New Consumer Expectations, New Opportunities for Retailers
Consumers continue to make the majority of their purchases at the physical store. However, their constant connectivity to the cloud through smartphones, laptops, tablets and smart watches — combined with the popularity of e-commerce — is redefining their expectations of the ideal in-store experience. Today, consumers want the same convenience, personalization and simplicity they’ve grown accustomed to online.
Industry research shows that, rather than trips to just make purchases, shoppers are drawn to in-store experiences that are digitally-connected. These include:
• Using their favorite apps.
• Wanting store associates to know who they are — even if they normally shop online.
• Being rewarded for their loyalty — not with generic offers — but with personalized incentives that are relevant to them.
• Using their payment method of choice, without spending an eternity in the checkout line.
While these expectations are shared by consumers of all ages, they’re especially prevalent among millennials and other new generations that have likely never known a world without the advanced technologies embedded in society. According to a report by Seurat Group, more and more millennials are entering the workforce every year, and by 2020, they’ll represent more than 40% of consumers in the United States.
To meet the demands of these modern consumers, retailers must tear down the silos between their online and physical storefronts. Connecting both channels can provide retailers with access to the advanced consumer data and analytics needed for better targeting, consumer insights and personalization across all customer touchpoints. However, integrating online and physical storefronts in a way that is consistent and seamless from the consumer’s point-of-view is easier said than done, considering the complexity and ever-changing nature of technology, apps and regulation — not to mention the limited bandwidth of IT resources.
Fortunately, payment technology offers a solution for retailers to overcome these obstacles and efficiently break down these barriers. Recent innovations in this space have catapulted point-of-sale (POS) technology to do much more than accept payments.
Besides accommodating all payment methods, including NFC and contactless, many new payment terminals feature HD touchscreens that engage shoppers during checkout with brand messaging, special offers and other multimedia content chosen by the retailer. Bluetooth Low Energy (BLE), 3G/4G and Wi-Fi connectivity combined with portable ergonomic form factors allow retailers to extend the POS beyond the counter and throughout the store, helping reduce the time customers spend in checkout lines while creating a more one-on-one shopping experience. Such hardware features radically transform the shopping experience when they’re connected to the cloud. This merges in-store and online shopping channels, and allows retailers to continuously grow and expand their payment systems as consumer and business needs evolve.
From a central location, software can be uploaded or “pushed” to connected devices throughout the enterprise — streamlining compliance with ongoing PCI changes, and strengthening retailers’ ability to protect themselves and their customers against the ever-present threat of payment data breaches and cybercriminals. Cloud-based estate management tools also provide retailers with on-demand access to sales and payment processing information, which streamlines reporting processes and offers historically unavailable customer insights and business intelligence data.
Furthermore, payment device cloud connectivity expedites retailers’ ability to support popular business and consumer apps at the POS. By leveraging app marketplaces and developer tool kits, proprietary and third-party apps can be developed, tested and supported on their devices. This provides a number of benefits — from improved customer loyalty via points programs, or geo-targeted offers inside the store, to tailored incentives based on online purchases at the point of sale and improved inventory management via e-commerce and legacy system integration.
All of this is merely a snapshot to help illustrate the extent to which some of the newest payment technologies have evolved. Basic payment acceptance devices are now becoming powerful tools offering an innovative way for retailers to create the shopping experiences demanded by consumers today, with the flexibility to accommodate those they’ll want in the future.
Skip Hinshaw is the VP & general manager, North American Financial Services at Verifone.
Analysis: Beyond debt, Toys ‘R’ Us faces massive market structural challenges
While today's decision does not necessarily mean it is game over for Toys "R" Us, it brings to a close a turbulent chapter in the iconic company's history.
A combination of high debt and severe structural changes in the industry created a toxic mix against which Toys "R" Us had little choice but to restructure and try to put itself on a firmer footing.
The past decade has seen a dramatic change in the domestic toy market with new channels, increased competition, and new technology all having a deleterious impact on the sector and traditional toy stores. Unfortunately, Toys "R" Us has not responded effectively to these challenges and, as a result, has found itself with both a weak balance sheet and falling sales.
The channel shift is not exceptional to toys, but it has fundamentally changed the economics of toy store retailing. We estimate that in 2016 some 13.7% of all toy sales were made online; that’s up from 6.5% five years ago. This is one of the reasons why sales of toys at many specialists, including Toys "R" Us, have been weak when measured on a comparable store basis.
The rise of online has undermined the economics of toy shops. For larger chains, like Toys "R" Us, some of the shift can be offset by using stores as a place of collection and, indeed, as a place to fulfill from. However, the failure of the firm to invest properly in its online proposition mean that these initiatives were only ever going to mitigate rather than solve the online shift.
