GDS International - The Future of Retail Through the Eyes of Digital Natives

An Oracle White Paper

September 2011

The Future of Retail: Through the Eyes of Digital Natives


Introduction ........................................................................................... 1

Survey Overview ................................................................................... 2

Analysis of Key Findings ....................................................................... 3

Key Findings ......................................................................................... 3

The role of stores remains an important element of the shopping experience for young consumers today and will continue to be in the future..... 3

Price is the most important element of the shopping experience for digital natives ............................................................................................... 4

If price is the primary motivator, product range is second ............... 5

Despite the growth and importance of social networking, using these networks for purchasing is relatively rare......................................................... 6

Methodology.......................................................................................... 7

Conclusion ............................................................................................ 7

Differentiated and personalised customer interactions .................... 7

Differentiated products, pricing and services based on their preferences .......................................................................................................... 7

Differentiated interactions based on how and when they want to interact .......................................................................................................... 7

A seamless, connected experience where the retailer is aligned across all business operations and decisions: ................................................. 8

Appendices ........................................................................................... 9


1

Introduction

“Digital Natives...are all „native speakers‟ of the digital language of computers, videos games

and the internet.” - Marc Prensky, Digital Natives, Digital Immigrant (2001)

By 2025 the first generation digital natives - those reared on all pervasive technologies will be

the most connected retail consumers yet. Combining high digital literacy with immediate

access to all their favourite and most valued retailers, digital natives will be some of the most

powerful consumers the world has ever known.

Born in the digital age of the 1980‟s onwards, digital natives‟ adoption of technology is

instinctive and easy. This generation is used to immediate results, thrives on instant

gratification and frequent rewards. They can effortlessly multi-task and function best when

networked. Although environmental factors like reaching economic maturity during a recession

and the issues of online security and identity theft become a reality, their consumerism is

unquestionable.

Digital Natives are as familiar gathering in malls and shopping centres with their friends, as

they are with using the internet to shop. The growth of online shopping is rapid and ongoing

but digital natives can also be seen queuing for hours to get hold of the latest product

phenomena or regularly visiting their favourite stores to purchase the latest outfit or accessory.

Recent figures (from Verdict Research) calculate that the age group 15-24 years contributed

10.8% of the global consumer spend in 2010. Of the $14 trillion spent on global retail,

approximately $1.5 trillion came from this group, and combined with the age group 0-14 years,

digital natives contributed almost 20% of the global retail spend.

So what does this mean for retailers? What should retailers be doing to meet the expectations

of digital natives now and in the future when this generation really hit their buying potential?


2

Survey Overview

In July 2011, in an attempt to understand this group for the first time and inform tomorrow‟s

retail strategies, Oracle commissioned a survey to examine the attitudes of digital native

consumers between the ages of 19 and 23, to current shopping needs - both in store and

online - and their expectations of these needs in the future. The study asked digital natives in

three European countries: the UK, Germany and France, about the role of retail in their lives,

how they use technology and channels when shopping, the importance of new media in the

shopping experience, and how they feel retailers, technology and stores must adapt to best

support this group moving forward.

The goal was to identify how this current generation interacts with retail today, the role of

technology in facilitating these interactions and how they perceive this will change by 2025.

Specific topics covered by the first part of the survey included the following:

• The role shopping plays in the lives of digital natives today

• How this group use multi-channels and retail technologies

• How digital natives want to interact with retailers

• The importance of price, choice, service, stores, advertising and personalisation

• The role of social media and mobile phones in the shopping experience

The second part of the survey revealed digital natives‟ perceptions and expectations of their

retail environment in the year 2025 exploring:

• Time pressures that will effect store and channel choices in 2025

• The factors that might contribute to stores dying out

• The role of technology in making retail businesses successful

• Those retailers digital natives expect to develop well with technology

The results of this research are presented in this white paper, along with the critical findings

that will enable retail organisations to market their products and services more effectively today

and inform their plans for the future.

