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June 2019
Digital era in retail:
Future success depends on the ability to adjust to digitized environment now
PwC
Key global retail market
trends that have impact on
Russian retail environment
How to adapt business
to changing environment?
Content
1 2
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PwC
Key global retail market trends that have impact on Russian retail environment
3
PwC
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1 8302 100
2 400
1 150965
800
1 000
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1 800
2 000
2 200
2 400
2019 202320222020 20212017 2018
% of total retail salesB RUB
E-commerce is growing rapidly yet physical stores remain dominant shopping channel
Russian e-commerce sales
currently account for 4%of total retail sales, and this
figure is expected to reach
6% by 2023
On the global market,
e-commerce sales account
for a greater share of retail
turnover.
E-commerce sales in the
US in 2018 accounted for
around 10% of retail sales,
while 35% of China’s retail
sales occur online.
India
Russia 4%
China
18%
35%
Japan
6%
10%
UK
4%
France
9%
USA
Share of e-commerce sales in total retail sales volume,
2018
Source: PwC analysis, Data Insight, Statista
3%
4%
5%
6%
Despite the digital disruption in
retail, brick-and-mortar stores
still remain the prime shopping
channel for purchases.
Global leading digital retailers
as Amazon and Aliexpress
focus on integrating physical
stores to digital ecosystems.
Providing seamless omni-
channel experience is not an
option, it’s a must for retailers
who want to keep up.
E-commerce sales volume in Russia,
2017-2023
4
PwC
Digitization has already turned customer behavior and needs - here’s where we’re at right now!
5
Most active online audience
is young generation
of Generation Z shop less at
other retailers because of
online shopping experience
Social media highly influence
shopping behavior
of them use
smartphone
to shop online79%
of Young Millennials shop
online at least once a month
27%
86%
71% of Russian consumers
shop online at least
once a month
believe that social media
influenced their purchase
decisions in selected
categories
52%
have been influenced to buy
a product or service,
following positive reviews
on social media
39%
Russia is currently showing one of the highest
growth rates of online shopping
Source: Global Consumer Insights Survey, PwC, Russia, 2019
PwC
Future physical retail will be highly connected with digital experience & technology
Location Recognition
Recognize the
moment you enter
a store location,
greet you with a
personalized
welcome
message, show
you store
promotions of
interest, and
direct you through
the store.
It is like a
greeter in the
palm of your
hand.
Recommended Shopping Lists
Recommended shopping lists reduce time spent researching and browsing.
Shopping Cart
Build a shared
shopping list with
your partner or
roommate from
anywhere at any
time in the app.
You can also
scan items or
barcodes for
instantaneous
price comparison
Your shopping
cart will have
everything you
need at the best
price.
Community of Shoppers
Give and
receive product
reviews,
recommendatio
ns and
experiences, all
while earning
loyalty points for
constructive
contributions.
PersonalisedRecommendations
As you shop and build
your profile, the app
understands your
purchasing habits and
gives tailored product
recommendations.
Find the products that
are right for you! No
more tyranny of
choice.
Pick-up Options
Skip the time spent navigating the store and waiting in line. With built-in payment and pick-up options, you can just grab and go.
VISION
The vision of OMNI-channel
customer journey
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Seamless Payment
Once you’re satisfied with your cart, you’ll save time and avoid congestion as you head home.
Subscription and Delivery Prompts
The product subscription feature will ship items straight to your door at a chosen interval, making your routine shop that much easier.
In-Store Navigation
Shopping trips will
be more efficient
and timely when
you know exactly
where you need
to go.
On-Demand Information
You’ll be confident you’re making an informed purchase. You get the benefits of online information as well as touching and feeling the product in person.
Digital Receipt
For all your purchases in-store, a digital receipt will be made available on your account. Product returns become smoother as you won’t need to worry about losing proofs of purchase.
Re-Purchase Reminders
For items that you frequently purchase, you’ll be prompted with a friendly suggestion on when you should re-purchase. This eases the burden of remembering what to buy and when to buy.
VISION
Each interaction in the path to purchase is an opportunity
to bring constructive, audacious digital experiences and
wow moments.
7
PwC
Exemplary evolution drivers
Retail has evolved towards omni-channel models and “pure-players” are on the path to extinction
~1950
Postal
Infrastructure
~1990
Internet
~2007
Mobile /
Social
~2010+
Digital (incl.
cloud, big data)
~20X0
AI / Robotics…
Brick&Mortar
Distance Selling
e-commerce
Multi/Omni
Digital Retail
Endangered
Close to
extinction
Aggressive push to offline
Current standard…for how long?
