RETAIL TRENDS IN CANADA 2018-2019How retailers can future-proof their business

CONTENTS

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

TECHNOLOGICAL DISRUPTION No-bots, robots, and bad bots . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

EXPERIENTIAL RETAIL Let us entertain you . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

THE HYBRIDIZATION OF RETAIL Go omnichannel or go home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

CHANGING SHOPPING HABITS Retail: The next generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

THE CUSTOMER RELATIONSHIP Keeping the spark alive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

FUTURE-PROOFING YOUR RETAIL BUSINESS . . . . . . . . . . . . . .21

REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Retail trends in Canada 2018-201902

Times are challenging for mid-market and independent retailers in Canada.

INTRODUCTION

On the one hand, the current economic climate is generally stable and consumer confidence seems to be high . Despite a shaky year in 2017, most experts agree that Canada is not suffering from a “retail apocalypse” in the same way our neighbours to the south are .

On the other, the industry is going through a period of rapid change, leaving many business owners struggling to keep up . Retailers are contending with wage hikes, product ubiquity, new competitors to the market, and integrating new technologies like automation and mobile commerce into their business model .

Compounding this is a vastly different consumer who has higher expectations in terms of digital connectivity, personalization, and customer service . They want an experience that aligns with the principles of frictionless retail — the idea that all activities, from searching for products to the checkout process, should contribute to quick, easy, and convenient shopping .

After multiple store closures last year and the high-profile collapse of iconic chains like Sears Canada and Zellers, the message is clear: retailers need to differentiate themselves in the market, improve efficiency, and adapt to the changing retail environment in order to survive and thrive .

Our report on retail trends in Canada looks at the five most critical focus areas for mid-market and independent retailers: technology, experiential retail, e-commerce versus bricks and mortar, consumer shopping habits, and the all-important customer relationship . We provide insight on the impact to retail business owners, as well as strategies to help you achieve business transformation and business growth .

03Introduction

TECHNOLOGICAL DISRUPTIONNo-bots, robots, and bad bots

Automation and AI

Self-checkouts have become the norm in grocery, home improvement, fast food, and discount department stores, while online chatbots continue to grow in use and sophistication . In stores, Walmart is working with Bossa Nova Robotics on robots that assist with inventory and operations, while Lowe’s is rolling out customer service robots called “LoweBots .”

On the fulfillment and logistics side, Sobeys and The Hudson’s Bay Company (HBC) have invested significantly in automation to improve productivity . Four of Sobeys’ distribution centres are almost fully automated with robots that pick, pack, and ship product .

Virtual and augmented reality

Brands looking for new and creative ways to engage customers are turning an eye to virtual reality (VR) and augmented reality (AR) — and it appears to be working . According to a study by Digital Bridge, one third of shoppers said that using AR technology makes them more likely to purchase .1

Retailers can use platforms like Apple ARKit and Google ARCore to create apps for consumers to test products, compare reviews and pricing, play games, and more . IKEA and Lowe’s have rolled out AR apps that help consumers visualize furniture and décor changes to their homes, and Bic’s “DrawyBook” brings children’s real-life drawings to life .2 VR is seeing increased use with retailers like North Face, who offered customers a virtual sled to test out winter and hiking gear .

Retail is in the middle of wide-scale technological disruption, driven by the evolution of mobile commerce and changes in consumer shopping habits. Mobile apps, robotics, data analytics, and advanced e-commerce platforms are helping retailers to improve the customer experience, optimize the supply chain, and drive down costs.

Digital transformation is changing the industry at all levels and touchpoints. Retail business owners should keep a close watch on the following technologies.

Retail trends in Canada 2018-201904

THE ADVENT OF VOICE ASSISTANTS

Interconnected smart devices from Google, Amazon, and other tech leaders are growing in popularity, particularly for online shopping . These devices are set to be retail game-changers by easing access to products and reducing time spent on repetitive shopping tasks .

Beacon technology

Retailers like Macy’s and HBC use beacon technology to send personalized deals and proximity-based promotions through a mobile app . Beacons, which are relatively simple to install and maintain, send signals to nearby Bluetooth-enabled smartphones with discounts, rewards, recommendations, or store guides . Used right, the technology can drive sales and improve the shopping experience .

Mobile pay

As mobile commerce grows and contactless payment becomes more popular (and lucrative), service providers are rolling out new options designed to make the customer experience easier, such as Apple Pay and Google Pay . MasterCard is taking things one step further with its Identity Check — also known as “Selfie Pay” — which allows users to verify transactions through facial recognition or fingerprint scans on their smartphones .

Predictive data analytics

Big data is the lifeblood of many industries, and retail is no exception . Retailers like Amazon and Target use predictive data analytics and CRM (customer relationship management) systems to analyze search queries and previous purchases to predict what a consumer will buy next . That information can then be used to create campaigns, promotional offers, and special events .

05Technological disruption

WHAT DOES THIS MEAN FOR RETAIL BUSINESS OWNERS?

