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Winning in a Digital World June 4, 2014 | Toronto

Winning in a Digital World June 4, 2014 | Toronto. Keith Anderson | keith@retailnetgroup.com | @ keith_rng. What We Stand By. We Bring the Future to the Present. T - 5. Today. T + 5. Traditional planning process. RNG process . Trends. Drivers of Change.

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Winning in a Digital World June 4, 2014 | Toronto

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  1. Winning in a Digital World June 4, 2014 | Toronto Keith Anderson | keith@retailnetgroup.com | @keith_rng

  2. What We Stand By We Bring the Future to the Present T - 5 Today T + 5 Traditional planning process RNG process Trends Drivers of Change Tracking Drivers Shaping the 2020 Retail Landscape S T E I P ocietal echnology conomic ndustry olitical

  3. The Dynamics of Accelerating Change Step Change Linear/Incremental Exponential • What is predictable, when less predictable • Abrupt • Slow and predictable • Incremental • Rewards planning, process, and execution • Higher uncertainty • Rate increases proportionally to scale • Disruptive to status quo • Rewards vision, agility, versatility, and speed Source: RetailNet Group Analysis

  4. Assumptions for the Future 1 • Ecommerce will grow to 10% of all Canadian retail by 2020 2 • Stores (units) and average store size will decline by 5-15% 3 • Digitally-influenced retail will surpass out-of-store retail 4 • Grocery/CPG will finally migrate online • 5 • Amazon will expand, but the story’s not over

  5. Canada Under-Indexes in Ecommerce Share of Chain Retail, but Poised for Accelerated Growth Source: RNG research & analysis

  6. Barriers to Ecommerce in Canada Currency, Customs & Import Tariffs Population Distribution Local Investment & Innovation Sales Tax Parity Language Translation Local Limited Assortment Source: RNG research & analysis

  7. Source: RNG research & analysis

  8. Drivers of Ecommerce in Canada Improving Investment & Innovation Culture Ecommerce Investment by Incumbent Retailers Changing Shopper Expectations Tiered Delivery Networks Millennials Growth of Flexible Fulfillment Source: RNG research & analysis

  9. Assumptions for the Future 1 • Ecommerce will grow to 10% of all Canadian retail by 2020 2 • Stores (units) and average store size will decline by 5-15% 3 • Digitally-influenced retail will surpass out-of-store retail 4 • Grocery/CPG will finally migrate online • 5 • Amazon will expand, but the story’s not over

  10. 2012 % of Total Category Sales Online and Estimated 13E-17E CAGR Big Box Retailers Leasing Empty Space to Increase Productivity & Profit Consumer Electronics: (5.8%, 18%) DIY (1.7% Share, 9% CAGR) Books/Music/Video (38.4% Share, 17% CAGR) (2012 % of Category Sales Online, 14E-17E CAGR) Furniture (0.9%, 10%) Toys & Games (1.3% Share, 10% CAGR) Consumer Appliances: (4% Share, 7% CAGR) Grocery (0.3% Share18% CAGR) Apparel (2.3% Share, 16% CAGR) HBC (0.8% Share, 14% CAGR) Note: Data is for total Canada, not specific to any individual retailer or retail format Source: RNG analysis

  11. Developed Online Categories Align With Store Closures Source: RNG database & analysis

  12. Assortments Pricing & Loyalty Footprint Fulfillment Layout & Adjacencies How Retailer Strategy Will Change POS & Front End Digital Integration Services

  13. Assumptions for the Future 1 • Ecommerce will grow to 10% of all Canadian retail by 2020 2 • Stores (units) and average store size will decline by 5-15% 3 • Digitally-influenced retail will surpass out-of-store retail 4 • Grocery/CPG will finally migrate online • 5 • Amazon will expand, but the story’s not over

  14. Digital Influence > Ecommerce Source: RNG research & analysis

  15. Use Cases & Shopping Behaviors Vary by Screen Source: ComScore, Nielsen, Compete, BGR, RNG analysis

  16. Mobile ROI: Meta-Apps Will Enhance In-Store Experience and Drive Trips, Conversion, Basket, & Loyalty List Management Price Comparison Store Navigation Mobile Checkout Mobile Payments “Check-in” Product Search & Availability Safeway & Giant Eagle Test iBeacon for lock-screen engagement Walgreens 3rd party app Aisle411 item locations Walmart In-Store Mode Mobile Offers Source: RNG research; Shop.org Conference

  17. Technology Companies: Partners or Competitors?

  18. Assumptions for the Future 1 • Ecommerce will grow to 10% of all Canadian retail by 2020 2 • Stores (units) and average store size will decline by 5-15% 3 • Digitally-influenced retail will surpass out-of-store retail 4 • Grocery/CPG will finally migrate online • 5 • Amazon will expand, but the story’s not over

  19. 5Fundamental CPG / Grocery Fulfillment Models Delivery Click & Collect National Ship Store-Picked Warehouse Picked Source: RNG research & analysis

  20. Assumptions for the Future 1 • Ecommerce will grow to 10% of all Canadian retail by 2020 2 • Stores (units) and average store size will decline by 5-15% 3 • Digitally-influenced retail will surpass out-of-store retail 4 • Grocery/CPG will finally migrate online 5 • Amazon will expand, but the story’s not over

  21. How the Landscape Will Organize Pure Play 34% of CA ecommerce sales in 2017 55% of Sales Added 14E-17E 9% of CA ecommerce sales in 2017 6% of Sales Added 14E-17E Generalist Vertical 40% of CA ecommerce sales in 201 21% of Sales Added 14E-17E 16% of CA ecommerce sales in 2017 18% of Sales Added 14E-17E Omnichannel Source: RNG research & analysis

  22. The Top 15 Canadian Online Retailers Make up 74% of Ecommerce Sales Added Since 2008 Source: RNG database & analysis *Grand & Toy broken out due to Office Max acquisition

  23. Amazon’s Growth Model Source: Amazon

  24. Massive Transitions Underway Globally Source: Tesco Investor Relations

  25. Strategic Initiatives 2020 Retailer Strategic Initiatives Top Retail Initiatives Redefining Differentiation 2020 Capital Discipline Store & Network Renewal Big Data / Customer Experience Management – New Marketing Platform Digital & Physical Integration Logistics / Supply Chain Advanced Branding & Merchandising Services Organization 2020 Customer Service

  26. The Critical Intersection of Brands & Retailer Capabilities Retailer High Collaborate Brands High Low CO-DEVELOP Low

  27. The Work in a Digital World Structure Strategy Principles & Policies Capabilities • Sales • Digital Content Management • Digital Shopper Marketing • Insights & Analytics • Supply Chain • Size of the prize • Offense or defense • Where to play • Consumer Direct • Amazon • B&M.com • Full-basket delivery/drive • Dedicated vs. shared • HQ vs. field • Global vs. local • Decision rights • Processes • Metrics • Brand/channel access (conflict) • Assortment • Pricing • Shipping • Funding Source: RNG research & analysis

  28. In Conclusion • Move fast & learn by doing • Don’t mistake technology for strategy • Look externally for inspiration but innovate, don’t replicate • Work backwards from shoppers’ needs & wants • Descriptive  Predictive  Prescriptive (If, then) • Don’t compete on Amazon’s terms

  29. Thank you! Questions? Keith Anderson, VP, Advisory RetailNet Group keith@retailnetgroup.com | @keith_rng www.retailnetgroup.com

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