products that help increase basket size. But the insights that businesses have been developing in recent years is now having a significant impact on payments, helping retailers increase security while simultaneously reducing the friction involved at the checkout. Card providers have long since used customer insights to tackle fraud by recognising unusual spending and alerting retailers – and customers – when there is a problem. As pressure increases to abandon single-factor authentication for purchases, retailers too are using their own data to do exactly the same. Most retailers still require customers to type in their CVC code as a second level of authentication for each purchase. But retailers such as Amazon are now using sophisticated checks based on their own deep insights into customer behaviour patterns to replace the CVC code and create a truly one-click option for buying. Making mobile an even bigger part of your checkout – in-store and online Mobile is rapidly becoming the channel of choice for many retailers, first at the expense of desktop but also as part of their in-store experience as well. For online retailing, the added difficulties in checking out on a small screen make consumers even less tolerant of clumsy payment processes, and even more likely to choose who they shop with, at least in part, based on whose checkout is the swiftest and most convenient. But in stores, the impact of mobile will be even greater. First, mobile wallets like Apple Pay and Android Pay became ubiquitous as their speed and security were attractive for retailers and shoppers alike. Now, Sainsbury’s is going one further by allowing customers in its Clapham North Station Local branch to scan their products as they shop using its SmartShop app, then pay and leave the store without having to queue for a checkout at all. Even in the US, a relatively late adopter in payment terms, Amazon plans to create up to 3,000 entirely cashierless AmazonGo stores in the next few years. Here, shoppers use a smartphone to enter, choose goods from the shelves, and walk out without stopping at a checkout. Sensors automatically bill them once they’ve left.

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Its a hard time to be a retailer, as economic headwinds combine with rapid innovation and changing

Adding fuel to the innovation fires This year will see the final two deadlines for complying with the latest European Payment Services Directives (PSDII), forcing those looking after customers’ money to allow secure access to their finances – with consent – to other third parties. These third parties could be other service providers, offering consumers the chance to control their finances by managing all their money – wherever it is held – in one place. But they may also include retailers, which could – with their customers’ consent – access bank account information and target consumers with far more tailored products or promotions, including at the point of sale. At Lloyds Bank, we are currently working hard to facilitate these changes, allowing us to help retailers to take and make payments directly to and from customers’ accounts in real time – bypassing card fees and being able to refund customers instantly at the point of return, further streamlining the returns process that is such a key part of omnichannel retailing. Seizing the moment It’s a hard time to be a retailer, as economic headwinds combine with rapid innovation and changing consumer behaviour. Simply knowing which new trend to invest in can be a minefield. The PSDII regulation promises to bring with it more secure payments to catalyse innovations like the one-click online payments or queue-free shopping in store. The speed and prevalence of such advancements will change the face of UK retail in the years ahead.

consumer behavior.

Philipp Gutzwiller // //

the retailer | winter 2019 | 19

Preparing for the 2021 Rating List as Brexit Looms


This may of course mean that advisors are remunerated in a different way, but the savings and benefits to retailers could be enormous. The delay in dealing with town committees was largely to do with CCA and the new Group Pre-Challenge Review (GPCR) process – a version of pre-filing agreements. Now this is in place and 2019 is the year when many retail town centres will be discussed, the timing should be put to the advantage of the retail sector. And that does of course mean a lot of work is done for the VOA at the same time. Set against this opportunity however, there are still a number of clear and present dangers for retail. One main worry is that rates bills are about to drop in the coming weeks. For those with large properties in England (£100,000 Rateable Value) affected by ‘downward phasing’, the new bills will show a small reduction of 5.9% less inflation while those with large properties affected by ‘upwards phasing’ will see eye watering ‘caps’ of 49% plus inflation. In other words, some areas of central London retail will have rates bills land in the coming weeks which are 50% bigger – in one year alone!! This is on top of 42% increases in 2017/18 and 32% in 2018/19 plus inflation, (see Box 1) a combined increase in 2 years of a staggering 124% plus inflation. These increases are clearly starting to have an impact on the occupational market and in turn on rental levels and again BRC members should make it clear to their agents that this information on sliding rental levels, even in some of the most fashionable central London locations, should be communicated now to the VOA to allow them to get 2021 Rating List correct. Companywith 125% rise on (RV) post 2017 Revaluation see 42% rise in bills 2017/8 32% additional rise 2018/9 49% rise (2019/20).

THE 2021 RATING LIST PROVIDES AN OPPORTUNITY TO CORRECT VALUES - RETAILERS AND AGENTS TO ENGAGE WITH THE VOA NOW. It seems odd that early into 2019 we should start worrying about 2021, but the valuation date for the 2021 Rating List - the Antecedent Valuation Date (AVD) - is approaching fast- on 1 April 2019 . The VOA has already moved resources internally for teams to start working on the next list. You may be of course be forgiven for thinking the 2017 Rating List has not really begun – the paltry level of numbers of Checks and Challenges (CCA), which is less than 2%, illustrates that point. Indeed, whilst the new CCA system is improving, to say the improvements are ‘glacial’ may be an overstatement. Nevertheless, the 1 April 2019 AVD does provide a useful opportunity to engage with the VOA , who certainly seem more enthusiastic to discuss 2021 values than 2017. For retailers, the pace of change between 2015 (the AVD for the 2017 Rating List) and 2019 (the AVD for 2021) has been seismic and will continue over the coming weeks to 1 April 2019. Set against a background of political uncertainty not experienced since the 1970’s, the reductions in rental values over that 4-year period (2015 – 2019) could and should lead to large reductions in Rateable Values. Many locations will have experienced sizeable rental reductions and this should feed through to 30-40% reductions in RVs in those locations, which could provide a light at the end of the tunnel for Retail. And, if sufficient pressure is put on Government to remove downward phasing, the 2021 Rating List could finally be the answer to many long-suffering retailers’ problems , allowing them to budget over the next 4/5 years on a manageable rates liability. This could lead to shops staying in business or new openings, rather than wide scale job losses that have been experienced in the last 18 months. Of course when the Government triggered article 50, the significance of 29 March 2019 in relation to the 2021 Rating List AVD 3 days later was not high on the agenda. But this does create an opportunity. The Rating Surveyors Association (RSA) Town committees have started in earnest to get underway for the 2017 Rating List and therefore a discussion should take place about the same locations for 2021 at the same time – in effect a dual list maintenance. Members of the BRC should encourage their agents to not only provide information for around 2015, but also update this, allowing the VOA to get it right first time.