The rise of online has also seen the emergence of new, powerful players in the toys market, including Amazon. However, competition has also come from generalists like Walmart where the offer of low prices and convenience is alluring for many parents, hard pressed for both time and money. The impact has been two-fold. First, the extra competition has meant that the price of toys – many of which are branded and therefore easily comparable between stores – has risen little over the past five or so years, exerting significant pressure on margins. Second, specialists have gradually seen their share of the toy market eroded.
If competition from within the toy sector has exerted a toll on traditional retailers, the impact of competition from outside the sector has been equally, if not more, punishing with retailers like Apple, and its App Store, taking more of kids spend than ever before. Children’s interest in electronics is nothing new; as far back as the early 1980s kids were buying up Nintendo’s Game & Watch devices, featuring Donkey Kong and other exciting platform style games. However, with their relatively low prices (a Game & Watch cost $48 in today’s money) such products were often complementary to spending on traditional toys and, indeed, would often be sold by toy stores themselves.
Today it’s different. For many children, electronics have become a replacement or a substitute for traditional toys. Our data show that some 67% of young teens personally own at least one tablet or smartphone device and that among the cohort 59% say spending on such devices is a priority. With even the most basic of products having a high price tag, there is often little left over – either from the child’s budget or the gifting budget of parents and family – to spend on other toys.
All of these shifts have hit the sector hard, and as iconic as it was, and arguably still is, Toys "R" Us is not immune. Indeed, the combination of punishingly high debts and challenges on the sales line arguably left the company in an incredibly tough spot.
Looking ahead, lowering debt and streamlining the business should help to create a more sustainable operation. However, even if the debt issues are solved Toys "R" Us still faces massive structural challenges against which it must battle. The jury is out as to whether it can adapt enough to survive.
The decisions it takes now, and the vision it sets out for the future will determine whether or not the Toys “R” Us story has a happy ending.
Toys ‘R’ Us files for bankruptcy protection; keeping stores open
Toys "R" Us filed for Chapter 11 bankruptcy protection late Monday night in federal court in Richmond, Va., with an eye to revamping its long-term — and massive — debt totaling more than $5 billion.
The nation's largest specialty toy retailer has been burdened with a heavy debt load since 2005, when it was purchased by private equity investors KKR, Bain Capital, and Vornado Realty Trust in a $7.5 billion buyout. Toys "R" Us faced $400 million in debt payment coming due in 2018. In early June, it hired Kirkland & Ellis, a law firm that specializes in corporate restructurings.
In addition to its Chapter 11 filing, the retailer also intends to seek bankruptcy protection in parallel proceedings for its Canadian subsidiary. Its operations outside of the U.S. and Canada, including its approximately 255 licensed stores and joint venture partnership in Asia, which are separate entities, are not part of the filings. The company said its approximately 1,600 Toys “R” Us and Babies “R” Us stores around the world would continue to operate as usual.
Toys "R" Us said that it has received a commitment from some lenders, including a syndicate led by JP Morgan, for over $3 billion in debtor-in-possession financing, subject to court approval.
"Today marks the dawn of a new era at Toys “R” Us where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way,” said Dave Brandon, chairman and CEO. “Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5 billion of long-term debt on our balance sheet, which will provide us with greater financial flexibility to invest in our business, continue to improve the customer experience in our physical stores and online, and strengthen our competitive position in an increasingly challenging and rapidly changing retail marketplace worldwide."
While the holiday season is important to most retailers, it is especially critical to Toys "R" Us. (Forty percent of the retailer's U.S. sales last year occurred in the fourth quarter.) In recent weeks, reports have circulated that some of the chain's vendors were curtailing, or scaling back shipments. The filing will allow Toys "R" Us to better manage the holiday season and give some assurance to its suppliers. Industry experts speculated that the company, which is already in heated competition with Walmart, Target and Amazon for toy sales, is likely to beef up its holiday discounts.
"We thank our vendors for their ongoing support through this important season and beyond," Brandon said. "We also appreciate the strong support our investors have provided over time and the constructive role they are playing in this process that will allow us to create a brighter future for our company."
The filing did not come as a surprise. Fitch Ratings on Monday downgraded the long-term issuer default ratings (IDRs) for Toys "R" Us. Fitch said the downgrade "reflects the material market information regarding the hiring of various financial advisors and law firms, a claims agent and supplier issues that suggest a restructuring could be imminent."
Analyst Neil Saunders, managing director of GlobalData Retail, commented that in addition to high debt, severe structural changes in the industry have created a toxic mix against which Toys "R" Us had little choice but to restructure and try to put itself on a firmer footing.
"The past decade has seen a dramatic change in the domestic toy market with new channels, increased competition, and new technology all having a deleterious impact on the sector and traditional toy stores," he said. "Unfortunately, Toys "R" Us has not responded effectively to these challenges and, as a result, has found itself with both a weak balance sheet and falling sales."
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