An Oracle White Paper September 2011

The Future of Retail: Through the Eyes of Digital Natives

The Future of Retail: Through the Eyes of Digital Natives

Introduction ........................................................................................... 1 Survey Overview ................................................................................... 2 Analysis of Key Findings ....................................................................... 3 Key Findings ......................................................................................... 3 The role of stores remains an important element of the shopping experience for young consumers today and will continue to be in the future..... 3 Price is the most important element of the shopping experience for digital natives ............................................................................................... 4 If price is the primary motivator, product range is second ............... 5 Despite the growth and importance of social networking, using these networks for purchasing is relatively rare......................................................... 6 Methodology.......................................................................................... 7 Conclusion ............................................................................................ 7 Differentiated and personalised customer interactions .................... 7 Differentiated products, pricing and services based on their preferences .......................................................................................................... 7 Differentiated interactions based on how and when they want to interact .......................................................................................................... 7 A seamless, connected experience where the retailer is aligned across all business operations and decisions: ................................................. 8 Appendices ........................................................................................... 9

The Future of Retail: Through the Eyes of Digital Natives

Introduction
Digital Natives...are all native speakers of the digital language of computers, videos games and the internet. - Marc Prensky, Digital Natives, Digital Immigrant (2001) By 2025 the first generation digital natives - those reared on all pervasive technologies will be the most connected retail consumers yet. Combining high digital literacy with immediate access to all their favourite and most valued retailers, digital natives will be some of the most powerful consumers the world has ever known. Born in the digital age of the 1980s onwards, digital natives adoption of technology is instinctive and easy. This generation is used to immediate results, thrives on instant gratification and frequent rewards. They can effortlessly multi-task and function best when networked. Although environmental factors like reaching economic maturity during a recession and the issues of online security and identity theft become a reality, their consumerism is unquestionable. Digital Natives are as familiar gathering in malls and shopping centres with their friends, as they are with using the internet to shop. The growth of online shopping is rapid and ongoing but digital natives can also be seen queuing for hours to get hold of the latest product phenomena or regularly visiting their favourite stores to purchase the latest outfit or accessory. Recent figures (from Verdict Research) calculate that the age group 15-24 years contributed 10.8% of the global consumer spend in 2010. Of the $14 trillion spent on global retail, approximately $1.5 trillion came from this group, and combined with the age group 0-14 years, digital natives contributed almost 20% of the global retail spend. So what does this mean for retailers? What should retailers be doing to meet the expectations of digital natives now and in the future when this generation really hit their buying potential?

The Future of Retail: Through the Eyes of Digital Natives

Digital Natives...are all native speakers of the digital language of computers, videos games and the internet. - Marc Prensky, Digital Natives, Digital Immigrant (2001)

Survey Overview
In July 2011, in an attempt to understand this group for the first time and inform tomorrows retail strategies, Oracle commissioned a survey to examine the attitudes of digital native consumers between the ages of 19 and 23, to current shopping needs - both in store and online - and their expectations of these needs in the future. The study asked digital natives in three European countries: the UK, Germany and France, about the role of retail in their lives, how they use technology and channels when shopping, the importance of new media in the shopping experience, and how they feel retailers, technology and stores must adapt to best support this group moving forward. The goal was to identify how this current generation interacts with retail today, the role of technology in facilitating these interactions and how they perceive this will change by 2025. Specific topics covered by the first part of the survey included the following: The role shopping plays in the lives of digital natives today How this group use multi-channels and retail technologies How digital natives want to interact with retailers The importance of price, choice, service, stores, advertising and personalisation The role of social media and mobile phones in the shopping experience

The second part of the survey revealed digital natives perceptions and expectations of their retail environment in the year 2025 exploring: Time pressures that will effect store and channel choices in 2025 The factors that might contribute to stores dying out The role of technology in making retail businesses successful Those retailers digital natives expect to develop well with technology

The results of this research are presented in this white paper, along with the critical findings that will enable retail organisations to market their products and services more effectively today and inform their plans for the future.

