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How the multi-channel shopper is changing the Swiss retail landscape

Customers take controlMulti-channel – the changing Swiss retail landscape

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3The Swiss perspective

Contents

Executive Summary 4

Introduction 6

Multi-channel survey results 9

Implications for retailers 17

Multi-channel retail in 2020 25

Contacts 27

4 Customers take control

Executive summary

Key questions for retailers over the next three to five years are how multi-channel shopping behav-iour will continue to evolve and how retailers need to transform their business models to best satisfy the needs of today’s consumer. PwC surveyed 7,005 consumers world-wide, including 1,000 respondents from Switzerland. The single big-gest conclusion that we drew from our study is that consumers are outpacing traditional retailers and online pure-players are closing the gap.

An increasing number of consum-ers are shopping multi-channel; in fact 88% of Swiss respondents. The online shopping population is growing rapidly, with many relative newcomers. In addition, consumers already consider themselves to be quite sophisticated online shoppers. And the more experienced they are, the more they spend online. The main reasons given for shopping online are convenience (24/7 and speed) and price. The most popular products bought online are books, music and films (57%), computers (44%) and electronics (42%).

To understand multi-channel shop-ping we have to break shopping down into a journey that starts with research and comparison, crystal-lises at the moment of purchase and is followed up by delivery and after-sales service. Consumers choose the channel that best suits their needs, doing their research

predominantly online for product categories such as electronics and computers before buying the prod-uct in a store. Besides company web-sites, more and more consumers are researching and following brands via social media (16%). Our results clearly show that consumers prefer to have their purchases delivered home. We see a major discrepancy between what consumers want and what retailers are offering. On-line pure players such as Amazon, Ricardo and eBay are closing the gap and offering exactly what many traditional retailers are not yet able to provide.

And who are the most well-known multichannel retailers in Switzer-land? Among the top multi-channel retailers were Migros, Coop, Apple, Nespresso, Interdiscount and Digitec. Achieving the ‘most fa-voured retailer’ status in a particular niche will be a key success factor in the future. One key element for a successful multi-channel opera-tion is a deep understanding of the customer, backed up by a success-ful cross-channel experience and a seamless behind-the-scenes execu-tion. Online and in-store opera-tions need to be well integrated and a company’s website, mobile phone applications and TV channels not only used as sales channels but also to drive traffic to the physical stores. The consumer’s online experience needs to be aligned with the one experienced in-store. This is vital as many consumers are start-

ing to develop personal portfolios of their favourite stores and are consolidating their spending among their preferred retailers. In the fu-ture, physical stores will serve two distinct purposes: as a showroom for a selected product range and as a convenient transaction and collection point.

One integral part of the multi-channel strategy is a carefully designed e-commerce strategy. Multi-channel retailers leverage all the advantages offered by e-com-merce: rich product information, wish-lists, broad product range, customer reviews and tips, conveni-ence of access, fast checkout, price comparisons and special deals. They know how to drive traffic to their website and from there to their flagship stores.

In terms of supply chain opera-tions, multi-channels are forcing retailers to manage a much higher level of complexity. Consumers may find a product out of stock in the store and use an in-store termi-nal to have another location ship it to their home. Alternatively, they might use a mobile device to find a lower price or special deal at an-other store, order it online and pick it up at the store. Inventory levels need to be optimised at each point in the supply chain, which requires better forecasting, transparency and flexibility. Return processes also need to remain easy to follow.


Despite the large potential of go-ing abroad, online retailers are reluctant to sell their products across borders due to the cost of managing the added complex-ity involved, which often could outweigh any commercial benefits. Costs increase dramatically once e-commerce content and services have to be managed in multiple languages. Pricing becomes highly complex when accommodating foreign currencies, custom duties and complex VAT rules. Central-ised logistic capabilities struggle to effectively manage the added

complexity of shipping and returns in a cross-border environment, while in-depth expertise is required to embed processes and procedures to minimise and simplify indirect tax burdens. Minimising unrecover-able taxes, expediting refunds of recoverable amounts, integrating onerous reporting obligations and documentation requirements into supply chain processes and continu-ously updating prices, processes and systems in response to regular amendments to VAT legislation are issues of strategic importance for an online retailer. This makes it crucial

for retailers to factor tax consid-erations into their major strategic discussions, to carefully review the impact of VAT on pricing, ensure ac-curate customs documentation and bring in specialists.


1. Introduction

Most retailers in Switzerland are having to face a challenging envi-ronment due to a combination of factors that are changing the retail landscape: while the strong Swiss franc is triggering an unprecedented amount of shopping abroad that resulted in a 3% decrease in Swiss retail turnover in 20111 and an average 2% price reduction2, retail-ers are under continued margin pressure from new entrants and comparatively high operating costs. This is compounded by the digital world, the focus of our study, which is steadily transforming the retail environment, empowering cus-tomers and enabling them to shop online for anything, anytime and anywhere.

PwC Switzerland wanted to discover how Switzerland is experiencing the migration from single to multi-chan-nel retailing and to benchmark this with other markets. Our findings are based on the most comprehensive research of global multi-channel retailing that PwC3 has carried out

and also includes research conduct-ed in Switzerland.

Some of the results were surprising while others have confirmed much of the anecdotal evidence our teams have been seeing across the eight markets4 covered by the study. This report is based both, on the data we have collected through our survey and on our extensive market experi-ence of supporting the majority of Swiss retail and consumer compa-nies.

The questions retailers are facing over the next three to five years will be how multi-channel shopping behaviour will continue to evolve, what they need to do in response and how they can best position themselves to benefit from the boom in online shopping.

This publication is the Swiss version of the global publication “Custom-ers take control”. In addition to the survey results, we provide you with our view on the implications for:

1. Multi-channel management

2. E-commerce strategy

3. Supply chain management

4. Indirect taxes

Our starting pointIn conducting our first Swiss (and global) study of online shoppers, we wanted to discover how Switzerland is experiencing the migration from single to multi-channel retailing. Current research and forward-look-ing forecasts on the subject suggest that this dynamic has been in place for some time and is set to continue. According to Forrester Research, more than 40% of the population in Western Europe purchase goods online, while Switzerland, Germany and France all report figures show-ing that more than 50% of consum-ers do so. Moreover, this trend is set to continue, with the European average expected to rise to 49% by 2015.5

1. GfK Markt Monitor 2011, 7 February 2012

2. 2012 Outlook, Credit Suisse and Fuhrer & Hotz

3. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network.