Next evolutionary step
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???
PwC
Russian retailers have to transform their businesses along with global trends
9
Retail evolution is driven by the need to adapt to
a changing environment and respond to these challenges
In the process of
evolution, species
pass on favorable
genetic
characteristics in
their DNA to their
descendants
To survive, species
need to adapt to the
changing
environmental
conditions, for
example climate or
predators
PwC
74%
55%
35%
35%
32%
32%
32%
26%
19%
Direct-to-consumer business model development is at
initial stages
X5 OMNI – new branch for omnichannel development
Key products in omni:
Stores go to…
Magnit: close focus on omni
Partnerships with retailers from
different product categories (M.Video)
Personalized products, offers, services
Click&Collect
Expansion of pickup delivery
points (Russian Post,
OMS)
Pure digital and traditional retailers aimed to provide
omni-channel experience
Russian retailers adjust their business models & store operations
The shift from manufacturers to direct-to-consumer
in Russia is just starting to get off. Only 6 of top-100
leading online retailers are pure manufacturers.
The share of such companies in the e-commerce
turnover is less than 2%.
Russian D2C retailers sales channels, %, 2018 Key problems Russian D2C face when going online,
%, 2018
Source: Aero and e-Pepper, RBC
63%
24%13%
D2Cpartnerships+Marketplaces
Independent e-commercebrand store
Combined independentstore + partnerships & marketplaces
Regulatory restrictions
Hard to attract customers
Difficulties with distributors
Hard to cooperate differentlegal entities
Employees are against changes
Hard to adapt businessprocesses to e-sales channel
Hard to configure IT systemto new business processes
Lack of experience in e-commerce
Hard to build functional supply chain
Pure online
Classic retail
online
offline
Dressingroomsin-store
Online
storeClick&Collect
Dark
stores
Pickup points
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PwC
Jan,18 Apr,18 Jun,18 Jul,18 Sep,18 Nov,18 Dec,18
There is rapid growth of pick-up and locker
delivery in Russia
Shift in marketing models to development
of mobile apps/platforms channel
Azbuka Vkusa increased
sales by 25% through
mobile channel
1,2 M regular customers
use Krasnoye&Beloe
mobile app with
integrated loyalty card
Mobile app launch
increase sales up to 4
times in beauty segment
Traditional in-store retailers create new formats to meet
consumer demand for atmosphere and impressions
of companies have added
mobile channel direction
to marketing strategy
of online retailers plan
to increase mobile
marketing budget
Source: Omni Solution, Mobile Commerce in Russia, 2018
Concept store
Panasonic,
Catcher
Pop-up store
Tom Tailor,
Aizel
Showroom
Leroy Merlin,
IKEA
68%
32%
68%
70%
31%Do not plan
39%Slightly
31%Significantly
Lamoda
KupiVIP
Yulmart
Aliexpress
MvideoWildberries Citilink
Utkonos+1800
+33
+555+600
+56+1120 +500
+10
Mar,18
Number of pick-ups and lockers, opened by retailers themselves or in partnerships, 2018
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PwC
Future retailer will be closely integrated & partnered in digital ecosystem
Ecosystem
of Future
Retailer
EntertainmentCommunity
&sharing
Payment
&deliverySocial
Online
retail
Physical
retail
Examples:
Leroy Merlin used
dynamic Instagram
stories to announce
new store opening
Collaboration of
PepsiCo with Olga
Buzova resulted in a
catchy Instagram
hashtag
Use entertainment
platforms to fulfill
customers’ desire as 80%
Russian consumers are
active users of online
entertainment platforms
Examples:
M.Video offered customers a
one-year subscription to ivi.ru
with Smart TV installation
Yandex offers free delivery
from Beru for Yandex.Plus
users (more that 500 RUB)
Examples:
VkusVill has a blog dedicated to
customer lifestyle “School of
Consumer” with topics on
dietology, housekeeping,
medicine etc.
Sportmaster leads a blog on
sport agenda with
recommendations, interviews
and training techniques
Examples:
Sberbank, Tinkoff,
Alpha bank offer
cashback from
purchases in partner
retail chains
Moscow transport
card “Troyka” offers
loyalty program for
partner retailers
(Kari – 4%,
Aliexpress – 2,5%)
Use digital technologies in-store to
improve customer experience
Examples:
Mvideo implemented first AR in-store navigation
Perekrestok released a mobile application for purchases
with Self Scan technology
Examples:
Personalized products based on previous choices lead Aizel
to 11% estimated revenue change
OZON sales grew twice at Black Friday, Wildberries - 2,5
times
Create a community
over your company’s
vision, manage
customers’ questions &
device support
As social
media becomes a
marketplace, make
a presence on social
media platforms by
creating a brand page
or channel. Try
partnership with
blogger or influencer
Make payments
quick and easy as
majority of
consumers believe
it is key shopping
experience
element
Embrace an online shopping trend by adapting
your shop to smart devices, focus on
personalized offers
12
PwC
How to adapt business to changing environment?
