« March 2017 | Main | May 2017 »

4 posts from April 2017

20 April 2017

How does a retailer manage the digital disruption to win customers?

It’s important to remember that your competitor is only one click away”*

Retailers are facing disruption from both nontraditional and traditional competitors who are exploiting digital technologies to win customers. This may be through having a more user friendly website or mobile app, creating the best shopping experience through augmented reality tools or advanced personalisation. Or by the ability to gather and interpret customer data to create insight and maximise customer loyalty**. Whichever way you look at it, if a retailer is not investing in digital then the future may be bleak.

The response of most retailers, until now, has been to create separate e-commerce divisions and a variety of ad hoc digital tools, most notably in marketing, with IT functions historically focussed on maintaining the underlying operating systems. Recently, retailers have been bringing their separate e-commerce divisions back into the business, treating them as a channel like retail stores. However that still leaves them trying to manage the disruption, as the increased pace of change becomes the new norm.

How should retailers respond?

We believe going back to the organisation design basics is a good place to start. Retailers should incorporate digital into their strategy and determine what capabilities they need to deliver it. These are far more than just the knowledge of digital technologies, but include new leadership, smart logistics, data analytics and customer management to mention a few. A different “two track” IT support to deal with different cultures and priorities maybe considered. An example of this may be keeping operation systems working using traditional waterfall methodology and releasing new digital techniques using an agile methodology before exploring integrating to one IT and methodology.

How to create some organisation control for digital is a challenge too, as for the most part the old e-commerce teams were staffed with people who do not see themselves as retailers but more as “digital people” working closely with marketing using a lot of different digital tools (social media listening, content creation, video hosting, campaign automation and so on) with IT possibly completely unaware these products are being used.

The creation of a digital hub or lab can be a first step to address this. This is not a place to “dump” all digital technology however, but more of a centre of excellence with accountability for the management of the delivery of the digital strategy. These hubs are popping up everywhere with examples being Co-op (Manchester), John Lewis (Birmingham) and Shop Direct which launches in London later this year.

The hub will include an incubator to develop digital thinking – using all staff to produce new ideas- support the creation of a data strategy, the education of all staff in digital thinking, digital R&D and ownership to manage the agile role out of minimal viable (digital enabled) products and services. The whole organisation will become more digitally savvy as they get used to embedding the digital strategy and interact with the digital hub.

The overall retail organisation design is also going to have to be more agile - going against the traditional hierarchical structure. In an era of fast paced change categorised by agile digital delivery, retailers may need to consider moving to more distributed decision making and allow the creation of semi-autonomous self-managed teams. The digital hub can be a safe place to start this change which is why they are currently popular and who knows if this will broaden out to an entirely different way of working organisationally.

Although these “hubs” are good for fostering innovation and driving a different culture in the short term, the long term future ultimately has to be an integration back into the business to be indistinguishable for normal operations when the organisation is more digitally mature. This is such a fast moving phenomenon that org design models are still evolving. One thing is certain, the strategic importance of digital has stepped up a notch and effective leadership and C-suite sponsorship is essential. The Chief Digital Officer/redefined Chief Information Officer/Chief Technology Officer (CTO) is now more frequently a direct report to the CEO. Walmart’s CTO Jeremy King is an example of this elevation and newly appointed Exec Board member. We are also likely to see the future CEOs in retail coming from a digital/e-commerce background as they have the winning skill combination of commercial retail and digital innovation.

What are your thoughts on digital disruption? Do you think digital and IT should be combined? What will be the next big thing in digital innovation?

This blog is part of a series of blogs written by the PwC Retail Organisation Design Team, led by Stephanie Bloor. The last blog in the series can be found here  

Authors: Mark Travis @markht001, Jessica Atkinson @jessatko, Stephanie Bloor @bloorsteph

*“It is important to remember that your competitor is only a click away” Doug Warner, former chairman of the board of J.P. Morgan & Co

**39% of retailers ranked the ability to turn data into intelligent and actionable insight one of their greatest challenges: PwC Total Retail Survey 2017

 

About the author

Stephanie Bloor | Director
Profile | Email | +44 (0)20 7213 5068

 

05 April 2017

Keeping off the rocks? Navigating restructuring in shipping & offshore

 By Steve Moll, Matthew Little and Nasos Tsarouchis

The message is clear, the shipping sector outlook appears challenging. Many have withstood the difficult environment so far, but cash buffers are continuing to erode, and without new sources of liquidity some will inevitably face a financing crunch either this year or next.

