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Global Retailing: New Concepts inRetailing – The Thin Line Between

Success and Failure

July 2009


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© Euromonitor International >Retailing – New Concepts

OverviewPremiumisation: Exploiting the Niche

Discounting: Value in Volume

Virtual and Multi-channel Retail: Bricks to Clicks and Back Again

Technology in Retail: Pressing the Right Buttons

Segmentation: Shopping for the Right Consumers

New Concepts in Action

Retail Faces the Credit Crunch Challenge

New Retail Concepts: What Next?

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© Euromonitor International >Retailing – New ConceptsOverview

Introduction

Euromonitor International's report on new concepts in retailing reviews notable launches that have taken placearound the world.

The report provides analysis of new formats in markets by channel, date, country of origin, unique sellingpoints and prospects.

In order to assess the potential impact on retailing the concepts are grouped by primary trend:

Premiumisation

Discounting

Multi-channel and virtual retailing

Technology-driven innovation

Segmentation

In addition, the report looks at some examples of how new concepts have been implemented and some of theways in which retailers are reacting to the challenge of the credit crunch



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All values expressed in this report are in US$ terms, using a fixed 2008 exchange rate.

All forecast data are expressed in constant terms; inflationary effects are discounted. Conversely, all historical

data are expressed in current terms; inflationary effects are taken into account.Retailing coverage:

Store-based retailers

Grocery

Hypermarkets

Supermarkets

Discounters

Small grocery retailers

Food/drink/tobacco specialists

Other grocery

Non-grocery

Mixed retailersHealth and beauty specialist retailers

Clothing and footwear specialist retailers

Home and garden specialist retailers

Electronics and appliance specialist retailers

Leisure and personal goods specialist retailers

Other non-grocery retailers

Overview

Definitions

Non-store retailers

Vending

Homeshopping

Internet retailing

Direct sales

Terms and abbreviations:

Tweenager: a child who has not yet reachedhis/her teenage years but has started to exhibit

teenage-style behaviour, generally between 8-12 years old but the lower limit is not preciselyfixed. In terms of retail behaviour, tweenagersshow more independence in their buyingdecisions than younger children.

RFID: Radio Frequency Identification, enablesthe storage of substantial amounts of data on

electronic tags.



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© Euromonitor International >Retailing – New ConceptsOverview

Key Findings

Discounting: Value in volume At the lower end of the market, discount

retail is expanding into new channels, suchas internet retail, as sales volume becomeskey. Other retailers are adding a discount

element to their normal store format

Technology in retail:Pressing the right buttonsFrom the potential offered by

mobile phones to high-techservice enhancement

concepts, retailers stand tobenefit by harnessing

technology – but the linebetween attractive gadget

and useless gimmick

remains easy to cross

Virtual and multi-channelretail: From bricks to clicksInternet retailers are looking to

exploit synergies with otherchannels, while establishedretail formats now see thebenefit of moving some of

their business online.Meanwhile, social networking

is taking retailer-consumer

relationships to a new level

Premiumisation: Exploiting the nicheOpportunities remain at the upper end of

the market: grocery retailers adoptingpremium formats can tap into a trend for

higher spending on household necessitiesat the expense of discretionary purchases

Today's retail climate has littleroom for error: all the more

reason for retailers to beimaginative and proactive in

developing new retail concepts

Segmentation: Shopping for the right consumersIn the current economic climate, a retail concept

which restricts its consumer base is a risky strategy.Segmentation concepts are becoming less common,unless they can target a substantial consumer base,

such as the growing pensioner demographic



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Premiumisation: These formats focus on high quality products and an upscale retail environment, and areable to charge higher prices as a result. However, maintaining a suitable store ambience anddeveloping/sourcing appropriate products raises operational costs.

Discounting: Discounters are geared towards value pricing and high-volume sales, often in a "no-frills" storesetting, and may be marketed by comparing prices with the mainstream. Popular even before the globalrecession, now the drive for low prices has accelerated the discount trend and seen it enter new channels,such as online retail.

Virtual and multi-channel retail: Although many retailers initially viewed the internet with suspicion, they areincreasingly appreciating the contribution that online sales can make to the bottom line, and looking at new

ways to integrate e-tail into the business model. Online communication has become so accepted by retailersthat many are now looking to social networking websites to help enhance their relationships with consumers:to drive sales, increase brand loyalty or for research purposes.

Technology: Technology has a wide range of applications within the retail environment, whether improvingproduct supply, enhancing customer service or reaching the areas that retail otherwise struggles to access.

Segmentation: Identifying a customer base and then designing a store format expressly to cater to it.Targeting specific consumers rather than all consumers and, at the same time, making sure the consumer

base is big enough to support the retail store is a complicated balancing act. Internet retail has added anotherlayer to the segmentation concept, by allowing niche concepts to attract consumers from a much wider area.

Overview

Top Five Trends in New Retail Concepts

DiscountingPremiumisation

Virtual and

multi-channel retail Technology Segmentation



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© Euromonitor International >Retailing – New ConceptsPremiumisation: Exploiting the Niche

Getting What You Pay for: Premiumisation Concepts

Premiumisation concepts have enabled retailers to compete againstmore value orientated competitors by offering high quality rather

than low prices, and have also been used to enhance the value of aretail brand within the wider market

Markets hit by the global recession are seeing a sharp downturn indiscretionary non-grocery spending, but premium grocery retail isbetter placed, able to take advantage of the rise in spending oncooking from scratch and entertaining at home, and to tap intocontinuing consumer demand for environmentally-friendly or

ethically-sourced products

Retailers in emerging markets have begun using premium formatsto harvest rising disposable incomes, but concepts must be

accurately targeted so as to attract the topmost earners – the abilityof lower income tiers to support premium stores is limited, and

success outside first tier cities will initially be minimal. As markets mature, non-grocery and mainstream premium formats

become more common – but remain highly vulnerable during an

economic downturn



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% age of national annual disposable income controlled by decile 9 and 10 households

USA (222,672)

Australia (159,325)

United Kingdom (142,890)

Japan (131,522)France (128,324)

Germany (122,397)

Saudi Arabia (71,371)

Brazil (57,791)

Russia (41,093)

China (16,394)

India (7,587)

Figures in brackets representaverage income of 9-10th decilehouseholds in 2008 (US$)

Premiumisation Potential: Purchasing Power of the Top 20% of Households (Deciles 9 and 10)

Bubble size represents total income of deciles 9 and 10 in 2008 (US$)

Premiumisation: Exploiting the Niche

Premiumisation Potential Still Centred in Developed Markets

The markets with the highest premiumisation potential combine a large population with high, and growing,household income levels for the top 20% of households. The percentage of total income controlled by the tophouseholds is also a significant marker: the lower it is, the further the market for premium retail will extend intothe rest of the population.

Because of these factors, even negative growth markets, such as the UK, are still fertile areas for premiumretail, whereas progress in China must still overcome the obstacles of low income levels and income disparity.

Niche or single-store premium concepts have demonstrated the ability to thrive in all markets, emerging ordeveloped, but chains are difficult to establish, and are almost exclusive to grocery retail in developedmarkets.