4. For the purposes of this report, we have considered Hong Kong as a separate market within China. We have identified some points specifically for Hong Kong where the results have particularly stood out. The markets surveyed were the UK, US, Germany, France, the Netherlands, Switzerland, China and Hong Kong.

5. Forrester Research Inc.


The questions we ask ourselves in conducting this research was three-fold: How do Swiss consumers shop in a multi-channel way? How does Switzerland compare to other key geographic regions? What are the implications for Swiss retailers? In this report we outline the key trends we identified in our study and ways in which retailers can address these strategically.

MethodologyOut of the 7,005 surveys conducted by member firms of the PwC network – across three continents covering eight markets (US, UK, France, Germany, Switzerland, the Netherlands, Hong Kong and China) – PwC Switzerland commis-sioned 1,000 online surveys in Switzerland6 in August and Sep-tember 2011. Respondents in each market were chosen to reflect the national profiles in terms of age, gender, employment status and region.

6. Online research was chosen to enable PwC to carry out a wider study than would have been achievable by a telephone methodology, with more robust numbers to provide a solid foundation for analysis of consumer multi-channel shopping behaviour in different territories. The online panels used are localised and in local language to ensure broad reach to those that are more inaccessible. The panels are used for research only and checks and balances are put in place to ensure that respondents are who they say they are, that they are demographically representative (by age, gender, region, etc.), and that respondents are appropriate for the purposes of the study. The research was carried out under the MRS code of conduct, as well as equivalents in each other territory internationally. The caveat of conducting the research using this methodology is that those who respond are more likely to be digitally-savvy, in their shopping and other behaviour. However this is a constant across all the territories in which research was conducted. Results are likely to have inflated the figures for familiarity and expertise with online shopping.


2. Multi-channel survey results

Consumers are outpacing traditional retailersIt’s clear that multi-channel shop-ping is not just here, but here to stay. The most significant conclusion from our study is that consumers are outpacing traditional retailers with online pure-players closing the gap. The Swiss consumer is becom-ing increasingly sophisticated, and retailers are struggling to adapt their operating models at the same pace.

Closing the gap requires a signifi-cant increase in agility and flexibil-ity by traditional retailers, driven by a deeper understanding of their customers. This requires changes to the way they track and measure consumer behaviour, market their products, run their stores and man-age their supply chains. The success-ful business model of the future will be different from that of the past. The winners will be those who have recognised these trends and are building agile organisations capable of delivering a consistent profit-able proposition in a multi-channel, multinational way.

Traditional bricks and mortar retail-ers are especially under pressure, as new players are closing the gaps they leave and consumers have not been increasing their spending since starting to shop across multiple channels. For example 71% of Swiss respondents say that their in-store shopping has stayed the same as last year and will remain unchanged

over the next two to three years. In addition, 76% state that they are not spending more money than they used to with their favourite retailers. With discounters increas-ing their market presence and consumers engaging increasingly in cross-border shopping, tradi-tional retailers are under pressure to lower prices and/or differentiate. Adopting a multi-channel business model is one way in which retailers can differentiate themselves from the competition and bring about a reduction in their prices.

Our view:

Traditional retailers will lose market share if they don’t change to a multi-channel business model.

Definition and market size of multi-channel shoppingWhat exactly do we mean by multi-channel shopping? There are, in fact, three different types of activity that multi-channel shoppers typically engage in. The first and most common is spreading shop-ping across a number of different channels and choosing the one that works the best for a particular oc-casion or type of purchase. A large 88% of our respondents are already shopping across at least two chan-nels, and 34% are using four or five.

Another variant of multi-channel shopping is buying goods from the same retailer but doing it across more than one channel. 61% of our respondents have done this in Switzerland, compared to 66% on a global level.

The third type is using a range of different channels to make a single purchase. An example of this kind of transaction is researching a product online and then buying it in-store. In fact, more than 80% of Swiss respondents research online before they buy electronics (83%), computers (81%) and books, music, and movies (81%). These numbers are similar in other European mar-kets but look entirely different in China (see figure 1). In other words, online research doesn’t just lead to online purchases; it’s also critical in driving traffic to physical stores.

Our view:

Online research doesn’t just lead to online purchases; it’s also critical in driving traffic to physical stores.

More online savvy, more online shop-pingOne of the findings that stood out – and has heavy implications for retailers – was the self-described sophistication of the online shoppers


we surveyed. Many of our respond-ents considered themselves to be highly capable in terms of research-ing and purchasing via the Internet. In fact, 63% of Swiss respondents (69% globally) consider themselves to be either ‘confident’ or ‘experts’ in this regard (see figure 2). So why is this so relevant for retailers?

In Switzerland, this online savvy comes with increased price sensitiv-ity and demands for free delivery, but also with the willingness to spend more money online. Our results show that 28% of Swiss re-spondents with a confidence level of 4 and 5 (advanced, experts) spend CHF 250-1000 occasionally or frequently, compared to 13% of the respondents rating themselves as newcomers, beginners or as having an intermediate confidence level.

Our view:

Experienced online shoppers are more likely to spend higher amounts on each purchase.

Compared with their global peers, Swiss consumers are less frequent online shoppers, with only 21% shopping online at least once a week compared with the 33% average or, at the top end of the scale, China with around 70% weekly online shoppers.

Fast-growing rate of online shoppersWhile Internet shopping may have gone mainstream, plenty of online shoppers are relative newcomers. Across the world, 22% of our sample of online shoppers and 32% of Swiss respondents made their first online

Switzerland

France

Germany

Netherlands

UK

US

China

Hong Kong

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 2: Level of sophistication of online shoppers

Q3. How sophisticated an online shopper do you think you are?

newcomers beginners intermediate confident experts

Q10a- For each of the following product categories, what methods do you use for researching your purchases? Please tick all that apply (Friends, TV, Catalogue, Online via mobile device, Online via PC, In-store).