Sector outlook

The offshore shipping sector has been one of the most active parts of the restructuring market over the last couple of years given the low oil price environment and the consequential reduction in oil companies’ offshore capex spend. In addition, certain segments in the wider shipping market such as dry bulk and container continue to be plagued with overcapacity, uneconomic rates and lack lustre returns for investors.

With little optimism that market dynamics will change over the next 18-24 months, we anticipate these challenges will continue to impact the sector in 2017. A number of companies, particularly in dry bulk and container segments, have withstood the challenging conditions so far, but with cash buffers eroding some inevitably will face a financing crunch this year or next.

Restructurings in shipping and offshore

Restructurings for shipping businesses often involve complex capital structures with multiple creditors (bondholders, bilateral and/or syndicated banking facilities, lease/charter creditors and significant liabilities with shipyards and shipbuilders) who have invested within a web of special purpose vehicle companies.

Inter-creditor tensions, coupled with poor market conditions make reaching a consensual deal extremely challenging. Consequently, there have been a number of recent insolvency filings in the sector despite this route generally remaining an unattractive option – it is one that requires careful planning if value is to be preserved.

The most successful restructurings have laid out clear principles from the outset and have engaged with all stakeholders - not just lenders and shareholders - so that, where possible, common ground can be established early in the proceedings.

Inevitably in the circumstances, sticking plasters have been applied in a number of cases in the hope of better pricing conditions materialising by the end of the decade. We expect some of these companies will require a second round of restructuring in a couple of years’ time to address over-levered capital structures and in some cases to shore up liquidity with new money.

Conclusion

For various corporates, particularly those in dry bulk and container segments, 2017 is likely to be decisive year.   Offshore will remain distressed with low levels of activity and increasing pressure on liquidity, giving rise to new money requirements for some and perhaps more pragmatism to deliver sustainable capital structures. Restructuring solutions that provide a ‘win-win’ outcome will be hard fought particularly over the next 12-18 months. Find out more about shipping segments trends in our fuller article or watch our market update.

 

 

 

 

Steve Moll  |  Partner, Refinancing and Restructuring
Email  |  +44 207 212 4066

Matthew Little  |  Refinancing and Restructuring
Email  |  +44 (0)20 7213 5770

Nasos Tsarouchis  |  Refinancing and Restructuring
Email  |  +44 (0)20 7804 3460  

 

04 April 2017

Will Virtual Reality mean ‘Virtual Retail’?

I freely admit to having been a bit of a geek about VR for a very long time now. But when you start seeing VR devices advertised on primetime TV – the Sony Playstation VR, in this case – then you know that geekery has definitely gone mainstream.

It’s easy to see what a huge difference VR can make to gaming but it has a lot more to offer than that. In fact, I think we’re about to see a revolution not just in entertainment, but across sectors as diverse as healthcare, education, tourism, and – yes – retail.

So how would ‘Virtual Retail’ work? Well, for a start, a Virtual Retail store would be worlds away from our current experience of internet shopping. The technology already exists to allow you to sit in your own home, using a VR headset, and move about inside a virtual store just as you would in a real one. In time, as VR gets even more sophisticated, you’ll be able to get your avatar (which could be created to match your own height and size) to try on clothes, for example. As the sensory subtlety of VR evolves you’ll even be able to feel the weight and texture of fabric. And because everything is digital in the VR world, the store you visit will be tailored to you. Your size, your preferences, and co-ordinated accessories appearing side by side with items you browse. And the product range can be far bigger than anything a physical store could hope to carry, giving consumers the advantage of choice and making stock management many times easier for the retailers.

There are no surprises, then, that both brick-and-mortar and online clothes stores are looking seriously at VR – ASOS, for example, has a proof-of-concept VR store developed by Trillenium, which you can try out on your iPhone, Android phone, or Samsung Gear VR device.

And it’s not just fashion that will flourish; homewares are another segment ripe for VR. IKEA already has an application available on the HTC Vive which allows you to walk around one of their kitchens, make customisations to the colour scheme, and even cook meatballs.

Online retailer eBay is experimenting with a virtual reality department store allowing consumers to select products by looking at them through ‘shopticals’ (a fancy name for an eBay branded Google Cardboard). E-commerce giant Alibaba believes that VR shopping is the future and has built its own VR research centre, GnomeMagic Lab, to explore this area. Alibaba also created its own virtual reality payment system called VR Pay allowing users to buy products within VR by nodding their head – a current issue for the eBay VR experience which requires the user to take off the headset and complete their transaction on the regular eBay app.