The Future of Retail: Through the Eyes of Digital Natives

Analysis of Key Findings

Contributed by Daniele Pederzoli, Professor of Marketing at Rouen Business School and member of the Research Centre in Consumer, Retail & Supply Chain Management The results of this study concerning young consumers in the three biggest consumer markets in Europe are very interesting, not only because they allow us to analyse the future of retail, but also because it shows relevant differences in shopping habits among the three countries. One important result is that all retailers should operate a cross-channel presence now, but this will be critical in 2025. The cross-channel presence helps retailers to build a strong brand awareness and reputation, creating a clear differentiation and allowing them to extend relationships with their customers. Social networks, even if they remain predominantly about socialising, are an essential part of this relationship strategy for retailers. The function of shopping as a leisure and entertainment activity is clearly confirmed by this study, but in this field too we can find relevant differences among countries. Brick and mortar and online retailers should carefully consider this leisure dimension of shopping in the conception and design of their physical stores and the construction of online sites. Stores must provide the customer not only with range, value and services, but also with a shopping experience. Another result of this study clearly shows that consumers like technology, but they want technology to be user friendly and convenient. The role of technology should be to help consumers to find and buy products at both brick and mortar and online retailers; and this research reveals some online retailers have built a strong reputation in this field, especially for British and German consumers.

Key Findings
The Future of Retail: Through the Eyes of Digital Natives survey results reveals the following: The role of stores remains an important element of the shopping experience for young consumers today and will continue to be in the future For the digital natives group, shopping is a leisure activity and a form of entertainment, seen as both relaxing and a means of socialising with friends. French respondents most strongly identify with shopping as a leisure experience (69% to the UKs 64%) and as a way to relax (59% compared to 39% in Germany) (Figure 1). The role of stores in the shopping experience is still important, exceeding preferences to shop online, with 92% of French respondents topping the list of those preferring to shop in store over other channels. Although respondents of all three nationalities use multiple retail channels vociferously, researching products and getting the best deal is a natural extension of internet search behaviour that this group has been reared on. German respondents are the most internet

The Future of Retail: Through the Eyes of Digital Natives

savvy with 81% choosing to shop online (Figure 2). This result can only serve to strengthen demand for an always-on approach to retailing. If consumers are using a mix of store and online channels to search, compare and buy products at a time that is convenient to them, then retailers must ensure that their businesses operate in a 24/7 environment. The shopping experience must become seamless across channels. When it comes to online retailers and their use of technologies to support the search and purchase process, it was perhaps unsurprising to see global pure-play retailers heading the pack, particularly in the UK and Germany, while in France the preference is for local online retailers. When it comes to fashion, a more equal mix of multi-channel and pure-play retailers dominate the online world of this group. While technology is important to the experiences of young consumers online, the survey also revealed that technology is equally important in the store. FNAC, Media Markt, H&M, Tesco and Ikea were all listed as retailers considered to have the best technologies and the use of technology in the store environment differs by geography. French and German respondents are most likely to use in-store promotions technologies, with over two thirds of French consumers using in-store technology for coupons, loyalty programmes and promotions (Figure 3). More recent innovations like QR codes and electronic shelf labels have yet to be wholeheartedly accepted by this generation with generally less than 10% usage across nationalities. To this end, technology would appear to expedite the shopping experience. If consumers can find information on product, price and promotions from their mobile phones or information kiosks within the store, then retailers must take responsibility for optimizing their operations and delivering an experience in store that is fit for purpose whether that be through improved efficiency, better product availability or empowering sales associates to facilitate sales. These results suggest that as retailers develop their multi-channel capabilities, it is important not to de-emphasise the store environment and the role of technology within it as a key facilitator of the shopping experience. Although pure-play retailers can remain focused on selling extensive ranges of goods, multi-channel retailers need to focus on providing a seamless connected experience across channels to support stores and drive their businesses forward. Price is the most important element of the shopping experience for digital natives This group of young consumers has financially come of age during a period of economic downturn. How much this has affected the importance of pricing in their minds is unclear but for them, price remains a critical component of any shopping experience (Figure 4). This group claims to be more financially independent with generally less than a fifth relying solely on their parents for income support. 51% of UK and nearly half of French respondents have little or no financial help from their families describing themselves as financially independent. This independence is perhaps backed up by the importance these consumers place on pricing. It

