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Page 1: FUTURE-READY RETAIL€¦ · Future-Ready Retail 1 Are you ready for the retail of tomorrow? FUTURE-READY RETAIL: Future-Ready Retail 2 Introduction The retail business is changing

Future-Ready Retail 1

Are you ready for the retail of tomorrow?

FUTURE-READY RETAIL:

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Future-Ready Retail 2

IntroductionThe retail business is changing faster than almost any other.

Consumer behaviour, always heavily trend-driven, is adapting rapidly to new technological possibilities and financial constraints. A generational shift in attitude is seeing new, social drivers of commerce take prominence. Simultaneously, the competitive environment and supply chain are being disrupted on an almost daily basis by transformational innovations in manufacturing, distribution, service, and payments.

Operating in this fast flux is not easy. There’s no

new paradigm to aim for: by the time you achieve

tomorrow’s model it will already be history. Instead

today’s retailer has to be adaptive, agile and nimble

– able to change fast and optimise faster.

In this exploration of tomorrow’s retail environment,

we look at what it means to be ‘future-ready’. We

examine the five primary vectors of change that are

transforming retail from supplier to service. We talk to

key retail players to understand how they are preparing

for tomorrow. And we offer some simple tools to help

brands and retailers gauge their preparedness.

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Are you future-ready? No-one knows what tomorrow will bring. So how do you prepare?

This is the dilemma that has always faced business leaders in every sector. In a retail market increasingly characterised by disruption and change, the challenge is particularly acute.

The answer is this: if you can’t prepare for tomorrow, then prepare for change. This sounds simplistic, but there are practical steps that brands and retailers alike can take to ensure that when change comes, as it inevitably does, they are the ones riding the wave, not drowning beneath it.

The first step is to understand the vectors of

change, the undercurrents swelling the tide. Though

we cannot know the exact impact that they will

have, nor can we say with great specificity when

their impact will land, we can at least discern

general directions.

Technology, and particularly its rapid adoption by

consumers, has been one of the great engines of

change in retail.

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Technology Effects: Accelerate, Connect, InformWhat does technology do?

First of all, it accelerates. It speeds the flow of

information from consumer to chief executive and

beyond into the supply chain. The same is true in

reverse. Trends, preferences, and patterns move at

the speed of light and consumers expect a response

in a similar time frame.

Secondly, technology connects. Over three billion

consumers are now linked in a global community

of shoppers, with more than half of them accessing

the internet from mobile devices. Trendsetters can

create instant ripples that spread internationally.

Brands can reach, and sell to, their audience

directly, bypassing traditional channels.

Thirdly, technology informs. Consumers no longer

need to rely on the retailer to educate them about

products and services - or prices.

They have a world of data at their disposal, just a

few clicks, swipes or voice commands away. Today

Google indexes more than 45 billion web pages.

The amount of data available is growing at an

unprecedented rate: 1.8bn photos are uploaded every

day, alongside 16 hours of video to YouTube alone.

Technology Trends for Today and TomorrowIt’s fair to assume that these technology trends will

not fade soon. Moore’s Law, the recognition that the

available computing ‘bang per buck’ doubles every

year, remains true. As dgroup’s Olaf Rotax points

out, the idea of a technological ‘singularity’ gains

plausibility with each year of continued development.

If true, this idea of the rate of progress continuing on

its exponential path suggests that recent trends will

accelerate: we are about to enter a further technology

shift, as a plethora of wearable technologies begin

to enhance and even replace the more ‘traditional’

screen-based interfaces.

Inside the organisation, the march of the cloud

continues. IDC estimates that almost a third of

enterprise applications will be cloud-based by 2018,

up from 16.6% at the end of 2013. This shift is as

much about culture as technology. Pre-internet

retail systems were all about large scale and deep

integration. Monolithic engines of commerce that

tried to pull every process into a single software

stack. These closed platforms cannot possibly

adapt to the proliferation of digital, mobile and social

channels of the post-Internet age. Instead the cloud

brings post-internet thinking: open platforms and

interfaces. Rapid development, testing and adaptation.

