The new retail from mobile aspirations to business results

The ubiquity of mobile devices has had a particularly strong impact on the retail sector, as customers and employees increasingly use and depend on their mobile devices throughout their

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From mobile aspirations to business

results

Preface 2

Introduction: A shopping mall in the palm of everyone’s hand 4

Contents

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The report was written by Peter Moustakerski and edited by Christine Emba The findings and views expressed in the report do not necessarily reflect the views of the sponsor

March 2014

The survey, conducted in September and October

2013, reached 156 respondents in the retail sector: 30% from North America, 29% from Asia-Pacific, 27% from Western Europe, 6% from the Middle East and Africa, 5% from Latin America and 3% from Eastern Europe Respondents filled

a variety of functional roles—40% were in general

management, while 15% were in finance, 12% in strategy and business development, and 11% in marketing and sales, among others Twenty-six percent of respondents were CEOs, presidents,

or managing directors, 16% were SVPs, VPs or Directors in Merchandising, and 33% were SVP, VP

or Director-level in other roles

Who took the survey?

A proliferation of powerful and functionality-laden mobile devices has transformed the way that people live and function The ubiquity of mobile devices has had a particularly strong impact on the retail sector, as customers and employees

increasingly use and depend on their mobile devices throughout their shopping experience This mobile penetration is transforming shopping behaviours, as well as how retailers define success

In order to determine how retailers are responding to the rise in mobile-empowered consumers, The Economist Intelligence Unit, on behalf of AT&T, conducted a survey of over 150 global executives from around the world

Key findings include:

lThe mobile transformation is solidly under way in retail, and consumers are leading the charge As of January 2014, 91% of Americans

owned a mobile phone, and 55% had a smartphone According to our survey, 39% of respondents say that customers use mobile devices “extensively” or ”often” while shopping

Thirty percent of respondents have seen major behavioural shifts in customers attributable to mobile device usage, while 25% have observed

lIntegrating mobile is crucial to delivering a quality omni-channel experience Deploying

mobile devices and fostering a culture of usage and innovation are seen by 84% of retailers as important to a strong omni-channel experience

To do so effectively, however, retailers must be able to integrate their theoretical ambitions with practical execution In our survey, respondents who perceive their companies as

“practical” leaders or early adopters—those who not only aspire to use but actually adopt mobile technologies and integrate them throughout their company—are more likely to report above-average success across the board

lThe most effective mobile tools for retailers focus on consumer value Consumers respond

more favourably to sophisticated, narrowly targeted and higher-value-add tools, such as mobile coupons (75% of retailers believe they have generated a positive response from customers), geo-targeted advertisements and promotions (74%) and product search apps (72%) Retailers’ next generation of mobile technologies will be designed to address specific customer needs and pain points, integrate the customer experience across sales channels and

Executive summary

Shortly after taking over as head of marketing at Max Brenner—a chain of chocolate-themed cafés and candy boutiques—Stacey Paul took note of one particular metric: as many as half of all users were accessing the company’s website on their mobile devices However, the newly redesigned site did not have key mobile features such as pinch-and-zoom or swiping between pages “We had to rethink our strategy,” says Ms Paul “The world is quicker and smaller, and your life is now on mobile

Retailers need to answer that call.” Hence one of

her first decisions as the company’s top marketing executive was to redraw the website and optimise it for smartphones and tablets using the latest in mobile Internet design and functionality

The growing digital retail turnover is increasingly happening on the go The significant penetration of mobile devices into the lives of everyday consumers

is transforming shopping behaviours As Ms Paul points out, consumers’ daily activities are increasingly reliant on mobile phones and tablets—how they shop is no exception According to the

Introduction: A shopping mall in the palm of everyone’s hand

1

Q

Source: Economist Intelligence Unit survey, October 2013

Strong impact Moderate impact Weak impact No impact Don’t know/ Not applicable Pre-purchase: Discovery and awareness

Pre-purchase: Decision to purchase

Pre-purchase: Comparison and selection

Purchase: Decision to upgrade/increase purchase

Purchase: Shopping experience

Post-purchase: Fulfilment and delivery experience

Post-purchase: After-sales service and support experience

Post-purchase: Decision to repeat purchases/customer loyalty and advocacy

How will the use of mobile devices impact the following stages of your customer’s purchasing lifecycle?