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PwCPwC
Future survival depends on a retailer's ability to adjust to a digitized environment: Transform your DNA!
Digital retailers need to champion every element of their DNA
equally…
…omitting one element leads to extinction!
Customer
Understanding
Use data to anticipate
customer needs before
they even arise – then
create an individual
experience
Unique Culture
Intensify collaboration
and partnering, empower
decision makers and
embrace ‘launching and
learning’
Operational Excellence
Leverage technologies to
increase efficiency and
flexibility of operations
Skilled Workforce
Empower staff with the
technologies to be
excellent at their job
and build new, digital
capabilities
Winning Products &
Services
Personalize products
and embed them in
services that ‘wow’
the customer
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PwC
Transforming the DNA is a challenging move for many retailers – a greenfield approach will often be required
• Assess the degree of change
required to reach your objectives
• Decide whether a greenfield or
brownfield approach is suitable for your
process & IT transformation
With technology assets dating back to the 90s,
many retailers will have to start from scratch!
Step 1:
Determine your destiny
• Focus on your core strengths to
choose a distinct strategic direction
• Understand the capabilities required
to succeed in your target state
Service Innovation
Product quality
Customer access insight
Productprice
Efficient
operations
Partnerintegration
IT/
Digital
Reliableoperations
Price
Experience
Step 2: Select the right approach
VS
Step 3: Set up the team
• Chose a transformation orchestrator – transformative
capabilities are often not inherent for retailers
• Identify and select candidates for your partner
ecosystem
Convenience
Greenfield Brownfield
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Upskill your
employees
“Legacy” staff need to be trained to strive in a
digital environment
Use of technology and new processes
are key topics
Empower with
technology
Employees use new office infrastructure and
workplace models
Technology, apps and new ways of accessing and
sharing knowledge are used
Change your
workforce
“Technologists” make up a large percentage
of your team
Number of transactional staff is minimized
New capabilities come from deeply integrated
external partners
• Entitle technological decision-makers and
create cross-teams and integrated communities
Establish flat hierarchies to enable fast
decision making
Board
Business IT
Tech Lead
Reinvent ways
of working
Transform
organization &
governance
Establish new ways
of partnership
Turn analog workforce and silo thinking to digitally empowered ecosystem
Skilled Workforce Unique Culture
Re-think the way you partner - incorporate
external capabilities to complement your core
competencies
Benefit from outside-in perspectives to generate
new, unconventional ideas
Work result oriented (“find a way to achieve a goal”)
to ideally fulfil the needs of your customers
Change your internal collaboration and apply agile,
“launch and learn” and/or rapid prototyping
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PwCPwC
Product-
centricity
Customer-
centricity
Intuition &
experienceInsight
Mass Individual
One size
fits all
Custom-
made
Planning
(“Guessing”)Prediction
Manual Automated
Sequential Agile
Silo Holistic
Closed
Shop
Open
ecosystem
As consequence, a complete paradigm shift of the retailer’s DNA is required
from
Unique Culture
Skilled
Workforce
Operational
Excellence
Winning Products
& Services
Customer
Understanding
DNA transformation Fueled by data & technology,
retailers evolve
to
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PwCPwC
Based on the experience of dozens of retail transformations – here are the five key takeaways for your journey
Unique Culture
Skilled
Workforce
Operational
Excellence
Winning Products
& Services
Customer
Understanding
Digitize your DNA…
…but do it right!
Other than in evolution theory,
in business you can determine where
you go – so transform with purpose1Transform business-driven and
technology enabled – ensure strong
buy-in, alignment and discussions at
eye level between business and
IT/Digital
2
Invest in capabilities that
differentiate – stay close to proven
standard everywhere else to limit
complexity
3Don’t be afraid to bring in “the right
guys” - use the power and
capabilities of a partner ecosystem4“It’s not faith in technology, it’s faith in
people” (S. Jobs) – engage with your
employees and openly communicate
the change
5
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pwc.com
Contacts
© 2019 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopers
International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act
as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its
member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of
any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.
Andreas Spaene
Partner
Vice President
PwC Strategy&
+49 170 2238 408
Martijn Peeters
Partner
Retail & Consumer leader,
PwC Russia
+7 (495) 967 6144