UK Retail Leading Globally Serving Locally

7/30/2019 UK Retail Leading Globally Serving Locally

1/48


2/48

WHATRO

LEDOESRETAILPLAY

INTHE

UKSECO

NOMICSUCCESS?

DOUKCU

STOMERS

GETAGOO

DDEAL,

COMPAREDTOOTHE

RCOUNTR

IES?

AREUKR

ETAILERSA

SPRODUC

TIVEAS

OVERSEA

SRETAILER

S?

WHATVALUEDORETAILJOBSH

AVE

FORTHEUKECONOMY?

DOESRETAILMAKEAFAIR

CONTRIBUTIONTOT

HEPUBLIC

PURSE?

1 |


3/48

WHATISTHECHANG

ING

SHAPEOFRETAIL?

WHATISTHEIMPACTOF

MULTICHANNELRETAILING?

Retailing plays a central role in British lie. Unlike many other businesssectors, we are close to people wherever they are. Whether as a customeror as one o the three million people who work in shops, almost every oneo us comes into daily contact with retailing.

Yet, as the UKs retail trade association, we are regularly and rightly askedsome very tough questions. Do customers get a good deal rom ourretailers? Does retail make a air contribution to the public purse? What isthe true value o a retail job? Are we as ecient as overseas retailers?

This landmark independent study, carried out by Oxord Economics and

the Oxord Institute o Retail Management, provides a clear and positiveanswer to these, and other, crucial questions. It shows the uniqueand signicant role the sector plays in the UKs economy and society.We generate very signicant wealth; are a leading investor in both ourcommunities and our people; are the largest private sector employer; andwork tirelessly to ensure that our customers receive the very best valueand service.

But thats not the end o the story. Against the backdrop o testingeconomic conditions, this report clearly demonstrates that retail hasa undamental role to play in the economic recovery. Given the rightconditions, we will remain a great British success story. This report sets out

the breadth o our contribution.

Stephen Robertson

d gl

bsh rl csum

UK Retail: Leading Globally, Serving Locally |2

INTRODU

CTION


4/48

3|

A Britishsuccess story

The British love aair with shopping, andshopkeeping, has been disparaged byeconomists industrialists and a Frenchgeneral over the centuries, but remainscentral to the economic and social welareo the UK. A key driver o economicprosperity, the retail sector generated303bn o retail sales in 2011 equivalentto one th o UK GDP and plays a vitalrole in the regeneration o towns, cities andlocal communities.

Retail is Britains largest private sectoremployer, providing jobs or almost 3million people and so is responsible ormore than 10% o total UK employment.The exceptional fexibility o retail work,with a higher proportion o part-time rolesthan other sectors, gives workers greaterreedom and wider opportunities or careerdevelopment. Parents, usually mothers, arebetter able to achieve a sustainable work/childcare balance, students are able to

und urther education, and people withoutormal qualications are able to gain animportant rst step on the career ladder.Also, retail is oten the rst opportunity orpaid employment or many young people.In act, 42% o all working 16-17 year oldsare employed by retailers.

Commendable investment in training byretailers 1,275 per employee per year,compared to just over 800 in the nancialsector gives retail workers invaluable,

transerable skills rom which other sectorso the economy benet. Many successulcareers have started in retail beore

blossoming elsewhere. Equally, long-terminvestment in people has helped to osteremployee loyalty and developed retail

leaders rom the shopfoor.The retail sector is, in many ways, aparagon o UK business excellence.Intense competition means UK consumersget a better deal than in the rest o Europe,paying approximately 5% less than theirEuropean counterparts or a standardbasket o goods. Despite legislation thatcurtails the ree market, labour productivityrose by 40% between 1995 and 2007(as opposed to just 10% in France or

Germany). UK retail is at the vanguard ointernational, multichannel shopping, wellahead o European rivals. Enthusiastic,educated and technologically awareconsumers have been a key actor inboosting internet sales to 23.4bn in2010. Globally, with an estimated 11% osales, the UK is the third largest market orinternet shopping, equivalent to Germanyand France combined.

The retail sector also pays its air share to

the public purse approximately 18bnin net VAT payments, National Insurance,PAYE and Business Rates and makesless use o exemptions than other sectors,including banking, oil and gas.

UK retail is a signicant exporter. Flagshipretailers, particularly at the luxury end othe market, are driving growth throughinternational expansion as well asstrengthening the UK brand, leading toincreased spending by overseas tourists

here in Britain.

AN APPRAISAL OF THERETAIL SECTOR TODAY


5/48

is mp s wlh , x p, js

p h h f bsh lf.


Future Challenges

The oundations are strong but there are

challenges ahead. The eects o theworldwide economic downturn continue todampen demand and test business, whilethe uncertain uture o the Euro has alreadytoughened trading conditions. There is nodisguising the act that many UK retailershave struggled in recent years, and willcontinue to struggle i conditions remaintough. Long-term perspective is essential.The eyecatching success o e-commerceand superstores in out-o-town locations

needs to be balanced against the decline omany smaller town centres. A steady handon policy is required in the coming years toensure the viability o our high streets withall their colour, character and convenience.

The BRC believes a healthy mix o smalland large retailers in diverse locations isthe route to sustained protability. Even thelargest, multichannel retailers were oncesmall start-ups, and smaller retailers can beincubators or innovation.

Most o all, we should never stop learning.While UK retail productivity has increasedover the last decade, that o the US hasgrown even aster in large part becauseo a less regulated marketplace so thereis room or improvement. The inexorablemove to multichannel retailing presentsa steep learning curve, with real costsas well as enormous benets. Whatworks in a purely online environmentdoes not necessarily transer seamlesslyto established store-based retail. Morechannels do not always mean moredemand.

Recently retailers have chosen to securejobs at the expense o temporary setbacksin labour productivity.

With the recovery we expect productivitygrowth to pick-up once more.

Awareness o technology, as a drivero shopping patterns and behaviours, iscrucial. Government ambitions to widenaccess to high speed broadband are tobe applauded, but what is next? Howwill wireless payments and specialistapps aect retailers? What role will socialnetworks play in the way we shop? Ismartphones and tablets provide new ways

to shop today, what devices can we expecttomorrow? What are the consequenceso buy-and-collect shopping? And, asconsumers rapidly become better inormed,how will that aect pricing, stang andskills needs?

There are many questions to be answeredand real challenges ahead. Overall, theprospects or UK retail are promisingand many o the ingredients or successare already in place. Our greatest assets

remain our unquenchable passionor shopping and the inexhaustibleentrepreneurial spirit o the Britishshopkeeper.


6/48

5|

01 WHat roLe doeS

retaiL PLay in tHe

UKS econoMic

SUcceSS?

02 doUK

cUStoMerS

get a good

deaL, coMPared

to otHer

coUntrieS?

03 are UK retaiLerS

aS ProdUctive

aS overSeaS

retaiLerS?

04 WHatv aLUe

do retaiL JobS

Have For tHe UK

econoMy?

Retail sales totalled 303 ll 2011, equivalent to around 20% o UK GDP.

The retail sector consistently accounts or around 5% o Gross Value Added in the UKeconomy.

14% o all UK investment made by large non nancial-sector rms is made by largeretailers.

Retailers purchase around 180 wh f s f sl, supporting 47bn ooutput rom other sectors.

Retailers pay out 4 ll s shhls, around 5% othe UK total.