Figure 1: Online research in different product categories (percentage of respondents stating online research via PC as a method used for these product categories)

Switzerland China

Electronics

Computers

Books, Music and Movies

Toys

Health & Beauty

Clothing and Footware

Sports equipment/Outdoor

Furniture and Homeware

Jewellery/Watches

Grocery

Do-it-Yourself

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purchase within the past year (see figure 3). The still fast-growing rate of online shoppers around the world is one of our more surprising find-ings, and indicates plenty of room for online retailing growth as more and more consumers around the world get connected.

Our view:

More and more consumers around the world shop online, indicating plenty of room for online retailing growth.

The reasons for shopping onlineWhat is it that is so attractive about online shopping, regardless of nationality or geography? There’s a great deal of global consistency in the top five factors cited. The conventional wisdom has settled on price as the driving force for the growth of online shopping, and, in-deed, it does feature among the top three reasons cited by our survey respondents. Interestingly, however, the top factor given is 24/7 access to shopping, cited by 28% of the global online shoppers. With 33% this factor is even more important for Swiss respondents. This may be due to the lower price sensitivity of Swiss consu mers or because opening hours in most cantons are regulated more strictly than elsewhere. Online shopping, it seems, is all about freedom, being able to shop wherever and whenever you want (see figure 4).

Our view:

The number one reason around the world to shop online is not price, but 24/7 access.

Interestingly, five of the top ten fac-tors cited why people shop online relate to logistics and supply chain; namely, fast and free delivery, the variety of goods on offer, stock availability and low cost of delivery and returns. An in-depth view of the implications of multi-channel shopping for the supply chain is given under “Supply chain manage-ment” in chapter 3 “Implications for retailers”(see page 19).

With regard to the top three favour-ite Swiss multi-channel retailers, the key factors why Swiss respond-ents choose to shop with them are

Switzerland

France

Germany

Netherlands

UK

US

China

Hong Kong

Q2. How long is it since you made your first online purchase?

Figure 3: Time since first online purchase

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

I don’t remember <1 years 1–2 years 3–4 years >5 years

Figure 4: Reasons to shop online (in %)

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Q4: What are the most important factors that attract you to shopping online?

I can shop whenever I want

Low prices/better offers

Quicker than visiting shops

Easier than visiting shops

Easier to compare products and offers

Better variety

To buy products unavailable elsewhere

Easy home delivery for big/heavy items

Better product information

Easier to find favourite brands

Global Switzerland

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3

7

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18

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33

0


product range (74%), trust (72%), reasonable pricing (62%), website navigation (59%) and good stock availability (52%) (see figure 5).

Products bought onlineWhen it comes to the products that are bought online, the ‘typical’ on-line categories lead the way. In the last 12 months, Swiss respondents bought 57% of their books, music and films, 44% of their computers and 42% of their electronics online. These are also clearly the categories where the competition is the fierc-est, with many pure online players such as cede.ch, Brack or Amazon. Nevertheless, established players such as Interdiscount, Fust, M-Elec-tronics or Ex Libris also want to get a piece of the pie and have launched online shops.

However, even the categories at the bottom end of the scale, such as do-it-yourself, jewellery/watches, and furniture and homeware, attract around 20% of purchasers to online shops (see figure 6). This percent-age reflects the amount of purchases and not the value of purchases.

Multi-channel purchase journeyOnline shopping has opened up myriad of new choices for consum-ers, not just in terms of what they buy, but how they buy it. The Inter-net has empowered the consumer in three ways: during the decision-making process leading to purchase; at the actual moment of purchase; and throughout the product owner-ship period, which might include product delivery, maintenance and return.

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17

Books, music, movies

Computers

Electronics

Clothing and footware

Health & beauty (cosmetics)

Toys

Sports equipment / outdoor

Furniture and homewares

Grocery

Jewellery/watches

Do-it-yourself

Q9: For each of the following product categories, what percentage of your purchases have you made online over the last 12 months (mean scores)?

Figure 6: Online purchases made in each category ove the last 12 months (in %)

Q15: Why do you shop at your top 3 favourite multi-channel retailers/brands?

Figure 5: Reasons to shop at most favourite multi-channel retailer/brands (in %)

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Like the products they offer

Trust

Cheap/reasonably priced

Easy to use website

Good stock availability

Like the store

Points/rewardsWebsite stores address/

personal informationInnovative products

Can return items to store

Good returns policy

Fast/reliable deliveryCan reserve/purchase

items for in-store collection

Innovative marketing

Like the staffEarly/exclusive access to sales and products

Brand/retailer was one of the first to offer the online channel for purchasing

Provide advice/help on products

Free returns

Website stores credit card details

Other

Switzerland


Our view:

Understanding multi-channel is about breaking shopping down into a journey where the consumer can choose from a range of channels at each stage.

As figure 7 shows, understanding multi-channel is about breaking shopping down into a journey that starts with research and compari-son, crystallises at the moment of purchase and is followed by delivery and after-sales service. At each stage, the consumer can now choose from a range of different channels, ranging from conventional stores, to online with home delivery, or to online with store pick-up. Moreover, online shopping offers its own suite of sub-channels, from the PC to the mobile phone and to the tablet PC.

Multi-channel shopping behaviour may be very consistent across age, demography and nationality, but when it comes to product category, distinctive patterns emerge. In some categories, consumers shop via sin-gle channels, either wholly online or wholly in-store. For example, 75% of Swiss multi-channel shop-pers prefer to research and shop for groceries in-store, while at the other end of the scale, 67% research and buy books, music, and films online. Category data also illustrates that Swiss consumers shop across mul-tiple channels for toys, which they predominantly research online and purchase in-store.

This data gives retailers insight that can be used in making decisions about where to consider investing and what kinds of returns they can reasonably expect. Is a physical store valued by customers and why?

Because most retailers haven’t been quick enough to create efficient multi-channel models, consumers are working it out for themselves, using different channels in ways that best suit them. In essence, con-sumers are creating their own multi-channel experiences by leveraging multiple retailers across a single category or product.