The point is not about picking winners from individual

technologies, products, devices or sales channels.

It’s about a culture of readiness: controlled costs,

clear customer focus, the tools to listen and respond.

An ability to adjust, test new ways of working, reject

those that don’t work and scale those that do.

The customer is truly empowered. They have a world of data at their disposal, just a few clicks, swipes or voice commands away.” – Martin Newman, Practicology, CEO

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Undercurrents and Rising TidesTechnology is not the only driver of change, but it is

unparalleled in reach and impact. It is the conduit

for other key trends, such as the increasingly direct

connection between brand and consumer. Only by

analysing shifts in technology can we understand

how changes like this have come about and where

they might take us next.

Technology change, and the response to it, is

illustrative of a company’s future-readiness.

Technology is the visible expression of otherwise

hidden trends.

Are you tracking the undercurrents? Looking for the

long term implications, not the tactical impacts? Is

your organisation capable of seeing change in the

data, and responding rapidly?

Do you have the agility to adapt to these changes

and rapid shifts in consumer trends? Because this is

what it takes to be future-ready.

Vectors of Change The variety of influencing factors is what makes predicting the future hard.

Trying to account for every economic, social and

political influence would surpass the power of the

greatest minds and all the supercomputers in the

world combined. But we can identify key issues and

priorities worthy of our attention, themes that will

characterise tomorrow.

Below we lay out five key vectors of change that

we believe will characterise the future of retail.

Recognising and responding to these vectors will be

a key success factor for every retailer and brand.

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Every new channel brings new opportunities

1. Diversity

When web commerce first arrived in the mid 90s, retailers could have been forgiven for believing it was the future – the only future. If you’ve read the newspapers or watched the stock market, it would have been easy to be convinced that all shopping would be digital and web-based by now. Web commerce was the new paradigm.

But rather than supplanting the high street store,

web commerce supplemented it. A proportion of

spend moved online, but for most retailers the

answer was clearly to support both channels, not

one or the other. Suddenly traditional retailers are

competing on two fronts, and competing with a raft

of new entrants, against whom they now hold much

smaller advantages.

Then along comes mobile commerce. Another

channel to support. Mobile commerce is briefly

held up as the new paradigm. Until Facebook

arrives. Then apps, in-game stores, and a plethora

of other social networks. Every new channel brings

new opportunities but also new challenges, and

new challengers.

The modern consumer has been fast to adapt to

this array of choices. He or she doesn’t differentiate

between high street and web, mobile and social. It is

just ‘the world’ to them, and they expect to find the

brands they seek anywhere they look in this world.1

Exacerbating the challenge of consumer-facing

channels is the proliferation of options behind

the scenes. Traditional channels are fracturing

and becoming hybridised as brands balance the

needs of their channels with their own need to

communicate directly with customers. Fulfilment

options abound: drop-shipping, click and collect,

digital delivery. It won’t be long before consumers

can select a digital design and have it 3D printed at

the bureau of their choice.

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Traditional retailers are under pressure from three

sides. From the left, new competitors like Amazon

bring unlimited reach, and unlimited resources, both

in terms of capital and technology development –

something the retailers just don’t have. From the

right, retailers are challenged by the brands, now

going directly to consumers, eliminating the retailers’

margin. Add these new challengers to the retailers’

traditional peers and it’s a tough environment in

which to differentiate.

Brands have their own challenge: they need to learn

how retail works. Brands know how to ship one

container of a thousand shirts, but now they are

selling single shirts and getting returns. Few have

had the processes or the partners to handle this.

Now that they can have a direct digital connection

to consumers, brands want this touchpoint but it’s a

completely new world.

Key Takeaway: Trying to compete on every front and do it all yourself is incredibly expensive. Retailers and

brands alike need to look carefully at what they can and should do themselves, and where

they need to partner. Careful prioritisation is important as it is impossible to chase every

opportunity. Consider using a simple ‘2x rule’: only address those areas where there is an

opportunity (or risk) to double or halve sales, profit, or customer satisfaction.