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Concept name: Cold Storage Solaris

Company: GCH Retail (M) Sdn Bhd

Market: Malaysia

Channel: Supermarkets

Launched: April 2008

USP:

Cold Storage is an established chain in Malaysia, but the Solaris store is designed around the needs of aniche consumer base: wealthy Korean and Japanese expatriates and affluent locals, a community centredaround the Kuala Lumpur suburb of Mont Kiara, where the store is located.

The stores offer Japanese, Korean, Taiwanese and other imported products, as well as a walk-in wine chiller,fresh juice corner and a section that sells biodegradable cleaning products.

Comment:

At less than US$1,000 per capita in 2008, the average annual retail spend of Malaysian consumers remainslow. The Solaris format allows Cold Storage to tap into a much more affluent consumer base, and by supplyinghard-to-find products it can operate higher price points than normal outlets.

The large population of expatriates in Mont Kiara, as well as neighbouring suburbs ,such as Kenny Hills andTaman Duta, should ensure that the outlet has a large enough consumer base to thrive.

The potential for further stores is obviously limited on a national basis, but in the long term, operating apremium format should make it easier for Cold Storage to gauge when the demand for higher end products is

strong enough to consider adding them to the product mix in other stores.


Finding the Premium Consumer: Cold Storage Solaris

R ili N C

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Concept name: Wadi Food Stores

Company: Wadi Holdings

Market: Egypt

Channel: Food/drink/tobacco specialist

Launched: 2006

Progress: 4 stores open, 2 more planned

USP:

Wadi Holdings is a well-known Egyptian producer of premium olive oils and other ingredients; the stores areentirely dedicated to products under its brands (Wadi Food, Wadi Gourmet and Wadi Organic). Wadi brandsare widely available in Egypt through both retail and wholesale channels, but the stores feature exclusiveproducts and offer a more luxurious shopping experience that is rare within the Egyptian retail market.

Comment:

The top 10% of households accounted for over 30% of Egypt's total income in 2008. Wadi Food Stores aredesigned to appeal to this small but more affluent segment of the consumer base of upper income andexpatriate households, and in a market with limited premium outlets offering gourmet food products, WadiFood Stores faces only limited competition.

Wadi Food has a strong brand name that it has been building for several years, and its brands are perceivedas high quality products. The presence of premium stores also enhances the equity of the brand withinmainstream retail.

Organic food consumption is on the rise in Egypt, but at a slow pace, due to high unit prices and the limitednumber of players. Other organic food suppliers continue to monitor the success of the concept. If its successgrows, more gourmet food shops could open, increasing competition.


Premium Retail as Brand Enhancement: Wadi Food Stores

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Finding a niche:Recipease (UK)

Launched in south London in February 2009, bycelebrity chef Jamie Oliver; more planned nationwide.

Format: Gourmet food store providing cookerylessons and meal assembly, alongside food andcookery products.

USP:

Focus on experiential retail: customers can puttogether dishes in-store, be taught how to cook themeal from scratch by professional chefs, or pick upready meals to finish at home.

Aims to help customers re-learn "forgotten" foodskills and become excited about cooking again:location of first store in affluent middle-class area

suggests the concept is aiming at a niche ratherthan the mass market.

Prospects

Located in an affluent area, taps into consumerwillingness to spend more on eating at home insteadof spending money in restaurants.

However, the concept is high-maintenance and a

national rollout will be challenging – and expensive.

Mass-market premium:Føtex Food (Denmark)

Launched March 2009 by Dansk Supermarked A/S; 2stores open, up to 50 planned.

Format: Supermarket offering a range of premiumgoods at higher price points alongside mainstreamstaples from the main Føtex chain.

USP:

Mix of normal and premium prices is suited to a wideconsumer base, enabling customers to treatthemselves and control costs at the same time.

Prospects

Non-grocery sales in Dansk Supermarked's Føtexand Billa chains have been falling: Føtex Foodincreases access to the upper end of the more

resilient groceries market without repositioning theFøtex brand overall.

The economic downturn has created a challengingenvironment for a new, upmarket chain. DanskSupermarked is taking an aggressive approach tothe economic downturn: "The successful launch ofFøtex food shows that we do not intend to go on the

defensive" –

CEO Erling Jensen, April 2009.


From Niche to Mass: Developed Market Premiumisation

© E it I t ti lR t ili N C tP i i ti E l iti th Ni h



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Concept name: Expo Design Center

Company: Home Depot Inc

Market: US

Channel: Furniture and furnishings stores

Launched: 1991

Progress: Closure of all 34 Expo outlets was announced at the beginning of 2009

USP:

A "one-stop-shop" for upmarket home-remodelling projects, offering a custom installation service, fixtures,appliances and homewares.

Comment:

Expo's store count rose to a high of 50, with plans for up to 200 units in the US and Canada by 2005, butessentially remained an experimental concept. The US housing boom should have been the idealenvironment for it to thrive, but it never took off, and once US property sales began going into freefall, HomeDepot decided to focus on its core big-box, more value-orientated DIY format.

The range of services offered and the products stocked by Expo stores required significant investment, buthigh prices and operational issues with stores and post-sale services meant the stores remained morepopular as sources of design inspiration than sales destinations.

14 other Home Depot concept stores were also axed. With Expo, these businesses lost US$50 million in2008 on turnover of US$950 million. Losses for 2009 were forecast to rise to US$80 million.


When Premiumisation Doesn't Work: Expo Design Center, US

Key point: The collapse of the US housing market meant the end for the Expo DesignCenters, but the concept had never provided the service and sales standards to attract

high-end clients and did not offer good enough value for more mid-market customers

© E it I t ti lR t ili N C tP i i ti E l iti th Ni h



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Opportunities

Added value – retailers can benefit from higher pricepoints if the products are perceived to offer additionalbenefits, such as superior quality, ethical sourcing orenvironmentally friendly attributes.

These higher price points can help niche conceptscome to life, enriching the retail landscape.

During the credit crunch, consumers are now

spending more on cooking and entertaining at homerather than going out, making grocery sales at thehigher end of the market surprisingly resilient.

Industry commentators, including outgoing Wal-Marthead Lee Scott, believe that after the global recessionconsumers will look for better quality,longer-lasting products, which could create

opportunities for mainstream premium non-groceryretail concepts or store-in-store areas.

Both retailers and manufacturers can use a premiumformat to raise brand equity, extend a brand or adoptan upmarket positioning alongside their usual offer,(as with Føtex Food), allowing them to widen theirconsumer base and benefit from higher price points.

Challenges

Low consumer confidence and tighter disposableincomes impact spending on premium products, andcan give mid-market retailers an advantage. UKpremium grocery chain Waitrose has responded witha mid-priced "value" line, but this move may cost overUK£25 million in lost revenues.

Non-grocery premium retail has been particularly

hard hit by the credit crunch, as consumers decideagainst discretionary purchases. This market willcontinue to be under pressure after the recessionends, as consumers deal with the debt hangover.

Premium retailers risk damaging their brands bymoving price points downwards, and once theeconomy improves the threat of development ofpremium private label by the major supermarkets willreappear.

Responding to the higher expectations thatconsumers have of premium retail formats raisescapex and operating costs, making premium retailless able to withstand sales downturns.

Raised costs and a smaller consumer base makes itdifficult to operate premium concepts on a large scale.