Rapid technological advancement brings both opportunities and challenges to retailers, but many are overwhelmed and unsure of what to do next . Most understand the pressing need to do something, but are concerned that the wrong move could be costly .

More opportunities to compete

E-commerce, despite its reputation as a threat, offers mid-market and independent retailers a cost-effective way to level the playing field against giants like Amazon . Smaller players, with a little web savvy and a unique story, can build a strong online presence . As data analytics programs, mobile apps, cloud-based services, and hardware tools become cheaper and more accessible, new channels open up to reach consumers and provide a tailored experience .

Balancing people and tech

A retailer’s human staff is still one of its biggest assets, and it’s important to strike the right balance between people and automation or AI . Training employees to use new tools like digital signage, data analytics, or mobile payment methods can take a significant amount of time and effort . Experts warn that retailers should keep customer sensitivities regarding human interaction, job losses, and privacy and security in mind when implementing new technology .3

WHAT TO DO NEXT

Invest in technology — but do so wisely

For mid-market and independent retailers, now is the time to invest in technology . The cost of not doing so could very well be your business’ survival . A technology roadmap should align with a business strategy that is focused on customer experience and improving efficiency . It’s all too easy to get caught up in the bells and whistles of the latest platform or application . Ask yourself what you’re trying to achieve, and what the business reason is behind each investment .

The answer could be creating an e-commerce site that is search engine optimized to draw in new customers, investing in click-and-collect technology to satisfy shopping preferences, or arming your in-store staff with tablets and mobile POS devices . Smaller retailers should scale their strategies and create a business case for growth using new technologies . Rather than a new enterprise system, for example, consider upgrading to an enhanced data analytics platform that provides better business information .

Scale up your business

For retailers with the means, a mergers and acquisitions strategy could be the right course of action . Acquiring direct competitors, vendors, or related businesses would help to provide the type of scale needed for larger technological investments like an enterprise CRM system or automated distribution centre .

To do this, a retail business owner should seek advice through all stages of the M&A process, including developing an overall strategy, conducting a business valuation, raising capital, performing due diligence, managing change, and ensuring compliance with tax and financial regulations .

CYBERSECURITY

Recent data breaches and attacks on prominent brands are a reminder that retailers need to take stringent cybersecurity measures . Retail is a high-risk industry for cyber attacks, which are growing in sophistication . A recent Distil study found that almost 22% of website traffic is the result of “bad bots” — with Canada among the top five worst affected countries .4

Any technology you deploy, especially when capturing customer data, needs to be protected from both inadvertent and malicious exposure . The penalties for cybersecurity breaches are high, both in terms of the fines levied and the damage to your reputation .

Retail trends in Canada 2018-201906

RETAIL WRAP-UP: STEPPING UP YOUR TECHNOLOGY GAME

The biggest challenge for many retail business owners is deciding which technologies offer the greatest benefit . Retailers should consider the following:

Assess your automation opportunities. Your business may not need an inventory robot or automated warehouse, but automation can help you streamline your operations . Review your problem areas and customer pain points to determine where to start .

Implement beacon technology. To build your beacon strategy, choose the customer experience you want to deliver — be that product discoverability or store wayfinding — and invest in hiring and training the right staff to help you carry it out .

Optimize e-commerce. Upgrading (or implementing) an e-commerce platform can help you reach new customers who prefer online shopping . It also allows retailers to provide a curated shopping experience by moving some products online and offering a tailored in-store selection .

Activate augmented reality (AR). While not cheap, AR apps can have powerful dividends . Retailers who integrate AR with their overall business strategy stand to generate strong ROI in terms of buzz, sales, and retention .

Evaluate your cybersecurity. Rather than an afterthought, cybersecurity should be fully integrated at every point of your business plan . All technology, from inventory management to mobile apps, should be updated regularly and fully compliant with privacy standards and legislation .

07Technological disruption

WHAT IS EACH SQUARE FOOT OF YOUR STORE DOING TO DRIVE SALES?

Retail trends in Canada 2018-201908

EXPERIENTIAL RETAILLet us entertain you

Experiential retail has kicked into high gear in the last few years. Now more than ever, retailers need to consider their stores from stockroom to storefront, and ask this crucial question: What is each square foot of your store doing to drive consumer engagement and sales?

Clothing Sporting goods Home renovation Automotive Electronics Big ticket items

Experiential retail is well-aligned with high-involvement retail categories, where customers need to interact with a product and feel more secure in their purchase:

Digital and non-digital activations

Experiential retail is about more than throwing a big event or rolling out the latest gadget . Providing customers with a valuable experience that’s targeted towards their interests and their needs gives them a reason to come to your store .

Retailers of all shapes and sizes are offering services, events, and experiences that go beyond providing merchandise . Toronto’s Yorkdale Mall, for example, offers personal stylists on appointment and special events through their CONCEPT space .

Other retailers take a more technology-driven approach, like Sport Chek’s in-store Flightscope simulator, which helps golfers perfect their swing, or Airwalk’s “invisible” pop-up shop . Canadian Tire’s Edmonton showcase store successfully integrates digital and non-digital activations, with more than 100 digital screens, a driving simulator, and a virtual backyard and patio builder . The store also offers entertainment options such as a demo kitchen, coffee bar, and the Hockey Fan Zone, with a custom in-store jersey maker .