UK consumers currently pay around 5% lss f h sk f s than citizens othe Eurozone.

UK retailers are less expensive in every sub-category o goods except or alcohol and

tobacco, which are more expensive due to much higher duty rates.The price o ood in the UK remains lower than the European average, despite strongcost-push infation driven by the sharp depreciation o sterling.

UK clothing retailers have been more eective in shielding consumers rom rising cottonprices than their European counterparts.

UK retailers are increasingly more productive than their European counterparts.

Lu pu in the UK retail sectors 40% fm 1995 2007,compared to less than 10% F gm.

Overall productivity in the US has risen more quickly due to a lighter touch regulatory

environment, particularly on planning.Expanding UK retailers generate an increasing proportion o sales and prots romoverseas customers, both abroad and as tourists to the UK.

As well as earning export revenue, retailing strengthens the UKs brand overseas.

Around three million people work in retail, the largest private sector employer in the UK,accounting or10.5% f l mplm.

Retail employment is ar more fexible than most other sectors - the sector has a muchhigher proportion o part-time workers, and o these 84% m h js whh mmms, such as studying or caring, or are enabled to remain in the labourorce despite illness or disability.

Retailers account or over 12% o the total training spend in the UK. On average, retailersinvest 1,275 p mpl p , compared to just over800 hfil s 1,200 mufu.

THE BIG QUESTIONS


7/48


05 doeSr etaiL

MaKe a Fair

contribUtion

to tHe PUbLic

PUrSe?

06 WHatStHe

cHanging SHaPe

oF retaiL?

07 WHat iS tHeiMPact oF

MULti cHanneL

retaiLing?

The retail sector pays 17.5 ll p , 9% o the UK total, f h fu lsxs (VAT, Business Rates, National Insurance and Income Tax). This is made up o:

Around 8 ll (4 5%) o National Insurance and Income Tax, refecting its

role in employing part-time workers and those new to the world o work.

Around 5 ll p (9% o the total) o VAT payments.

Around 5 ll p (28% o the total) o Business Rates.

Around 5 ll p (over 11% o the total) in Corporation Tax is paid by thedistribution sector (wholesale and retail),which makes less use o exemptions than othersectors.

Retailers also make substantial contributions to the public purse through uel duty, landlltax, the Climate Change Levy and, in uture, the Carbon Reduction Commitment.

As shopping habits change, town and city centre retailing needs to adapt to meet ever

strengthening competition rom other channels and locations. These challenges areseparate rom, but magnied by, the current economic downturn.

Successul retail locations combine small and large retailers, with the most successulsmaller rms a critical source o innovation and uture growth.

Historically l hs hs have been roughly equal, at around 23,000 2007. Births subsequently declined to 21,000 2009, with possible implications oruture innovation.

Constant innovation and adaptation to customer demand means that there will always bewinners and losers.

tl -s l sls w 30.3 ll h UK 2010,o which internetsales comprised 23.4 ll.

With an estimated 11% o global internet retail sales, the UK was the number threemarket, equivalent to Germany and France combined.

Consumer power has been enhanced by internet retailing, which enables ready access togreater inormation, price comparisons and other consumers recommendations.

New mobile platorms, including smartphones and tablets, are being adopted byconsumers and are leading retail into new territory.

A substantial minority, 41%, f UK hushls p us h or shopping in 2010 and traditional channels remain important to these consumers.

th l sss f ls l h UKs

llhs, l ss lls.


8/48

Figure 1: Consumer

spending as a share

o GDP

Source: Oxord

Economics/

Haver Analytics

Figure 2: Retail sector

value added demanded

rom other sectors (m)Source: Oxord

Economics/

Haver Analytics

7|

WHAT ROLE DOESRETAIL PLAY IN THE UKSECONOMIC SUCCESS?

16%

18%

20%

22%

24%

26%

28%

30%

32%

34%

1988 1992 1996 2000 2004 2008

GOODSANDSERVICES

(EXC.TRANSPORT)AS%G

DP

6%

7%

8%

9%

10%

11%

12%

TRANSPORT%G

DP

Goods as% GDP (LHS) Services exc. Transport as % GDP (LHS)

Household transport spending as % GDP

Mining & quarry 24

Manufacturing 8,466

Utilities 1,149

Construction 835

Distrub & hotels 3,568

Transp & comms 4,638

Fin & bus servs 26,855

Public admin & defence 112

Education & health 273

Other servs 398

Ag, forest & fish 323


9/48

1

The retail sector consistently accounts for around 5% of Gross Value Added in the UK economy.

14% of all UK investment made by large non financial-sector firms is made by large retailers.

Retailers purchase around 180bn worth of goods for resale, supporting 47bn of output

fm h ss.

Retailers pay out 4 billion every year in dividends to shareholders, around 5% of the UK total.

Figure 3: Spending

on retail goods as a

% o total household

consumption less

housing, bills and uels

Source: Oxord

Economics/

Haver Analytics


What is the role of retailers in serving

UK consumers?Over the past decade the retail sectors role in the UK economy has evolved signicantly.Greater competition has led to wider choice, better quality, lower prices and moretransparency in pricing, sourcing and labelling. Factors such as market share, numbero outlets and location have helped drive eciency, while improvements in shoppingexperience, targeted advertising, loyalty cards, the provision o credit, delivery and theinternet have helped deliver growth and streamline business operations. With retail salesconsistently accounting or around a third o total consumer spending, the sector remainsas central as ever to British lie.

1996 2000 2004 2008 2012 2016 2020

40%

42%

44%

46%

48%

50%

52%

%O

FTOTALHOU

SEHOLDCONSUMPTION

(LESS

HOU

SING,BILLS

&

FUEL)

Forecaast


10/48


11/48

Figure 6: Retailers use

o banking and nance

services, 2007

Source: Oxord

Economics/ONS


Looking orward, we expect retailings share o total spending to remain broadly stable.Although expenditure in the next ew years will be slightly weaker as consumers tightenbelts, spending on goods as a share o GDP will be broadly stable over the decadeto 2020. We expect ood, alcohol and tobacco to decline modestly as a proportion ospending, while audio-visual and other leisure-related goods increase.

What is the importance of UK retail toother sectors?

In addition to employing over 10% o the UK workorce, retailers play a vital role insupporting other sectors o the UK economy. For example, around 80% o the UKsarm produce reaches its market via UK retailers. Retailers source around 60% o theirintermediate inputs rom UK nancial and business services, 20% rom manuacturing,while other retail and wholesale rms, and transport and communications rms eachcontribute around 10%. Within nancial and business services, over hal o retailersdemand (12bn) is real estate, with market research and consultancy (4.4bn), and

advertising and computer services (2bn) also substantial beneciaries.

What is the role of UK retailers aswealth generators and investors inthe future?

Retailers do not generate wealth merely by purchasing rom other sectors they also addvalue to these inputs and generate prots to invest or distribute to shareholders. At around5%, the dividends paid on equity by UK listed retailers are broadly in line with retails shareo total GVA. A number o non-retail rms paying dividends in the UK make the vast

majority o their prots overseas, especially in banking, and oil and gas. Excluding thesetwo sectors, the share retailers pay is in the region o 7-9% o the total.