Prospects for Premium Retail Concepts

© E romonitor International >Retailing New Concepts



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© Euromonitor International >Retailing New ConceptsDiscounting: Value in Volume



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© Euromonitor International >Retailing – New ConceptsDiscounting: Value in Volume

Price Extremes: Discounting on the Rise

Discounter formats are seen mainly in mature or semi-mature retailmarkets, where mainstream retail has moved upscale and left a

vacuum at the lower end of the market

The current recession has led to consumers trading down andincreasingly demanding low prices, accelerating the development of

discount concepts

Discounter chains, including Aldi and Lidl, have become stronger inmarkets such as the UK, US and Ireland, as a result of the globalrecession, affecting the mid-market by forcing mainstream grocery

retailers to compete more strongly on price

Discount concepts trade off lower margins against higher volumesales. Cost control is key, no-frills store formats are standard, and

development is now moving online

In emerging markets, lower prices marketwide, lower incomes andlogistical and legal obstacles to implementing operational efficiencies

can make success with a discount model more difficult to achieve




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Low-price Potential: Poorest Doesn't Mean Poor

Even the less affluent section of society still represents a significant market, particularly in developed markets,with the poorest 20% of households representing up to 10% of national disposable income.

This creates potential for discount retail formats. For example, discounters generated 39% of all grocery salesin Norway in 2008, and 23% in Austria.

The discounter grocery format is still establishing itself on a global scale. Discounters have largely focused onmarkets where they are able to obtain synergies with existing operations, hence the strong presence of theGerman discount chains in Eastern Europe.

Recessions in a number of markets are encouraging retailers to develop a low-price option in order to retaincustomers as they trade down.

Discounter concepts are now developing beyond the traditional low-price grocery, fixed price and outlet storeformats to encompass internet retailing, shop-in-shops and other retail elements.

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Concept name: Ted's Shed

Company: Collaboration between MandMDirect.com Ltd and Ted Baker Plc

Market: UK

Channel: Internet retailing


USP:

Accessed via the MandMDirect homepage, the Ted's Shed site offers last season orend-of-line Ted Baker branded clothing at discounts of up to 65%.

Comment

Ted Baker is a clothing brand that also operates its own retail outlets and concessions,positioned at the upper end of the high street price scale; MandMDirect is a catalogue retailerthat has moved strongly into internet retailing, with a lower end positioning. This collaborationmakes Ted Baker accessible to a new consumer base.

Ted Baker operates its own transactional website, which has no permanent sale area. Ted's Shed allows thebrand to discount clothes without cheapening the image of its main store-based and online activities.

The UK clothing and footwear market is forecast to fall to £36 billion in 2009, from a peak of £38 billion in2007. Retailers have been discounting heavily in the face of falling consumer spend. Tighter inventory controlwill slow this trend within the mainstream, but discount offshoots will help retain cost-conscious consumers.

Discount fashion e-tail is increasing very rapidly in the UK across the whole price spectrum, from designerfashion e-tailer Net à Porter's new discount offshoot, Theoutnet.com, to Asos Red in the mid-market andgetthelabel.com from JD Sports Fashion. Low price fashion chains, such as New Look, are also ramping uptheir online offer, with further competition coming from general retailers, such as the Debenhams Outlet pages.


Branded Fashion Outlets Move Discounts Online: Ted's Shed




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Tesco Discounter range

Launched September 2008 in UK stores

Format: Value products under differentbrands, with adistinctive redandyellowbadgeing

USP:

Different from Tesco's normal private label strategy,the Discounter range is packaged under a variety ofbrands without the Tesco logo, in order to remove

any stigma associated with buying "value brands".Prospects

Developed in response to the meteoric rise of thediscount chains Aldi and Lidl in the UK, as the creditcrunch began.

Tesco was criticised for diluting its brand image withthe range, and for forgetting that its main UK rivals

are not Aldi or Lidl, but mainstream competitors suchas Sainsbury, Morrisons and Asda.

However, the move allowed the company to regainthe PR initiative, and was declared a success inTesco's recent annual results presentation, despiteloss of margin.

Extension of the Discounter range into Tesco's

Polish stores appears to have been highlysuccessful.

$1-$2-$3 Fun (Toys 'R' Us)

Launched April 2009 in US stores

Format: Store-in-store offering a range of around 100products for US$1, US$2 or US$3 in a dedicated aisle

USP:

Toys 'R' Us already sold toys from US$2.50, but $1-$2-$3 Fun caters to the current vogue for bargainhunting.

Simple, low-tech toys may also benefit from anostalgia trend, as parents look back to better times.

Prospects

Toy sales are forecast to grow in the US by 2% in2009. As parents turn to small-ticket treats, $1-$2-$3Fun could help Toy's 'R' Us win consumers from low-price rivals, such as Wal-Mart and Target.

A 100 SKU range is unlikely to prompt a special visitto the Toys 'R' Us big box, standalone stores, butToys 'R' Us has also developed another store-in-store, 'R' Market, selling a range of branded childand baby-related FMCG products.

These developments help to make Toys 'R' Usstores a more rounded shopping experience,

strengthening the brand.


Retail Brand + Discount Brand: Store-in-store Concepts




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Opportunities

Demand for value – cost-conscious consumers arefocusing strongly on price, making this the idealclimate for discount retailers to expand their share ofthe market.

The recession is causing many consumers to rethinktheir buying habits completely. Discount retailershave the opportunity to respond by entering new

geographical areas or product categories.Retail rents have fallen, and many discount retailersare being actively sought by landlords as footfalldrivers, putting discounters in a very strong positionwhen it comes to property negotiations.

Store-in-store concepts or online "sister sites" areenabling mainstream retailers to introduce a

discount element to their normal stores.In emerging markets, economic turmoil may helpforeign retail entrants fast-track their way intoconsumers' hearts by offering low prices.

Discount retailers prepared to invest in a big enoughretail base can compete with local retailers on priceand beat them in terms of profit through operational

efficiencies.

Challenges

The economic crisis has led mainstream retailers tofocus much more strongly on price, intensifyingcompetition for discounters.

The attraction of a "no-frills" discounter store is likelyto fade fast if value/price is matched by mainstreamretailers.

Many mainstream retailers are choosing to take a

short-term hit in order to compete againstdiscounters on price. Once the economy improvesthe mainstream can move back upmarket, but thiswill be a more difficult proposition for discounters.

With their USP based so strongly on price, customerloyalty for discounters is limited and any moveupmarket goes against the brand image.

Now is an ideal time to expand, but the success of adiscounter store-based chain is reliant on economiesof scale. Discounter retailers must choose newmarkets carefully and be prepared to investsignificantly in order to build a cost-effectivenetwork.


Prospects for Discount Retail Concepts




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© Euromonitor InternationalRetailing – New Concepts









© Euromonitor International >Retailing – New ConceptsVirtual and Multi-channel Retail: Bricks to Clicks and Back Again



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© u o o to te at o aRetailing New ConceptsVirtual and Multi channel Retail: Bricks to Clicks and Back Again

Store-based and Non-store Channels Begin to Converge

Whilst there are some geographical variations, non-store sales are increasingly important to global retailing,and will account for nearly 7% of sales by 2010.

Non-store's strong growth over recent years has been driven by the spread of internet retailing. In the mostmature internet retailing markets, online sales are now so key that almost all store-based retailers haveevolved a web-based strategy in parallel with bricks-and-mortar operations.