WHY RETAIL BUSINESS OWNERS SHOULD PAY ATTENTION

Experiential retail offers valuable outputs and tangible returns on investment for business owners . Each activation is an opportunity to learn more about your customers’ behaviours and preferences, and collect valuable information that can aid in product development and store design .

Greater foot traffic…

Consumer shopping behaviour has fundamentally changed with the advancement of e-commerce — an in-store visit is not always a requirement to make a purchase . Retailers who are thriving in today’s market differentiate themselves and offer something unique to attract customers . Experiential retail provides an opportunity to increase flagging foot traffic by transforming your store into a destination .

09Experiential retail

…and greater sales

Retailers also have the opportunity for greater sales . According to the EventTrack 2018 report, 85% of consumers are more inclined to make a purchase after experiencing an event .5 With more consumers conducting their product research online, retailers can move away from thinking of the store as the first customer touchpoint and focus on providing a new and exclusive experience for the consumer . Experiential retail takes your product out of its (real or metaphorical) glass case, to help close the sale .

Business needs to align with today’s shopper

Retailers may need to restructure their operations to fit modern shopping expectations . Most stores are still configured along the strategy that fully stocked shelves and a prominent location are enough to draw customers and drive sales . With today’s “anywhere, anytime” shopping mindset, that simply isn’t true — even the “endless aisle” is now online . Business owners need to transform everything from the store layout, to the products they stock, to the way they fulfill customer requests, and more .

WHAT TO DO NEXT

Much like technology, retailers have a multitude of options when it comes to experiential tactics . What’s really needed is motivation, the right amount of capital, and a sound strategy .

Extend the brand with the customer in mind

Retailers who are not already doing so should consider offerings that go beyond their product, but still align with their brand and customers . Pop-ups from brands like Nordstrom and Holt Renfrew drive sales and consumer engagement; Retail Insider predicts they will continue to be popular and effective .6

For long-term engagement, retailers should look to build communities that will engage current customers and attract new ones . The Running Room does more than sell shoes and athletic wear . It competes against much larger business rivals by providing training programs and resources, mobile apps, and a social running club for all fitness levels . Eataly, which is set to open its first Canadian location in Toronto, combines specialty grocery and food service with experiential elements such as cooking classes, tasting events, and in-store tours .

Use technology to capture information

Experiential retail must be part of a larger business strategy that includes setting KPIs and measuring the return on investment . Capture customer information and feedback through real-time data collection and surveys that can be fed into a CRM or data analytics program to better predict future sales and product development .

Retailers may wish to consider working with a third-party partner to design an integrated business and IT solutions plan . An experienced professional services firm can help shape your financial strategy and provide a technology framework to collect relevant customer data and demonstrate ROI on experiential activations .

RETAIL WRAP-UP: GUIDELINES FOR EXPERIENTIAL RETAIL

Experiential retail is easy to get right, but just as easy to get wrong . Retailers who are starting to plan and test activations should consider these tips:

Make it personal. Customers are looking to connect with a brand, feel recognized, and be part of a community . The experience you offer should provide one or all of these elements .

Be unique. In today’s competitive environment, any retailer who cannot offer something special or different will have difficulty attracting and retaining customers .

Go digital. In addition to collecting customer data, digital activations can drive word-of-mouth, and provide enhanced opportunities for customization and engagement .

Align it with your business. Ignore the temptation for stunts . To get (and give) the most value, an activation needs to lead back to your products and fit with your brand values and target audience .

Measure the results. A special event might be great for shoppers, but it does nothing for your store without actual results . As with any campaign, begin by setting the end goal and mapping out a concrete measurement plan .

Retail trends in Canada 2018-201910

THE HYBRIDIZATION OF RETAILGo omnichannel or go home

NEW SALES TAX RULES FOR RETAILERS?

The U .S . Supreme Court ruling on South Dakota v . Wayfair promises a big impact for e-commerce retailers — including those in Canada . As a business owner, here’s what you need to know:

XX Based on a 1992 ruling, out-of-state retailers were not required to collect sales tax if they did not have a physical presence in the state .

XX To some extent, this situation helped keep e-commerce prices low for consumers .

XX Per the 2018 decision, states can now compel retailers to collect sales tax, regardless of their physical presence .

XX Canadian retailers who sell online to the U .S . may be required to register, collect, and remit state sales tax .

XX Business owners should confer with advisory professionals to ensure they are compliant with any new tax laws .

Despite fears that e-commerce would be the downfall of bricks and mortar, a hybrid effect seems to be occurring as each channel evolves and influences the other . E-commerce sales are on the rise, but shopping is still a social experience for many Canadian consumers, who continue to flock to physical stores .

The role of bricks and mortar retail is changing . Stores are evolving into spaces that support multiple activities: sales, returns, service, fulfillment, social gatherings, and experiential events . Retailers who embrace this and get ahead of the curve will thrive .