The Future of Retail: Through the Eyes of Digital Natives

also may explain why the top five retailers visited across Europe were all grocery retailers Tesco, Carrefour, Auchan, Aldi and Lidl. That said, the survey revealed considerable differences in the use of channels and in particular, online channels to research products for purchase (Figure 5). 46% of young German consumers use the internet for this purpose, compared to only 31% in the UK and only a fifth of French respondents search for the best deal online before visiting a store to buy the product. Digital natives in Germany are most engaged by the products from their favourite retailers (Figure 6), while the French are motivated by a combination of best price, product and choice. British respondents are more driven by pricing, and uniquely, are more motivated by seasonal sales, something of little importance to other regions. While this group is currently focused on price, looking forward to 2025 and they see service as becoming a more important factor in the shopping experience as they mature. Two thirds of French and British consumers believe that online security and identity theft fears will still be a major concern in 2025 while only 40% of German respondents felt they will not be concerned about these threats. As stated previously, stores remain important in the shopping experience of the future, with around 40% of all respondents estimating they will spend the same amount of time in stores as they do today, while only a third of Germans believe they will spend more time shopping online. Product price and range are perceived to be the main factors influencing the choice of outlet, while the most important purchasing criteria in 2025 is thought to be price and promotions (Figure 7). Over three quarters of consumers can envisage purchasing directly from manufacturers in the future to save money, stated by more than two-thirds of respondents. Around 10% felt that this would give them a closer relationship to a particular brand and give them more immediate access to products. To remain competitive, retailers must customise their offering better. It suggests that consumers believe that retail in 2025 will become just as much about price, as it is about assortment, range and product information and that retailers need to focus on these elements in order to interact more effectively with customers. This type of actionable insight can help retailers make smarter decisions around merchandise, planning, supply chain management and marketing. If price is the primary motivator, product range is second The survey asked respondents to consider purchasing a pair of trainers from universally wellknown, aspirational, quality brand favoured by both genders (Figure 8). The goal was to establish whether this group would buy this item in an outlet that offered multiple brands; purchase on a website that offered multiple brands; buy from the particular brands store; or to purchase on that brands website, which provides options for personalisation and customisation of the product. Overwhelmingly, feedback from the majority of respondents was that consumers would choose to go and try the item on in an environment that carried multiple brands and a wide range and

The Future of Retail: Through the Eyes of Digital Natives

assortment of goods. The second most popular choice was to visit the brands own store. Around one fifth of German and British respondents would prefer to purchase the item from an online site with multiple brands, while 72% of French consumers would much prefer to try on different brands in the store, compared to only half of UK consumers and 56% in Germany. As weve demonstrated above, the results suggest that brand is less important than price, range and assortment to this generation. Reinforcing the message that the store maintains the magic for this group, it is still perceived to be the place to purchase items, providing the price is right. Interestingly, retailers should consider that this is the group that has grown up with the breadth of range offered by the likes of Amazon and therefore, they enjoy a broad product assortment. For retailers, the challenge is in balancing assortment expectations with physical space in store and profitably managing inventory holding costs on slower moving lines. Technology, yet again holds the key to helping retailers to manage these challenges and better optimize their operations by delivering realtime visibility to inventory throughout the process, from planning to the point-of-service. Despite the growth and importance of social networking, using these networks for purchasing is relatively rare While shopping is a social activity in that it is a way of spending time with friends, the survey revealed that only 15% currently purchase through their social networks. Today, social networking is for socialising with friends, particularly in the UK with 82% respondents confirming this is their purpose for using social media (Figure 9). UK digital natives discuss products, trends and gossip on social networks, sharing information and opinions but continue to purchase goods in a relatively traditional way. At least half of consumers share product information with friends but fewer than a fifth of them do so regularly. And despite the old adage that bad news travels faster, twice as many respondents admitted to sharing positive experiences more than negative experiences (Figure 10). While the UK sees more communication between young consumers and retailers through social networks, email is the preferred communication channel between stores and consumers, though French respondents are open to being contacted by text message (Figure 11). Only a small percentage use mobiles to purchase goods currently. Only half of respondents are receiving or responding to personalised promotions today, and merely a fifth feel that personalised recommendations are generally useful, although more than half indicated that they are sometimes useful (Figure 12). These responses suggest that consumers are not yet receiving that personalized experience at every touch point, which raises questions about what retailers are missing when it comes to personalisation of offers? Do retailers simply not have the actionable insight on customers to make and execute decisions to target offers and communications, and to give consumers better visibility to store inventory and order information?

The Future of Retail: Through the Eyes of Digital Natives

Methodology
Responses to the Future of Retail Through the Eyes of the Digital Natives survey were generated from 1,514 European consumers aged between 19 and 23. The survey was conducted using Redshift Research in July 2011 using its online consumer panel. The study compiled online responses from 506 respondents in the UK, 503 in Germany and 505 in France.