Grocery shopping could go virtual too. In fact, VR could solve one of the biggest problems the grocers have with online shopping, which is the way it kills the ‘impulse buy’. People usually shop online using lists, and internet stores don’t have the ability to tempt the shopper visually the way physical stores do. But in VR, they can. Once we introduce artificial intelligence algorithms which will place items that are relevant to you in the right place in ‘your’ store at the right time, VR in retail (or ‘v-commerce’ as some are calling it) becomes an even more powerful proposition.

The opportunities for retail are clearly immense, but there are some big challenges too, of which the technology itself is only one. The user experience of shopping in VR and whether it has enough value to supersede the in-shop experience will be the key question over the next few years. One thing, though, is already clear, and that’s the importance of getting ahead of the game: when it comes to all types of emerging technology, the risks of being late to party are real, not virtual. The only way to seize competitive advantage is by being an early mover. 

If you’re as excited as I am by the possibilities of VR, the best place to start is by experiencing it yourself. We have all the latest kit at our office in Hays Galleria in London, and you’re welcome to come in and experience the technology for yourself. We can answer your questions, and talk through how VR might enhance or challenge the way you currently do business. We can help you develop an emerging technology strategy tailored to your company, and make the business case for the investment you’ll need. We can even develop prototypes – a preview of what your own ‘store of the future’ could be like. If you’re a forward-thinking retailer looking to start 2017 with something unique to offer your customers, I’d be very excited to help you to explore the opportunities that VR could bring.


About the author

Jeremy is an enthusiast of all things technology and is constantly amazed by the incredible creations that humanity has brought to life.

Specifically, he is invested (both mentally and financially) in virtual reality and has given multiple talks on various aspects of VR.

Jeremy works in PwC’s Digital & Emerging Technologies team in an innovation and insight role. He regularly meets with startups and other interesting organisations to understand what they do and how it can be applied to different industries. He believes both large corporates and the startup world have mutually beneficial lessons to learn from each other.

 

Jeremy Dalton

Jeremy Dalton | Innovation Consultant
Profile | Email

How can I help you? The power of personal connections

Here’s the thing: when it comes to retail, it’s the connection between the customer and the retailer that makes the ultimate difference. It’s the game-changer that converts lukewarm interest into sales, and occasional purchases into a lifetime of loyalty. So how can retailers build this precious connection with their customers? Three ways: information, engagement, and talent. 

We all know how much information retailers now collect about their customers. Most of the time, the only impact the customer sees is more targeted marketing, or the message when you check out asking if you’ve forgotten something you usually buy. This can be useful, but can be intrusive too. Either way, it’s hardly an authentic personal connection. It’s the personal touch that turns information into insight, and smart retailers are already incorporating this into their business strategy. Take The North Face, for example: they’re using machine learning from IBM Watson to offer genuine personalisation. The technology allows them to substitute unintelligible technical language with a more natural conversational style - the same language customers themselves use. It’s a simple change but its boosting sales.

A shoe retailer is using Hoxton Analytics to analyse what products customers choose, and draw conclusions about their demographic and social class to create more personalised communications. This doesn’t just offer a better service to that consumer, it also gathers data which can be invaluable in spotting new trends or making decisions about new products.

The second key factor is engagement. That means both online and in-store – and more. Social media is one obvious route. Chinese retailers are out in front here. Over half of the Chinese consumers interviewed in our recent Total Retail report, say they find inspiration for their purchases on social networks, while more than a quarter use social media to find out which brands celebrities are endorsing. The figures for the UK are 25% and 9% respectively, no doubt in part due to the different way shopping has evolved in the UK, and the enduring popularity of the traditional department store. All the same, nearly a third of UK consumers say that a positive interaction on social media will make them endorse a brand more, and 40% spend more as a result.

And finally, talent. However good your technology is, it’s your people who drive excellent customer service around some of your most important customer touch points. Over 60% of our survey respondents revealed they value deep product knowledge in a sales assistant, and this holds true across all generations. However – and this is a concern – less than half felt that they typically encountered such well-informed staff in stores.

David Oliver | Head of Retail Consulting
Profile | Email | +44 (0)7715 486 029