Specialist e-tailers, which initially dominated internet retailing, are coming under pressure from store-basedretailers, as they harness the benefits of multi-channel retail, such as collect-in-store options.

Other forms of non-store retailing are also adjusting their business model to include internet retail. Thesynergies with homeshopping are obvious, but direct sellers such as Avon also now have transactional sites,

despite the potential clashes with their existing business model.

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World N America W Europe Latin America Asia Pacific Australasia E Europe MEA

Non-store Sales as a Percentage of Total Retail 2003/2008/2013

Non-store Store-based retailing

Key Point: Internet retail requires availability of both internet technology and distancepayment methods: because of this, developed regions lead the way in terms of sales, but

the progress in Latin America demonstrates the potential within emerging markets.




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Retailing New Concepts

Internetretail / m-

commerce

Home-shopping

Storebasedretail

Directselling

Storebasedretail

Virtual and Multi channel Retail: Bricks to Clicks and Back Again

Opportunities Created by a Multi-channel Retail Approach

With the development of internet retail as a catalyst, the boundariesbetween store-based andnon-store retail are becomingblurred, andretailers from both sides are crossing over in search of new consumers

Non-store formats, such as catalogue and TV selling once lookedthreatened by the internet: in fact, they have gained a new lease of life.

Initially slow to pick up on the potential of online sales, store-basedretailers in both developed and developing markets are now activelylooking for multi-channel synergies.

The potential of m-commerce and the interplay between onlineretailers and store-based networks has yet to be fully explored.

As store-based retailers improve their onlineoffer and exploit the benefits of a store networkto the full, internet specialists will benefit bydeveloping a physical presence. Some are alreadyopening their own boutiques, others, such as Dell,have begun selling products through stores.

The logical continuation of this trend will be for unconnected retailers to

form alliances in order to benefit from a cross-channel boost, as seenin the collaboration between an internet retailer and a conveniencestore chain in Japan.

Retailers are now facing another leap into the unknown: socialnetworking. Whether virtual worlds and sites such as Facebook andTwitter are any good at driving sales remains to be seen, but in thisage of economising the prospect of promoting a brand at little or nocost is highly tempting, as is the consumer insight that these sites offer.




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• Homeshopping sales aremigrating to the internet,but some of the channel'sstrategies are influencingother retailers.

• These includetheoutnet.com, a UKdiscount designer fashionwebsite and part of Net àPorter.

• Strategies such as "flashsales" and Going, GoingGone mirror TV shoppingchannels such as bid tv.

theoutnet.com

• Sometimes only a store willdo: DHC is a major home-delivery skin care companyin Japan, but has begun

opening stores in China.• This has allowed DHC to

increase its profile andpenetration in a marketwhere it is not yet established.

• Other non-store specialistswhich have successfullyentered store-based retailinclude US T-shirt specialistThreadless and computermanufacturer Dell.

DHC

• Mygofer is a new formatcurrently being tested bySears, the US departmentstore chain.

• The format relies oninternet sales, allowingcustomers to order onlineand collect items in store orvia a drive-thru.

• The department storeformat has been struggling,and this approach allowsSears to access a largerconsumer base.

Sears/mygofer

g

Interplay Between Channels Becoming More Fluid




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Multichannel Progress: RakutenBooks@FamilyMart

Concept name: RakutenBooks@FamilyMart

Company: Collaboration between Rakuten Inc and Family Mart Co Ltd

Market: Japan

Channel: Internet retailing/convenience stores

Launched: May 2007

Progress: Now available at around 7,000 FamilyMart outlets across Japan

USP:

Collaboration between online retailer and convenience store chain. Products such as books, CDs, DVDs andPC software purchased through Rakuten's website can be delivered to the customer's selected FamilyMartconvenience store for collection.

Comment:

RakutenBooks@FamilyMart makes receiving internet-ordered goods easier for working consumers, andpayment can be made at pick-up, reassuring consumers unhappy with entering credit card details online.There is also anecdotal evidence that FamilyMart's books and magazine sales have increased since they

started the service, as the customers that come to collect items are already book fans.Collect-in-store options are common, but this collaboration between two otherwise unconnected retailers isunusual. It has been a success and Rakuten now has similar agreements with the Circle K Sunkus andMinistop convenience store chains, while Amazon Japan has a similar arrangement with Lawson Inc.

With internet sales accounting for only just over 2% of total retail in 2008, Japan lags behind the US, but itsconvenience store channel (7% of total retail sales in 2008) is very well developed. An alliance such as thishelps to accelerate the development of internet retailing in Japan, as well as enhance a convenience store

chain's offer within a saturated market.


http://rd.rakuten.co.jp/cow/?R2=http://books.rakuten.co.jp/RBOOKS/&D2=67.3294.23477.588632.5853136http://www.family.co.jp/index.htmlhttp://www.euromonitor.com/http://www.euromonitor.com/http://www.euromonitor.com/


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Pros:

Space to show off the concept; visitorsare likely to focus on the retail concept.

Enables retailers to target specificconsumer bases, eg teen orientatedworlds.

Cons:

Marketing value outside the virtual worldis limited.

Creating a virtual world site is morecomplex and expensive than setting up asocial networking page: investment can

be lost if the world's popularity fades.Unmanned spaces lack impact,virtualworldscanbehighmaintenance.

Difficulty in converting virtual interest intoreal sales.

Virtual

WorldsPros:

Designed for mass consumer use, socialnetworking pages are quicker and easier toset up than virtual stores.

Offers "real world" access to consumers,eg Twitter updates to mobile phones.

Pages need to be monitored, but notconstantly manned, to engage consumers.

Two-way dialogue doubles as a customerresearch tool.

Social networking sites are designed tospread word-of-mouth, ideal for marketing.

Easy and free for consumers to sign up to.

Cons:

Sites need regular updates to remain fresh.

Retailer pages can be easily lost amidst thevast number of other pages on offer.

Unanswered customer complaints or

negative feedback can damage a brand.

Social

Networking

g

Virtual Retail: Social Networking and Virtual Worlds

Key Point: their relevance to the real, everydayworld of consumers is what sets social networking

sites above virtual worlds in marketing terms

© Euromonitor International >Retailing –

New ConceptsVirtual and Multi-channel Retail: Bricks to Clicks and Back Again



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g

Concept name: Second Life

Company: Linden Research Inc

Market: WorldwideChannel: "Virtually" any channel

Launched: May 2003, but did not gain prominence until late 2005

Progress: Second Life continues, but retailers have largely lost interest

USP:

Second Life is a virtual world which "residents" visit in the form of avatars. A wide variety of products and

services are on sales, paid for in Linden Dollars, which can be exchanged for real currency at approx L$250 toUS$1. From late 2005, Second Life began generating significant media coverage, at which point retailers,including Circuit City and Sears, began opening virtual stores on the site.

Comment:

Second Life has boasted 9 million users worldwide, and benefited from a massive amount of hype in 2006-2008. Because avatars can take any form, visiting the site can be a very aspirational activity. For retailers, thesite represented access to a consumer base, rather than a money-making opportunity.

Second Life continues, but companies such as American Apparel, Best Buy and Dell have closed their SecondLife shops, finding that residents did not transfer their allegiance to real-world companies.