“Digital Natives...are all „native speakers‟ of the digital language of computers, videos

games and the internet.” - Marc Prensky, Digital Natives, Digital Immigrant (2001)


3

Analysis of Key Findings

Contributed by Daniele Pederzoli, Professor of Marketing at Rouen Business School and member of the Research Centre in “Consumer, Retail & Supply Chain Management” The results of this study concerning young consumers in the three biggest consumer markets in Europe are very interesting, not only because they allow us to analyse the future of retail, but also because it shows relevant differences in shopping habits among the three countries. One important result is that all retailers should operate a cross-channel presence now, but this will be critical in 2025. The cross-channel presence helps retailers to build a strong brand awareness and reputation, creating a clear differentiation and allowing them to extend relationships with their customers. Social networks, even if they remain predominantly about socialising, are an essential part of this relationship strategy for retailers. The function of shopping as a leisure and entertainment activity is clearly confirmed by this study, but in this field too we can find relevant differences among countries. Brick and mortar and online retailers should carefully consider this leisure dimension of shopping in the conception and design of their physical stores and the construction of online sites. Stores must provide the customer not only with range, value and services, but also with a shopping experience. Another result of this study clearly shows that consumers like technology, but they want technology to be user friendly and convenient. The role of technology should be to help consumers to find and buy products at both brick and mortar and online retailers; and this research reveals some online retailers have built a strong reputation in this field, especially for British and German consumers.

Key Findings

The Future of Retail: Through the Eyes of Digital Natives survey results reveals the following:

The role of stores remains an important element of the shopping experience for young consumers today and will continue to be in the future

For the digital natives group, shopping is a leisure activity and a form of entertainment, seen as

both relaxing and a means of socialising with friends. French respondents most strongly

identify with shopping as a leisure experience (69% to the UK‟s 64%) and as a way to relax

(59% compared to 39% in Germany) (Figure 1). The role of stores in the shopping experience

is still important, exceeding preferences to shop online, with 92% of French respondents

topping the list of those preferring to shop in store over other channels.

Although respondents of all three nationalities use multiple retail channels vociferously,

researching products and getting the best deal is a natural extension of internet search

behaviour that this group has been reared on. German respondents are the most internet


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„savvy‟ with 81% choosing to shop online (Figure 2). This result can only serve to strengthen

demand for an „always-on‟ approach to retailing. If consumers are using a mix of store and

online channels to search, compare and buy products at a time that is convenient to them,

then retailers must ensure that their businesses operate in a 24/7 environment. The shopping

experience must become seamless across channels.

When it comes to online retailers and their use of technologies to support the search and

purchase process, it was perhaps unsurprising to see global pure-play retailers heading the

pack, particularly in the UK and Germany, while in France the preference is for local online

retailers. When it comes to fashion, a more equal mix of multi-channel and pure-play retailers

dominate the online world of this group.

While technology is important to the experiences of young consumers online, the survey also

revealed that technology is equally important in the store. FNAC, Media Markt, H&M, Tesco

and Ikea were all listed as retailers considered to have the best technologies and the use of

technology in the store environment differs by geography. French and German respondents

are most likely to use in-store promotions technologies, with over two thirds of French

consumers using in-store technology for coupons, loyalty programmes and promotions (Figure

3). More recent innovations like QR codes and electronic shelf labels have yet to be

wholeheartedly accepted by this generation with generally less than 10% usage across

nationalities.

To this end, technology would appear to expedite the shopping experience. If consumers can

find information on product, price and promotions from their mobile phones or information

kiosks within the store, then retailers must take responsibility for optimizing their operations

and delivering an experience in store that is fit for purpose – whether that be through improved

efficiency, better product availability or empowering sales associates to facilitate sales.

These results suggest that as retailers develop their multi-channel capabilities, it is important

not to de-emphasise the store environment and the role of technology within it as a key

facilitator of the shopping experience. Although pure-play retailers can remain focused on

selling extensive ranges of goods, multi-channel retailers need to focus on providing a

seamless connected experience across channels to support stores and drive their businesses

forward.

Price is the most important element of the shopping experience for digital natives

This group of young consumers has financially come of age during a period of economic

downturn. How much this has affected the importance of pricing in their minds is unclear but

for them, price remains a critical component of any shopping experience (Figure 4). This group

claims to be more financially independent with generally less than a fifth relying solely on their

parents for income support. 51% of UK and nearly half of French respondents have little or no

financial help from their families describing themselves as financially independent. This

independence is perhaps backed up by the importance these consumers place on pricing. It


5

also may explain why the top five retailers visited across Europe were all grocery retailers –

Tesco, Carrefour, Auchan, Aldi and Lidl.

That said, the survey revealed considerable differences in the use of channels and in

particular, online channels to research products for purchase (Figure 5). 46% of young

German consumers use the internet for this purpose, compared to only 31% in the UK and

only a fifth of French respondents search for the best deal online before visiting a store to buy

the product. Digital natives in Germany are most engaged by the products from their favourite

retailers (Figure 6), while the French are motivated by a combination of best price, product and

choice. British respondents are more driven by pricing, and uniquely, are more motivated by

seasonal sales, something of little importance to other regions.