Taking a close look at the delivery stage, consumers have one prefer-ence across all categories: home de-livery. Here, we find a large discrep-ancy between consumer preference and reality. Many retailers do not offer home delivery, and if they do, they are faced with the challenge of finding the right delivery time.

Another issue for retailers is the return process. Take clothing, for example. Almost a third of Swiss respondents said they prefer to research and purchase clothing online, and 61% prefer to have their orders delivered to the home. This makes it necessary for the retailer to manage the return process in a seamless manner, particularly if it involves returning goods to another country. In short, consumers want simplicity, but that translates into far greater complexity for retailers. Most consumers are not wedded to any one channel, but most retailers certainly are.

After-sales Receive Transact Compare

Figure 7: The customer purchase journey

Research

Our view:

Consumers want simplicity – home delivery of their goods – which leads to far greater complexity for retailers.

The Swiss retailer Digitec, one of the top ten Swiss multi-channel retailers, offers this multi-channel purchase journey. Digitec is a multi-channel retailer specialising in IT products and entertainment elec-tronics. Consumers can touch and feel products in the flagship store in Zurich West-Park, complete the transaction in-store and have the products delivered to their home. In addition, the Digitec online plat-form offers easy product research and price comparisons along with the option to make a purchase. After the transaction, consumers can choose between home delivery or pick-up at the store. Digitec places consumers at the centre and allows them to decide. With this multi-channel approach, the company has grown significantly and added other product categories such as toys, household and garden products to its range of online offerings.

Online pure players vs. multi-channel retailersOnline pure players such as Amazon and Ricardo often close the gap and offer exactly what many traditional retailers are not yet able to provide: home delivery. They also excel at offering a wide product range, reasonable prices, good stock avail-ability and fast delivery. They prove to be the winners in categories using existing distribution channels (such as books delivered by post) (see figure 8).


Looking at the top ten multi-chan-nel retailers in Switzerland, we find that respondents shop through more than one channel (see figure 9). These companies are clearly the most successful multi-channel re-tailers in Switzerland and follow the online pure players in terms of their online presence and sales. However, multi-channel retailers have real, albeit under-utilised, future poten-tial and advantages with their stores if they could only identify the best way to integrate their online and offline operations.

Figure 9: Top ten multi-channel retailers

Q13b. Of those you have chosen, have you shopped with them through more than one channel?

Our view:

Traditional retailers have real, albeit under-utilised, potential with their stores that they need to integrate better into their multi-channel approach.

The ‘most-favoured retailer’ statusIt’s clear from our study that there is no magic formula for a success-ful multi-channel operation. Those retailers who are getting it right are doing so in a variety of different ways. However, one factor unites them all: a deep understanding of their customers. The leading multi-channel players in the different geographic markets are those that truly understand their consumer appeal and can then replicate that consumer experience across all their channels, backing it up by seamless behind-the-scenes execution.

Our view:

The leading multi-channel players replicate consumer experience across all channels.

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Amazon

Ricardo

eBay

La Redoute

Microspot

DeinDeal

Cede.ch

Groupon

Geschenkidee.ch

Q17a. Please state which online-only retailers you have shopped with over the last 12 months (online via PC).

Figure 8: Online pure players shopped with over the last 12 months (in %)

Q13b. Of those you have chosen, have you shopped with them through more than one channel?

Figure 9: Top ten multi-channel retailers (in %)

24

22

14

13

11

9

9

9

9

9

Migros

Coop

Apple

Nespresso

Interdiscount

Digitec

Charles Vögele

Ikea

Tchibo

Denner

Q14. Of those you have chosen, what are your favourite multi-channel retailers/brands?

Figure 10: Favourite multi-channel retailers (in %)

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30

19

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11

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10

10

6

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Migros

Coop

Apple

Nespresso

Interdiscount

Digitec

Tchibo

Ikea

Orell Füssli

Denner


Social media is here to stayThe results of our survey are particularly interesting when it comes to how consumers are using social media. In Switzerland, 30% of respondents are using some form of social media every day, be that Twitter, Facebook or a similar social network. While only a very small minority have used these networks to shop (1%), the story is a bit different when it comes to following brands and individual retailers via social media. In Switzerland, 16% of our survey sample followed specific brands or retailers. That figure is significantly higher in other markets (see figure 11). So while online shoppers aren’t quite yet ready to purchase items through a social media site, they are clearly using the medium to research and follow brands they love. A case in point in Switzerland is the Migros social media platform Migipedia. Here, consumers actively interact with Migros and voice their ideas, pref-erences and opinions on products and services. Migros even involves consumers in the development of new products by asking for their opinions on product names, packaging, taste and design and includes those products that con-sumers asked for in their assort-ment.

This seamless experience is vital, because our study indicates that for many consumers, multi-channel shopping is leading to the devel-opment of personal portfolios of favourite stores, which attract a higher proportion of that individ-ual’s spend. For Switzerland, these retailers are shown in figure 10. It is interesting to note that the major department stores and clothing brands do not appear in the top ten multi-channel retailers. This might be because they do not offer a truly integrated multi-channel online service.

Achieving this ‘most-favoured retailer’ status in a specific niche will be a key success factor in the future. This is because consumers are clearly consolidating spending amongst these preferred retail-ers, who tend to be the ones that are managing their business in a genuinely integrated way. As this consolidation could accelerate very quickly, those retailers who do not

make the necessary changes to their business models run a very real risk of losing market share.

Our view:

Consumers clearly consolidate their spending amongst their preferred retailers. Achieving this ‘most favoured retailer’ status will be a key success factor in the future.

For example, Apple has not only built its success on innovative prod-ucts but also on marketing. Being focused ruthlessly on the consumer, their model is grounded in a small number of flagship stores designed to allow people to touch, see and feel the brand with great staff, a high level of service, outstanding designed space and state-of-the-art interactive experiences. The stores

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Hong Kong

China

US

UK

Switzerland

Germany

Netherlands

France

Q24: Do you interact with brands online through social media?

Figure 11: Online shoppers following brands though social media (in %)

take orders, but most purchases take place online via computer, mobile phone or iPad. Apple doesn’t mind which route consumers take, as long they arrive.