Please select responses on a scale from ‘Strong impact’ to ‘No impact’

Pew Research Center, a US think-tank, as of January

2014 91% of the US population carries a mobile phone, 55% have a smartphone and 42% own a tablet computer Young people and wealthier, more-educated consumers are even more connected

to their smart mobile devices—they do about one-quarter of their shopping online and one-third

of them use their phones for online research when deciding whether to visit a brick-and-mortar store

or a restaurant

This mobile shopping trend is expected to accelerate—according to the 2014 Mobile 500

report published by Internet Retailer, mobile

commerce in the US will grow 63% to reach US$34bn by the end of 2014, up from US$21bn in

2012 These trends are holding across retail industries, even in retail banking and brokerage

“Today, 12% of our daily average revenue trades come through mobile,” says Paul Zettl, managing director of retail marketing and digital media at TD Ameritrade, a US online broker Customers can use its mobile app from their smartphones or tablets to check balances, access investment research and place trade orders

This rapid and on-going evolution has put large

amounts of information and powerful technology tools at the fingertips of ordinary people, resulting in the emergence of a culture that will forever transform how people plan and do their shopping Results from an Economist Intelligence Unit (EIU) survey of more than 150 retail executives worldwide, conducted in October

mobile-2013, confirm that consumers are increasingly relying on their mobile devices during their shopping experiences—39% of respondents say that customers use them “extensively” or ”often” while shopping

The growing prevalence of mobile devices is expected to affect every stage of retail shopping, though the awareness and comparison stages of a customer’s purchasing lifecycle should experience the greatest impact Overall, mobile technologies will have a positive effect on customer engagement and key business metrics that matter to retailers’ business performance Ultimately, mobile technologies are widely expected to benefit the two most important objectives for retail operators: profitability and customer experience The trick for retail operators will be to transform their strategies

to reap these benefits

“Consumers are leading the way in mobile shopping, and retailers are struggling to catch up,”

says Ms Paul of Max Brenner Our survey data support her assertion—respondents to our survey see significant cultural and behavioural shifts both among their retail customers and employees as a result of increased mobile device usage The new reality of mobile technology has influenced business drivers touching everyone in the

organisation, from corporate office to shop floor Providing an integrated, seamless shopping experience across digital and physical channels has continued to be a challenge for many retailers The delivery of such an omni-channel experience is

an important strategic goal across the retail industry “It is what customers have come to expect—the confluence of their online and in-store experience with our brand,” says Claire

Consumers lead, retailers sluggishly follow

2

Q

Source: Economist Intelligence Unit survey, October 2013

Very positive impact Somewhat positive impact No impact Somewhat negative impact Very negative impact Don’t know/ Not applicable Volume of footfall or traffic

Rate of traffic-to-sale conversion

Average sale/check amount

Customer loyalty metrics

Number of times inventory turns per month

Inventory loss due to theft or waste

Seasonal/peak period demand management

Operating profit margins at the store level

Corporate overhead costs

Impact of mobile device and application use on different business drivers for retail organisations

Please select responses on a scale from ‘Very positive impact’ to ‘Very negative impact’

Chambers, founder and CEO of Journelle, an upscale lingerie retailer in the US

Yet many retailers still struggle with the challenge of co-ordinating customer experiences across channels, and many haven’t been

completely successful Twenty-four percent of EIU survey respondents rate their company’s success in

creating an omni-channel experience as

“somewhat” or “well below average” compared with that of their peers

Why are many retailers failing to realise their omni-channel goals or even catch up with the rest

of the field? What separates the organisations that succeed from the rest of the pack?