Be cautious about ‘omnichannel’, systems-first approaches, which are often based on

solving your pain, not your customers’ needs. Start by addressing the customer need and

then fill in the blanks in your own processes and systems.

1 http://www.lithium.com/company/news-room/press-releases/2012/consumers-expect-more-engagement-from-brands-through-social-media-lithium-social-survey-finds

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Building a core platform that can support multiple retail channels

2. Agility

Consumers have proven that they adapt rapidly to new technology. And so they should: Huge amounts of time, money and effort are invested in making new consumer technologies as simple and intuitive as possible. That means that when a new digital retail channel opens up, consumers are likely to adopt it faster than retailers and brands.

This presents a challenge: how fast can you open up a new front? Can you do so in a way that doesn’t damage your operational efficiency elsewhere?

Adaptation Over Optimisation For years the challenge in retail has been to optimise

the performance of a single channel, driving out

cost, pushing up standards and ensuring the

optimum flow of the right products. But now it is

arguably more important to be able to adapt quickly

than it is to optimise, for two reasons.

Firstly, there is the issue of audience: as channels

proliferate, audiences will be increasingly

fragmented and transient. Maintaining a consistent

audience for your proposition will mean following

customers as they leap between channels. As the

research highlighted in the previous section shows,

customers want their preferred retailers to reach

them in their channel of choice.

Secondly, there is the issue of brand. Not many

retailers will have the luxury of waiting to enter new

channels: John Lewis in the UK was arguably late

to the digital market, but when it entered it did so

deliberately and with great success. This is the

exception rather than the rule: across Europe there

are examples of retailers that have been too slow to

transform, damaging not just their reach and relative

operational efficiency, but also their brand.

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Being ‘retro’ is a small niche with limited customer

appeal. Tomorrow’s retailer will need to be nimble,

able to quickly leap into a new channel with limited

expenditure and risk.

Being responsive is about having systems in place

that can cope with the pace of change. This is rarely

achieved with a ‘big bang’ solution. Instead it’s

about continuous innovation, enabled by openness:

open platforms that can be quickly and cheaply

connected into other systems.

The preached message of the ‘omnichannel’ retailer

for the past few years has been about integration:

building a core platform that can support multiple

retail channels. One set of customer data, product

data, billing data upon which new channels can be

added as simply a thin presentation layer.

But not every new channel will prove to be a

success. Agility doesn’t just mean adding channels

– sometimes experiments with channels will fail, or

the channel itself will just fall out of fashion. A few

years ago it might have been MySpace. Now it’s

Facebook. What next? Neither brands nor retailers

can afford to throw away a big investment every

three years. Yet some retailers are trying to become

software companies in order to compete with

Amazon, spending hundreds of millions of Euros

on new platforms. Agility is about being able to

experiment and not being afraid to fail, but learning

to fail fast and move on.

The selection of this approach, retailer as software

company, has been popularised by those

looking at the success of Amazon and eBay and

understandably wanting to replicate it. But it is

a costly, high-risk strategy predicated on scale.

Executives need to consider whether they can

compete on price or resources, or whether instead

their play is around niches and agility.

Key Takeaway: Retailers have always been responsive to customer demands and ‘small A agility’ is about

maintaining and accelerating that behaviour: ensure you’re listening and take action on

suppliers, platforms, channels, products and price.

‘Big A agility’ is about formalising the process through which that response happens. Leverage

processes developed in the software market that today have broad applications across the

business: mainly rapid development, iterative improvement and constant evaluation.

The ability to adapt quickly is crucial for sustaining competitive advantage.”Scott Galloway, Clinical Professor of Marketing, NYU Stern

There are two sorts of agility – responding to customer demands with a big A, and process improvement with a small A.” – Ashley Friedlien, eConsultancy

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Performance is about time: getting in front of your customers

3. Performance

In the early days of e-commerce, we had what was known as the ‘seven second rule’. If a web page didn’t load within seven seconds, you’d lost the customer. These days, 40% of visitors will abandon a page that doesn’t load within three seconds.2

Performance is about time: getting in front of your

customers and prospects within that limited window

of attention, whether it’s online or off. But it’s also

about precision. There’s no point putting the effort

into reaching a customer quickly with the wrong

proposition. In this age of ‘metail’, customers expect

you to deliver them a very targeted proposition.