Achieving ‘most-favoured retailer’ retailer status in a particular niche is all about knowing what custom-ers value and delivering that experi-ence effectively and seamlessly across all channels. But that is not enough on its own. Retailers also need to get the basics right across the whole value chain: brand, prod-uct, price and delivery. The same factors that make retailers success-ful in stores make them successful across multiple channels. The play-ers who will win in a multi-channel world will be those who inspire their existing customers to spend more time with them and know how to use their website, mobile ap-plications and TV channel not only as sales channels, but also to drive traffic to the physical stores.


3. Implications for retailers

Multi-channel managementManaging the online side of a multi-channel business is still a real challenge for many traditional retailers. Unlike a bricks and mortar shop, you can’t just open an online site – however appealing – and expect traffic without doing any ad-vertising. There is no Fifth Avenue, Bahnhofstrasse, Champs Elysees or Rue du Rhône to attract shoppers. Online customers arrive at a website from numerous different routes, and managing these possible paths to an online retail site is a Herculean challenge requiring an integrated strategy linking brand advertis-ing, search engine optimisation, pay-per-click electronic and email promotions, and good old-fashioned word of mouth. The fact remains, however, that many traditional retailers are not organised to link these activities and lack the vision and digital talent required to do this effectively. The key point here is that e-commerce is driven by direct marketing, and there’s often a dearth of the right skills and experi-ence in traditional store-focused marketing teams.

Integrating online and in-store sales

Even retailers with an extensive on-line presence face some of the same challenges, because they are still running their online and in-store operations as separate silos and fail-ing to capture or measure their role in driving online traffic to physical stores. In extreme cases, this can

lead to inconsistent product ranges or prices throughout a retailer’s different channels, undermining the web’s role in allowing customers to research prior to visiting the store.

Our view:

Websites should be designed to actively encourage quick and efficient online research and make it easy to translate that research into either an online or local store purchase.

Ikea is one retailer that understands this. The company’s website is perfectly geared to push people to their local store, providing detailed information on what’s available, on a unit by unit basis. Other retailers could learn from this by designing websites that actively encourage quick and efficient online research, and making it easy to translate that research into either an online or local store purchase. Features like wish-lists or the ability to book an appointment to view an item in-store can help build the same bridge. Other website best practices for retailers include personalised recommendations, augmented product information and product reviews, and rapid checkout.

These consumer-facing activities need to be supported by an organi-sational structure that integrates the two different operations and forces them to work collaboratively

together. Likewise, budget and incentives need to be allocated to the online outlet based not only on sales, but on the traffic it drives to the physical store. Some retailers appoint ‘multi-channel directors’ in response to these challenges, but in our view that misses the point. Multi-channel embraces the whole business – it is the business – so if anyone’s running it, it should be the CEO. By contrast, some of the savvier operators are now devising roles with titles like digital direc-tor, with responsibility not just for e-commerce, but for marketing and social media. In many cases, this is not just a major commercial shift, but a significant cultural change, and that degree of transformation cannot be achieved either cheaply or overnight. Getting multi-channel right has the potential to be both, a significant differentiator and a major competitive advantage for those retailers who can achieve it. But that means having the business model, the data and the consumer insight to target the right consum-ers, in the right way and through the right channel.

The role of the physical store

The key issue for all retailers with large numbers of physical stores is the role those stores should be playing in a multi-channel world. Even though Swiss online shoppers do not shop as frequently as their counterparts in other countries and are relative newcomers in terms of the average number of years since they made their first online pur-chase (3.9 years), they have a fairly high level of perceived expertise.


For Switzerland and other markets, retailers should consider the role of their stores now and in the future. Are they flagships for the brand, as Apple’s stores are? Are they show-rooms for their product range?

The most likely scenario is that stores will serve two distinct pur-poses. The first is as a showroom or flagship store, where customers come for inspiration, to browse and to physically interact with the prod-ucts. Either the customer buys the product on the spot or completes the transaction online. The second is as a strategically placed, conveni-ent transaction and collection point, where customers come to complete a journey started on the web. They are using the store simply as a way of completing the transaction.

Our view:

Future stores serve two distinct purposes: a showroom and/or a convenient transaction and collection point.

The degree to which physical stores become tangential to retailers has ramifications for systems, ware-housing and distribution. Depend-ing on the category, retailers may need to stock less in-store and maintain larger depots with smarter allocation systems. Whatever a retailer’s product range, there’s a need for greater transparency and more accurate real-time data, which has major IT and systems implica-tions. There’s no question that the costs and complexities of delivering a state-of-the-art multi-channel operation are significant, but the stakes are high.

E-commerce strategyThere is still room for improvement even for the best multi-channel retailers. Challenges lie mainly in meeting and anticipating the needs of the customer. According to our survey results, the top three reasons cited by consumers for shopping with their most favourite multi-channel retailer are a broad and attractive product range, trust and price. These challenges can only be met with an integrated e-commerce approach.

Integrate e-commerce as a part of a multi-channel strategy

Retailers should keep in mind that a successful e-commerce strategy needs to be accompanied by a com-prehensive multi-channel strategy that carefully balances and inte-grates the different retail channels. Customers will look for retailers offering the same shopping experi-ence online as in-store. For example, while they can read reviews and product information online, they should have a similar experience in-store with additional product information and the assistance of a well-trained sales staff.

Our view:

Shoppers will look for retailers offering a similar shopping experience across all channels.

There is also the challenge of know-ing where and what to invest in. The new retail environment is produc-ing so many new product and value propositions that it can be hard for even the most experienced and professional retailer to know what

customers really want and what will create value over the long term. For example, free returns are really valued by customers but is it worth the extra cost? Is ‘check and reserve’ right for the business? Giving customers the option of same-day store collection might be a source of competitive advantage for some businesses but requires data on real-time stock availability, which can be very expensive for most retailers to achieve.