Despite fears of waning popularity, Linden Labs claimed a record US$120 million worth of transactions in Q12009. It is possible that retailers may be tempted to return to Second Life by such figures, but the currentvogue has turned to social networking sites, such as Twitter, Flickr and Facebook, which have arguably amore direct connection to real stores and real purchases.

The Second Life experiment made retailers more open to the concept of virtual worlds. For last year's back-to-

school season, Sears set up a store in Zwinky and Kohls sold products in Stardoll.

g

The Early Days of Virtual Retail: Second Life and Beyond

Second Life's American Apparel store





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Short and Tweet: Retailers on Twitter

Collapsed UK store brands Woolworths and Zavvi areusing Twitter to maintain brand awareness as they

transform into online-only retailers.Zavvi is using the site to advertise products andservices on the "new Zavvi", answer questions and gainconsumer insight.

"team_woolies" tweets are informal and chatty, aimingto maintain the surge of popularity that Woolworthsbelatedly experienced before its closure, in preparation

for the relaunch of the brand online.

Twitter: a real-time short messaging service that works across a number ofplatforms. Users sign up to receive messages, or "tweets", from friends andorganisations. Despite data from Nielsen Online that up to 40% of TwitterUS's new members may be quitting the site after a month, Twitter stillreaches a significant audience: 13.9 million visitors in March 2009.

Fresh and Easy is using

Twitter to gain ground in the USmarket, advertising salespromotions and store openings,answering questions andgaining consumer insight.

Twitter's problems includedifficulty searching for specificretailer pages, the constraints ofthe 140 character tweet limit and

brand hijacking (for example,twitter.com/sephora links to a sitecalled valentineperfume.com,apparently unconnected to theLVMH banner).





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Opportunities

An online sales element can help retailers reduceoperational costs, while stores or catalogues helpmake online retailers more attractive. The economicdownturn and growing competition online make boththese elements increasingly important.

Order delivery and returned goods are twosignificant obstacles to internet retailing. Offering

these via a store network can give an internet retailera significant advantage.

As internet and store-based retail becomeincreasingly intermingled, more collaborative formatsmay appear, such as internet "showrooms", whereconsumers can collect, return and view products.

The potential for shopping malls to act as delivery

points for deliveries or returns has also not beenexplored. This could be a potential footfall driver,particularly as most visitors will arrive via car.

Dell recently announced that it generated US$3million in sales by Tweeting promotion deals: expecta surge of retailers aiming to follow Dell's example.

The internet can drive sales and add value by

providing use information, such as "how-to" videos.

Challenges

Brands can be devalued by the introduction of atransactional website if orders are then delayed orwrong.

Collaborations where store-based retailers havepartnered with e-tail specialists to develop theirbrand online have been complicated and oftenacrimonious. Store chains have little choice but to

put up with the risk and cost of developing atransactional website from their own resources –though Gap, due to launch online in the UK via

Asos.com, will hope to buck the trend.

Multi-channel retail is best done simultaneously:store chains attempting to go to an online-onlymodel appear to struggle. Home Retail will behoping an online-only Woolworths does better thanDSGi's Dixons.

Popularity can kill interactivity: Second Life lost itsunderground cachet once it gained widespreadmedia coverage, and if Twitter or Facebook becomecrowded with retailers pushing promotional deals orthe corporate message, users will move on.

Prospects for Multi-channel Retail Development


New Concepts



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New ConceptsTechnology in Retail: Pressing the Right Buttons



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The media products category relies strongly on impulse sales, putting retailers able to offer instant purchaseoptions at an advantage.

Because products tend to be small and easily sent by post, they are highly suitable for internet retailing.Powerful e-tailers, such as Amazon, have become highly price-competitive and frequently offer free delivery,subject to a minimum order value, making delivery time their only disadvantage to store-based retail.

Developed markets dominate media product sales, with some still achieving strong growth rates, driven byonline sales. Music downloads and eBooks will increasingly threaten store-based sales.

The three more-advanced BRIC nations, China, Brazil and Russia, complete 2008's top 10 – India lagssignificantly behind despite strong growth, owing to the lower base of its market. Growing internet penetration

and availability of financial cards for online payments will result in long-term growth for emerging markets.

Instant Retail Boost Impulse Media Purchases

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Concept name: TextBuyIt

Company: Amazon.com

Market: USChannel: Internet retailing/m-commerce


USP:

Text messaging service to enabling users to search for and purchase products from the amazon.com site.Designed to make comparison shopping quick and easy; amazon.com account holders text a search term, barcode or ISBN number to 262966 ("amazon" on a mobile phone keypad). Prices for two matching items arereturned, and can be purchased by replying to the text message and punching in a single-digit number next tothe desired item. Amazon will then call the person to confirm the order.

Comment:

TextBuyIt offers Amazon the opportunity to compete even more strongly with store-based retail by matchingthe instant gratification of the purchase, though delivery is still a delay.

Offering real-time price comparisons which customers can access as they shop could gain Amazon some

sales; however, sales could also be lost if the price differential is not significant. Consumers who mightotherwise wait to check an Amazon price online may decide to buy in-store for a similar price.

TextBuyIt is still operating in the US alongside other m-commerce options such as Mobile 1-Click. However, itremains absent from international sites such as amazon.co.uk and amazon.de, which only offer Mobile 1-Click.

M-commerce, already strong in Japan owing to closer integration of mobile phone, email and bank accounts, isslowing gaining ground internationally, so providing more m-commerce options is a good strategy for Amazon.

The increasing sophistication of mobile phones is making them more suitable for use in retailing, but as

viewing web pages via mobile phones gets easier, TextBuyIt's 2-result search may prove too limited.

Retailing On-the-go: Amazon's TextBuyIt



http://www.topnews.in/files/amazon.jpghttp://www.euromonitor.com/http://www.euromonitor.com/


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Concept name: Apple Download Kiosks

Company: Apple Inc

Market: USChannel: Vending

Launched: Patent filed by Apple in 2007 but not revealed until 2009, possiblyindicating that commercial development of the machines is nearing completion

USP:

Kiosks designed to transmit digital media, such as music and films, wirelessly to Apple media players, suchas iPods, iPhones and MacBooks

Comment:

Euromonitor International estimates that by 2013, nearly half a billion travellers will be departing fromairports across the world. Download kiosks would help Apple tap into this massive consumer group and alsomake the brand more visible in these high traffic areas and support Apple brand loyalty.

Other potential locations include any environment where consumers are likely to be looking for distractions:hotels, train stations, shopping malls, college campuses, aeroplanes, ferries, even prisons.

The kiosks will be able work in places where internet connectivity is slow or non-existent and media cannotbe downloaded from normal online sources. It could increase iPod ownership/usage among people withouteasy access to a computer to download music.

The kiosks offer Apple a number of key advantages: wireless downloads minimise the likelihood ofmachinesbreaking or being vandalised; there is flexibility in terms of payment options (using iTunes accounts,cards, contactless payments or cash) and also the potential for combining with iPod vending machines.

Competition from other music download providers, already being felt by iTunes, is a threat. Amazon,

for example, would benefit from similar synergies in terms of brand presence and cross sales.

