Total Retail 2017 pwc/2017totalretail 10 retailer investments for an uncertain future companies are under pressure from shareholders to cut costs, but at the same time are benefting from opportunities in this global marketplace. Retailers are in a tough spot, however, often lacking a global brand and facing technological upheavals that have left them in the throes of constant reinvention. That’s why our 2017 Total Retail report is focused on the kinds of investments retailers will need in order to thrive in tomorrow’s marketplace. This is the 10th consecutive year that PwC has published a study of online shoppers, and our sixth truly global study. In last year’s Total Retail report, “They say they want a revolution,” we pointed to consumer behaviors that had fnally reached a tipping point, among them: participating in retail communities, using mobile phones as shopping devices, the emergence of social media as the “great infuencer,” and consumer demands for more service-focused and knowledgeable store employees. This year we added several new areas of research, including Amazon’s impact and customers’ willingness to consider retailers as health care providers. We also delved into other research sources and included the insights of a number of PwC partners. The result Ten areas where we believe retailers need to consider investing in to stay ahead of the competition. | 2 | Introduction: A golden age in consumer choice means challenging times for retailers An advertisement for Colgate’s “Ribbon Dental Cream” from a January 1912 edition of The Youth’s Companion magazine features the tag line “For all the Family.” The ad promises “Good Teeth, Good Health, and Good Spirits.” Back then, companies like Colgate and Procter & Gamble (P&G) advertised almost exclusively in the popular periodicals of the day. Ads like Colgate’s harken back to a time with fewer customer demands and less competition. All the players critical to the consumer shopping experience— manufacturers, retailers, and consumers—knew their “roles” and the script rarely changed. Fast forward to today. Not only is there no set script, there are no assigned roles! Consumers are in the power position, as 2017 is a golden age of choice, convenience and demand for value, powered by the mobile phone and the global bazaar just a click away. Consumer John Maxwell Global Retail & Consumer leader PwC’s Global Retail and Consumer practice, in conjunction with PwC’s Research to Insight (r2i), administered a global survey to understand and compare consumer shopping behaviors and the use of different retail channels across 29 territories: Australia, Belgium, Brazil, Canada, Chile, China/Hong Kong, Denmark, France, Germany, Hungary, Indonesia, Ireland, Italy, Japan, Malaysia, Middle East (Egypt, UAE, and Saudi Arabia), Poland, the Philippines, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, the United Kingdom, the United States, and Vietnam. Totals may not add up to 100% due to rounding. Our survey covered 6 continents and 29 territories, including 24,471 respondents | 3 | The stakes have never been higher for allocating precious investment dollars Managing return on investment is critical to a healthy business. Many factors go into investment decisions, ranging from what merchandise to stock for what season to how many stores to open in a given geographic location. Retailers have an opportunity to take a close look at their investments in customer experience, staff, technology, and real estate. The stakes have never been higher for individual retailers. First, competition has never been fercer. My PwC colleagues who serve retail clients continually share how new competitors continue to disrupt the status quo. To compete in retail today, new entrants don’t require stores or warehouses, and can be based around the corner—or on the other side of the planet. Pure-play online players are popping up in every product category. The Amazon graphic on the right, based on data from this year’s Total Retail survey, illustrates how retailers are competing with Amazon for market share. Globally, fully 28% of our respondents said that they shop less often at retail stores because of Amazon; in the U.S. that fgure was 37%. When it comes to China’s Amazon equivalent, Tmall, a subsidiary of Alibaba, 24% of respondents from China said that they now shop less often at retail stores because of Tmall. 39% 37% 35% 34% 28% Japan USA Brazil Germany Global The top four countries where consumers “shop less often” at retail stores due to Amazon | 4 | And don’t forget that branded product manufacturers are attempting to build their own distribution networks to traverse “the last mile” to directly engage with consumers—sometimes fulflling product by customer subscription or even buying a new entrant that has forged its own direct connection with consumers, such as Unilever purchasing Dollar Shave Club. Source: PwC, Total Retail 2017 How has shopping with Amazon infuenced your shopping behavior The second factor forcing retailers to make smarter investments is what’s been referred to as the global “New Normal.” With lackluster GDP growth around the world, sluggish consumer demand will continue to put signifcant pressure on retailers to differentiate their offerings. Third, retail in general is still struggling around the world, particularly grocery, household items, and clothing and footwear segments. Take the U.S., for example, the world’s biggest consumer market in terms of purchasing power. While U.S. retail sales are expected to grow 3%-4% in 2017 after 3.8% growth in 2016, most of this growth is coming from online sales, as store sales revenue growth is only about 1%.1 In fact, gains in retail revenue in the past few years have been driven almost entirely by online channels, which enjoy growth rates as much as seven percent higher than the retail sector as a whole. In short, traditional retailers in the U.S. are faced with fat or declining sales outside of online revenue growth. The best-performing retailers are responding in numerous ways. Nordstrom invested to become a model of omnichannel customer service and innovation, becoming a platform for vertically integrated brands such as Bonobos, Madewell, and J. Crew; Saks Fifth 1 Fitch Ratings Services, December 12, 2016, “Battle for Customers Persists in 2017 for U.S. Retail, Restaurants. 2 Fitch Ratings Services, December 12, 2016, “Battle for Customers Persists in 2017 for U.S. Retail, Restaurants. | 5 | Avenue launched stores in downtown Manhattan that mimic its website layout; Best Buy built a new business of bespoke retail technology assistance; and, in the UK, Marks & Spencer has set a new standard for integrating store and web offerings. In China, Alibaba is redefning traditional retail and entertainment by providing services that go way beyond just shopping to become shoppers’ “go-to” Web destination and, in Europe, online platform Zalando has established itself as a staple for fashion and accessories shopping. These retailers are leading the way in offering consumers a seamless experience whether they are purchasing in a store, with a computer, on their mobile phone, or with a tablet. David Silverman, senior director of U.S. Corporates at Fitch Ratings, wrote in late 2016 that retailers that fnd themselves left behind by technology and an inability to provide a world-class customer experience will become market share “donors” to thos