Bryan Cave Combines with Berwin Leighton Paisner to Form Bryan Cave Leighton Paisner LLP Learn More

Can retailers find the perfect mix? 

New EU rules for online selling taking shape

FAA Regulations Clear Way for Delivery Drones

Retailers aim to offer less to sell more

Know your Millennial customers' buying habits

EU Commission maintains close scrutiny of retail geo-blocking


Can retailers find the perfect mix?

Author: Carol Osborne

Retailers are increasingly under pressure to evaluate their business models and, in particular, the mix of their in-store, online and mobile offerings. Just as there are few pure-play e-tailers, there are very few retailers solely operating a bricks & mortar strategy because today’s customer wants to access their favorite brands in an omnichannel way: browsing online to get a sense of trends, dropping into a store to check the fit and shopping via mobile for impulse or last minute buys. But how do retailers find balance within the omnichannel world?

In our experience working with national and international retailers, getting the online and mobile experience right requires critical focus and serious investment in the three Ds: Distribution, Delivery and Data.

Successful ecommerce platforms require well located (and well managed) distribution centres capable of handling the nearly 24-hour demand profile.

Careful consideration needs to be given to whether an existing distribution centre supporting stores can also support online or whether it would be better to invest in an expanded footprint of distribution centres while reducing the number of stores. Retailers prepared to serve an international online market also need to understand the logistics landscape and either partner with a logistics expert with a solid track record of supporting international online retailers or build in-house expertise to manage not only export and customs issues (so customers can enjoy a hassle free experience) but also local law compliance relating to product labeling and hazardous materials.

Retailers shouldn’t underestimate that customers want an instant buzz with online shopping – which means they want delivery of their purchases virtually immediately.

Not surprisingly, this is one area that has seen the biggest experimentation by retailers in the last few years. From expedited shipping options like Amazon Prime, to same day delivery by Net-a-Porter, to “click and collect” by John Lewis, online retailers are trying to replicate the instant gratification of in-store shopping while managing the non-trivial expense of rapid delivery. However, retailers cannot neglect the flipside: an efficient return process. Customers want to be able to return a product and receive their refund quickly. Similarly, retailers want to return the product to stock with minimal delay or damage. Getting delivery and returns right can accelerate the growth of ecommerce for most retailers.

Finally, online and mobile shopping create a tremendous opportunity for a rich and personal relationship with customers.

Shopping online is not the anonymous in-store experience and retailers need to develop effective (and legal) strategies for capturing and using all of the rich data generated by online shopping. Privacy policies, cookie policies and website or mobile terms and conditions are just the basics (although they should be reviewed at least annually to keep up with ever changing consumer protection laws). Marketing initiatives and customer loyalty programs also require careful assessment to comply with data protection laws – especially for retailers exploring international strategies. In the end, careful collection and management of the data generated by ecommerce transactions, will allow retailers to customise shopping experiences to such a degree that each customer will feel like they have the store all to themselves and it is stocked with all of their favorite things.

It is not surprising that IMRG, an online retail industry association, is predicting that online shopping will eclipse shopping on the high street within five years. As a result, many retailers are suddenly thinking they should trim their store portfolio while investing more in their online and mobile offerings. Focusing on the three Ds will help get them there successfully.

New EU rules for online selling taking shape

Authors: Robert Bell

The recent Communication from the European Commission on cross-border e-commerce is likely to have a significant impact on online trading within the European market.

The proposals are designed to break down artificial barriers created by online suppliers that restrict the freedom of choice for online buyers located in different EU member states.

The final version of the proposals is expected next year with legislation coming into force in mid-2017. It is therefore advisable that online suppliers closely follow the debate on these proposals to be well prepared for future changes on conducting business in the EU.

Non-discrimination Obligation

The report from the European Commission proposes that in order for e-commerce to thrive in the EU, action is needed to effectively tackle unjustified geo-blocking and other forms of discrimination. The core of the initiative is the imposing of a non-discrimination obligation, whereby traders cannot discriminate in their selling of goods and services based on the consumer’s nationality, place of residence or place of establishment, within the EU market.

In other words a customer in a different member state than the trader will be able to purchase goods and services under the same conditions as local consumers. This also applies to services used by the consumer outside of their own member state (such as car hire, or the rental of accommodation).