Banking and finance 5.5%

Owning and dealing in real estate 49.2%

Computer services 8.0%

Market research,management consultancy 18.0%

Advertising 6.8%

Other12.6%


12/48

Figure 8: Retailers

investment and GVA

by size class, 2008

Source: Oxord

Economic/Eurostat

11 |

Retailing punches above its weight in investing in the UK economy. In 2008 large retailersaccounted or around 14% o investment by all large non-nancial sector UK rms (rmswith 250+ employees). However, small and medium size UK retailers underperorm, withimplications or their growth potential.

Figure 7: Retail

sector dividends

Source: ONS/

Haver Analytics

4.6% 4.8%

2.2%

3.8%

13.7%

9.4%

8.0%

5.4%

2.5%

5.4%

10.9%

8.1%

0%

2%

4%

6%

8%

10%

12%

14%

16%

micro small medium SMEs large total

%OFNON

-FINANCIALSERVICES

WHOLEEC

ONOMYINVESTMENTS

Share of investment Share of GVA

4%

5%

6%

7%

8%

9%

10%

2007 2008 2009 2010

%O

FTOTALDIVIDEN

DS

0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

TOTALRETAILDIVIDEND

S(BN)


13/48


14/48

Figure 11: Price o overall

consumer basket, 2010

Source: Oxord

Economics/Haver

Analytics

Figure 12: Food

price indices

Source: Oxord

Economics/Eurostat

13 |

DO UK CUSTOMERSGET A GOOD DEAL,COMPARED TO OTHER

COUNTRIES?

100

108

98

89

95

70

75

80

85

90

95

100

105

110

France GermanyEurozone Poland United Kingdom

EUROZONE=100

80

100

120

140

160

180

200

1996 1998 2000 2002 2004 2006 2008 2010

HICP

INDEX(1

996=100)

EU27 Eurozone Belgium Germany

Spain France Poland United Kingdom


15/48

UK consumers currently pay around 5% less for their basket of goods than citizens of the Eurozone.

UK retailers are less expensive in every sub-category of goods except for alcohol and tobacco, which

m xps u muh hh u s.

The price of food in the UK remains lower than the European average, despite strong cost-push inflation

h shp p f sl.

UK clothing retailers have been more effective in shielding consumers from rising cotton prices than

h eup ups.

Figure 13: UK prices

relative to Eurozone, 2010

Source: Oxord

Economics/Haver

Analytics


Do retailers offer customers a good

deal, compared to other countries?

On the whole the typical UK consumer basket is 5% cheaper than that in the Eurozone.German consumers pay 2% more, while French consumers pay around 10% more.A category breakdown shows that the UK is more competitively priced in all categoriesbut alcohol and tobacco. Tobacco duty is almost double the rate o that in France andGermany, while the UK is one o a ew countries to impose any substantial duty on wine.Clothing and ootwear prices are about 20% cheaper in the UK than abroad.

2

99

144

80

9092 92 91

70

80

90

100

110

120

130

140

150

Food

&non-alcoholicdrinks

Alcohol&tobacco

Clothing&footwear

Housing&bills

Furniture&equipment

Recreation&culture

Miscellan

eousgoods&services

E

UROZONE=100


16/48

Figure 14: Duty on

wine across EU, 2011

Source: Oxord

Economics/Eurostat

Figure 15: Clothing and

ootwear price indices

Source: Oxord

Economics/Haver

Analytics

15 |

Have UK retailers insulated consumersfrom commodity price increases?

47

82

73

262

63

57

70

40

283

211

259

0

50

100

150

200

250

300

BE

BG

CZ

DK

DE

EE

EL

ES

FR IE IT

CY

LV

LT

LU

HU

MT

NL

AT

PL

PT

RO S

I

SK F

ISE

UK

EURO

PER1000LITRES

80

85

90

95

100

105

110

115

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

PRICE

INDEX(JAN2008=100)

EU Germany France Poland United Kingdom


17/48

Figure 16: Exchange

rates, 2008-2011

Source: Oxord

Economics/Haver

Analytics


UK consumers have aced a more rapid escalation in their ood bills in recent years thanin other parts o Europe but this ollows a period o soter price increases. In the 10 yearsup to 2007, ood prices in the UK had risen by only 17%, compared to 22% in France,and more in other parts o Europe. Sterlings sharp depreciation against the dollar in 2008has meant that commodities priced in dollars such as oodstus and cotton as well

as products made using these commodities, have become more expensive. Despite that,Europe has seen a greater degree o volatility in clothing prices, which may be down tomore intense competition among UK clothing retailers.

Despite these recent currency movements, ood costs have allen as an overall proportiono amily budgets. Family spending surveys show that in the 1950s UK households spentalmost a third o their disposable income on ood, as opposed to less than 10% in 2010.

Ocial ood price indices inevitably compare constant shopping baskets. In reality,consumers have changed their shopping behaviours in order to stretch householdbudgets. Retailers have increasingly used promotional activity to drive sales and protect

market share. The BRCs Shop Price Index shows that 39% o grocery spend nowgoes on promoted goods which increasingly include multi-purchase discounts. Thesediscounts make direct price comparisons dicult, so that ocial data (based on unit ratherthan multiple purchases) exaggerate the rate o infation experienced by consumers.The gures may also be obscured by greater availability o value ranges, regular ownbrands and premium own brands which have allowed consumers to respond to risingprices by trading up or down. I multi-purchase discounting and the prolieration o valuebrands has increased more in the UK than in Europe, relative ood price infation may beexaggerated.

Overall, it is clear that UK consumers get a good deal. In spite o sharp rises incommodity prices over the past ew years, and much higher duties, the UK remains more

competitively priced than the Eurozone.

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11

$PERDOMESTICCURRENCYUNIT

UK EURO


18/48

Figure 17: Labour

productivity growth,

retailing, selectedcountries, 1995-2007

Source: Oxord Institute

o Retail Management/

EU KLEMS

17 |

How does UK retail productivity

compare to foreign markets?There is widely perceived to be a productivity gap between the UK and overseasmarkets. UK retailers that trade extensively abroad have ound this is not supportedby their own experiences. Data on labour productivity conrm this view. Structural andaccounting issues make international comparisons extremely dicult and potentiallymisleading. However, ocial gures suggest that while UK distributive trades exhibited lowgrowth in labour productivity between 1970 and 1995, they have pulled away rom mucho the rest o Europe since.

ARE UK RETAILERS ASPRODUCTIVE ASOVERSEAS RETAILERS?

90

100

110

120

130

140

150

1 99 5 1 996 1 99 7 1 99 8 1 99 9 2 00 0 2 00 1 2 00 2 2 00 3 20 04 20 05 2 00 6 2 007

INDEX(

1995=100)

UK FRANCE GERMANY USA


19/48

UK retailers are increasingly more productive than their European counterparts.

Labour productivity in the UK retail sector rose by over 40% from 1995 to 2007, compared to less than

10% F gm.

Overall productivity in the US has risen more quickly due to a lighter touch regulatory environment,

pull pl.

Expanding UK retailers generate an increasing proportion of sales and profits from overseas customers,

h s uss h UK.

As well as earning export revenue, retailing strengthens the UKs brand overseas.