They won’t work as hard to find the products they’re

looking for. If you want the profit you have to do the

work to put the product in front of them.

Data-Driven RetailThese days retailers and brands have access to a

lot of data. Processing that data into intelligence,

and acting on it fast is what leads to precision: the

right products in front of the right people at the

right time. Whether it’s changing the product mix,

taking advantage of a major news event, or putting

the right products in front of each customer on their

home page, precision is key.

Performance data used to be hard to get. But

in an increasingly digitised retail, supply and

marketing environment, performance is increasingly

measurable. Combine velocity and precision and

you have the benchmark for future performance.

Delivering this level of performance is about having

the technical capability and skills to collect and

analyse data. But it’s also about devolving the

power to the right people in order to act on that

data. In a high street environment, creating a shop

window campaign or promotion might involve tens

of people, lots of partners. Online, it should be a one

person job. One person can tweak the logic and use

templates to create campaigns fast.

2 https://blog.kissmetrics.com/loading-time/)

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One option is for retailers to have ‘macro’ and

‘micro’ calendars, with the latter being about

reacting very quickly to trends. What should not

happen is that IT ends up drowning in change

requests: change should be controlled and managed

by the people with the market knowledge.

Dynamic, data-driven content should be easy to

implement. Imagine you’re operating in Italy in early

autumn. Customers coming from southern Italy

may still want t-shirts, while those from northern

Italy may want coats. A smart site should be able to

respond to this level of granularity.

Few retailers reach the ideal levels of performance

today: a promotional campaign in reaction to

something on TV typically takes five days to

turnaround when it should be possible in one hour.

Five days is not reactive. One hour is reactive.

Smaller businesses may have an advantage here:

the moment Mo Farah crosses the finish line, his

sponsor’s shirt should be on the front page of the

website. It takes a big brand three weeks to approve

something like that. An SME may be able to do that

in a fraction of the time.

Key Takeaway: Achieving performance requires two things: real-time intelligence and rapid response times.

Ensure that the right information flows quickly through your organisation from customer to

CEO and back again without too much gloss being applied as it travels. And look to devolve

power as close to the customer as possible to enable rapid response to opportunities. It

carries risks but well managed, they should be more than outweighed by the returns.

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4. Ubiquity

If there is a technology available that can help to carve out some form of advantage, then at some point, someone in your market will apply it. The early adopters might not get it right (though they might get kudos for trying) but eventually that new piece of tech will become a differentiator.

This disruptive reality has been proven over and over

again in recent history, every time leading to change

at a more or less radical scale. At one end of the

spectrum, the adoption of social media by fast-growing

companies like AO.com has enabled a markedly

greater engagement with customers than anyone

thought possible for a white goods retailer. At the other,

the introduction of the iTunes store by Apple largely

decimated the market for physical music media.

In the retail market, as the examples above suggest,

established companies have often been slow to

adopt innovations. They work under the assumption

that technological change is expensive and risky, a

worrying combination. But this is driven by a largely

pre-internet mindset.

There’s a great deal of hesitation around new

technology. Retailers believe it is very expensive to

test something, often because of monolithic legacy

systems. But organisations need to be able to test

new channels and approaches because no-one

knows what will work until they do.

The internet didn’t just bring a new set of

technologies into play, it has changed the culture

of technology. Open platforms and agile, iterative

development are now the order of the day. The risk

of failure remains, but when a technology project

fails, it should do so quickly, leaving lessons for the

next round of development at minimal cost.

Experiments won’t always be a commercial success

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Live ExperimentationThis experimentation isn’t limited to the digital

store front. The volatile high street environment

means high turnover, freeing up premium retail

space for periods of four to six weeks - ideal for

pop-up shops. Supporting these experiments with

legacy systems would be extremely challenging,

but using e-commerce systems they can be very

fast and cheap to set up. These experiments won’t

always be a commercial success, but they are a

great opportunity to test new formats, which often

generate good media coverage and as a result, drive

more traffic to the website for online transactions.