In Tune with the Times? Apple Download Kiosks

Image courtesy of Apple





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Concept name: The Espresso Book Machine

Company: On Demand Books LLC

Market: USChannel: Vending/booksellers and stationers

Launched: 2006

Progress: Now over a dozen machines worldwide (US, Canada, Australia, Egypt, UK)

USP:

A book publishing machine which rapidly prints single copies on demand, identical to the published version,

billed as an "ATM for books".Comment:

Listed as one of Time Magazine's Best Inventions Of The Year in 2007, the EBM makes rare, out-of-print andforeign language books available on demand, and at speed: Tolstoy's War And Peace prints in just 9 minutes.

Most EBMs are located in libraries, archives or colleges. In October 2008, Australia's Angus & Robertsonbookseller pioneered its use in a retail store, and in April 2009, the Charing Cross branch of Blackwells inLondon became the first European bookshop to install an EBM.

EBMs allow booksellers to keep fewer items in stock, particularly titles for which demand is low, and could alsoenable a degree of customisation, large print, for example.

They allow customers to buy any book (almost) instantly at in-store prices, and offer book stores an advantageover the internet retailers that have begun to dominate the book sales market. There is also potential for booksto be ordered and paid for over the internet and collected in store, or delivered by post. Blackwells is planningan online catalogue for the machine.

However, not all titles are available yet (400,000 listed by Blackwells, with a million planned by summer 2009),

and EBM represent a significant investment for retailers: machines cost upwards of US$50,000.

Store-based Retail Fights Back: The Espresso Book Machine®





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Retailers are increasingly being hit by the global recession, as well as thelonger term increase in competition.

Retailers of discretionary products and, especially, big ticket items areparticularly threatened.

Service enhancement continues to be strong within health and beauty retailersand electronics and appliance retailers, from specialist advice and technologicalinnovations to product customisation.

Retailers which are able to survive the challenges of the current retailenvironment can look forward to a future – in the short to mid term at least –

with fewer competitors.

Service Enhancement: A Retail Survival Strategy

Non-grocery retail selling space hasbeen rising steadily, with a CAGR of2% between 2003-2008,

representing an extra 27 sq m per1,000 people over the past fiveyears.

This indicates an increasinglycompetitive retail environmentwhere businesses will need todifferentiate their stores, services or

products, in order to attractconsumers.

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Praktinfo, Hungary Smart Cart, South Korea

Talking Trolleys, Poland

Launched in September 2007, in a Praktiker Kft store

in Vecsés (near Budapest airport)Format: Virtual shopping basket, also supplyingproduct data

Praktiker's Vecsés branch is a state-of-the-art DIYoutlet: features include electronic price tags, interiordesign programs and information on plasma screensor via the internet.

Pratkinfo offers registered customers a handheldreader which acts as a virtual shopping basket,providing product information and location, and thetotal value of selected products.

Customers buy items by putting them into the virtualbasket rather than carrying them around the store.

Easier shopping has great potential, and male

consumers, in particular, are attracted bytechnological novelties.

Launched in South Korea in January 2008 by

Shinsegae Co Ltd in the E-Mart grocery chainFormat: RFID-enabled shopping cart, equipped withbarcode reader and touch screen

Products are scanned as they go into the cart and allrelated information, including product origin, priceand location in store are displayed on the screen. Atthe end of the visit, the barcode reader is simply

passed to a cashier for payment.Popular with consumers Smart Carts are to be rolledout to more outlets but cost of the carts is a factor.

Technologically Enhanced Customer Service

Piloted in Tesco Plc's Krakow branch in June 2007

Format: Shopping carts with integrated audio system,activated by infrared sensors

Carts play advertisements for particular products asthe customer passes the shelf.

The concept was only tested for a limited period oftime and has been discontinued.

The concept proved too complicated and somewhatannoying/distracting for customers, subjecting them

to more advertising without adding convenience.





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Technology Doesn't Work on Its Own: TecAsia

Brand name: TecAsia

Company: FTEC Resources Bhd

Market: MalaysiaChannel: Electronics and appliance specialist retailers

Launched: February 2008

USP:

A large-scale IT concept store covering around 2,500 sq m, with highly experiential and service-led approach

Comment:

The store has four "Experience Zones" – Digital Home, Gamers Zone, Digital Office and Kids Corner -- whereconsumers can get hands-on experience of products before they buy. For example, customers can playgames in a cybercafe setting at the Gamers Zone before they make their final purchase decision.

A dedicated Dell counter inside the premises is Dell Inc's first store-based retail outlet in Malaysia.

Apart from offering a variety of IT products, including PCs and accessories, this outlet also offers in-depthcustomer service, with trained technical staff in-store to assist shoppers.

Other facilities include a Gloria Jean's coffeehouse and a bookstore, making TecAsia a more rounded retaildestination.

Sales through electronic and appliance retailers in Malaysia have been growing steadily, reaching US$1.7billion in 2008. Government efforts to raise computer literacy among Malaysians, with extra income taxallowances for the purchase of computers, printers and bundled software, are expected to drive growth of thisretail format.

FTEC Resources has revealed plans to expand this concept, aiming for at least one store per state in

Malaysia, but spend per capita remains low and only the larger cities are likely to be able to support the stores.





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Opportunities

Technological advances are increasingly offeringretailers the opportunity to make their products moreaccessible and convenient for consumers to buy,increasing the likelihood of impulse purchasing.

Technology also has the potential to help retailersmake cost savings, and not only in terms of staffinglevels. For example, the EBM allows booksellers to

hold fewer books in stock while widening the rangeof titles available in-store.

Using technology to enhance customer servicemakes a vast range of product and usageinformation available to consumers at the point-of-sale.

Using customer service assistants and incorporating

other retail and leisure elements helps consumers toenjoy and feel comfortable with technology,particularly in emerging markets.

Challenges

Technology-led service concepts can lack thehuman touch, and the ability to respond to non-standard queries is limited. Even a format targetinga tech-friendly consumer base such as TecAsia laysheavy emphasis on person-to-person interaction.

Many consumers have a dislike of gadgetry –pushing their use too strongly can create a negative

impression of a retail environment.

The absence of a human salesperson canpotentially lose sales. Technological innovationsgeared toward driving sales may lack finesse.

Interacting with customers via machines rather thanemployees may make it harder to anticipate whatconsumers want from their stores, which could

reduce the success of future developments.

In-store technology requires investment:unsuccessful introductions can be an expensivewaste of money.