Figure 18: Labour


distributive trades,selected countries,

1970-2004


o Retail Management/

EU KLEMS


3

3.6%

2.8%

2.4%

1.6%

2.6%

1.5%

2.3%

1.6%

2.9%

4.4%

0%

1%

2%

3%

4%

5%

FRANCE GERMANY EU UK USA

ANN

UALAVERAGEVOLUMEGROWTHRAT

ES(%)

1970-95 1995-04


20/48

Figure 19: Total actor


retailing, selected

countries, 1995-2007

Source: Oxord Instituteo Retail Management/

EU KLEMS

19 |

Other actors have aected the eciency o UK retailing over this period. Biggerbusinesses (both in terms o rm and store size), along with mergers and acquisitions,have led to economies o scale. Structural changes, such as large supermarkets movinginto higher margin general merchandising, have increased margin contributions and outputper worker hour.

Improvements in eciency can also be down to other considerations such as quality omanagement or innovation. The development o a rms competences, innovativeness

and, ultimately, protability are also infuenced by the business and regulatory environment.How innovative are UK retailers? Innovation in retail is more dicult to record than inmanuacturing since manuacturers tend to innovate in staircase ashion with clearjumps in product development. Most retail innovation occurs in a continuous mode oorganic change. However, in the 2009 Community Innovation Survey, 54% o UK retailersclaimed to be innovation active the equivalent gure in France in 2008 was 33%. Inaddition, the retail sector was well ahead o the national average in adopting innovationswhich were new to market.

Two recent actors have had a major eect on retail labour productivity: the economicrecession and aster than average growth in non-store shopping, particularly via theinternet. The impact o these is hard to measure. Evidence in the US suggests retailers

responded relatively quickly to the economic downturn rom 2008, enabling them to returnto positive, albeit small, rates o labour productivity growth in 2009 by adjusting stanglevels, extensive discounting and price promotion.

90.0

95.0

100.0

105.0

110.0

115.0

120.0

125.0

130.0

135.0

140.0

INDEX(

1995=10

0)

19 95 1 996 1 99 7 1 998 1 99 9 20 00 2 00 1 20 02 2 00 3 2 004 20 05 2 006 20 07

UK FRANCE GERMANY USA


21/48

Figure 20: Operating

revenue per employee

between an online anda store-based retailer,

2000-2010


o Retail Management,

Annual Reports, 2010


Although the UK also benets rom a fexible labour market, retailers here have chosen toretain jobs at the expense o temporary setbacks to labour productivity. As the economyreturns to ull capacity, labour productivity should pick up once more.

The UK is leading the way in multichannel retailing. The growth o e-commerce can boost

productivity by providing a more ecient business model than one based on stores alone.But purely online retailers use very dierent business models to store-based retailers, moreakin to direct mail businesses. Eciency is also measured rather dierently:

We are very dierent, because 85% o our business is online-based, and 15% isthrough the traditional call centre. So, a lot o our eciency metrics are based on key ROIstats, and we look at things like cost per order, cost per new customer, which are sort oprobably typical direct mail type eciency [measures]. (UK e-commerce retailer)

0

50

100

150

200

250

300

350

400

450

500

20102009200820072006200520042003200220012000

OPERATINGREVENUEPEREMPLOYE

E(TH)

Pure play Store based


22/48

21 |

Online retailers have very dierent cost bases and productivity ratios. While there arephenomenally successul UK multichannel retailers, ecient integration across channelsis not without its challenges. Store-based retailers developing multichannel capabilities canlearn rom the eciencies o e-commerce but more channels do not automatically lead to

more growth. Store-based retailers risk adding to cost base without securing equivalentsales increase. Tighter cost control and creative integration solutions are required andthere may be signicant transer o skills and experience between channels.

Despite the potential o non-store retailing, the present limitations on opening hours andplanning requirements constrain UK retail competitiveness and productivity compared withthe US. These regulations refect the scale, nature and location o retailing preerred bythe two dierent cultures, but there is a clear productivity trade-o.

Are UK retailers globally competitive?

World retail sales reached 7.2 trillion in 2010, a quarter o which were generated in

Western Europe and 4% in the UK. The UK stands out as having the highest compositeretail sales growth o the mature markets rom 2005-10.

Retailers rom low growth, mature markets are seeking opportunities internationally.European retailers tend to be more international than their US counterparts because theyhave reached domestic saturation more quickly. European retailers in the top 250 by salesin 2009 generated a third o their revenue outside their domestic market.

Figure 21: Cost o

employee per operating

revenue between an online

and a storebased retailer,

2000-2010Source: Oxord Institute


Annual Reports, 2010

0

10

20

30

40

50

60

70

80

COSTOFEMPLOYEE/OPERATINGREVENUE(%)

Pure play Store based

20102009200820072006200520042003200220012000


23/48

Table 1. Major UK retailers

with physical overseas

operations, 2010

Source: Updated

rom Burt, Sparks &Teller, 2010


UK plc benets rom British retailing successes abroad in three ways. First, export tradebrings in revenue and is important or the rebalancing o the UK economy. Second,retailing can benet rom the repatriation o ideas and experiences and by boostingthe international talent pool. Expatriate managers bring expertise to the domesticoperation. Finally, UK retailers promote the UK as a tourist destination and as a sourceo British produced goods. Luxury British brands, in particular, have had great success ininternational markets. Expenditure rom inbound tourism, classed as an export, held up

much better between 2009-10 (+6%) than that rom domestic tourism (-5%). It has beenestimated that 1 in every 4 spent on luxury brands in the UK over 2010-11 came romoverseas visitors.

* - % group retail prot; ** - continuing activities 2011

Retailer Sector OverseasMarkets

Group Sales(bn)

Overseas %Group Sales

Overseas %Group Prot

Tesco Grocery 13 62.5 28.0 25.0

KingsherHome

Improvement

7 10.5 59.0 68.0

Marks & Spencer Mixed goods 42 9.7 10.0 18.0

Dixons Retail Ltd Electricals 8 8.2 43.0 60.0*

Alliance BootsHealth &Beauty

12 7.6 12.0 8.0

KESA Electricals Electricals 8 5.1 74.0 100.0

Next Clothing 42 3.4 2.2 1.7

HMV GroupMusic, videos& books

2** 2 2.9 n/a


24/48

Figure 22: Retail

employment

Source: Oxord

Economics/ONS

Figure 23: Share

o dierent types o

employees in the retail

sector and wholeeconomy, 2010-11

Source: Oxord

Economics/ONS

23 |

WHAT VALUE DO RETAILJOBS HAVE FOR THE UKECONOMY?

2,200

2,300

2,400

2,500

2,600

2,700

2,800

2,900

1996 1998 2000 2002 2004 2006 2008 2010

RETAILEMPLOYEES(000s)

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

SHARE

OFTOTALEMPLOYEE

(%)

Retail employees (LHS) Retail share of employees (RHS)

12.6%

55.4%60.4%

30.5%

82.3%

31.2%

49.4%

62.3%

0

10

20

30

40

50

60

70

80

90

Part-time Female Under 25yrs old NVQ 3 or less

%E

MPLOYEES

Retail Whole economy


25/48

Around three million people work in retail, the largest private sector employer in the UK, accounting for

10.5% f l mplm.

Retail employment is far more flexible than most other sectors - the sector has a much higher proportion

f p-m wks, f hs 84% m h js wh h mmms, suh s su

, l m h lu f sp llss sl.

Retailers account for over 12% of the total training spend in the UK. On average, retailers invest 1,275

p mpl p , mp jus 800 h fil s 1,200

mufu.