Defining e-commerce strategies

When designing an e-commerce strategy, retailers or brands should leverage all the advantages provided by e-commerce: rich product infor-mation, wish-lists, broad product range, customer reviews and tips, convenience of access, fast checkout, price comparison and special deals. Developing a comprehensive strat-egy including customer experience and brand perception is more sus-tainable in the long term as dem-onstrated by Apple or Ikea, previ-ously mentioned. Most e-commerce strategies focus on price first and convenience second. This is usually true for pure online players that have often pre-empted e-commerce. Traditional retailers that are now trying to catch up with them need to adopt a broader approach.

Our view:

An e-commerce strategy should leverage all the advantages of e-commerce like rich product information, broad product range, customer reviews, fast checkout, etc.

A wide variety of e-commerce strategies can be seen in Switzer-land, with some retailers focusing on developing customer-focused


online platforms. Take FNAC, a leading French retailer specialising in cultural goods and electronics with four stores in Switzerland. FNAC’s website leverages all aspects of the customer relationship such as customer reviews, FNAC reviews, a FNAC blog and detailed product information. However, contrary to its French e-commerce operations, which are closely linked to the stores, the retailer’s Swiss website does not allow shoppers to buy books and electronic goods online, but only e-books, cultural events and a few other digitalised goods.

Other non-grocery Swiss retailers show signs of a growing interest in developing a multi-channel strat-egy: Pfister, for example, offers a comprehensive e-commerce experi-ence with a large product portfolio available online, integration with store stocks and the possibility to pick up the merchandise in-store. Other examples of recent e-com-merce entrants are the Migros fur-niture arm MiCasa, Payot, Interdis-count, Mediamarkt and Saturn, all of whom have their own strategies. We believe that there are substan-tial benefits for Swiss retailers to invest in developing comprehensive e-commerce and multi-channel strategies and operations.

For traditional retailers it is clearly a challenge to become a successful multi-channel-retailer. However, only retailers that transform their operations will be able to remain competitive in the future retail world. Online operations can bring them additional sales in Switzer-land and grant them access to new markets abroad.

Our view:

Retailers’ multi-channel marketing will need to be able to respond quickly to demand triggered by external events if they are to fully leverage the advantages of an online store.

Another step is the need to learn new skills and develop new tools. Marketing will not only be responsi-ble for generating more traffic to the website but for being more respon-sive to external events that might prompt a specific impulse purchase, such as media coverage of a celeb-rity wearing a particular item of clothing. In this case, together with purchasing, marketing will need to

make sure that the right items are in stock in time and that the store’s website is adjusted accordingly. Setting up a promotion at a physical store takes much longer than doing so online. This advantage needs to be leveraged, because being on-trend can be transformed into a solid competitive advantage.

Supply chain managementWith regard to supply chain opera-tions, multi-channel marketing is forcing retailers to demonstrate their ability to manage a much higher level of complexity. Cus-tomers are almost taking over the supply chain, as e-commerce makes any location a potential point of sale. Demand patterns are getting more and more complex, as are customer requirements. Retailers must carefully plan and respond to the implications for their logistics and inventory.

Focus on visibility and flexibility

The degree to which physical stores become somewhat tangential to retailers has ramifications for


warehousing and distribution. As demonstrated previously, physical retail and online retail operations are becoming increasingly inte-grated and will become even more so in the years to come. Today it is not uncommon for a customer to go to a store, find the product is out of stock and use an in-store termi-nal to have another location ship it to their home. Alternatively, the customer might use a smartphone to find a lower price or a special deal at another store, order it online and pick it up in-store. This has a direct impact on a retailer’s monitoring of its inventory and, of course, its logistics.

Our view:

There is a necessity to optimise inventory levels at each point of the supply chain, which requires better forecasting, transparency and flexibility.

Key areas retailers need to focus on are visibility and flexibility: visibility of inventory and orders and flex-ibility of their supply chain footprint and capabilities. This renewed ne-cessity to optimise inventory levels at each point of the supply chain requires even better forecasting and analysis of the margin of error, as customer behaviour has become less predictable.

Depending on the category, retailers may need to stock less in-store and maintain larger depots with smarter allocation systems. Integration of online and physical operations will have an impact on the ordering and stocking processes: Should an order be fulfilled directly from a ware-house or a store? Is there a need for a third-party logistics provider? Should a retailer allow customers to

cancel or modify their orders at any time? How does this impact opera-tions in real time?

Order and return processes are critical

Order and return processes need to remain easy to follow, as analyses show that they are critical buying criteria. This means that retail-ers will have to carefully balance process optimisation and simplifica-tion with customer satisfaction. If we look at the return process, there are multiple questions that the retailer needs to answer: Are returns allowed? Do I allow returns directly at the nearest store even if ordered online? Should returns by post be free of charge? Does returning items to stores have an impact on my traf-fic in-store? What is the impact of returns on my profitability?

Our view:

The order and return processes should remain easy to follow for the customer as they are critical buying criteria.

Our survey shows that retailers need to have a careful look at their current supply chain footprint and revisit their warehousing and sales capabilities. This does not mean that retailers should relocate stores or warehouses. They can very well maintain capabilities but use them differently and close the distance between customers and operations.

Real-time data and new analytics are necessary

The need for greater transparency calls for more accurate real-time data, new analytics and new

systems. New performance and ana-lytical measures reflect the realities of this new multi-channel world. They are the next essential building blocks upon which to make profit-able decisions and choices with regard to customers, inventories and physical store assets. For most retailers, this will require captur-ing essential customer data in-store and online to better understand where customers purchase the most and how. Systems need to provide a comprehensive ‘product view’, enabling retailers to instantly locate available stock across all channels and locations and match it with customer needs at any time.

Our view:

Systems need to provide a product view to locate available stock across all channels and locations.

In Switzerland, Coop is using multiple innovative devices and channels to interact with its cus-tomers by combining mobile and traditional operations in various ways. The company has developed a comprehensive online shopping platform connected with pick-up via a drive-through store. Coop has also recently launched a new ‘Mobile Shopping’ concept that enables customers to scan bar codes printed on ads outside the store and have their shopping delivered to their home on the same day. This requires flexibility at all levels of the supply chain and the efficient interconnec-tion between ordering capabilities, store operations, the distribution network and analytics. These latest innovations are being tested in a few locations in the Coop network.