The growth and influence of e-commerce

E-commerce has been slower to take hold in Canada, due to a combination of low population density and higher shipping costs and sales tax, but it is growing . Online purchases account for anywhere between 2 .6% and 9% of total retail sales, growing approximately 30% since 2017 .7, 8 A study from eMarketer predicts that 2018 e-commerce sales will amount to $56 .96 billion .

Online retail is also influencing in-store customer expectations in terms of speed and personalization . Consumers expect instant gratification and a seamless experience, no matter what channel they’re using, and stores need to respond accordingly .

The Amazon Effect

The “Amazon Effect” has been less acute in Canada, but has nonetheless changed the game for the entire industry — and Canadian retailers need to be ready for even more disruption .

The retail behemoth continues to expand into new categories and drive customer loyalty through its line of proprietary electronics, smart devices, and Prime memberships . Its recent acquisition of Whole Foods and U .S . launch of Amazon Go is spurring competitors like Walmart and Costco to experiment with online grocery shopping and home delivery .

Offline, Amazon is taking the shopping experience to the next level with a surprising — but shrewd — move into bricks and mortar through Amazon Books and Amazon Go . The result

is that retailers of all stripes are opening up their strategy . Online brands like Frank and Oak and Warby Parker have launched physical stores within the last few years,9 while more traditional retailers like Reitmans are reorganizing their operations to expand their e-commerce business .10

11The hybridization of retail

WHY RETAILERS SHOULD PAY ATTENTION

Omnichannel is no longer a buzzword – it’s all just “shopping”

Omnichannel has grown from a buzzy catchphrase to being the strategy for retailers . At one time, the physical store was the only distribution channel available to shoppers . The e-commerce era has forced retailers to redefine themselves and embrace hybrid shopping experiences . Not only that, the experience should be seamless and integrated across all channels . Amazon’s expansion online and its foray into bricks and mortar proves that no retailer can or should take a pure play approach . For some, this will mean taking a stark reality check on whether they’re serving their customers in the best way .

Fulfillment is a key differentiator

In store and online, fulfillment is a major battleground for retailers, and one of the toughest hurdles in the Canadian market . According to Shopify, four shipping options are in high demand from consumers: same-day delivery, in-store pickup, ship from store, and scheduled delivery .11

Capabilities like free shipping, Dash Buttons, and Alexa make Amazon a tough opponent — to say nothing of the company’s own fleet of cargo planes and unmanned delivery drones, which may soon be a challenge to traditional shipping companies .

Even so, there is still room for mid-market and independent businesses to compete . Smaller retailers may need to redesign their operating model and become more efficient . This could mean scaling down the number of stores, automating the distribution centre, or using your space in a different way — such as reducing the showroom area in favour of the stockroom to concentrate on fulfillment .

WHAT RETAIL BUSINESS OWNERS SHOULD DO NEXT

Form new partnerships

To compete against Amazon, Walmart, and other industry giants, retailers should consider forming new partnerships . Businesses with complementary products or similar consumer audiences could create virtual shopping communities or buying groups, allowing them to reach additional customers and share the costs associated with e-commerce and fulfillment .

Others may wish to take an “if you can’t beat ‘em, join ‘em” attitude and partner with Amazon itself . Best Buy recently unveiled plans to be the exclusive in-store distributor for Fire TV, Amazon’s new smart television, while Kohl’s acts as a fulfillment centre for the online retailer, processing returns at select locations .

Invest in experiential

Canadians still want to shop in store; both average mall sales in Canada and total location-based retail sales have increased since 2015 .12, 13 The difference lies in what they expect of bricks and mortar . Shoppers want unique experiences and to be part of a social community that aligns with their interests and personal brand .

To drive engagement and create a truly hybrid shopping experience, retailers could look to Amazon Books for inspiration . Design a flagship store or transform an existing high-traffic location into a purely experiential channel that incorporates mobile and e-commerce for fulfillment .

Conduct a business and operations review

A formal business and operational review can help mid-market and independent retailers build a long-term strategy for hybridization . By uncovering efficiencies in the business structure beyond normal retail operations, business owners can create action plans for store expansion, tax savings, and operational changes through:

XX Business and financial planningXX Profitability analysisXX Industry benchmarkingXX Indirect tax and business expense minimizationXX Day-to-day accounting supportXX IT cloud solutionsXX Real estate planning for physical store locations

Retail trends in Canada 2018-201912

IN STORE AND ONLINE, FULFILLMENT IS A MAJOR BATTLEGROUND FOR RETAILERS.

RETAIL WRAP-UP: A HYBRID STATE OF MIND

Changing your business is no easy task . Developing and implementing a new strategy often starts by shifting your mindset . Retailers should think about the following:

Get efficient. Efficiency doesn’t just mean streamlining — it means redesigning your stores, your systems, and your approach to customer service to drive value for the consumer and the company .

Be proactive. Retailers in Canada need to be bold and innovative . As the market matures and intensifies, and new competition moves in, a “wait-and-see” attitude could be detrimental .