Prospects for Technology-driven Innovation


New Concepts



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New ConceptsSegmentation: Shopping for the Right Consumers



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Consumer Segmentation, Personalisation, Gratification

Segmentation allows retailers todifferentiate themselves within asaturated retail landscape and

specifically target their consumer base

Segmentation is not a newconcept: fashion retailers have

been separating menswear andwomenswear for decades

Segmentation concepts are highlyvulnerable to spending downturns withintheir target consumer base; many will bethreatened by the global recession

Overly narrow segmentation conceptsrisk excluding too many consumers

Concepts must target a strongconsumer base, otherwise theformat will fail or remain niche





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Narrow consumer base: havinababy.com

Launched by Big & Small Co in

the Philippines, December 2006Format: website selling maternityclothes and accessories

Progress: website is now closed

The Theory:

Targeted a high-spending consumer group, alreadyfamiliar with the Havin' A Baby stores

Offered online payments for extra convenience

The Practice:

Even though Havin' A Baby stores are popular, thebase of online shoppers in the Philippine market wasstill too low

Underdevelopment of financial systems to support

online transactions was an additional disadvantageWeak marketing strategy meant target market'sawareness of the site was not high enough

Impact on market:

Companies are re-thinking their online marketingstrategies, introducing more convenient paymentsystems like Paypal and Xoom.com and promoting

websites more actively

Economic Vulnerability: Just Married Center

Due to launch in spring 2009

in Biatorbágy, Hungary(developer: ImmogrinvestKft)

Format: shopping mall forwedding-related stores

Progress: construction delayed until spring 2010

The Theory:

Aimed at engaged couples, relatives and friends

Population of 2 million within a 15 minute journey,plus excellent road transport links

Range of facilities planned: a bank, a playground forchildren and party rooms, as well as shops andrestaurants

The Practice:

Planning issues have delayed constructionConcerns remain over whether the centre will beable to attract enough of its target consumers

Hungary has been severely hit by the credit crunch,casting further doubt on the project, though a weakforint could attract Euro-zone spenders

Some experts also question why foreign examples

of such a format are non-existent

Lessons to Learn: Segmentation Failures





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Concept name: Kidfresh

Company: Kidfresh Inc

Market: USChannel: Convenience stores

Launched: January 2007

Progress: Manhattan flagship still in operation, no additional stores

USP:

Health and wellness convenience store for children, which offers healthy ready meals

made in conjunction with a paediatric nutritionist, cooking classes, story times and other servicesComment:

Kidfresh targets a high spending consumer base of upmarket Manhattanite parents, and taps into currentconcerns over child health and obesity.

It remains a niche concept, difficult to expand into mainstream or internationally, but has begun expanding as abrand instead: now available in 70 Wholefood Market outlets across the US. Prices for pre-packed lunchesrange from US$3.99 to US$5.99.

Development as a food brand rather than as a retail banner offers the strongest potential for internationalexpansion, though flagship outlets may help to raise the profile of the brand.

Partnerships with health food retailers offer a more cost-effective and practical way to increase presenceoverseas than opening stores catering to a single market niche, though premium chains such as Whole FoodsMarket and Canada's Planet Organic are beginning to show signs of strain in the current economicenvironment.

However, spending on children, particularly if related to health and wellness, is expected to remain relatively

resilient

Widening the Net for Niche Consumers: Kidfresh Inc





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Anshin Support Store, Japan

Launched in 2008, as anextension of Ito Yokado's

Anshin Support Shop range ofnursing goods

An 800 sq m store located within an Ito Yokado outlet,offering food, clothing, mobility aids, therapy andexercise facilities

Japan's elderly population is expected to grow strongly

The format targets three customer bases: those whoneed care, carers and those wanting to remain fit

It also increases weekday traffic to the Ito Yokado store

Segmentation: Catering to Elderly Consumers

SeniorStore SL, Spain

Originally launched in 1994 asLa Tienda del Abuelo,offering consumer goods forthe elderly

Relaunched as SeniorStorein 2007, widening its remit tooffer services such asadapting homes to cater for reduced mobility, aswell as specially designed furniture

The expansion of the seniors population in Spainhas now slowed, but they remain a significantproportion of the Spanish consumer base

Not all consumer segments are niche markets

Globally, the proportion of over 65s is increasing:nearly 10% of the world's population by 2018

In some national markets the pace is more rapid

As well as formats designed specifically for theelderly, mainstream formats can benefit fromincorporating pensioner-friendly features

Wal-Mart's UK subsidiary Asda is trialling thesale of mobility aids, including wheelchairs,

walking sticks and medical products/equipment

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Concept name: Store of the Community

Company: Wal-Mart Stores Inc

Market: USChannel: Hypermarkets and mass merchandisers

Launched: 2006

Progress: The project has become more ambitious and is driving the evolution of entirely new retail banners

USP:

A project aimed at tailoring store formats more closely to the needs of the local community

Comment:Since the launch of Store of the Community, Wal-Mart has customised stores in various ways to reflect thelocal community, for example by adding hitching posts for tethering horse-drawn buggies to a store located inthe heart of Amish country.

In 2008, the programme moved up a gear by remodelling its store in Dearborn, Michigan, entirely around theneeds of the half million-strong local community of Arab-Americans, the largest concentration of Arabs outsidethe Middle East.

The Hispanic community now accounts for nearly a sixth of the US population, and Wal-Mart has beguntargeting this market very actively. Rather than simply widening its product mix to include more Hispanicfoods, Wal-Mart is developing two new store banners.

Wal-Mart's Supermercados are currently being trialled in Phoenix and Houston, while Houston is also set tobe the site of the first Hispanic version of the Sam's Club chain, to be called Mas Club.

Segmentation: Wal-Mart Develops Its Ethnic Retail Strategy

Key point: The low-key start to this project suggests that it was as much to do withimproving Wal-Mart's image within local communities as driving sales, but now

Wal-Mart now seems to be looking on ethnic retail as a sales growth driver .





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Concept name: Club Libby Lu

Company: Club Libby Lu Inc, a subsidiary of Saks Inc since 2003

Market: USChannel: Other leisure and personal stores

Launched: 2000

Progress: Closure of all 98 stores finalised in January 2009

USP:

Experiential retail concept providing themed makeovers for tweenage girls (aged 6-12). The stores offeredchildren (singly and in groups) the chance to "unlock their inner princess" by dressing up, having makeoversand Libby Du hairstyles, singing and visiting the Pooch Parlour for a (stuffed) canine accessory

Comment:

The chain was criticised for its emphasis on looks and shopping, and accused of sexualising children. Midriff-baring crop tops were phased out in mid-2007, but there was more bad publicity at end-2007 when it emergedthat the winner of a Club Libby Lu contest had lied when she said that her father had recently died in Iraq.

Defenders pointed out that the make-up was light, dances were not "sexy", that it was normal for girls to enjoy

dressing up and makeovers, and that a Club Libby Lu makeover could help improve a child's self-image.Many higher income parents of tweenagers were alienated by the concept, and its popularity with youngerchildren may also have dented its appeal at the older end of the target age bracket.

No buyer: with sales of just US$52 million in 2008 (US$0.5 million per store), the chain was not profitable. Also, 2009 marked a low point in the US tweenager demographic, though numbers are now expected toincrease.

When Segmentation Goes Too Far: Club Libby Lu (CLL), US

Key point: Although Club Libby Lu brand products were sold through the storesand online, it had potential to be developed as a standalone brand: with wider

distribution it might have thrived despite the limited target demographic.





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Prospects for Segmentation Concepts

Opportunities

Product range benefits: segmentation concepts gainan advantage over general retailers by stockinghard-to-find products.

Consumers are also willing to pay more for specialistproducts and specialist advice which caters to theirneeds more precisely.

Developing a segmentation concept, such as Wal-

Mart's Hispanic stores, can refresh a brand andmake it attractive to a new range of consumers.

Despite a few concepts geared towards them, largeconsumer bases such as the elderly have yet to bewell-targeted by retailers, and continue to holdpotential.

Once the economic climate improves, segmentationconcepts are likely to become more diversified,responding to pent-up retail demand.