We believe that a careful and well-thought-through approach is a key success factor. Multi-channel retail-


ers must learn to develop and invest in a systematic testing approach that includes carefully selected performance measures and solid analytics when implementing new digital and physical innovations that transform their supply chains.

Tax implications for cross-border multi-channel retailersOur research has shown that 60% of consumers attempt to buy online across borders but fail because the transaction or shipping is declined by the vendor. There are various fac-tors that discourage businesses from selling across borders, but customs and VAT-related issues have been cited as main factors.

A study by the European Commis-sion7 confirmed that “EU consumers currently find it difficult to purchase goods or services online across borders. One in three EU consum-ers has made an internet purchase, but only 7% made a cross-border purchase online. This is at a time when 33% of consumers would be interested in buying cross-border.”

One of the reasons online traders are reluctant to sell goods abroad is the possibility of being subject to unrecoverable taxes, onerous re-porting obligations and incremental costs that erode margins and out-weigh any benefits from increased revenues. The European Union (EU) has recognised that even within a single market, the current EU VAT regime is not conducive to online, cross-border retailing. The EU Commission has published a “Green

Paper on the Future of VAT,”8 which proposes a wholesale overhaul of the current EU VAT regime.

Add to that complexity the fact that these different rules and regulations are shifting constantly in the service of government administrations, national special-interest political groups, and evolving perspectives on international needs. Consider that virtually every national gov-ernment can create its own set of rules and regulations with regard to indirect taxes; maintain specific requirements, documentation, and reporting processes; seek the safe and secure movement of goods into its territory; and collect transaction-based taxes.

7. Communication from the Council, the European Parliament, and the European Economic and Social Committee – Removing cross-border tax obstacles for EU citizens – published 20 December 2010 (http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/ tax_policy/com(2010)769_en.pdf).

8. Green Paper on the Future of VAT (COM/2010/695) published 1 December 2010 (http://ec.europa.eu/taxation_customs/resources/documents/common/consultations/tax/future_vat/com(2010)695_en.pdf)


Integrate indirect tax considera-tions into larger strategic discus-sions

Retailers that wade into the cross-border sales waters by opening their websites to international business rightly focus most of their attention on such business issues as pricing, logistics, and customer service. The last thing on their minds? Taxation. Even best-in-class retailers struggle to meet the demands of highly situ-ational indirect taxes, often because they approach the subject in a piece-meal manner. To stand a chance of obtaining real-time visibility into their indirect tax exposure, retailers should integrate indirect tax plan-ning into broader strategic discus-sions.

Questions retail executives should be asking themselves include: In which countries might this product be most popular? What are the most significant indirect taxes affect-ing sales of goods in that region? How long can items be held up at customs? Who will be responsible for declaring goods to the customs authority and paying the correct amount of duty/VAT? How will duty/VAT be factored into prices?

Don’t ignore impacts on pricing

European VAT rates are harmonised – but only to a degree. The standard rate of VAT varies from 15% (Lux-embourg) to 25% (Denmark) and averages around 20%. Then there’s the fact that in some countries, notably the UK and Ireland, certain classes of goods, such as children’s clothes and books, are exempt from VAT. If the VAT rate can differ by up to 25% (selling books to customers in the UK and Denmark, respec-

tively), a retailer cannot afford to ignore this dynamic without intro-ducing the chance of a far greater indirect tax burden than expected.

Our view:

Specialist knowledge of international indirect taxes is mandatory, not optional.

Indirect tax specialists with coun-try-specific knowledge, technical abilities in the subject matter and the ability to think strategically are in ever-increasing demand. If a retailer can’t build an indirect tax team – which is the ideal scenario –

it’s critical to at least bring in one or two specialists who have appropri-ate knowledge of customs duty and VAT rules and regulations.

Customs documentation is crucial to customer service and cost man-agement

It is crucial that the accuracy and level of documentation presented regarding transfer pricing and transport is of the highest quality as it relates to customs and VAT. The data provided should be clear and uniform, otherwise shipments could be subject to additional reviews and be at an increased risk of operation audits or clarification requests. Such clarifications can delay the delivery of goods to the end users as well as

Table 1: Elements of a customs invoice

1. Vendor

The party that the goods are being purchased from.

2. Quantity and value

The quantity of each item being shipped, with the corresponding unit of measure broken down by value, including weight.

3. Importer of record

The party that is responsible for any applicable duties and taxes.

4. Currency

The currency of sale on the invoice.

5. Consignee

The location that the shipment is being delivered to.

6. Country of origin

The country where the goods were manufactured (not the country they are being shipped from)

7. Full description of the goods

Including what the goods are made out of (in layman’s terms) with the correct HTS code.

8. Incoterms


put the consumers in the precari-ous position of having to pay higher than expected duties or even fines.

This point is of key importance as the customs authorities base their valuation of the goods on the docu-mentation provided by the parties involved in the movement (shipper, receiver, customs broker etc.). There are typically eight elements needed for a customs invoice as shown in Table 1.

Customs duties – so good you pay them twice

The level of returns involved in In-ternet shopping is notoriously high. This is particularly true of the fash-ion world, where customers tend to buy first and return later, pushing typical return rates to approxi-mately 30%. Retailers need to be aware of the consumer rights in the countries to which they sell. Within the EU, for example, consumers retain the right to return unwanted goods within a seven-day cooling-off period, and there is a proposal to extend this to 14 days. Returning goods from one customs territory to another creates particular problems. If the customer has paid the import duty into the customer’s territory, the customer will expect this to

be included by the retailer in the refund for the goods and delivery costs, meaning that the retailer es-sentially pays duty on a sale it hasn’t actually made.

Many retailers, particularly of fash-ion goods, fulfil online orders placed by international customers from distribution centres in the retailer’s own country. This means that, very often, customs duty has already been paid on those goods origi-nally imported into the distribution centre. While relief is available to ensure that the duty isn’t paid twice, retailers generally need to seek au-thorisation in advance and carefully manage compliance to avoid falling foul of the rules. Retailers that have relegated indirect taxes to disparate departments often have communi-cation issues while trying to keep track of these exposures – thus missing the opportunity to either reduce online prices or increase their margins.