Conclusion
The findings of this survey reveal that the expectations of the digital natives generation are that shopping experiences should offer: Differentiated and personalised customer interactions Each consumer is an individual with their own requirements, preferences and opinions. Retailers can no longer offer a one size fits all approach and expect consumers to accept this. In a highly competitive retail environment, consumers can choose where to shop. So retailers must interact with their customers in the way the customer chooses. The findings suggest that technology plays a key role in helping to deliver that differentiated customer experience whether by using in-store technologies for coupons, loyalty programmes and promotions or in ability to compare similar items from several retailers on a mobile. And the relationship between technology and customer satisfaction can only become stronger as the technology used become more personalised, intuitive and insightful. Differentiated products, pricing and services based on their preferences This generation of consumers has shifted from the mass consumption of the early 21st century. They are making choices based on quality, price and differentiation and are considering each purchase more carefully than ever before. This group researches and evaluates products, considering a number of factors including price, range, brand, channel etc before making purchasing decisions. While retailers may not necessarily be getting personalised promotions and interactions quite right yet, if they can gain actionable insight into how their customers make and execute purchasing decisions, the technology is available to better interact with customers through targeted offerings. Differentiated interactions based on how and when they want to interact The continued growth in online retailing is nothing new but it is the way in which retailers must now operate, providing an anytime retailing shopping experience that has changed. Anytime time retailing is always on, enabling the consumer to browse, evaluate and purchase goods through the channel that is convenient to them and at a time that is convenient to them. By

The Future of Retail: Through the Eyes of Digital Natives

aligning every aspect of their business to gain efficiencies and economies, retailers can optimise their operations and work in support of customer priorities. For some, it might be crucial that the latest dress be bought and delivered within 24 hours. For others, priorities may lie with transparency of pricing and ranges across channels. Whatever a customers focus, retailers must be fit for purpose and able to understand their product and how it is consumed. A seamless, connected experience where the retailer is aligned across all business operations and decisions The growth in online, not only as a channel in its own right, but also in the influence online activity has in driving sales in retail outlets, means that retailers must offer a consistent shopping experience. The provision of a cross-channel retail model is no longer enough digital natives in particular are now blending retail touch points. Customers can be in-store comparing the pricing of retail competitors on their handheld devices or they can check product ratings online before they purchase a product. It has become even more vital that retailers transcend individual channels to ensure that each customer interaction and touch point is connected seamlessly, providing that consistent, quality shopping experience.

To drive and maintain growth in this complex and changing retail landscape, retailers need to provide the superior experiences that customers are demanding and align these with smarter decisions and processes. Through its offering of a complete, open, and integrated combination of software applications, technology infrastructure, hardware and industry expertise, Oracle supplements retailers strategies and expertise with the tools to create an experience platform. Tuned to each retailers specific business and growth objectives, this experience platform enables retailers to: provide actionable insight to make smarter decisions in planning, forecasting, merchandising, supply chain management and marketing etc; optimise operations to gain efficiencies and economies, align KPIs to eliminate strategic conflicts, and focus on customers; connect customer interactions across all channels and touch points, and every customer lifecycle phase to provide a differentiated customer experience that meets consumers needs and expectations.

The Future of Retail: Through the Eyes of Digital Natives

Appendices

Figure 1. Question: What role does shopping play in your life?

Figure 2. Question: How do you prefer to shop?

The Future of Retail: Through the Eyes of Digital Natives

Figure 3. Question: Which of these retail technologies do you currently use?

100% 90% 80% 70% 60% 50%

86% 79% 75%77%

77%

UK

76% 76% 62% 46% 42% 42% 46% 38% 48% 42% 36% 26%
17%

Germany France

66%

49%
35%

40%
30% 20%

32% 26% 25%

40% 36% 22% 30% 23% 18%

10%
0%
Price Products Choice Online offers The way the Speed I can Sales Seasonal stores look buy things promotions sales and feel e.g. BOGOF Brand image Loyalty schemes

Figure 4. Question: What is it you like about shops?

10

The Future of Retail: Through the Eyes of Digital Natives

Figure 5. Question: When you look at retailers online, are you most likely to be?

Figure 6. Question: Why can you see yourself shopping at particular stores in the future?

11

The Future of Retail: Through the Eyes of Digital Natives

Figure 7. Question: In 2025 which of the following will most impact your purchasing choices?

Figure 8. Question: If you were buying trainers from a brand like Nike, would you prefer to?

12

The Future of Retail: Through the Eyes of Digital Natives

Figure 9. Question: What role does social networking play in your life?

Figure 10. Question: Do you ever share information about products or promotions with your friends via email, text or social networks?

13

The Future of Retail: Through the Eyes of Digital Natives

Figure 11. Question: How do you prefer retailers to contact you?

Figure 12. Question: Do you find personalized recommendations from retailers useful?

14

The Future of Retail: Through the Eyes of Digital Natives September 2011

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