In our survey, we analysed two levels at which companies embrace mobile technology:

“theoretical”, which reflects the leadership’s stance and the company’s stated position with regard to using mobile technology to achieve its strategic goals, and “practical”, which reflects the organisation’s actual use of mobile devices and apps to serve customers

Our data show a strong connection between a retailer being either a theoretical or a practical leader in embracing mobile technologies and successfully implementing an omni-channel strategy—respondents who see their companies as frontrunners in the mobile space (either in theory

or practice) are much more likely to report that

they are enjoying above-average success creating a high-quality omni-channel experience

More than one-third of our survey respondents believe that their company is a theoretical leader—that is, their company and its leadership team have

a positive, encouraging attitude towards the use

of mobile devices to engage customers and drive business results At the same time, however, actual use of these technologies tends to lag behind the operators’ theoretical aspirations

This gap between theory and practice highlights both the challenge and the opportunity for retailers as they transform themselves into omni-channel players, and underlines the need for the strategies that we describe below

Easier said than done: Moving from theory to practice

Source: Economist Intelligence Unit survey, October 2013

Success by “practical” and “theoretical” mobile technology leaders in creating an omni-channel experience, compared with that of industry peers

(% respondents)

Well above average

Somewhat above average

Average/On par with peers

Somewhat below average

Well below average

We do not focus on the development

of an omni-channel experience

“Theoretical” leaders and early adopters “Practical” leaders and early adopters

36 34 36 39 27

Commitment and execution

In addition, mobile channels still account for a relatively small portion of revenues, and the cost of developing and maintaining a high-quality

omni-channel experience can be significant

“Merging the information from different databases is a real challenge,” says Ms Chambers of Journelle “Customers expect to walk into your store and pick up merchandise that they placed in their online cart the day before But we can’t see what’s in their online cart, and sometimes don’t even stock the same merchandise in our stores.”

If retailers are to succeed as omni-channel players, they must meet two challenges First, they

have to develop the leadership commitment—the theoretical aspiration—to use mobile technologies across sales channels to achieve their strategic goals.Second, they need to find the focus and

stamina—the practical execution capabilities—to follow through on their commitment and complete the complex tasks required to transform themselves into omni-channel operators These tasks include integrating information from multiple systems and databases, co-ordinating marketing content across customer touch-points and revamping operations

to support product merchandising and fulfilment across different channels

In our survey, respondents who perceive their companies as “practical” leaders or early adopters—those who not only aspire to adopt but also actually go forward to adopt mobile

technologies and apps—are more likely to report above-average success across the board

Q

Source: Economist Intelligence Unit survey, October 2013

To what extent has the use of mobile devices and applications led to a cultural and behavioural shift at your organisation in the past 3 years?

41 47 5

29 2

6

Market leaders are much more likely to report that their employees “extensively” or “often” use mobile devices to serve customers or that mobile technologies have led to a major or moderate behavioural shift among their employees These retailers excel at motivating and mobilising their workforce to create an in-house app culture of their own and thus are able to respond to customers’

expectations when it comes to using mobile devices throughout the shopping lifecycle

“Our mobile development team is embedded in the product team,” says Mr Zettl of TD Ameritrade

He points out that having marketers who keep up with the latest mobile capabilities, along with app

developers who understand the marketing strategy and customer needs, is critical to the success of mobile strategies “Our strategy is to help our clients trade more intelligently,” says Mr Zettl,

“and building a ‘mobile-first’ platform is the industry holy grail we are striving to reach.”Practical mobile app and device leaders also see greater impact of mobile technologies on a customer’s shopping journey, and they deploy more advanced and value-added services to their customers to maintain loyalty Most important, they report significantly higher benefits from mobile technology on all their key business metrics and, ultimately, on their company’s bottom line

Q

Source: Economist Intelligence Unit survey, October 2013

Has mobile device use had a positive impact on the following business drivers for your organisation?