Figure 24: Localauthorities most

dependent on retail

employment

Source: Oxord

Economics/ONS


What is retails role in providing

employment for UK workers?Retail is the largest private sector employer in the UK providing jobs or around threemillion people, about 10.5% o total UK employment. This proportion has remainedstable over the past decade. Whether it is the high street, out-o-town complexes or localshopping parades, retailing creates new markets and plays a vital role in the regenerationo towns, cities and local communities. It is an integral part o the UK economy and willcontinue to be a major source o employment.

We expect retail employment to edge down in 2011 beore beginning to recover in 2012or 2013. Retail employment is currently expected to grow by around 1% per year rom2013 to 2016, around the same rate as or the economy as a whole.

4

Some parts o the UK such as the South West, East o England and Wales are moredependent on retail. In some cases this is likely to be related to tourist activity, or examplein historic towns or near major landmarks, or the presence o major retail developmentssuch as Bluewater or Lakeside.

6%

8%

10%

12%

14%

18%

20%

22%

24%

26%

Dartford

Thurro

ck

Broxbourne

WelwynHatfield

Harborou

gh

NorthNorfolk

Weymouth&Portla

nd

Eastbourne

CastlePo

int

Con

wy

Watford

Thanet

Tamwo

rth

Havant

EllesmerePort&Neston

Bla

by

Kensington&Chels

ea

Mendip

Bournemouth

Havering

%TOTALRETAILEMPLOYMENT

1998 2008 1998 UK average 2008 average


26/48

25 |

In other areas, particularly those with a large reliance on public sector activity, it is morelikely to refect an absence o other private sector employment. In these areas retailing isboth more vital to sustaining local economic activity and, at the same time, more vulnerableas public sector jobs are lost.

Retail is the largest provider o private sector jobs in the UK. As most parts o thepublic sector will experience job cuts 330,000 during this Parliament according tothe Oce or Budget Responsibility retails role as a provider o jobs will become evenmore important.

Figure 25: Employment

in retail and public

sectors, 2008

Source: OxordEconomics/ONS

Figure 26: Employment

in the ten largest sectors

o the UK economy, by

employment, 2009

Source: Oxord

Economics/ONS

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Weymouth&Portland

Conwy

Monm

outhshire

Carma

rthenshire

Torbay

Taun

tonDeane

Inverclyde

Gwynedd

MerthyrTydfil

ValeofG

lamorgan

Sefton

Sotu

hAyrshire

Nort

hAyrshire

Hastings

%TOTALEMPLO

YMENT

Retailing Public sector Retail average Public sector average

%TOTALEMPLOYMENT 3.0

2.5

2.0

1.5 1.5

1.1

0.9 0.80.8

0.6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Retail

Education

Healthcare

Food&beverages

Publicadmin

Wholesaletrade

Socialwork

Specialised

construction

Employm

entactivities

Re

sidentialcare


27/48


What is retailings role as an employer?

The retail workorce diers rom the rest o the economy in a number o ways. Retailingemploys a ar greater proportion o part-time sta (55% versus 31%), women (60%versus 49%), under 25s (31% to 13%), and people who do not hold a degree (83%

to 62%). All o these groups nd it easier to nd opportunities in retailing that matchtheir needs than elsewhere in the economy. Other sectors do not oer the same fexibleemployment opportunities.

Contrary to some perceptions, many people who undertake part-time work do so becauseit suits their preerences rather than because they are unable to obtain a ull-time job.ONS interviewed people working part-time as part o the Labour Force Survey (LFS).In 2010 , 48% o respondents in retail said that they did not want a ull-time job, 34%were in education, 16% could not nd ull-time work and 2% were ill or disabled. Theoverwhelming majority, thereore, choose to work part-time or are unable to work ulltime.

Many women choose retail because o the availability o part-time work. Most womenin retail work less than 40 hours per week. Part-time roles are sought by women

with dependent children as this allows them to combine employment with childcarecommitments. Without this fexibility, many would not be able to achieve a successulcombination o work and amily lie. Through part-time work, retailing provides a valuableboost to household incomes as well as to overall employment.


28/48

27 |

The retail sector is also an important source o jobs or young people at a time when youthunemployment is at a record high. It provides 42% o 16 to 17 year olds in employmentwith a job, 40% o 18 to 19 year olds and 25% o 20 to 24 year olds.

Figure 28: Retails shareo total employment,

by age group, 2010 Q2

Source: Oxord

Economics/ONS

Figure 27: Gender o

employees, 2008

Source: Oxord

Economics/ONS

42.4

%

40.0

%

24.6

%

17.6

%

14.6

%

12.7

%

11.5

%

10.7

%

10.2

%

10.0

%

9.8

%

9.9

%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

16-17

18-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

PROPORTIONOFEMPLOYEES

AGE RANGE

0

10

20

30

40

50

60

70

Retailing Whole economy Retailing Whole economy

%T

OTALEMPL

OYEES

Full time Part time

FemaleMale


29/48


By providing employment to young people, retailing is delivering two benets to society.First, a signicant proportion o young workers are students and part-time work helpsthem support themselves through higher education. Second, retail is oten regarded asa gateway employer. Other sectors benet rom workers who have gained prior workexperience and skills in retail.

Retail ulls a similar role or those without ormal qualications. One in six (16%)employees without qualications work in retail. Similarly, one in seven (15%) o those witha Level 1 NVQ work in retail. Retailing oers the opportunity to gain work experience andskills that will benet employees and other uture employers. Retailers invest substantialsums in training and development, so many employees remain in the sector to buildsuccessul careers.

How much do UK retailers invest ineducation and training?

According to the National Employer Skills Survey (NESS), retail and wholesale employersin England spent 4.9 billion on training sta in 2009, accounting or 12% o total trainingexpenditure. Only business services (9.1 billion) and health and social work (5.7 billion)spent more. Retailers investment equates to 1,275 per employee, slightly more than themanuacturing sector, but less than the utilities sectors. Retail employees who receivedtraining, spent 6 days a year being trained on average.


30/48

Figure 29: Non-domestic

rates, 2005 and 2010

Source: Oxord

Economics/CLG

Figure 30: Eective

corporate tax rate by

sector, 2008-09

Source: Oxord

Economic/HMRC

29 |

Retailing makes signicant direct tax payments to the public purse. Retail also collects tax

on behal o the Government, including tax paid on income earned by retail employees anddividend recipients, indirect taxes such as VAT, as well as uel and other duties. Retailersalso enable people to make other local government payments, such as the LondonCongestion Charge.

DOES RETAIL MAKE AFAIR CONTRIBUTION TOTHE PUBLIC PURSE?

25.8%

18.6%

6.3%

16.7%

6.5%

25.9%

0%

5%

10%

15%

20%

25%

30%

Retail & wholesale Manufacturing Hotels & restaurants

TOTALRATEABLEVALUE

(ACCOUNTEDFORBYPREMISES

TYPE)

2005 2010

16.5

%

23.5

%

11.1

%

15.8

%

10.9

%

15.5

%

14.9

%

11.5

%

7.6

%

13.3

%1

7.3

%

13.6

%16.9

%

0%

5%

10%

15%

20%

25%

Agriculture,forestry,fishing

Energy,watersupply

Extractions,metalmfg,chemicals

Metalgoods

Othermanufacturing

Construction

Distribution&repairs

Hotels&catering

Transport&communication

Financialservices

Businessservices

Otherservices

Allindustries

%G

ROSSPROFITS


31/48

The retail sector pays 17.5 billion per year, 9% of the UK total, of the four largest taxes (VAT, Business Rates, National

isu im tx). ths s m up f:

Around 8 billion (4 to 5%) of National Insurance and Income Tax, reflecting its role in employing part-time workers

hs w h wl f wk.