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Business Rates Reliefs

2019 will bring political change. What we rating experts hope for, is that the Government, of whatever persuasion, grasps the rating nettle. It is also important that the retail sector finds a unified voice. I believe the main reason the Government has presided over such a rating debacle in recent years is because there have been many different calls for change and vested interests have focussed on different areas of concern. Clearly the Federation of Small Business has been very successful in asking for relief for smaller retailers, but undoubtedly this has this been at the expense of larger retailers who have not benefitted from the proposals in the Chancellor’s last Budget (Box 2). Has food retail sat shoulder-to-shoulder with high street retailer? Probably not. And where does out-of-town sit with the high street? Some retailers with little online presence have a different view to those with a much greater multi-channel offering – but ultimately if that lobby and voice is not united everyone will lose out. So, 2019 does provide something of a silver lining - but action and engagement is needed by retailers and their agents. Sitting back and waiting is not an option.

RV less £12,000 a year- 100% relief RV £12,000 - £14,999 – Tapered relief RV Under £51,000- Rate bills cut by a third in certain circumstances.


the retailer | winter 2019 | 21

Lessons from Place

John Percy Partner – Head of Development and Place Cushman and Wakefield

H ousing Latest figures (2017) show that over 83% of UK citizens live in urban areas and urban living is forecasted to rise annually by 1%, with populations set to expand in every one of the UK’s 63 cities by 2036. Leaders and developers are rising to the challenge of providing new urban homes, but demographic change has significantly skewed modern approaches to housing types and tenure. Home ownership has fallen steadily from a peak of 71% in 2003 and some believe that it may fall as low as 50% over the coming decades. New housing concepts, such as co-living have emerged, initially targeted at career-orientated, young professionals due to land demand in major cities, but has become much more. Developers and occupiers alike are considering the negative implications of social isolation, for example, British Land’s proposed Canada Water scheme explores facilitating social interaction between all age groups, while a group of women (aged 50+) have developed their own co-living space in Barnet. Co-living principles are applicable to all housing across the UK, and retail in these locations has more consumers to win over so must adapt its offer to be relevant to these groups. A uthenticity With retail products becoming commoditised and available across multiple channels, it is perhaps unsurprising that many consumers are choosing to purchase online. Therefore providing something unique and authentic to that location is a trend that our towns and cities should seek to embrace. Markets often struggle when they seek to compete only on price and are easily undercut by discounters. To be successful markets will need to be carefully and continuously curated and provide a regular, well-conceived experiential programme with products by the best makers. Without these elements, demand may decline quickly and be hard to recapture. Markets seen by their owners as “returning to their roots” (the heart of the community), are likely to think more laterally about their mix. Incubator space for small retailers and micro businesses could be the basis of a sustainable model for wider town-centre regeneration.

WHAT CAN EXPERIENCE TELL US ABOUT THE KEY INGREDIENTS TO A SUCCESSFUL PLACE? Urban places are the powerhouses of the UK economy, and views on how best to maintain and regenerate spaces are diverse. The debate is focused sharply on our shopping environments, the areas most visible to, and frequented by, a sizeable proportion of the population. The issue has moved away from a singular focus on retail, towards how many uses can work together for mutual benefit. Physical lines which once rigidly separated the functions of living, working and shopping are increasingly blurred, accompanied by uncertainty about how best to respond to these shifts. Urban locations will be partly defined by how they respond to that most fundamental of human drivers: the desire and/or need to be in a certain place. Our specialists helped determine the key regenerative components and the overriding message was clear: there is no simple off-the-shelf answer. Those charged with curating urban places, must adapt to an increasingly challenging economic environment, and the search for a solution pioneered the acronym ‘C.H.A.M.P.’ C ulture Culture enlivens our towns and public spaces Definitions of culture varied, focusing on how to evolve and improve places through arts, culture, design and engagement, and contribute to a wider place-shaping approach; what will help solve problems and enhance the experience of places? It also reinforces competitive destination marketing and bolsters the idea that regeneration is becoming more inclusive. Culture specialists, Jon Dallas and Juliet Quientero, founders of Dallas Pierce Quintero; state four key ingredients to cultural success: 1. Public Arts: permanent, ephemeral, live, integrated, spectacular, quiet, playful. 2. Partnerships: between public, private, community and culture sectors, these generate new ideas, unlock funds and exploit the culture sector’s many strengths. 3. Co-Production: for example, City of Culture and Arts Council’s Creative People and Place programmes. These inspire collaboration with local people and homegrown culture and balance strategic and informal grassroots culture. 4. Value Existing Projects: support local culture development needs and grow local talent and opportunity.

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