Retail’s changing landscape
Evolving from a multi-channel
to an omni-channel customer
experience
Presented by:
Jennifer Lee
March 27, 2013

Discussion items
• Retail business model disruption
• Implications
• Shifting to an omni-channel world
• Case study: Starbucks
• Our team
1 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

Retail business
model disruption
2 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

Retail business model disruption
Omni-channel
The recent The present: The future:
The past:
past: Store 1.5 Store 2.0 Store 3.0™
Store 1.0
e-commerce multi-channel omni-channel
Customers will We need to sell online Many customers shop Relevant products and
come to us across channels services anywhere
3 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

Deteriorating store metrics
“The big box store is not the right concept for the future.”
Robert Dutton, CEO
We will have to start downsizing our stores over the next five years as customers
shift to e-commerce.
On their smaller stores: “When you combine lower rents, lower build out and a
smaller total footprint with high sales per square foot, it’s a very powerful economic
model.”
Walter Robb, Co-CEO
“We’re looking for more ways to combine our e-commerce business into our bricks-
and-mortar stores to create an integrated, multichannel shopping experience for
our guests.”
Daniel Duty, Director of Enterprise Strategy
Shoppers Drug Mart CEO has commented that shrinking the size of Shoppers
stores is part of the company’s strategy going forward.
“This industry is under pressure. We are facing the single worst commercial
environment that the drug sector has ever faced.”
Domenic Pilla, CEO
363 stores and Who’s next?
growing
Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

Changing consumer behaviour
Mobile price checking is becoming a competitive threat
Makes pricing transparent Reduces the number of store
to anyone trips to comparison shop
Customers buy from your
Reduces store transactions
competitors in your store!
… but it’s just the thin edge of the omni-channel wedge
5 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

Changing consumer buying behaviour
Multiplier
Consumers are using multiple channels Smartphones have become an integral
effect
to research and purchase part of the purchase process5
Multi-channel consumers are not loyal;
Research on smartphone and
43% do not research and purchase from the 67%
then buy in-store5
same retailer1
Research on smartphone, visit
Shoppers use two or more channels to
78% store to check out product and 23%
research and purchase an item2
then purchase online5
Smartphone users are interested in Research on smartphone, visit
using their mobile phone to pay for an store to check out product and 16%
41%A
item in-store, rather than using a then purchase on smartphone5
cashier3
Tablet owners use their tablets for Visit store, then purchase on
60% 9%
shopping purposes4 smartphone5
A) 45% of male respondent and 38% of female survey respondents indicated that they would be either “very interested,” “interested,” or “somewhat
interested” in checking out on their mobile device while in a store,
Sources: 1) 2007 Forrester “Web’s Impact on In Store Sales” , 2) 2011 March “Cross-Channel Commerce: A Consumer Research Study”,
Oracle White Paper, 3) 2011 April “Mobile Trends: Consumer Views of Mobile Shopping and Mobile Service Providers”, Oracle White Paper,
4) 2011 July “Why Tablet Commerce May Soon Trump Mobile Commerce “, Forrester, 5) Google Insights
6 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

Implications
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Purchase path was seen as traditionally linear
• Social interaction
• Product discovery
Pre-Purchase
• Marketing
• Price-checking
• Cashless/cardless
Purchase purchase online or in-store
• Self-checkout
• Order management
Post-Purchase • Customer service
• Loyalty
But there’s a new reality…
8 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

Connected consumers define the path – It is not linear!
Erica is 13 years old and an
example of the connected She checks for blogs
consumer. She is interested in a and posts on the
new game for her PS3. manufacturer’s web site.
How Erica buys
She checks with friends on
Facebook to see how they
liked the game followed up
She uses a PC to check for by face-to-face interaction
online reviews of the game. at school.
Ultimately, she buys the game
She uses a mobile device to in a physical store, but would
check prices at retailer’s web have bought online if she had
sites. Note: she will abandon a gift certificate or pre-paid
web sites with poor credit card.
functionality.
9 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