Around 5 billion per year (9% of the total) of VAT payments.

Around 5 billion per year (28% of the total) of Business Rates.

Around 5 billion per year (over 11% of the total) in Corporation Tax from the distribution sector (wholesale and

l),whh mks lss us f xmps h h ss.

Retailers also make substantial contributions to the public purse through fuel duty, landfill tax, the Climate Change Levy

, fuu, h c ru cmmm.

Figure 31: Retail

employment and PAYESource: Oxord

Economic/HMRC


What does retail employment contribute

to tax receipts?Retail accounts or around 10% o total UK employment. Wages in the sector tend to belower than in the rest o the economy with an average wage in 2010 o 284 per weekcompared with around 480 across the economy as a whole. This is largely due to thegreater proportion o part-time workers and their age prole. Retail also plays an importantrole in drawing people into work rom unemployment, which reduces the burden ontaxpayers o Jobseekers Allowance payments. Overall, government receipts rom NationalInsurance and Pay As You Earn income tax are around 4-5% o the total.

How much VAT does UK retail pay?

The retail sector made around 9% o total VAT payments in 2008/09, a signicant gurethat compares avourably with its share o total value added in the economy, which wasaround 5%.

Retailers net VAT payments since 2008-09 will have risen because the cut to 15% on1 December 2008 (which would have depressed the net sum paid during the nal ourmonths o the 2008-09 nancial year) was reversed on 1 January 2010 and ollowed by arise to 20% on 4 January 2011.

5

4,000

4,200

4,400

4,600

4,800

5,000

5,200

5,400

5,600

5,800

2005-06 2006-07 2007-08 2008-09

PAYERECEIPTSM

4.1%

4.2%

4.3%

4.4%

4.5%

4.6%

%O

FTOTALPAYE

PAYE receipts (m) (LHS) Share of total PAYE (RHS)


32/48


33/48


How much does UK retail pay inbusiness rates?

National Non-Domestic Rates, otherwise known as Business Rates, are levied onproperties used or commercial purposes. The retail sector accounted or around 25% ototal rateable values in 2005 and 2010, but over a similar period (2005-06 to 2007-08)the sector contributed 28% o actual rates paid, so the sector pays more than its air shareo Business Rates.

How much tax does the UK retailsector pay?

We estimate that the retail sector contributed between 6.5% to 7% o the total tax yield in2008-09, based on the ve main taxes considered above. Retailers also bear a substantialcost in terms o uel duty and motoring related taxes, both directly and through contractingto external logistics rms. However, published records do not allow quantication.

Figure 34: Retail national

non-domestic rates

(NNDR) paid

Source: Oxord

Economics/CLG

0

2

4

6

8

10

12

14

16

18

20

2005-06 2006-07 2007-08 2008-09 2009-10

BN

Non-retail NNDR Retai l NNDR


34/48

Figure 35: Growth in

retail sales, by location,

2000-2009



Verdict, 2011

Figure 36: Births

and deaths o retail

enterprises, 2004-2009

Source: ONS, 2011

33 |

WHAT IS THE CHANGINGSHAPE OF RETAIL?

-5%

0%

5%

10%

15%

20%

2001

2002

2003

2004

2005

2006

2007

2008

2009

%C

HANGE(YOY)

Out of town sales Town centre sales

Neighbourhood sales Total sales

Non store sales

20,000

21,000

22,000

23,000

24,000

25,000

26,000

27,000

28,000

29,000

30,000

2004 2005 2006 2007 2008 2009

NUMBEROFENTERPRIS

ES

Births Deaths


35/48

As shopping habits change, town and city centre retailing needs to adapt to meet ever strengthening competition

fm h hls ls. ths hlls sp fm, u mfi , h u m

wu.

Successful retail locations combine small and large retailers, with the most successful smaller firms a criticalsu f fuu wh.

Historically retail births and deaths have been roughly equal, at around 23,000 in 2007. Births subsequently

l 21,000 2009, wh pssl mpls f fuu .

Constant innovation and adaptation to changing customer demands means that there will always be winners and

lss.

Figure 37: Retail sales mix,

by location, 2000-2009Source: Verdict, 2011


What are the challenges facing high

streets?The geography o UK retail is changing. The growth o large-scale ormats in edge andout-o-town locations over the past 30 years has been accompanied, more recently,by a rapid expansion in non-store retail sales. While total sales were growing, the impacton retailers bottom lines was largely concealed. However, as overall sales have allensince the start o the recession in 2008, the locational impact has become more apparent.In particular, the long-term decline in the proportion o sales going through town centreshas accelerated.

At the same time, sales through out-o-town locations have continued to grow, albeit ata slower rate than at the beginning o the decade, as customers enjoy benets such aseasy access by car and the convenience o key retail brands situated in the same location.

Shopping patterns have changed. The average number o shopping trips per person ellby 18% between 1995 and 2009. Beore sharp increases in uel costs, the trend was tolonger, less requent car trips that had replaced more requent shopping trips on oot. Morerecent data suggest this may be reversing, at least temporarily.

6

28%

29%

29

%

30

%

30

%

31

%

31

%

31

%

31

%

31

%

49%

48%

48%

48%

47%

46%

46%

45%

45%

43%

17%

17%

17%

17%

17%

17%

17%

16%

16%

16%

5% 5% 6% 6% 6% 6% 7% 7% 8% 9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Out of town Town centre Neighbourhood Non-store retail


36/48

35 |

Neighbourhood shopping has seen a slow, but relatively consistent, rate o decline insales growth over the last decade. It is here, as well as town centres, that most small andindependent retailers are located. To continue to trade successully these locations need tooer comparable levels o access and convenience.

In terms o turnover, the average size o UK retail rms nearly doubled between 1996

and 2009, a transormation mirrored in every developed economy and increasingly aeature o many emerging markets. Larger rms have economic advantages in termso reach, buying power, supply chains and marketing. But successul small retail rmsare a seedbed or innovation and are oten more agile in delivering tailored choice andpersonalised service. A healthy retail economy benets rom the co-existence o both largeand small rms.

Town centres are not simply retail locations. Their importance to their local communitiesrests on the broader range o activities which take place there.

Are town centres different?

Town centres with property designed to meet Victorian or older needs may not be able toadjust to all modern requirements. The long-term diversion o trade is not so much romtown centres to out-o-town as rom old shopping stock to new, and rom small space tobig, irrespective o location. Retailers want to trade rom ecient premises with accessto the largest shopping populations. Developers build in low risk, high yield locations. Andshoppers want more choice, better value or money and easier access.

Retails role will continue to change. About hal o the population shopped in the 90 largesttrading locations in 2009; compared to over 200 locations in 1971. Smaller towns haveallen behind as town centre redevelopment schemes and satellite out-o-town centreshave ocussed on areas o high population.

