RETAL’I S REVOLUTION - Oliver Wyman

RETAIL'S REVOLUTION

HOW RETAIL AND CONSUMER

GOODS COMPANIES CAN ADAPT

On the cover: Interior design in the new shopping mall Oceania, in Moscow.

Preface

There has never been a better time to go shopping. There has never been a tougher time to run a shop.

Consumers can now find, buy, and receive products in a multiplying number of ways. Where shopping was a chore, it now gets done in a few clicks. Where it was a pleasure, it has expanded into a journey of discovery.

All this depends on a stream of innovations ? in fields as diverse as online interfaces, store operations, and delivery. But innovation often means disruption, with new business models being created. Many of the new models will come from new participants in the sector, acting either independently or in strategic link-ups with incumbents. As new models gain popularity, business will drain away from others ? something particularly visible in the shift to online sales. This has led to store closures, accompanied by headlines like "the death of retail."

To dig deeper into these upheavals, we interviewed more than 50 executives in retail, consumer-goods manufacturing, finance, and government, as well as other sectors that interact with retail. The resulting insights enabled us to put together this report, and I would like to thank these participants for their generous contributions.

For me, four conclusions stand out.

First, there are huge opportunities for new businesses and inventive incumbents to thrive in retail. The shopping experience of the future is still being designed, and every new solution will be followed by something even better.

Second, making the most of these opportunities will require visionary leaders who embrace change. Some are already altering the landscape of the industry.

Third, new retail business models will be very different from those of today. Reports of the death of traditional retailers are certainly exaggerated, but many will need to invent new roles in the shopping system to survive and thrive over the long term.

Fourth, brand owners and manufacturers are not immune from disruption either.

We do not claim to have detailed prescriptions for every aspect of the retail and consumer sector. But we have identified some crucial areas where seismic shifts are opening up both opportunities and dangers. And we have some ideas about how best to approach the new era.

I hope you find our report a valuable contribution to the debate.

Best wishes,

Nick Harrison Global Retail Practice Co-Leader

REPORT CONTRIBUTORS

Bernard Demeure is a Paris-based partner whose love of travel, wine and good food products drive him to visit and experience stores, markets, and takeaways the world over. He's passionate about innovation.

Bobby Gibbs is a Dallas-based principal who despite his love of technology and reliance on online reviews almost always goes to a store when he needs anything except for the dress shirts he has saved on his favorite website.

Dr. Nick Harrison is the London-based co-lead of the global Retail and Consumer Goods practice who does most of his shopping online but still takes his children to the store as a treat.

Emmanuel Ladoux is a Paris-based principal who looks forward to seeing how retailers will leverage advanced technologies and analytics to operate more efficiently and make customer journeys more natural.

Crystal Liew is a London-based principal who makes most of her routine purchases on her mobile phone, but spends her weekends visiting independent local shops for fresh food, clothing, and books.

Kate Wildman is a Londonbased marketer for Oliver Wyman who loves fashion but doesn't really love shopping. DirecttoConsumer boutique brands are what she searches for but the convenience store is where she stocks up on daily groceries.

Marc Poulin is the former CEO of Sobeys and is now a corporate director whose true passion remains merchandising. After being the food butler to millions of Canadians, he now enjoys being the private food butler to his wife, Ginette. He also travels the world always looking for new food delicacies. His latest catch: lion fish.

Richard Pennycook is the former CEO of Co-op UK and now serves as the chairman of four retailers and the British Retail Consortium. When shopping he spends much more time looking than buying ? both in store and online ? because he loves to see what retailers are doing. He hates the idea of a "retail butler" doing it all for him.

Dominique Schelcher is Vice president of Syst?me U, the French cooperative multiformat retailer. He owns and runs a Super U supermarket, and is in charge of communication for the Syst?me U Group. He is a leading observer of current changes, sharing extensively on social networks.

Sven Seidel is the executive board member responsible for multichannel retail at Otto Group and the former CEO of Lidl. He is an expert in lean retail and operational excellence, but his true professional passion is leading retailers toward seamless integration of offline and online customer experiences.

Frederic Thomas-Dupuis is a Montrealbased partner who enjoys going to the farmers market with his wife but nevertheless wishes the weekly food shop was delivered to his home seamlessly.

CONTENTS

ADDITIONAL CONTRIBUTIONS James Yang, Edouard de M?zerac, Sebastian Moffett, Arnaud Schlumberger, Arthur du Passage, Frederic Reynaud, Cyril Straughn-Turner, Loubna Lahlou

DESIGN Campbell Reid, Creative Head Adrien Slimani, Art Director Lorena Mondragon, Illustrator Josselin Coissard, Illustrator Katharina Vaubel, Image Researcher

Part One: Digital Upheaval

Online Retail's Continued Rise

4

Empires Emerge as China Develops New Retail Models

12

The Role of Stores: The Omnichannel Future

16

Innovation is Changing Customer Expectations

22

Disintermediation and Reintermediation:

New Ways to Reach Customers

24

The Rise of the Access Economy

30

Industry View: Marc Poulin

33

Part Two: Retail in the Future

New Models for Surviving in the Future

34

Six New Models Can Help Businesses Win in the New Era

36

Where Could This All Lead?

Predictions for Some Sectors of Retail

44

Part Three: Fallout

Brand Owners and Manufacturers:

Upsides and Challenges

46

Industry View: Dominique Schelcher

53

Impacts of the Retail Revolution on Economies and Societies 54

Industry View: Richard Pennycook

59

Better Retail for Better Living

60

Acknowledgements

62

Glossary

64

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