Building a solid set of foundations is the key:

work out how you collect, store and process data.

Without this, social media and other forms of

outreach risk being unprovable gloss.

New technological solutions become viable all the

time, driven by increasing computing power, falling

price and open innovation. If a function can be

automated then eventually someone will implement

it, usually gaining an advantage in performance

and cost. Knowing which parts of your organisation

could be, and should be, automated, and when to

move, is an increasingly valuable capability. This

knowledge comes largely through experimentation

but recognising opportunities is also about a mindset.

Key Takeaway: Responding to the ubiquitous reach and disruptive power of technology doesn’t mean hiring

an army of millennials to set your strategy. But it does mean having an open mind, and

being able to take controlled risks to see what works and what might be able to disrupt your

competition, before it disrupts you.

Applying the agile processes and devolved power structures described above, it should

be possible to experiment efficiently. If data is moving fast through your organisation, you’ll

soon know if something is working.

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Barriers to entry into new markets are falling

5. Scale

The world is shrinking fast, driven by increasing connectivity, global media and social networks. Geography is becoming less of a barrier than ever before, and at the same time, the barriers between market sectors are starting to fall. As Amazon and others have shown, once you have a brand and an infrastructure for efficient selling, there’s no limit to how you can use that platform - even making the platform itself part of the proposition.

InternationalCross-border competition is an increasing

reality, and one that will only be augmented by

international globalisation efforts and new language

and payment technologies.

The barriers to entry into new markets, at least

from a technology perspective, are falling. But not

all companies are taking advantage. While not all

European retailers are moving into international

markets, brands are, and quickly. Companies

like Adidas have built solid back-end integration,

meaning the front-end should never be a problem.

This back-end, front-end split is key to cost-

effective expansion.

Evidence from Demandware customers suggests

that a new site for a new territory should cost

less than £100,000 and the back-end should

be identical. Companies are going live with new

international sites within four weeks from making

a decision. Another retailer has launched thirty

international sites within a year.

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How fast European retailers are attacking

international markets depends in part on the size

of their domestic market. For example, German

retailers with access to 80 million domestic

customers have been noticeably slower than their

British counterparts. Domestic retailers in some

countries have seen their native language as a

barrier to foreign entrants, but this barrier is lowering

all the time. All are subject to challenge from new

entrants from the US and Asia.

Inter-marketThe current shape of the online market places great

power in the hands of a small number of brands.

If you can build a relationship with a customer,

that means you are one of the handful of places

to which they automatically turn, then you have

an opportunity to be a gateway to a huge range of

goods. This has been the approach of Amazon and

eBay and with it they have achieved great success.

But it shouldn’t be assumed that this dominance is

complete, or that it will endure.

The speed at which consumer channels of

communication and operation are changing means

that there will always be new opportunities to

establish a foothold, whether it’s in a new medium,

social media space, communications tool, or

hardware platform.

Key Takeaway: Retailers need to understand how to truly own a local market (or many hyper-local markets),

or start to challenge in the international arena. Doing so is a question of having the right

infrastructure and partners in place, but also a question of innovation – and patience. For

example, Tchibo, the German retailer, entered the UK market offering a weekly-changing

selection of goods. It didn’t work a decade ago, but the middle aisles of fast-growing Lidl

and Aldi supermarkets in the UK are run on the same principles.

If you have a relationship that drives regular interaction with the customer, look for

opportunities to expand the scope of those interactions. Can you become their gateway to

trusted products?

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The View from the High Street

One company that clearly recognises the challenges and opportunities that this vision of the future represents is Lacoste. Two years ago Lacoste was two companies, with the brand separated from manufacturing and distribution. The businesses re-merged, beginning a process of transformation and unification around a common customer experience, worldwide. Lacoste France CEO Joelle Grunberg told us what diversity, agility, performance, scale and ubiquity mean for her.

DiversityThe challenge of presenting a consistent brand to customers across diverse channels is particularly acute at

Lacoste after years as a divided company.

Lacoste is in a very specific market situation.