Irrespective o where they are, high quality, well managed shopping locations continue toattract ootall and maintain high levels o protable retail. For example, between Januaryand May 2011, Land Securities reduced the vacancy rate in its shopping centre portoliorom 4.5% to 4.1%. Similarly, Anglo-French shopping centre developer Hammersonreported little impact rom the recent rise in UK retail administrations.

Falling demand and cost pressures have had disproportionate eects on smallerbusinesses. Between 21,000 and 28,000 retail enterprises were born each year rom2004-2009, but that number has allen since. The number o deaths o UK retail rmsexceeded births in 2009 (25,500). More recent unocial data suggests the closure rateo retail rms has increased in the last two years. The survival rate o new retail rms isconstant: with two-thirds remaining in business at the end o year 3 but only around hal atthe end o year 4.


37/48


What does the future hold?

The outlook or all kinds o retail locations is very uncertain. The downturn hasexposed struggling trading locations as well as retail categories such as urniture andjewellery shops which are always disproportionately aected by a recession. However,

supermarkets have continued to expand with 41 million square eet o new developmentsin the pipeline at the end o the rst quarter o 2011.

When denitive action is taken, improvements are possible. The BRCs 21st CenturyHigh Streets report makes clear that wider adoption o best practice can ensure thattown centres have a successul uture. This includes creating a unique sense o place, anattractive public realm, planning and working with partners in developing accessible, saeand secure locations in the context o supportive regulatory and scal regimes. These arenot quick x solutions but longer term strategies, which must be shaped to individualcircumstances. A clear strategic view must be taken o each local high street within itsbroader catchment.

Out-o-town strategies will also need to evolve to meet changing customer demands.

Retail warehouses are currently delivering an above average return to investors, but shitsto other channels could alter the dynamics in these locations. There has already beensubstantial dierentiation o centres according to their oer and target audiences. Thishas, or example, led to the emergence o outlet centres and ashion parks.

Small and independent high street and neighbourhood retailers still have the advantagewhere convenience is the main consideration. Time constrained customers are willing topay a higher price or less stress and ease o access.

Whatever their location or size, it is clear customers expect retailers to contribute positivelyto their communities. As well as delivering services and providing jobs, successul retailerscontribute to social and environmental projects, which deliver tangible benets to thepeople living in their localities. This expectation is only likely to increase as governmentlooks to redene the relative roles o private, public and other bodies.

Figure 38: Percent survival

rates o newly-born retail

enterprises, 2004-2008

Source: ONS, 2011

40%

50%

60%

70%

80%

90%

100%

Births Year 1 Year 2 Year 3 Year 4 Year 5

%O

FSURVIVALFROMB

IRTHIN

2004TO

2008

2004 2005 2006 2007 2008


38/48

Figure 39: Estimated

internet retail sales

per capita, selectedcountries, 2010



Verdict, 2011

Figure 40: Smartphone

adoption and use o

smartphone shopping

apps, by age and socio-

economic group, 2011

Source: Ocom, 2011

37 |

WHAT IS THE IMPACTOF MULTICHANNELRETAILING?

378

291

222

216

202

192

191

185

157

155

123

52

50

36

6

0

50

100

150

200

250

300

350

400

United Kingdom

DenmarkUSA

South Korea

France

Sweden

Japan

Switzerland

Nertherlands

Germany

Belgium

Spain

Canada

Italy

China

50%

42%

29%

7%

32%

20%

25% 26%

16%18%

24%

19% 18%

0%

10%

20%

30%

40%

50%

60%

16-24 25-34 35-44 55+ AB C1 C2 DEABC1 C2DE

Smartphone Shopping app


39/48

Total non-store retail sales were 30.3 billion in the UK in 2010, of which internet sales comprised 23.4 billion.

With an estimated 11% of global internet retail sales, the UK was the number three market, equivalent to

gm F m.

Consumer power has been enhanced by internet retailing, which enables ready access to greater information,p mpss h sums mms.

New mobile platforms, including smartphones and tablets, are being adopted by consumers and are leading

l w .

A substantial minority, 41%, of UK households reported never using the internet for shopping in 2010 and

l hls m mp hs sums.

Figure 41: Internet retailing

sales and penetration,

2009-2011

Source : Oxord

Economics/ONS


What is the extent of multichannel

retailing in the UK?The internet is transorming economies and societies, and UK retailers are at the oreronto this change. Sales growth via non-store channels is increasingly important to traditionalretailers, so understanding the implications o multichannel retailing has become vital.

In 2010, total non-store retail sales in the UK were estimated at 30.3bn, o whichinternet sales comprised 23.4bn. By the beginning o 2011, the internet was responsibleor nearly 10% o all retail sales, up rom 6% in 2009. A quarter o the UKs most popularwebsites are online retail sites. More than 80% o the UKs internet users visited at leastone o the UKs top 200 retail sites in August 2010. Ocoms consumer research in April2011 suggested that 72% o adults used their broadband connection or purchasinggoods and services, making it the third most popular online activity ater emailing and web

browsing.

7

200

250

300

350

400

450

500

550

600

650

700

jun-09

aug-09

oct-09

dec-09

feb-10

apr-10

jun-10

aug-10

oct-10

dec-10

feb-11

RETIALSALES(INTERNET)(MPER

WEEK,CURRENTPRICES)

4

5

6

7

8

9

10

11

RETIALSALES(INTERNET)AS%OFTOTALRETAILSALES

Total internet retail sales (LHS)

Internet retail sales as % of total retail sales (RHS)


40/48

39 |

Multichannel retailing is more than simply oering store and internet sales; it includessales rom catalogues, vending machines, mail order and TV shopping. While 53% o allshoppers bought over the internet in 2008, between a th and a quarter used cataloguesor mail order and 9% used TV shopping.

As new technologies and sotware have become more widely available, internet sales havecome rom a broader range o channels. At the beginning o 2011, 27% o UK adults

were smartphone users, 18% o whom reported having used their phones to make apurchase.

The ownership o tablets more than doubled, rom 2% to 5% o UK households, in thesix months to March 2011. The proportion o users making purchases using this newtechnology also doubled to 38%. Although retail apps account or ewer than 0.5% o thetotal, Apple reported that three out o its top 25 apps were rom retailers. The UK mobilecommerce (m-commerce) market in 2010, was estimated to be worth 561m (2.4% oall online spending). This is expected to double in 2011.

Click-and-collect purchasing is becoming increasingly popular and is expected to increaserom a th to a third o non-ood retail purchases by 2020.

Figure 42: Use o remote

shopping channels, by age

group, 2008

Source: Verdict

Research, 2009

0

10

20

30

40

50

60

70

80

all 15-24 25-34 35-44 45-54 55+

%O

FRESPONDENTS

Internet Catalogue Mail order TV shopping channel


41/48


How does the UK compare to othermarkets?

Internet sales account or the majority o non-store retail sales across Western Europe,

with global non-store retail sales via the internet estimated at 206bn or 2010. The UKgenerates approximately 11% o total global sales, making it the number three market interms o size, equivalent to Germany and France combined.