Listen to your customers. Flying blind is almost guaranteed to tank your strategy . Not sure if your customers prefer home delivery or click-and-collect? Reach out and let them tell you what they want .

Open up to change. Even in Canada’s relatively stable economy, the market and your customers are in constant flux . Retailers need to be flexible and open to new ways of doing business .

Break down silos. Be honest: do you still have an “e-commerce” department? It’s not just your systems that need to be integrated; your departments and in-store teams need to act as a cohesive unit .

13The hybridization of retail

CHANGING SHOPPING HABITSRetail: The next generation

Retail is in the middle of a multi-generational shift in shopping habits . Consumers of all ages — Baby Boomers, Gen X, Millennials, and now Gen Z — are behaving differently . Retailers need to understand these behaviours and adapt their business strategy and operations to follow suit .

Millennials are the driving force

Millennials are no longer the up and coming generation . They are the biggest spending cohort for retailers, with influence on the shopping habits of other age demographics . Some of the key ways they’re affecting the retail industry include:

XX A change in DIY subsectors. Millennials are more conscious about how they spend their time and less interested in things like cooking or home improvement . Retailers are responding with new products and added services, such as meal kits and prepared foods or IKEA’s furniture assembly offering .

XX The growth of online shopping. E-commerce has had a slower growth rate in Canada than other countries, but it’s picking up speed . According to Canada Post, a third of online sales are from Millennials .14 As e-commerce becomes more common and sophisticated, older generations are adopting modern shopping practices .

XX Digital connectivity. Millennials grew up with technology and are comfortable engaging with retailers online, including via social media and mobile apps . In fact, they expect it . They want and demand a quick and easy user experience .

XX The rise of the sharing economy. The need to acquire status items, such as cars, electronics, or bigger household items, is less important to Millennials than previous generations . Gen Y is more willing to rent or share products and services, as evidenced by the growth of companies like Uber or Zipcar, or of tool and toy libraries, where users share and re-use items rather than buy new ones .

XX The importance of customer reviews. Online ratings through sites like Yelp, Google, Facebook, and Trip Advisor can make or break retailers . Millennials frequently look to their peers on review sites and social media rather than traditional third-party institutions in order to make purchase decisions, with Google reporting that mobile search for reviews has skyrocketed by 120% in the last two years .15

The influence of mobile

The mobile device is the window to the world for most modern shoppers, and one of the biggest drivers behind the shift in consumer shopping habits . Our smartphones are changing everything about the way we interact with brands, from one end of the buyer’s journey to the other .

Today’s shopper often begins their journey on a mobile device, researching products and services . According to Google, over 40% of consumers use their phones to shop online, via apps and mobile sites .16 Many continue the journey through the ordering and purchase phase, with some studies saying that just under half of smartphone-carrying Canadians have made a purchase on mobile .

Retail trends in Canada 2018-201914

TODAY’S NEW CONSUMERS

The “Do It For Me” (DIFM) Generation

Millennials are shifting away from a DIY mentality, bringing both threats and opportunities for retail .

The Mobile Maverick

More consumers are navigating the buying journey on their smartphone, from research to purchase .

The Digital Native

Tech-savvy Millennial and Gen Z shoppers have high expectations for digital and e-commerce — and they expect retailers to deliver .

The Omnichannel Customer

Shoppers who use multiple channels to engage with brands expect a seamless, consistent experience online and off .

The Surgical Shopper

Already well-informed, these consumers are focused on a quick transaction — leaving less time for engagement .

MOBILE RETAIL BY THE NUMBERS

of Canadians own smartphones

of survey respondents plan to use a mobile device for payments

33%

83%

of Canadian retailer survey respondents believe mobile commerce will grow

76%

of those retailer respondents plan to integrate it into their business

BUT ONLY

12%

47% 12%OF THOSE:

have bought something (via app or in store) on their phone

have made an NFC or tap payment on their phone

Sources: Visa, Catalyst Canada, Amex17, 18, 19

15Changing shopping habits

WHY RETAILERS SHOULD PAY ATTENTION

Shoppers have new expectations

Retailers need to be aware of who their customers are and how they want to shop . Consumers have high expectations, and enough choice and product ubiquity that they can simply move on if a retailer can’t deliver . Customers today and in the future will expect:

XX Consistency: Shoppers expect the ease and convenience of shopping via any channel at any point in time – and to receive the same level of service in store and out . Online and offline systems need to be in perfect sync .

XX Information: People want to know exactly what they are buying: Where does it come from? Is it environmentally responsible? Was it ethically made or responsibly farmed?

XX Speed: We live in a world of connectivity and instant gratification . Customers with a need to fill or problem to solve want your product now, and expect to get it quickly — especially those living in larger urban areas where there are fewer barriers to fulfillment .

Canadian retailers need to play catch-up

Canada lags in comparison to other countries when it comes to e-commerce adoption and capabilities . A more innovative and bold online strategy, particularly when it comes to the breadth of products and shipping capabilities, could be a powerful differentiator for some retailers .