The future role of the store will be very different
Present… … Future
10 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

Shifting to an
omni-channel world
11 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

Retailers recognize the need to change
As a result, omni-channel retailers are evolving into a more integrated business
model where all channels share a common strategy for profitable growth
“Technology will form the way people shop and the way retailers need to redefine
their model…I think there are many developments coming down the line which will
transform how we define ourselves and how customers define what a good shopping
experience looks like.”
Andrea McDonnell, Head of Multichannel strategy
“We are now as much a media-content company as we are a design company
because it is all part of the overall experience.”
Christopher Bailey, Creative Director for Burberry
"It's clear to me the customer has evolved and changed the way they shop and we
have to change with them. There's no going back… The power of e-commerce extends
far beyond the keyboard and onto the sales floor.”
Terry Lundgren, Chairman, CEO, and President of Macy’s, Inc.
“Much of our focus on digital is because we think the survivors in the industry are
going to lead in this category.”
Myron Ullman Chairman and CEO
“The ability to allow our customer to take advantage of Walmart’s price leadership
whenever and wherever she wants is what underpins our multi-channel strategy…In
order to fully evolve into a multi-channel retailer here in the US, we need to make our
organization, particularly in Merchandising and Marketing, channel agnostic.”
Eduardo Castro-Wright, Vice Chairman of Walmart
12 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

Transforming the business model
The multiplier impact of omni-channel
Multi-channel effect (2015f)
Online research/In-store purchase = 5.40x
Mobile research/e-commerce purchase = 2x
Mobile research/In-store purchase = 4x
$103.4 billion
13.1 Digital goods
Multiplier effect (2010)
Online research/In-store purchase = 5.77x
Mobile research/e-commerce purchase = 2x
Mobile research/In-store purchase = 2x
79.6 E/M-
commerce
$37.1 billion influenced
9.4 sales
26.0 6.0 M-commerce
4.0 17.8 E-commerce
7.1
2010 2015f
13 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

Transforming the business model of retailers
Retailers will experience significant profit improvement and brand awareness by investing in
omni-channel capabilities
Omni-channel
Store
e/m-commerce sales
Sales ($000’s) $900 $300
Gross margin 47% 47%
Occupancy and labour 26% 0%
Online costs 0% 15%
SG&A 11% 11%
EBIT ($000’s) $90 $63
Conversion 20% 3%
Traffic (000’s) 90 200
14 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

Nordstrom and Macy’s are outperforming peers since the
launch of their omni-channel initiatives
Quarterly growth rate of Nordstrom and Macy’s vs. Department store sector
20%
Quarterly Revenue Growth (YoY)
15% Nordstrom launched
omni-channel initiative Nordstrom
10%
Macy’s
5%
Department store sector1
0%
-5%
-10%
-15%
Macy’s launched
-20% omni-channel initiative
Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
2006 2007 2008 2009 2010 2011
Difference in quarterly growth rate
Nordstrom 10% 15% 17% 12% 7% 7% - 1% - 1% 1% 9% 11% 16% 22% 17% 15% 15% 9% 9%
Macy’s n/a 8% -2% 2% 0% 2% -2% 2% 1% 3% 2% 5% 4% 3% 6% 8% 9% 10% 4% 3%
15 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.

Pure plays are realizing the economics of having
physical presence
• Dubbed “Chrome Zones”, Google introduced a
pop-up store to introduce “Chromebook”
• While sold online only, Google offered
customers an opportunity to test and experience
• The eBay Christmas boutique in London was
stocked with 350 eBay best sellers
• Customers connected with eBay via smartphones
and learn about how easy
it is to shop eBay with mobile
• WIRED magazine introduced a pop-up store
featuring gadgets, art installations and special
events that embodied the “WIRED lifestyle”
• The WIRED store provided a unique channel to
physically interact with its consumers that
WIRED had not previously met
16 Retail’s changing landscape – omni-channel customer experience © Deloitte & Touche LLP and affiliated entities.