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To NFC or Not to NFC?

BY Dan Berthiaume

I was fortunate enough to attend the CashStar Retailer Roundtable in Portland, Maine, last week. Beyond getting to spend a beautiful summer day overlooking the sights of Casco Bay, I got to hear a lot of great speakers from companies including Google and Forrester Research discuss the latest trends in mobile commerce and electronic gift cards.

One topic that came up again and again was near field communication, or NFC, a hardware-based standard that lets mobile devices send and receive data when they touch or come in close proximity with each other or a physical reader. Based upon general commentary by all speakers, NFC, which so far has been adopted at a much slower rate than once predicted, may never see widespread adoption as a means of executing retail transactions. To explain why, let me quickly review the pros and cons of NFC as an m-commerce tool

To NFC…
With the notable exception of iPhones, most smartphones come equipped with NFC capability, and many of the major in-line POS systems are also NFC-compliant. Thus it represents a common standard that can be easily applied across a wide range of devices. It is also convenient in theory, letting users pay for purchases with a simple tap of their smartphone or other mobile device to a reader (or in some cases even by just waving a device near a reader). Security is not foolproof, but NFC-enabled devices can serve as electronic identity documents and NFC communications can be protected with SSL encryption.

Or Not to NFC…
Android is now the dominant smartphone platform, but 40% of U.S. smartphone subscribers still used iOS devices as of May 2013, according to comScore data. And many retailers are moving away from traditional in-line POS terminals as IT in general moves away from hardware-based solutions and toward virtualized software-based solutions.

Furthermore, the “convenience” of NFC is not always quite as grand as advertised. Steve Arthur, head of retail industry for Google, related a humorous anecdote about getting to the counter at a drugstore, pulling out his mobile phone, entering a PIN number, and tapping the reader four or five times to make a purchase while the confused cashier looked on and customers in line grumbled about how long his purchase was taking.

“It would have been much faster to just pull out a card and swipe it,” said Arthur.

This is not to say that NFC systems never provide quick, convenient transactional functionality, but like so many other things in life the field results do not always match the lab predictions.

The conclusion
The consensus among expert speakers at the roundtable (who included Mark Bonchek from digital strategy firm Orbit, Alex Rampell of TrialPay and Denee Carrington of Forrester Research) was that NFC does not represent the widespread future of m-commerce, but it will not disappear anytime soon, either. Some retailers may want to pursue an m-commerce strategy that is partly or wholly based on NFC technology, depending on factors such as customer demographics, store traffic levels, market basket sizes, average transaction amounts, retail vertical, etc. Others may not see a need for NFC at all.

Hamlet never really answered the immortal question “to be or not to be” that opened the famous Shakespeare play bearing his name, and there is really no one answer as to whether retailers should include NFC in their m-commerce strategy. NFC does not appear poised to become a dominant m-commerce technology as many experts once predicted, but unlike Hamlet is not doomed to an untimely death, either.


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M.Bonchek says:
Jul-23-2013 01:46 am

NFC: payment vs. engagement
Thanks, Dan. I can't speak for my fellow panelists, but my personal view is that the use of NFC for payments is questionable, but for engagement it is quite compelling. It is hard to beat a credit card for ease of use when it comes to payment. But the opportunity for new forms of engagement with NFC, bridging the online and offline, is much better. Remember that Edison thought the phonograph would be used mostly to listen to recording of speeches, not music. All the talk about NFC is for payments, but eventually it will be about engagement. I've written about this on Harvard Business at http://bit.ly/11lgHJD. Thanks for covering the roundtable!

M.Bonchek says:
Jul-23-2013 01:46 am

Thanks, Dan. I can't speak for my fellow panelists, but my personal view is that the use of NFC for payments is questionable, but for engagement it is quite compelling. It is hard to beat a credit card for ease of use when it comes to payment. But the opportunity for new forms of engagement with NFC, bridging the online and offline, is much better. Remember that Edison thought the phonograph would be used mostly to listen to recording of speeches, not music. All the talk about NFC is for payments, but eventually it will be about engagement. I've written about this on Harvard Business at http://bit.ly/11lgHJD. Thanks for covering the roundtable!

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Fewer movies in 2013 contribute to Hasbro Q2 dip

BY CSA STAFF

PAWTUCKET, R.I. — Hasbro reported net revenues of $766.3 million for the second quarter ended June 30, a 6% decline compared to $811.5 million in 2012. Despite seeing growth across its girls, games and preschool categories, it was not enough to offset a decline in the company’s boys category.

Net revenues in the boys category decreased 35% to $253.7 million. Nerf was actually up for the quarter but was not enough to offset brands like Marvel and Beyblade, which didn’t live up to second-quarter 2012 figures bolstered by that year’s major motion pictures.

Net earnings for the quarter were $36.5 million, compared to $43.4 for the same quarter last year. The company’s net earnings for the quarter adjusted to exclude pre-tax partial pension settlement charges of $2.5 million, associated with previously disclosed restructuring actions, were $38.3 million, compared to $43.4 million in 2012.