Internet retailing offers the opportunity forsegmentation concepts to access a consumer basebeyond their immediate area, increasing the chanceof success.

Challenges

Restricting the consumer base is a gamble for anyretail concept, particularly in the current economicclimate.

Any lucrative consumer base will be targeted byother retailers, either specialists or general retailersadjusting their product mix in response to localdemand.

Segmentation concepts lack flexibility: any downturnin the fortunes, or numbers, of the target base willhave a major impact.


New Concepts



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Overview










New ConceptsNew Concepts in Action



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Cross Border, Cross Category Format Development: Tesco

Tesco Plc has been the fastestgrowing of the top three global

retailers over the past four years,so it is no surprise to find thecompany continually exploringnew retail concepts in its homemarket and abroad

MALAYSIA: wholesale/retail hybrid

After the acquisition of Makro'sMalaysian cash and carry network in2007, Tesco developed a version of itsExtra format that caters to business aswell as retail customers, including bulkpack sizes, additional product rangesand business development advisers

US: compact supermarketsWhen Tesco launched into the USwith Fresh & Easy in 2007, itscompact supermarket format had itsdoubters. However, the chain is stillexpanding and rivals such as Wal-Mart, Safeway and Supervalu havenow launched similar formats

UK: Private label innovation

Tesco took private label to the next

step by creating the Discounter rangeof value products designed to look likeordinary brands. It is also widening itsnet of Tesco brand services withfinancial, mobile phone andtechnological support products

HUNGARY: strip mallTesco has combined its hypermarketand petrol station concepts with anopen-air strip mall featuring non-Tescostores, opened in 2008 at the popularresort of Balatonboglár. A wider retailoffer helps boost footfall within theTesco hypermarket

UK: The ultimate store layout

The results of a 2-year research

project into the perfect store layout,undertaken by Unilever and involvingcomputer simulations and virtualshoppers, have been implemented in1,500 Tesco Express conveniencestores since the beginning of 2009

SLOVAKIA: Wooden Tesco

Outlet built in 2008, entirely fromnatural materials, eg wood, wool andstraw. Solar panels, motion detectinglighting and other "green" devicesincluded in the CEE's first sustainablybuilt supermarket. Noticeably reducedrunning costs are an additional benefit

CZECH REP.: Department storeTesco has moved away from itsgrocery store roots with the launch ofMy Liberec. The store stocks grocerieson one floor and clothing on another.Positioned at the upper end of themarket, Tesco branding and privatelabel products are present but minimal

"Nothing can be sacred

within business. Hold yournerve, follow your

customers, spot trends,observe them."

Sir Terry Leahy, CEO of Tesco Plc,June 2009





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Not So Easy for Fresh & Easy: Progress of a Tesco Innovation

Feb 06: Tescounveils plans tomove into the

US market withsmall-formatgrocery stores

Apr 06: amassiveresearchprogrammegets underway

Jan 08: US labourunion opens anti-Tesco website,Fresh & Queasy

Nov 07: 93% ofcustomers "fairlyor very satisfied"with Fresh &Easy; 13 storesopen by end of

first month

Nov 07: First Fresh& Easy opens quietlyin Hemet, CA,days before the"official" launch on

Nov 8

Jan 08: In a tradingupdate, Tesco cites"encouraging" interest

in Fresh & Easy – butdoes not issue salesfigures

Jan 08: Fresh &Easy criticised byindustry punditswho say the chainis missing sales

targets and maynever make money.

Mar 08: Tescoannounces a 3 monthbreak from new store

openings to "kick thetyres".61 stores so far.

May 08: SafewayInc launches itsown small-formatsupermarket,The Market, in Long

Beach, CA.

Oct 08: Wal-MartlaunchesMarketside with 4stores in Phoenix,

AZ

Apr 09: Tesco reveals a loss of £142million in its US operations for the2008-9 financial year.Tesco remains "fully committed" toFresh & Easy

Nov 08: 100th Fresh & Easystore opens, but Tescodecides to slow expansion of

F&E because of the creditcrunch

Jul 08: 62ndstore opens,ending 3month hiatus

Jun 08: Tesco'sUS operationschief Tim Masonsays Fresh &Easy is "thriving"

Sept 08: Jewel-Oscolaunches UrbanFresh, a small-format

supermarket, inChicago, ILMay 09: 120th Fresh& Easy store opensCompetitorstorecount:Marketside 4Urban Fresh 1The Market 1 (a 2nd

is planned

Tesco responds:"we are seeing…

growing sales,growing customernumbers"

Jan 08: Wal-Martannounces that it willopen its own chain ofsmall-format grocerystores, called

Marketside

Key Point: A number of UScompetitors have launched theirown compact supermarket formats,but only Fresh & Easy is expandingaggressively. Tesco needs criticalmass for the Fresh & Easyinfrastructure to pay its way,but rivals are clearly not yet

convinced of the format's potential.





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Single-channel Development: Forecourt Retailing

Forecourt retailing has been going through a phase of rapid development: on theone hand, grocery chains offering discounted fuel and a sharp increase inconvenience retail formats have put the channel under pressure; on the other, theinflux of well-known grocery chain banners has raised consumer expectations ofthe channel

Forecourt retailers must continue to anticipate and drive consumer demand byproviding the right mix of products and services for their target consumers

Limited location options and lack of space remain an issue

Petro-Canada Neighbours (Canada), pictured

The Petro-Canada Neighbours format, launched in 2007, aims to be a retail destination rather than a fuel stop

Stores feature innovative design: a stone-clad entrance tower to attract attention from the road, an in-store layout that directscustomer traffic through the food section with staff dressed as chefs, touch-screen ordering terminals and self-service coffee, anoutdoor patio for diners, and a drive-through window

In addition, the company attempts to emphasis a distinct Canadian identity for its stores

The combination of advanced customer service features, attractive layout and an expanded range of products and services hashelped Petro-Canada boost its retail sales; 18 Neighbours format stores are in operation, with more stores to be converted

KLO Co (Ukraine) Attractions include 9 different types of gasoline, a restaurant anda Podorozhnik mini-market, and customers are also encouragedto visit the Thai Massage parlour while their car is in the wash

Has limited appeal in the most developed areas of the countrysuch as Kiev and Donetsk in the East: while the one stopshopping concept will appeal to a wide range of consumers, theThai Massage parlour is more niche

Johnson Family Market (US)Launched in North Carolina inJuly 2008

Forecourt retail conceptcombining convenience withnatural/organic foods. Tobring in customers, fuel is soldat wholesale prices and full-

service is offered free of charge


New Concepts



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Overview










New ConceptsRetail Faces the Credit Crunch Challenge



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New Retail Concepts: Lessons from Other Recessions

Previous economic downturns have not acted

as a hindrance to emerging retail channelswithin a specific country. Internet retailing, forexample, will continue to do well in countrieswhere it is still relatively new, but sales arebeginning to slow in Western markets, wheree-commerce is more mature.

Spending patterns return to"normal" quickly, althoughrecovery does depend on howlong the downturn lasts for.

Investigations into previousdownturns have demonstratedthat although some channels willemerge stronger than others,spending patterns overall areunlikely to change significantly.

The channels most vulnerable in adownturn are those that sell "bigticket" items. Electronics andappliance specialists, the fu

new concepts of retailng

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