The threat of falling behind on mobile commerce is just as serious . Google has cemented its commitment to a mobile-first digital world, and businesses that don’t adapt run the risk of getting left behind . Customers also have rising expectations for retailers on mobile . Research from Google reports that 53% of consumers will abandon a mobile site if the load time is over 3 seconds,20 while almost 50% say a bad mobile experience would negatively affect their purchase decision .21

WHAT TO DO NEXT

Innovate your business structure

Retailers need to rethink and reinvent their business model — before a competitor does it first . The business should be designed around your customers’ needs and shopping preferences, and optimized to make their experience as valuable and convenient as possible .

At every step of the value chain, mid-market and independent retailers should examine what parts of the business need to change . Practical applications include:

XX Redesigning stores as showrooms and moving fulfillment online . Or conversely, focusing on fulfillment and offering a no-frills shopping experience .

XX Offering new services, such as prepared foods for customers who don’t want to cook .

XX Adapting the product assortment: stocking sustainable items for the environmentally-conscious shopper, or smaller-format products for the urban consumer .

XX Using stores as a distribution network or as customer pick-up locations .

XX Transforming your customer service line into an outbound marketing tool .

XX Repositioning your brand or establishing a new one to appeal to a new demographic .

Develop a digital strategy

One of the key words for mid-market and independent retailers when it comes to digitization is “integration .” Retailers need a smart digital strategy that aligns with business objectives, and includes e-commerce, mobile, and a strong IT management infrastructure . Both front-end and back-end systems should work together to deliver on customer expectations .

Retail trends in Canada 2018-201916

Drive engagement and retention with customer review panels

Online reviews and feedback forums strongly influence today’s consumers, especially younger generations . Establishing a formal customer review program can take the guesswork out of what shoppers really want and what they think of your brand . Canadian Tire’s “TESTED for Life in Canada” program provides products to select customers to test and provide feedback on . The brand uses that information to not only refine the product, but also to build trust with consumers .

RETAIL WRAP-UP: HOW TODAY’S SHOPPER INTERACTS WITH YOUR BRAND

Being everything to everyone is impossible, but brands still need to engage modern shoppers in multiple ways . Retailers should focus their efforts on these areas:

In-store experience. Customer engagement starts at your front door . A tailored in-store experience, complemented by exceptional customer service and knowledgeable associates, can drive brand loyalty and retention .

Website and e-commerce. Without a fully-optimized website or e-commerce platform, retailers are leaving money (and plenty of it) on the table . Design your website and e-commerce experience with the customer in mind .

Mobile. Like e-commerce, retailers ignore mobile at their own peril . Your mobile site should be more than a scaled version of your website — it should be responsive and ready for business .

Social media. Retailers should be selective about the social media platforms they choose, rather than spreading themselves too thin . Find out where your target audience gathers and socializes online, and build your following .

Online reviews and listings. Your business and digital strategy should include regularly updating information on online business directories, and constructively responding to both positive and negative customer reviews .

17Changing shopping habits

THE CUSTOMER RELATIONSHIPKeeping the spark alive

The need for a strong customer relationship is at its most critical . Price competition and product ubiquity make retail a tough landscape, while new entrants to the market stand to make things even more competitive .

Today’s consumer is more empowered and informed than ever . At one time, retailers held all of the cards; they knew the products, the prices, and the competition . Now consumers can access information about product origin, quality, price comparisons, and brand reputation through their laptops, smartphones, or other devices . In fact, almost 60% of purchases include online research, according to a study from BCG .22

Retailers should be engaging consumers in conversation, and spend twice as much time listening to them.“ ”

The Amazon Effect (again)

Early on in its business, Amazon capitalized on the untapped potential of data analytics and customer relationship management (CRM) to build a business strategy that was customer focused . And it worked . Retailers now recognize the importance of staying connected with shoppers and collecting relevant feedback, ratings, order history, and other data — not only to improve the user experience, but to inform their business plan .

The e-commerce giant has also mastered the practice of frictionless retail to improve retention . Online, the processes of browsing, ordering, and returning products are quick, easy,

and designed around the customer . Now Amazon has rolled out those same principles with its bricks and mortar grocery and book stores .

Direct to consumer

Brands like Canada Goose, Casper, and L’Oreal are bypassing retailers and selling directly to consumers . Historically, retailers existed because vendors and brands did not have a practical way to reach end users directly, but the barriers are breaking down . While it may not overwhelm the industry, the trend is still significant enough to be a threat .

Retail trends in Canada 2018-201918

WHY RETAILERS SHOULD PAY ATTENTION

Customer data is vital

Amazon, Google, Facebook, and others like them are more than just search engines or e-commerce platforms — they are customer information companies . Devices like Alexa or Google Home aren’t created just to make life easier, they are designed to learn more about consumers and feed that information back to determine future promotions, products, and services .

Data collection allows retailers to test out promotions, learn from them (whether through success or failure), and implement improvements . Those who execute a CRM strategy properly are the ones leading the retail industry .

