© Henley Business School 2008 www.rref.net

Registered charity no. 1092627

Annual Debate Thursday 2 May 2013

The Future of Retail

Speakers:

Rob Templeman – Deputy Chairman, British Retail Consortium

Nicky Dulieu – Chief Executive, Hobbs

Peter Harris – Co-Founder, Hotel Chocolat

Chair:

Bryan Laxton - CEO UK, Cushman & Wakefield

Reading Real Estate Foundation

Annual Debate

Rob Templeman 2nd May 2013

The Future of Retail

My Life in Retail – Past and Present

Company Position

Harveys CEO Home-furnishing retailer

Homebase CEO DIY retailer

Halfords Chairman & CEO Car/bikes retailer

Debenhams CEO Department store

Past Positions

Current Positions

Company Position

Gala Coral Chairman Europe’s largest gaming group

RAC Chairman Motoring organisation

BRC Deputy Chairman British Retail Consortium

GFW Chairman Charity for helping students / graduates

Children with Cancer Trustee Charity 3

“The Next Ten Years will Possibly be the Fastest

Changing Environment for Retailers in over 40 Years”

• The financial crisis and recession has had a major influence on how

retailers and consumers behave.

• Technology advances will radically change the way we shop

• Escalating cost base will continue to erode store contribution

• More stable economies and internal GDP growth in emerging markets

could signal much slower or falling growth in gross margins

• Consumer behaviour changes – “research, comparison, emotion”

4

The Financial Crisis and

Past Recessions

2000s: A Different Kind of Recession

Average annual retail inflation in recessions

1970s

recession

1980s

recession

1990s

recession

2000s

recession

16.3%

10.4%

5.4%

0.1%

6

GDP and Retail Growth 1969 - 2011

-5

0

5

10

15

20

25

1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011

Retail expenditure growth GDP growth

7

Personal Debt Levels

£562bn

£1,409bn £1,459bn

Consumer debt Savings ratio

1998 2008

7.0%

0.8%

1998 2010

9.2%

2010 2008

8

Retailing and Property – 1980’s

9

£’s £’s £’s £’s

Harris Queensway

Early

Recession &

Inflation

0.4%

Retail

Conglomerates

M & A

Activity

Growth in

Out-of-Town

Retail Parks

Big Box

Supermarket

Expansion

Rent as %

of Sales

Lower

Good Times

for

Retailers

Retailers

also owned

property

Retailing and Property – 1990’s

10

Early

Recession

Inflation

5.4%

Out of

Town Retail

Parks

Growth &

New

Entrants

Destination

Regional

Shopping

Centres

Large

Space

Formats

International

Retailers

Target UK

Rental Growth

& Property

Costs Rise

Faster than

Sales

More Efficient

Space

Utilisation

Trials

Space

Expansion

Boom then Bust Decade – 2000 to 2009/10

11

Credit

Boom &

Low

Interest

Rates

Strong

Retail

Growth

New

Space

Grows

Faster

Than

Sales

Multi-

channel

Impacts

Bricks

and

Mortar

Gross Margin

Expansion

through IT/

Direct

Sourcing/

Currency

Property

Costs

High

Relative

to Sales

Credit

Crunch &

Recession

Low

inflation

0.1%

Vacancy

Rates

High

The Future of Retail – “Bricks & Mortar” is not necessarily

the Preferred Route

12

The Future of Retail – “No Change is not an Option"

13

Low inflation & lower

wage rises

Credit restraint &

liquidity

A long & slow recovery

from the financial crisis

Consumers Deleveraging

High un-employment in

under 25’s - “A ticking

bomb”

GDP growth in

emerging markets

could lead to inflation

Commodity prices to

rise?

Retailers and

Partners Need

to Adapt and

Change

Multichannel & new routes

to market cannibalise

store sales/profits

Faster sales growth rates

on-line/mobile

New technology advances

Gross margin growth of

the last 15 years will not be

achieved

Retailers focus on reducing

cost base

Consumers research &

price compare on line

Uniform business rates

punitive to retail

High operational gearing

means a small reduction in

sales could lead to a big

profit decline

Macro Issues Sector Issues

The Future of Retail

• Technology and multi-channel areas will be the norm in shops

• 3D printing – “ A relatively unknown threat or opportunity”

• Consumers will demand ease, convenience, value and experience

• Customer advocacy and personalised marketing will be key

• Branded suppliers could develop direct relationships with consumers

• Strong brands will target international growth faster than UK growth

• Supermarkets will devote more space to “experience” areas

• Retailers will continue to downsize or close outlets

• Property costs will need to reduce as a % of sales

14

The Future of Retail…Property Landlords/Developers

Need to Change

• Consumers like the experience of shopping/belonging, but developers

will need to help create a more flexible/dynamic destination

• The traditional high street with investment and creativity, alongside a

viable economic model, has a role but consumers’ and retailers’ needs

have to be fulfilled

• Large supermarkets can provide a real threat to the traditional high

street

• Retailers need an economic model that works

15

Reading Real Estate Foundation

Annual Debate

Rob Templeman 2nd May 2013

The Future of Retail

∙ Premium British ladieswear fashion brand with 3 complementary labels

HOBBS LONDON – WHO ARE WE?