Figure 43: WesternEuropean non-store retail

sales estimates, 2010

Source: Euromonitor,

2011

Figure 44: Estimated

non-store retail sales via

the internet worldwide,

( mn), 2011

Source: Euromonitor/

Passport GMID, 2011

Direct selling 11%

Home shopping 21%

Internet retailing 58%

Vending 10%

USA82,969

France 14,910

South Korea 12,862

China 8,881

Netherlands 3,075

Spain 2,770

Italy 2,563

Sweden 2,099

Canada 1,999

Denmark 1,884

Switzerland 1,654

Belgium 1,554

Rest of the world 31,163

Japan 28,467

United Kingdom 27,495

Germany 14,967


42/48

41 |

UK per capita internet sales were also the highest in Europe last year, at 374 per annum.Pre-disposing actors include: ewer, larger retailers; cheaper and ubiquitous broadband;more reliable and cost-eective delivery; and increased condence in online security.As UK consumers have grown increasingly condent they have become habitual onlineshoppers.

The reasons or shopping online are changing. In 2010, 14% o online shoppers boughtgoods on a weekly basis, compared to 4% in 2007, and price is no longer the solemotivation. The convenience o 24/7 shopping, the ease o comparing products andprices, and ready access compared to visiting the shops are all cited as increasing inimportance since 2007.

From a retail perspective, strategic innovation by large UK companies, the attractivenesso the UK to purely online US businesses, and innovative online start-ups, have broadenedand strengthened the oer.

The dramatic growth o internet sales is dwared by its indirect eects in infuencing ofinesales. These range rom developing interest to product evaluations and price comparisons,reinorced by customer recommendations. Around 1 in 7 internet users in the UK visitedprice comparison sites in April 2011 and 15 million used voucher or reward sites.

Stores can, conversely, play a key role in infuencing online purchasing. Around a th

o all internet transactions in the UK involve some in-store research. The growing useo mobile product scanning apps also means that stores themselves enable online pricecomparisons. Shoppers are consequently better inormed than ever and, to be successul,retailers need to meet and exceed growing expectations.

Figure 45: Factors

attracting consumers to

online shopping, 2007-

2010

Source: PWC, 2011

Easier to compare

products and offers

Easy home delivery

Better variety of products

Easier than visiting shops Buy products cantbuy elsewhere

I can shop whenever I want

Lower price / Better offers

Quicker than visiting shops

Easier to find myfavourite brands

20

30

40

50

60

70

80

20 30 40 50 60 70 80

2007 RESPONDENTS (% OF ONLINE SHOPPERS)

2010RESPONDENT

S

(%O

FONLINESHOPP

ERS)

Increased inimportancesince 2007

Decreased inimportancesince 2007


43/48


44/48

43 |

The newer digital technologies smartphones and tablets attract users rom broadersocial backgrounds.

With 26.5 million users in the UK, product endorsements on social media play anincreasingly important role. 16-24 year olds spend up to an hour a day on social media,whereas over 55s spend only 6 minutes on average. However, lower socio-economicgroups are extensive users o social networking.

Figure 48: UK adults

who purchased over the

Internet, by age, 2008-

2010

Source: BRC, ONSInternet Access, 2010

Figure 49: Daily usage o

social media, by age andsocio-economic group,

2010

Source: OXIRM, Ocom

Technology Tracker, 2011

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

16-24 24-44 45-54 55-64 65+

PERCENTAGEOF

UK

ADULTS

2008 2009 2010 Internet access

12

20

24

11

6

10

31

3

4

1 0 3 2

47

05

10

15

20

25

30

35

40

45

50

all 16+ 16-24 25-44 45-54 55+ ABC1 C2DE

MINUTESP

ERDAYACCESSINGSOCIALNETWOR

KS

Mobile Computer


45/48


What is the impact of multichannelretailing on the sector?

Changes in buying and researching have consequences or retail business models. Onlinecustomers shop more requently, oten with a smaller basket size, ocussing on ewerretailers. This is partly or reasons o convenience, partly or reasons o trust. Most onlineshoppers, 60%, have between two and ve avoured retailers, based on a trusted brandand a broad product range. Over hal o online shoppers reported spending more with theiravourite brand as a result.

Multichannel retailing has changed customers expectations, including when visiting stores.Innovative retailers are responding with new store layouts, in-store services, downsizingor closing stores, or redeploying sta across their multichannel operation. As customerschoose to research and purchase goods in varying combinations o location and channel,retail operations need to fex and respond accordingly. Multichannel oers shoppersgreater choice and transparency between discount and high service retail, which sets newchallenges or the sector.

Multichannel retailing requires a new set o skills and competences. Although it may bepossible to transer learning between channels, there can be signicant cultural barriers atBoard, as well as shop foor level. Research or Skillsmart Retail in 2011 commented:

One o the perceived barriers to the acquisition and utilisation o employees with technicalskills was seen by some retailers to be the lack o technical literacy at senior managementlevel. They have secretaries and drivers; they dont even know how to use Google Mapssaid one respondent. Such managers are oten digital immigrants who have come lateto ICT; or are simply cocooned rom it by their support systems. It makes it dicult orsuch managers to see the opportunity and potential both in new hires o digital natives,embedded in IT and with oten superior skills, and the growing capability o the customer

base. (OXIRM, 2011)


46/48

45 |

ABOUT THE BRC

The British Retail Consortium (BRC) is the lead trade association or the retail sector andthe authoritative voice o the industry to policy makers and the media.

We campaign to promote and deend retailers interests, and advise retailers o threats andopportunities to their business. We also look to improve the perceptions o retailing in theUK.

Retail is one o the UKs success stories, but currently aces a challenging trading andregulatory environment. The BRCs aim is to bring about policy and regulatory changesthat will ensure retailers can maintain their outstanding record on job creation, consumerchoice and product innovation.

ABOUT OXFORD ECONOMICS

Oxord Economics - ormerly Oxord Economic Forecasting - was ounded in 1981 to

provide independent orecasting and analysis tailored to the needs o economists andplanners in government and business. It is now one o the worlds leading providers oeconomic analysis, advice and models, with over 300 clients.

ABOUT THE OXFORD INSTITUTE OFRETAIL MANAGEMENT

The Oxord Institute o Retail Management (OXIRM) was established within theUniversity o Oxord in 1985, to relate sound scholarship to the practical needs o retailand consumer service companies. It is now based at the Said Business School. In thisbridging role or the past 25 years, OXIRM has created and contributed to an active

applied, interdisciplinary research programme, teaching on degree and executive educationprogrammes, a series o revenue-generating research workshops as well as beingengaged in active networking through its Oxord Retail Futures Group, and its publishing oThe Retail Digest, a quarterly journal.

British Retail Consortium.

The inormation contained in this publication is or general guidance and inormation only.You should neither act, nor rerain rom action, on the basis o any such inormation. Whilstthe BRC endeavours to ensure that the inormation in this publication is accurate, theBRC shall not be liable or any damages (including without limitation, damages or loss obusiness or loss o prots) arising in contract, tort or otherwise rom this publication or anyinormation contained in it, or rom any action or decision taken as a result o reading this

publication or any such inormation.

Concept/Design: Tapestry

Photograph: Google, Shutterstock.com and Jenny Solomon / Shutterstock.com, joyull /Shutterstock.com

Credits: The BRC would like to thank the ollowing people or their work in the productiono this document: Brendon Hunt, Jane Bevis, Richard Lim, Siobhan Bentley, Tom Ironside.

Printed: May 2012


47/48



48/48

www.brc.org.uk

For further information please contact:

British Retail Consortium, 21 Dartmouth Street,Westminster, London, SW1H 9BP

020 7854 [email protected]

Documents

UK Retail Leading Globally Serving Locally