While this group is currently focused on price, looking forward to 2025 and they see service as

becoming a more important factor in the shopping experience as they mature. Two thirds of

French and British consumers believe that online security and identity theft fears will still be a

major concern in 2025 while only 40% of German respondents felt they will not be concerned

about these threats.

As stated previously, stores remain important in the shopping experience of the future, with

around 40% of all respondents estimating they will spend the same amount of time in stores as

they do today, while only a third of Germans believe they will spend more time shopping

online. Product price and range are perceived to be the main factors influencing the choice of

outlet, while the most important purchasing criteria in 2025 is thought to be price and

promotions (Figure 7).

Over three quarters of consumers can envisage purchasing directly from manufacturers in the

future to save money, stated by more than two-thirds of respondents. Around 10% felt that this

would give them a closer relationship to a particular brand and give them more immediate

access to products. To remain competitive, retailers must customise their offering better. It

suggests that consumers believe that retail in 2025 will become just as much about price, as it

is about assortment, range and product information and that retailers need to focus on these

elements in order to interact more effectively with customers. This type of actionable insight

can help retailers make smarter decisions around merchandise, planning, supply chain

management and marketing.

If price is the primary motivator, product range is second

The survey asked respondents to consider purchasing a pair of trainers from universally well-

known, aspirational, quality brand favoured by both genders (Figure 8). The goal was to

establish whether this group would buy this item in an outlet that offered multiple brands;

purchase on a website that offered multiple brands; buy from the particular brand‟s store; or to

purchase on that brand‟s website, which provides options for personalisation and

customisation of the product.

Overwhelmingly, feedback from the majority of respondents was that consumers would choose

to go and try the item on in an environment that carried multiple brands and a wide range and


6

assortment of goods. The second most popular choice was to visit the brand‟s own store.

Around one fifth of German and British respondents would prefer to purchase the item from an

online site with multiple brands, while 72% of French consumers would much prefer to try on

different brands in the store, compared to only half of UK consumers and 56% in Germany. As

we‟ve demonstrated above, the results suggest that brand is less important than price, range

and assortment to this generation.

Reinforcing the message that the store maintains the magic for this group, it is still perceived to

be the place to purchase items, providing the price is right. Interestingly, retailers should

consider that this is the group that has grown up with the breadth of range offered by the likes

of Amazon and therefore, they enjoy a broad product assortment. For retailers, the challenge

is in balancing assortment expectations with physical space in store and profitably managing

inventory holding costs on slower moving lines. Technology, yet again holds the key to helping

retailers to manage these challenges and better optimize their operations by delivering real-

time visibility to inventory throughout the process, from planning to the point-of-service.

Despite the growth and importance of social networking, using these networks for purchasing is relatively rare

While shopping is a social activity in that it is a way of spending time with friends, the survey

revealed that only 15% currently purchase through their social networks. Today, social

networking is for socialising with friends, particularly in the UK with 82% respondents

confirming this is their purpose for using social media (Figure 9). UK digital natives discuss

products, trends and gossip on social networks, sharing information and opinions but continue

to purchase goods in a relatively traditional way. At least half of consumers share product

information with friends but fewer than a fifth of them do so regularly. And despite the old

adage that bad news travels faster, twice as many respondents admitted to sharing positive

experiences more than negative experiences (Figure 10).

While the UK sees more communication between young consumers and retailers through

social networks, email is the preferred communication channel between stores and

consumers, though French respondents are open to being contacted by text message (Figure

11). Only a small percentage use mobiles to purchase goods currently.

Only half of respondents are receiving or responding to personalised promotions today, and

merely a fifth feel that personalised recommendations are generally useful, although more than

half indicated that they are sometimes useful (Figure 12). These responses suggest that

consumers are not yet receiving that personalized experience at every touch point, which

raises questions about what retailers are missing when it comes to personalisation of offers?

Do retailers simply not have the actionable insight on customers to make and execute

decisions to target offers and communications, and to give consumers better visibility to store

inventory and order information?


7

Methodology

Responses to the Future of Retail Through the Eyes of the Digital Natives survey were

generated from 1,514 European consumers aged between 19 and 23. The survey was

conducted using Redshift Research in July 2011 using its online consumer panel. The study

compiled online responses from 506 respondents in the UK, 503 in Germany and 505 in

France.

Conclusion

The findings of this survey reveal that the expectations of the digital natives generation are that

shopping experiences should offer:

Differentiated and personalised customer interactions

Each consumer is an individual with their own requirements, preferences and opinions.

Retailers can no longer offer a „one size fits all‟ approach and expect consumers to accept this.

