Total Retail 2017www.pwc.com/2017totalretail10 retailer investments for an uncertain futurecompanies are under pressure from shareholders to cut costs, but at the same time are benefiting from opportunities in this global marketplace. Retailers are in a tough spot, however, often lacking a global brand and facing technological upheavals that have left them in the throes of constant reinvention. Thats why our 2017 Total Retail report is focused on the kinds of investments retailers will need in order to thrive in tomorrows marketplace. This is the 10th consecutive year that PwC has published a study of online shoppers, and our sixth truly global study. In last years Total Retail report, “They say they want a revolution,” we pointed to consumer behaviors that had finally reached a tipping point, among them: participating in retail communities, using mobile phones as shopping devices, the emergence of social media as the “great influencer,” and consumer demands for more service-focused and knowledgeable store employees. This year we added several new areas of research, including Amazons impact and customers willingness to consider retailers as health care providers. We also delved into other research sources and included the insights of a number of PwC partners. The result? Ten areas where we believe retailers need to consider investing in to stay ahead of the competition. | 2 |Introduction: A golden age in consumer choice means challenging times for retailersAn advertisement for Colgates “Ribbon Dental Cream” from a January 1912 edition of The Youths Companion magazine features the tag line “For all the Family.” The ad promises “Good Teeth, Good Health, and Good Spirits.” Back then, companies like Colgate and Procter in the U.S. that figure was 37%. When it comes to Chinas Amazon equivalent, Tmall.com, a subsidiary of Alibaba, 24% of respondents from China said that they now shop less often at retail stores because of Tmall.com. 39%37%35%34%28%JapanUSABrazilGermanyGlobalThe top four countries where consumers “shop less often” at retail stores due to Amazon.com| 4 |And dont forget that branded product manufacturers are attempting to build their own distribution networks to traverse “the last mile” to directly engage with consumerssometimes fulfilling product by customer subscription or even buying a new entrant that has forged its own direct connection with consumers, such as Unilever purchasing Dollar Shave Club. Source: PwC, Total Retail 2017 How has shopping with Amazon influenced your shopping behavior?The second factor forcing retailers to make smarter investments is whats been referred to as the global “New Normal.” With lackluster GDP growth around the world, sluggish consumer demand will continue to put significant pressure on retailers to differentiate their offerings. Third, retail in general is still struggling around the world, particularly grocery, household items, and clothing and footwear segments. Take the U.S., for example, the worlds biggest consumer market in terms of purchasing power. While U.S. retail sales are expected to grow 3%-4% in 2017 after 3.8% growth in 2016, most of this growth is coming from online sales, as store sales revenue growth is only about 1%.1 In fact, gains in retail revenue in the past few years have been driven almost entirely by online channels, which enjoy growth rates as much as seven percent higher than the retail sector as a whole. In short, traditional retailers in the U.S. are faced with flat or declining sales outside of online revenue growth.The best-performing retailers are responding in numerous ways. Nordstrom invested to become a model of omnichannel customer service and innovation, becoming a platform for vertically integrated brands such as Bonobos, Madewell, and J. Crew; Saks Fifth 1 Fitch Ratings Services, December 12, 2016, “Battle for Customers Persists in 2017 for U.S. Retail, Restaurants. 2 Fitch Ratings Services, December 12, 2016, “Battle for Customers Persists in 2017 for U.S. Retail, Restaurants. | 5 |Avenue launched stores in downtown Manhattan that mimic its website layout; Best Buy built a new business of bespoke retail technology assistance; and, in the UK, Marks Base: 312In 2017, retailers face one of the most competitive environments in decades. With the continuing shift in customer preferences towards online shopping, a lingering low-growth environment in many parts of the world, and an unforgiving global marketplace that demands unprecedented technological sophistication, some retailers are being confronted with threats to their very existence. In some of the most developed economies in the world, including the United States, the weak end-of-year holiday results have only heightened anxiety over the future of traditional retail. In PwCs 2017 Total Retail survey, our most comprehensive to date, we asked nearly 25,000 online shopp