Your competitors may not be who you thought they were

New competitors are entering the market . Enticed by our relatively safe retail industry, over 50 international brands expanded into Canada in 2017 alone, including the much-talked about Dollarama competitor, MINISO .23 As the world becomes

more digitally engaged, unexpected competitors are cropping up as well, including Amazon as a television manufacturer, or brands taking the direct to consumer approach .

It’s all about feedback and connectivity

When disruptors like Uber and Amazon plan and innovate, their strategy revolves entirely around the customer . While not a new concept, it’s one that has become more important . With new entrants entering the market every day, retailers should be engaging consumers in conversation, and spend twice as much time listening to them as they do speaking .

Retailers today have more tools at their disposal to listen to their customers, and should use platforms like social media and a well-developed website or e-commerce site to stay connected with consumers .

19The customer relationship

WHY ARE PREDICTIVE DATA ANALYTICS IMPORTANT?

These are not your parents’ data analytics . Big retailers analyze everything from page views and unique visitors, to how much time people spend looking at kitchen supplies . Traditional data analytics only state what’s already happened . Predictive data analytics use those insights to predict what customers will buy and how they will behave in the future — allowing you to make smart business decisions .

WHAT TO DO NEXT

Focus on the customer experience

Customer service and connectivity can define a business . According to Cisco, over 85% of consumers are willing to pay higher prices in exchange for a good customer experience .24 Retailers should adopt a customer-first approach and invest in the assets that will allow them to deliver the best service, particularly when it comes to digital .

Develop a CRM program

A customer relationship management (CRM) program is one of the most important tools a retailer can have — yet few are implementing this strategy effectively . In fact, many make the costly mistake of equating loyalty or points programs with CRM .

CRM, coupled with predictive data analytics, is the foundation of everything you need to be successful as a modern retailer . A good program captures and integrates implicit and explicit customer data based on demographics and other markers . The more you know about your customers, the more you can anticipate their needs — giving you a leg up on the competition .

RETAIL WRAP-UP: THE CUSTOMER ENGAGEMENT CHECKLIST

The best way to engage with customers is in a way that is customized to their preferences, whether online or offline . Retailers should also keep the following in mind:

Recognition. Customers should only have to explain who they are, and what their issue is, once .

Surprise and delight. Reward loyalty, thank them for purchases, or celebrate birthdays with a special offer or gift .

Exclusivity. Offer services, product lines, or events that customers can’t get elsewhere .

Feedback. Offer a mechanism for customers to provide feedback and respond to their reviews .

Value. Data and feedback are precious . When asking for your customer’s information, retailers should provide something in return, such as loyalty points or discounts .

Connectivity. Invest in communication channels that are interactive and provide a good user experience .

Frictionless. Browsing, ordering, fulfillment, and returns should be quick and convenient .

Retail trends in Canada 2018-201920

FUTURE-PROOFING YOUR RETAIL BUSINESS

Retail’s intense competitive environment does not have to be a doom-and-gloom scenario . There are plenty of opportunities for mid-market and independent retailers to build on their strengths and adopt new strategies to improve market share and drive customer engagement and retention .

While mid-market and independent retailers can experience challenges due to their smaller size and scale, they can also differentiate themselves through:

XX Close customer relationships and local market knowledge, which can allow for greater engagement, personalization, and connectivity with your target group of shoppers .

XX Unique value propositions such as additional services, in-depth product knowledge, and higher-quality products .

XX A greater capacity for agility, with the ability to move faster and adapt to market changes, while bigger players may take longer to change course .

XX Customer service that goes beyond simply having a friendly staff, to building and maintaining a community .

21Future-proofing your retail business

WHAT SHOULD YOU DO NEXT?

Mid-market and independent retailers need to examine every aspect of their business and develop a holistic strategy that incorporates all areas of change, rather than simply picking one trend and jumping on the bandwagon .

To future-proof your business, remember:

Focus on a true customer-first retail designEverything about your retail business — store layout, staff, e-commerce site, fulfillment options, technology — should be in support of the customer experience . Retailers should employ “outside-in” thinking rather than an operations-first approach . In other words: invest in the tools and tactics needed to drive customer loyalty . In addition to meeting the needs of today’s customers, look a few years ahead to the next generation and how their preferences will impact the market . Now is the time to begin adapting your business to accommodate them .

Develop an omnichannel strategy The market is full of examples of traditional retailers expanding online, and e-commerce players moving into bricks and mortar . Retail is no longer an online versus offline world . To survive in today’s “anywhere, anytime” environment, retailers need to reach customers on multiple platforms and provide a consistent experience throughout .

Implement or upgrade e-commerceIf e-commerce isn’t already one of the main pillars of your business, it’s time to make it one . A strong e-commerce platform should be an organic component of your business strategy . Features that retail business owners should consider include cloud hosting; integration with accounting, inventory management, and other back office systems; data privacy and cybersecurity compliance; content management and marketing capabilities; and user experience, just to name a few .

Rethink every step and stage of the value chainQuestion the purpose behind your store, your distribution centre, your call centre, and your website, and be flexible for change . Let the customer drive the company by running tests, conducting surveys, and implementing feedback programs to understand what they truly want .