In a highly competitive retail environment, consumers can choose where to shop. So retailers

must interact with their customers in the way the customer chooses. The findings suggest that

technology plays a key role in helping to deliver that differentiated customer experience –

whether by using in-store technologies for coupons, loyalty programmes and promotions or in

ability to compare similar items from several retailers on a mobile. And the relationship

between technology and customer satisfaction can only become stronger as the technology

used become more personalised, intuitive and insightful.

Differentiated products, pricing and services based on their preferences

This generation of consumers has shifted from the mass consumption of the early 21st

century. They are making choices based on quality, price and differentiation and are

considering each purchase more carefully than ever before. This group researches and

evaluates products, considering a number of factors including price, range, brand, channel etc

before making purchasing decisions. While retailers may not necessarily be getting

personalised promotions and interactions quite right yet, if they can gain actionable insight into

how their customers make and execute purchasing decisions, the technology is available to

better interact with customers through targeted offerings.

Differentiated interactions based on how and when they want to interact

The continued growth in online retailing is nothing new but it is the way in which retailers must

now operate, providing an „anytime retailing‟ shopping experience that has changed. Anytime

time retailing is always on, enabling the consumer to browse, evaluate and purchase goods

through the channel that is convenient to them and at a time that is convenient to them. By


8

aligning every aspect of their business to gain efficiencies and economies, retailers can

optimise their operations and work in support of customer priorities. For some, it might be

crucial that the latest dress be bought and delivered within 24 hours. For others, priorities may

lie with transparency of pricing and ranges across channels. Whatever a customer‟s focus,

retailers must be „fit for purpose‟ and able to understand their product and how it is consumed.

A seamless, connected experience where the retailer is aligned across all business operations and decisions

The growth in online, not only as a channel in its own right, but also in the influence online

activity has in driving sales in retail outlets, means that retailers must offer a consistent

shopping experience. The provision of a cross-channel retail model is no longer enough –

digital natives in particular are now blending retail touch points. Customers can be in-store

comparing the pricing of retail competitors on their handheld devices or they can check product

ratings online before they purchase a product. It has become even more vital that retailers

transcend individual channels to ensure that each customer interaction and touch point is

connected seamlessly, providing that consistent, quality shopping experience.

To drive and maintain growth in this complex and changing retail landscape, retailers need to

provide the superior experiences that customers are demanding – and align these with smarter

decisions and processes. Through its offering of a complete, open, and integrated combination

of software applications, technology infrastructure, hardware and industry expertise, Oracle

supplements retailers‟ strategies and expertise with the tools to create an experience platform.

Tuned to each retailer‟s specific business and growth objectives, this experience platform

enables retailers to:

provide actionable insight to make smarter decisions in planning, forecasting,

merchandising, supply chain management and marketing etc;

optimise operations to gain efficiencies and economies, align KPIs to eliminate

strategic conflicts, and focus on customers;

connect customer interactions across all channels and touch points, and every

customer lifecycle phase to provide a differentiated customer experience that meets

consumers‟ needs and expectations.


9

Appendices

Figure 1. Question: What role does shopping play in your life?

Figure 2. Question: How do you prefer to shop?


10

Figure 3. Question: Which of these retail technologies do you currently use?

Figure 4. Question: What is it you like about shops?

75%

66%62%

46%

38%

25%

36%

49%

40%

18%

79%86%

76%

42%46% 48%

26%

35%

22% 23%

77% 77% 76%

42%

26%32%

42%

17%

36%30%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Price Products Choice Online offers

The way the stores look

and feel

Speed I can buy things

Sales promotions e.g. BOGOF

Seasonal sales

Brand image

Loyalty schemes

UK

Germany

France


11

Figure 5. Question: When you look at retailers online, are you most likely to be…?

Figure 6. Question: Why can you see yourself shopping at particular stores in the future?


12

Figure 7. Question: In 2025 which of the following will most impact your purchasing choices?

Figure 8. Question: If you were buying trainers from a brand like Nike, would you prefer to…?


13

Figure 9. Question: What role does social networking play in your life?

Figure 10. Question: Do you ever share information about products or promotions with your friends via email, text or

social networks?


14

Figure 11. Question: How do you prefer retailers to contact you?

Figure 12. Question: Do you find personalized recommendations from retailers useful?

The Future of Retail: Through the Eyes of

Digital Natives

September 2011

Oracle Corporation

World Headquarters

500 Oracle Parkway

Redwood Shores, CA 94065

U.S.A.

Worldwide Inquiries:

Phone: +1.650.506.7000

Fax: +1.650.506.7200

oracle.com

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