“As we enter the second half of the year, we have innovative brand initiatives across categories and geographies, including Nerf Rebelle, Furby Boom, My Little Pony Equestria Girls, Telepods for Angry Birds Star Wars II and Transformers Construct-Bots,” said Brian Goldner, Hasbro’s president and CEO. “Across our business, we are increasing our focus on our most important initiatives while right sizing our cost base. We have expanded our digital gaming capabilities with the acquisition of 70% of Backflip Studios, a profitable mobile game studio. Importantly, we are developing comprehensive and innovative lines for both film and television entertainment in the coming years, including Transformers 4 in 2014 as well as Marvel and Star Wars entertainment from Disney in 2014, 2015 and beyond.”

U.S. and Canada segment net revenues were $389.2 million compared to $406.6 million in 2012. The results reflect growth in the games, girls and preschool categories. The U.S. and Canada segment reported operating profit of $59 million compared to $61 million in 2012.

International segment net revenues were $340.2 million compared to $360.5 million in 2012. Net revenues in the international segment include a favorable $1.2 million impact of foreign exchange. Revenues in the International segment reflect growth in emerging markets as well as the games, girls and preschool categories. The international segment reported operating profit of $14.8 million compared to $29.9 million in 2012.

Entertainment and licensing segment net revenues were $35.3 million compared to $43.2 million in 2012. Second quarter 2012 revenues reflected a higher mix of revenues from television programming sales for digital distribution. The entertainment and licensing segment reported an operating profit of $3.7 million compared to $8.2 million in 2012.

The games category posted its third consecutive quarter of growth, increasing revenues 19% in the second quarter 2013 versus last year. Both of the company’s games franchise brands, Magic: The Gathering and Monopoly, were up in the quarter. Additionally, many other games brands grew, including Twister, Jenga and the Elefun & Friends collection.

The girls category posted its fourth straight quarter of growth, increasing 43% in the quarter. Furby and My Little Pony were the primary contributors to the strong year-over-year growth.

The preschool category also grew in the second quarter, increasing 4% to $107.8 million. Play-Doh, Playskool Heroes, led by Transformers Rescue Bots, and Sesame Street products all grew in the quarter.

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K-C ‘optimistic’ following flat Q2 net sales

BY CSA STAFF

DALLAS — Kimberly-Clark Corporation’s net sales for the second quarter ended June 30 were flat at $5.27 billion compared to the year-ago period.

Sales adjusted to exclude the impact of changes in foreign currency exchange rates and lost sales as a result of European strategic changes and pulp and tissue restructuring actions rose 3.

"We delivered another solid quarter of results while we continued to execute our Global Business Plan strategies,” said chairman and CEO Thomas J. Falk. “We achieved 3% organic sales growth, as excellent results in K-C International more than offset mixed volume performance in the developed markets. We generated $80 million of cost savings, improved adjusted operating profit margin by 80 basis points and delivered an 8% increase in adjusted earnings per share. We also launched a number of product innovations and continued to allocate capital in shareholder-friendly ways. At the halfway point of the year, I am encouraged by our progress overall."

The company’s operating profit for the quarter was $796 million, up 6% from $754 million in 2012. Operating profit for the quarter adjusted to exclude $22 million of restructuring costs for European strategic changes in 2013 and $19 million of costs for pulp and tissue restructuring actions in 2012 was $818 million, up 6% compared to $773 million in the year-ago period.

“Although the macro environment has become more volatile recently, we continue to be optimistic about our prospects to drive profitable growth and to generate attractive returns to shareholders," added Falk.

In October 2012, Kimberly-Clark decided to make strategic changes to its Western and Central European businesses to improve underlying profitability and to focus resources and investments on stronger market positions and growth opportunities that could deliver more sustainable returns. These changes include the exit of the diaper category in Western and Central Europe, with the exception of the Italian market, and the divestiture or exit of some lower-margin businesses in certain markets, mostly in the consumer tissue segment. To align its cost structure with these strategic decisions, Kimberly-Clark is streamlining its European manufacturing footprint and administrative organization.

Restructuring costs for these actions will be incurred through 2014 and are expected to total $300 to $350 million after tax ($350 to $400 million pre-tax), unchanged from the estimate communicated in April 2013. Cash costs are projected to be approximately 50-60% of the total charges, consistent with prior estimates. The impacted businesses generated annual net sales of approximately $0.5 billion and negligible operating profit. Second quarter 2013 restructuring costs were $21 million after tax ($22 million pre-tax), bringing cumulative costs to $284 million after tax ($352 million pre-tax).

In 2011 and 2012, the company executed pulp and tissue restructuring actions to exit its remaining integrated pulp manufacturing operations and improve the underlying profitability and return on invested capital of its consumer tissue and K-C Professional businesses. The restructuring actions were substantially completed by December 31, 2012. Pulp and tissue restructuring charges were excluded from the calculation of the company’s earnings and earnings per share, gross and operating profit and the effective tax rate, calculated in accordance with GAAP, for the three and six months ended June 30, 2012.

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