Engage third-party expertsAt BDO, we understand that retailers need a holistic business strategy that can adapt to the challenges of today’s market and prepare your business for the future .

Our Retail and Consumer Business professionals have extensive experience assisting mid-market and independent retailers in a variety of subsectors, including apparel, automotive retail, building materials and hardware, food and beverage, grocery, hospitality, and pharmacy . Our team can help you identify opportunities for growth with tailored solutions that include:

XX Business and financial planning

XX Operational excellence and review

XX Business analytics

XX CRM and productivity solutions

XX IT strategy and implementation

XX E-commerce

XX Cybersecurity

XX Market expansion

XX Mergers and acquisitions

XX Business process outsourcing

XX Tax structuring and optimization

XX Franchise services

Retail trends in Canada 2018-201922

REFERENCES

Technological Disruption

1 DigitalBridge Augmented reality – Changing the face of retail (September 2017)

2 Shopify, How These Retailers Use Augmented Reality to Enhance the Customer Experience (February 2018)

3 Forbes, Why Chatbots Are Dangerous Territory For Retailers (February 2017)

4 Retail Insider, Over 21% of Ecommerce Traffic is ‘Bad Bots’ Says Study (March 2018)

Shopify, Proximity Marketing: How to Attract More Shoppers With Beacon Technology (April 2017)

Experiential Retail

5 EventTrack 2018 Annual Report

6 Retail Insider, Pop-Up Retail Gains Widespread Popularity in Canada [Feature] (February 2018)

The Hybridization of Retail

7 Statistics Canada, The Daily, Retail trade, December 2017 (February 2018)

8 eMarketer, Ecommerce in Canada 2018 (January 2018)

9 Retail Insider, The Rebirth of Brick and Mortar – How to Survive in an Increasingly Digital World (September 2017)

10 Bloomberg, Amazon Goes North, Forcing Canada’s Retailers Out of Hibernation (May 2017)

11 Shopify, Shipping Success: Put Your Customer In Control of Delivery Options (March 2018)

12 Financial Post, Transformation over turmoil: Why reports of traditional retail’s imminent death may be premature (January 2018)

13 Retail Insider, 2017 Canadian Retail Sales Growth Hits a 20 Year High (February 2018)

Changing Shopping Habits

14 Canada Post, Looking to attract the Canadian millennial shopper? Get to know them first (March 2017)

15 Think with Google, Micro-Moments Now: Why you should be the adviser Canadian consumers are searching for (December 2017)

16 Think with Google, When it comes to mobile, it’s time to stop making excuses (February 2018)

17 ITBusiness .ca, How popular are mobile payments in Canada, anyway? (August 2017)

18 ITBusiness .ca, Survey shows big gap between Canadian retail’s mobile commerce intentions vs . implementation (May 2017)

19 The Globe and Mail, Smaller retailers look to a future without cash registers (June 2017)

20 Think with Google, Find out how you stack up to new industry benchmarks for mobile page speed (February 2018)

21 Think with Google, 4 insights into how shoppers use apps and mobile sites (May 2018)

The Customer Relationship

22 BCG, Will Canadian Retailers Meet Demand as E-Commerce Takes Off? (June 2017)

23 Retail Insider, 2018 Canadian Retail Forecast [Analysis] (January 2018)

24 Cisco, Customers expect more from retailers

Retail trends in Canada 2018-2019 23

ABOUT BDO

BDO is a leading provider of professional services to clients of all sizes in virtually all business sectors . Our team delivers a comprehensive range of assurance, accounting, tax, and advisory services, complemented by a deep industry knowledge gained from nearly 100 years working within local communities . As part of the international BDO network, we’re able to provide seamless and consistent cross-border services to clients with global needs .

This publication has been carefully prepared, but it has been written in general terms and should be seen as containing broad statements only . This publication should not be used or relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained in this publication without obtaining specific professional advice . Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances . BDO Canada LLP, its partners, employees and agents do not accept or assume any responsibility or duty of care in respect of any use of or reliance on this publication, and will deny any liability for any loss arising from any action taken or not taken or decision made by anyone in reliance on this publication or any part of it . Any use of this publication or reliance on it for any purpose or in any context is therefore at your own risk, without any right of recourse against BDO Canada LLP or any of its partners, employees or agents .

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms .

BDO is the brand name for the BDO network and for each of the BDO Member Firms .

Copyright © August 2018 BDO Canada LLP . All rights reserved . Published in Canada .

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FOR MORE INFORMATION:

ERIC MATUSIAKPartner, National Retail LeaderNational & GTA416-369-3796ematusiak@bdo .ca

JERVIS RODRIGUESPartner, Advisory Services LeaderWestern Canada604-443-4724jrodrigues@bdo .ca

CHERYL HUGILLPartnerCentral Canada519-622-7676chugill@bdo .ca

GUY MARCHESSAULTPartner/AssociéQuebec & Eastern Canada514-934-7807gmarchessault@bdo .ca