(% respondents)

Customer loyalty metrics

Rate of traffic-to-sale conversion

Operating profit margins at the store level

Volume of footfall or traffic

Season/peak period demand magangement

Corporate overhead costs

Average sale/check amount

Number of times inventory turns per month

Inventory loss due to theft or waste

“Practical” leaders and early adopters Followers

86 57

84 63

80 45

73 65 73 44

70 33

66 43

64 37

48 20

Managing director, retail

marketing and digital media

TD Ameritrade

The second dimension that underpins the

omni-channel success of leaders goes beyond whether

they have the commitment and capabilities to adopt and use the latest mobile technology tools

Rather it matters what they do with these

technologies and how well they deploy them to solve pressing customer problems

The widespread penetration of mobile devices and the proliferation of free or low-cost mobile applications have presented consumers with a plethora of tools designed to address their slightest need The realm of consumer retail

shopping in particular has been flooded with tools and applications that target every step of the purchasing process Most, if not all, are aimed at making parting with cash anytime and anywhere as easy—and even fun— as possible for consumers The mobile tools most widely deployed by retailers today tend to focus on one primary sales channel rather than functioning across channels The most common tools include a company-branded mobile website or app (used by 65% of total survey respondents.) and social media software (53%) The next generation of mobile tools will be

Focus on customer value

4

Q

Source: Economist Intelligence Unit survey, October 2013

Which of the following mobile device technologies and applications are currently used

by your company to serve your customers?

Click & reserve functionality

Digital signage and in-store communications Customer collaboration solutions (eg, customer profile, live chat/support)

Self-serve kiosks

“Practical” leaders and early adopters Followers

82 66

80 54

52 56 68 51

61 40

73 27

55 29

50 28

50 24

designed to address specific customer needs and pain points, integrate the customer experience across sales channels and create previously unexplored sales opportunities The Nieman Marcus mobile app, for example, combines customer service and collaboration with store staff The luxury retailer’s app allows customers to bookmark certain items and then connect by e-mail, text or phone with sales staff in a nearby store.

“Mobile customers behave differently from shoppers who are online or in a physical store,”

says Ms Paul “They have less time and are acting with a specific purpose in mind.” Thus customers expect mobile apps to be simple, easy to navigate and geared towards achieving a specific, relevant objective

Industry leaders and early adopters listen to pressing customer needs and respond with simple, user-friendly and useful apps and services US retailer Wal-Mart, for example, realised that some

of its recession-hit customers had smartphones and wanted to shop online, but did not have credit cards with which to place orders To allow these customers to use their preferred channel, Wal-Mart began to let customers place orders online and

then come into a bricks-and-mortar outlet to make payment in cash

“Following the customers to where they want to

go is key,” says Ms Chambers of Journelle, “and giving them a valuable service, such as pulling up their past purchasing history or the ability to pick up

or return in the store goods they purchased online.”This distinction between mobile leaders and followers is evident in our survey results—leaders are much more likely to offer their customers click-and-reserve capabilities or use mobile point-of-sale payment systems

For instance, US supermarket chain ShopRite is testing a mobile app that allows customers to scan items on their smartphones as they place them in their shopping carts and then use their phone to check out, thereby bypassing crowded checkout lanes

Among mobile marketing tools, the most common are e-mail communication, social media integration and text messaging Yet these traditional digital methods are not necessarily the most effective way to reach new customers or cement existing relationships When asked about consumers’ response to different mobile marketing

Q Which of the following mobile marketing tools and strategies do you currently utilise

to engage your customers?

(% respondents)

Email communication

Social media integration

Text messaging/SMS

Store locator apps

Product search apps

Geo-targeted advertisement and promotions

QR codes

“Practical” leaders and early adopters Followers

82 81 70

64 80 57

77 49

75 45

66 41

70 38