∙ Premium British ladieswear fashion brand

∙ Discerning customer from 25 to 55

∙ Clothing, shoes and accessories

∙ Design led

∙ Italian shoe factory

∙ 140 stores and concessions in UK and Ireland

∙ Wholesale and franchise outlets

∙ Multichannel offer

∙ 3i / Management owned

HOBBS LONDON – WHO ARE WE?

NICKY DULIEU – WHO AM I?

∙ Joined M&S at 18 as a ‘Trainee Accounts Clerk’

∙ Qualified ACCA

∙ Over 23 years at M&S worked in Finance; Tax;

Investment Appraisal; Property; HR; Retail Operations;

International; Food Group

∙ Joined Hobbs in 2006 as Finance Director

∙ Promoted to Chief Executive in 2008

∙ If I wasn’t in Fashion / Finance – I would love to be a

garden designer

CHALLENGES FACING RETAIL

∙ Changing consumer behaviour

∙ Radically changing cost base

∙ No such thing as ‘normal’

CHANGING CONSUMER BEHAVIOUR

∙ When they shop

∙ How they shop

∙ What they are prepared to pay

∙ What they want from their purchase

RADICALLY CHANGING COST BASE

∙ Fixed costs of ‘bricks’ estate

∙ Variable costs of online selling

∙ Continual development of multi-channel experience

NO SUCH THING AS NORMAL…

2012: Wettest Summer

2013: Coldest Spring

… what is normal?

‘Triple Dip Recession’

Eurozone turmoil

WHO CAN WIN IN THIS ENVIRONMENT?

∙ Really know your customer

∙ Know your Brand/DNA

∙ Know your USP and guard it jealously

∙ Provide maximum flexibility of service and product

∙ Reward loyalty

∙ Diversify you RISK

WHAT YOU PERSONALLY NEED TO SURVIVE IN RETAIL

∙ PASSION – Being passionate about the industry you work in

and loving the product

∙ EMPATHY – Understanding what your customer wants from

the business

∙ FORESIGHT – Thinking ahead, anticipating your customers

needs and keeping one step ahead of the competition

∙ ADAPTABILITY – Reacting to changing market conditions,

taking tactical decisions which don’t derail the longer term

strategy

∙ COMMON SENSE – Not overcomplicating issues and

keeping your eye on the end goal

∙ RESILIENCE – Coping with the knocks, because there are

plenty along the way

The Future of Retail

Peter Harris - Co-Founder

What do we do ?

– Cocoa Grower

– Chocolatier

– Retailer

– Hotelier

– Restaurateur

Background

• Listening to our customers

• Delivered chocolate gifts 1993 - 2003

• Internet and Catalogue

• Chocolate Tasting Club 1998

THE BRAND SOUL OF

HOTEL CHOCOLAT Originality

Authenticity

Ethics

Retail Development

• First store opened October 2004

• Second store opened July 2005 • London, Cambridge, Norwich, Milton Keynes, Solihull,

St Albans, Watford, Birmingham, Nottingham, Bluewater, Plymouth, Reading, Newcastle, Canterbury, Manchester, York, Windsor, Oxford, Leeds, Southampton, Brighton, Exeter...

Facts & figures

• Hotel Chocolat multi-channel

• 100,000 Chocolate Tasting Club

Members

• £65m turnover

• 900 employees

• Factory in Huntingdon

Investment

• People

• £7m investment in

chocolate making in

the UK

• Shops in the UK and

overseas

• NPD and innovation

• Cocoa growing

Rabot Estate, St Lucia

THE REAL HOTEL CHOCOLAT

Fast Track 100 Winner

Why did it happen ?

• Listening to our customers

• Ambition and passion to develop the

business

• Incubating new ideas

• Reinvesting our profits in the business

Hotel Chocolat - the future

• Roast + Conch

• International expansion

• Keeping the culture and fun in the

business

Are we listening ?

• Bain Survey – most advocated brands

in the UK

• The Chocolate Bond

• Our customers and our culture

The Future of Retail

Peter Harris - Co-Founder

© Henley Business School 2008 www.rref.net

Registered charity no. 1092627

Annual Debate Thursday 2 May 2013

The Future of Retail

Speakers:

Rob Templeman – Deputy Chairman, British Retail Consortium

Nicky Dulieu – Chief Executive, Hobbs

Peter Harris – Co-Founder, Hotel Chocolat

Chair:

Bryan Laxton - CEO UK, Cushman & Wakefield