It’s only two years since the merger between

the brand and the licencee that produced

and manufactured products. Now we’re both

brand and retailer we are looking at challenges

in a very different way. The core strategy is to

present one, unified image of our brand that is

the same across every channel.

In the past, different channels were run by entirely

different business units and now we need to be

homogeneous: the customer should see the same

brand experience, wherever he sees it. This is a big

organisational challenge to go from lots of different

approaches to one.”

Joelle Grunberg

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AgilityTransforming an organisation to meet this

opportunity is a question of people, systems

and leadership,” says Grunberg, highlighting

that technology alone cannot equip an

organisation for a fast-changing marketplace.

You need to have a clear organisational structure

with the right person at the top. Someone with a

strong will and a precise vision.”

Technology definitely has a strong role to play

though, and the more established a company

is, the harder it can be to bring systems up to

21st century standards:

There is undoubtedly an IT challenge. Systems

and processes need to evolve. When you have

an organisation with an 80 year legacy, there is

a lot of evolution required.

Our customers now reach us through on

and offline marketplaces and we have to

make a lot of changes to get to one unified

experience. It’s challenging to change fast.

As well as systems you have to get people to

evolve. If the people can’t change, you have to

change the people.”

PerformanceOn the issue of performance, particularly with regards to real-time data, Grunberg is frank:

It’s early days for us in connecting up all of

the different aspects of the business. I can’t

say that the movement of data around the

organisation is as effective right now as we would

like. But we have a vision of where we can be that

we know we will achieve.”

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UbiquityTechnology has a big role to play in Lacoste’s future, in part to connect the different channels in a seamless fashion:

The big challenge remains operating cross

channel. Right now our customers cannot

buy online and collect products in store, or

order from our online range from the store

and have them delivered. Stores are still on

one side and internet on the other.

There are technology issues to overcome as well

as structural and people challenges: some of our

stores are directly owned, while others remain

franchises. But our goal is to achieve as much

transparency as possible between the physical and

digital channels.”

ScaleWith a company of Lacoste’s size and reach it takes focus to achieve efficiencies of scale while responding to

the unique traits of each different market.

Lacoste is structured in four different zones.

France because of its scale and legacy as

a market is a zone in its own right. Then we

have the rest of Europe, the US and Asia. The

CEOs of each of these markets all have the

same boss and we work closely together because we

recognise that our customers are international.

There are lots of commonalities between the zones

but also very local challenges: different competition

and different channels.”

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ConclusionChange is vital because consumers are innovating

In a world of accelerating, technology-driven change, the only way to grow sustainably is to engineer agility into a business. Agility is not a natural state for most organisations, which naturally become less agile as they grow. Creating it requires focus from management and an innovation culture present from the ground up.

Consumers are innovating so change becomes the

necessary norm. As individuals they are responding

quickly to the accelerated nature of modern life,

where answers are instant. Even those who might

be reluctant members of the ‘now’ fraternity are

being swept along by global cultural currents in the

increasingly connected market. Every customer now

has much more information about products and

prices than they ever had before, from you, your

competitors, your suppliers and their peers.

Being agile will give you the ability to support

the diversifying markets. To perform experiments

on minimal capital and learn about new channels,

markets and technologies. It will allow you to scale

faster, at the right moment.

Structuring for agility will boost your performance.

Agile organisations need to be transparent, allowing

managers to see the inputs, outputs and processes

at every tier of the business. Only then can they see

problems early and identify clearly new opportunities

for interaction, integration and expansion. Though

optimisation may move down the executive priority

list, it is often an implicit benefit of greater agility.

Though it is not the answer in itself,

technology should be your ally throughout this

transformation. The pace of change of technology

continues to grow exponentially, driving it out into

every fringe of the retail network. It is the force

behind much of the wider change and a force that

you need to harness.

With this campaign we hope to help you harness

the power of technology and support you in this

fast-changing environment. This paper is just the

start. We will be producing guides for different

markets and different countries with specific advice

and more examples of best practice from around

the globe.

We look forward to working with you, as you become Future-Ready.