Our view:

Retailers need to seek authorisation in advance and carefully manage compliance to avoid falling foul of the rules.

Most legislation allows for the ad-justment of the transactional value of goods shipped and a provision for the return of goods for war-ranty and repair purposes. These adjustments to the level and type of documentation provided can equate to significant savings in the area of customs duties and VAT for the consumer and retailer alike.

Benefit from a maximum of the simplifications offered

In an attempt to facilitate trade and the free flow of goods, the customs administrations offer a number of simplifications which include the deferment of import VAT and customs duties, the electronic trans-mission of customs declarations and security-related data. More simplifications are offered through further automation using IT systems and general customs simplifica-tions, such as the registration of an authorised consignor/consignee.

We recommend evaluating any simplifications that can be applied for and whether they will lead to a significant reduction of costs and administrative effort. We further recommend conducting case studies in the foreign target market.

Swiss retailers that keep these chal-lenges in mind will not only be able to save costs but also to offer the consumer a better customer experi-ence regardless of the channel they shop in.


4. Multi-channel retail in 2020

So what could the future look like? The global nature of this year’s study allows us to make forecasts for the future.

Customised retailOnline retailers will become much more sophisticated in how they help customers navigate increasingly large assortments. Allowing custom-ers to move easily from viewing a category assortment of perhaps 200 products to identifying the three most suitable items for them will become a key differentiator for the most successful multi-channel retailers.

Social media will influence sales. This is driven both by consumers, who will become much more active in sharing their buying preferences among their networks and by retail-ers who will become more clever at exploiting and targeting followers to drive sales. As the different forms of media converge, it will be possible to target marketing and advertising more precisely.

As online retailing evolves, so too will new mobile tools designed to support the consumer’s purchase journey, from research to store navigation, to in-store ordering and a richer, fuller integration of social networks.

Transformed supply chainAt the back end, supply chains will have undergone a complete trans-formation. More products will likely be delivered to homes, and online ordering and in-store pick-up will also gain in popularity, enabling streamlined and free returns.

In addition, the hard work of consol-idating stock will happen far more often at warehouses, rather than stores. For retailers this will mean less stock and less working capital, leading to greater efficiency and higher profitability.

And what about the different retail formats? Let’s look at a few possi-bilities.

The multi-channel grocer: convenience, range, efficiencyIn 2020, large grocery chains like Migros and Coop who already have established a commanding posi-tion in foods will also do so in many other categories such as electronics and toys.

The business model will be based on a combination of small ultra-convenient outlets throughout each market, as well as larger mega-

stores in large population hubs. Home delivery in one-hour slots will be a key aspect of the operation, with an even wider range of both, food and non-food online than in-store, and click and collect available for both at the local con-venience stores on a 24/7 basis. The customer-facing website will be slick, efficient and highly trusted, selling not just products but also services like insurance, travel and photo processing, which consumers will be compelled to buy in order to gain reward points. Companies will be effectively mining and analysing – in real-time – the flow of customer data.

The inspirational brand: loyalty, excite-ment, innovationBrands like Apple and Abercrombie & Fitch will still be flourishing in 2020, building an enormous com-munity of followers and customers. Even luxury goods companies will have become multi-channel retailers with a strong online presence. Their business model will include a small number of flagship stores designed to allow people to touch, see and interact with the brand and issue or-ders. The majority of purchases will be made online via mobile phone or tablet apps.


The next-generation department store: service, quality enjoymentIn 2020, the conventional depart-ment store will have evolved into an operation fronted by a small number of strategically placed showrooms. Around half of all sales will be conducted in these show-rooms, which will showcase only selected highlights of the range available online. The showrooms likewise will hold little stock, but will be able to arrange extremely swift and efficient delivery. The defining characteristic of the whole product range will be selection, be-cause the retailer has tapered down the breadth of choices to just the best-in-class items. The showroom itself will be deliberately designed as a destination in its own right, with live demonstrations, expert advisors, and personal shoppers available. The website will support

customers in between store visits in a variety of ways, whether for making a purchase, requesting after- sales services or researching prod-ucts. There will be parallel mobile and tablet apps designed to drive traffic to the stores by highlighting upcoming events and showing video and other promotional material.

Where there are win-ners, there are losersIf these could be some of the winners, who will be the losers? Certainly those facing the highest degree of risk are bricks and mortar specialists in categories already in the process of moving wholly online. Books, music, electronics and toys will be the obvious sectors. There will still be physical store sites offering clothing, furniture and jewellery, but the department stores and grocers will provide ever fiercer competition.

Emerging markets will lead the wayThis could indeed be a vision of the future in mature markets like Switzerland, but it could start much more quickly in emerging markets, especially those that don’t already have a hefty retail infrastructure. Not needing a significant physical presence would make the cost of entry into those markets much lower and could have significant implications for both, domestic operators and those international companies looking to build a presence there. In 2020, in these markets, it will not only be about developing shopping centres or distribution networks; it will be a brand new retail world, which will also be very mobile.

Contacts

Mike Foley Partner Assurance Leader Retail & Consumer Industry Switzerland +41 58 792 82 44 [email protected]

Martin Frey Partner R&C Advisory Transactions +41 58 792 15 37 [email protected]

Oz Ozturk Partner R&C Advisory Consulting +41 58 792 90 37 [email protected]

Salim Damji Partner R&C Tax & Legal Services +41 58 792 93 37 [email protected]

There are many more findings we could have included in the survey. For example, how often do different age groups shop online? Or what prompts people to visit an online store? There is also much more data available on how the different countries responded and on many Swiss retailers. Would you like to know more? Do you need support in setting up your multi-channel and e-commerce strategy and supply chain or in taking care of tax considerations? If so, please don’t hesitate to contact one of our industry experts:

Acknowledgements:

We would like to thank all the people contributing to this survey. Special thanks go to all the writers of the content (in al-phabetic order): Anja Birkelbach, Jan Bolliger, Olivier Colomb, Simeon Probst, Christopher Roberts and to our industry and service experts.

www.pwc.ch/r&c

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