However the current proposals will not immediately apply to:

  • electronically supplied services (such as cloud services, data warehousing, website hosting and so on) – implementation delayed until mid-2018, in order to allow service providers time to prepare for the changes
  • non-audio-visual online content services concerning copyright protected works (although this will be subject to review at a later date)

Delivery

While traders will not be obliged to deliver their goods to every member state (given the potential of high delivery costs, for example), they should inform all of their customers of existing delivery restrictions, in accordance with the Consumer Rights Directive, and offer the same delivery options available to consumers located in areas supplied by the trader (such as delivery to a given address provided by the customer or pick-up at a collection point). The implication is that even if the trader cannot supply directly to the consumer’s country, the consumer could make alternative arrangements to receive the desired product or service, and would not be limited by the location of their residence for example, when making their purchase.

Payments

Similarly, while traders will not be forced to accept any particular means of payment, they cannot refuse payments or otherwise apply different standards or conditions related to payment for reasons related to the customer’s nationality, place of residence or place of establishment (when the trader can receive adequate customer authentication and the payment can be carried out in a currency the trader accepts). Thus, the trader cannot reject measures or instruments of payment (such as credit cards) issued in another member state if they accept the same type issued in their own country.

Additional Proposals

Further actions related to e-commerce suggested in the communication from the European Commission include:

  • establishing measures to ensure affordable parcel delivery solutions in Europe
  • proposing regulations in order to ensure effective cross-border consumer protection
  • offering guidance on the Unfair Commercial Practices Directive (UCPD)
  • suggesting simple cross-border contract rules for consumers and businesses
  • attempting to reduce the administrative burden on business arising from differing VAT regimes

Going forward

The proposed regulations may initially have a considerable impact on traders’ practices with regards to customers from other EU countries accessing their website, as well as paying for and receiving their goods and services, and transition for some traders may be challenging. However, the EU Commission believes that the ensuing growth in inter-state commerce as a result of these proposals could be highly substantial, with both buyers and sellers potentially reaping the rewards.

These proposals will also apply to the UK when implemented at an EU level. Notwithstanding the Brexit vote, the UK still remains a full member of the EU until such time as it negotiates its exit treaty, or two years after (and any agreed extensions) the service of a notice under Article 50 of the Treaty of the European Union (which starts the formal secession process), whichever is the sooner.

FAA Regulations Clear Way for Delivery Drones

Author: Flora Sarder

The Federal Aviation Administration (FAA) has finalized its regulations concerning operational drones, allowing retailers to start using drone delivery systems.

In making drones available for retail delivery use, the FAA has carved out a space for drones to operate without becoming an “air carrier” under federal law regulating air transportation.

As a result, drones can now be used to deliver cargo in the mainland United States, except in Washington D.C., or any U.S. territory if the cargo weighs less than a total of 55 pounds, the flight is conducted from the remote pilot’s visual line of sight, the drones fly a maximum speed of 100 mph, and gain a maximum of 400 feet.

The much anticipated drone regulations bode well for retailers and manufacturers making their way into the drone delivery space. Just a couple of months ago, Switzerland’s postal service began testing out drone deliveries with Matternet, a company dedicated to creating and mastering drone delivery systems.

In the United States, Amazon has eagerly been preparing for favorable regulations to allow room for Amazon PrimeAir, a delivery system designed to get to customers in 30 minutes or less.

Drones must be flown by remote pilots during daylight hours

Before retailers can start operating delivery drones, the new FAA regulations require that there must be a remote pilot who holds a remote pilot certificate and conducts a pre-flight check before each flight. The drone must remain in the pilot’s visual line of sight so that it can be readily seen without binoculars.

Additional regulations require that drones can only be flown 30 minutes prior to sunrise until 30 minutes after sunset (at twilight hours, only with the appropriate anti-collision lighting), and cannot be flown over people not involved with the drone flight. Furthermore, the remote pilot must submit a report to the FAA within 10 days of any serious accident, loss of consciousness, or at least $500 worth of property damage.

Before any drone is flown, it must be registered under the requirements implemented in December 2015, previously reported by Bryan Cave.

The new drone operating regulations may be the first step towards an emerging market for drone delivery systems. The remote pilot qualifications are more relaxed than before, making it easier for individuals to become certified and expand the use of drones. The actual utility of drone delivery systems are limited, however, by the requirement that the drone not leave the remote pilot’s visual line of sight.

A full text of the FAA commentary and regulations can be found here

Retailers aim to offer less to sell more

Author: Paula Levitan and Nicola Conway

Recent quarterly reports reveal that a number of retailers are aligning their business models with the 'focus strategy'; one of the three generic strategies developed by Michael Porter often used by companies to gain competitive advantage. There appears to be a move by brands towards narrowing their product offerings to better meet the needs of their target markets, easing the complexity of their operations, and aiming to maximise growth in the long term.

Victoria's Secret's parent company, L Brand, Inc., has announced that it will develop only its "core merchandise categories" – namely its lingerie and beauty lines – and eliminate its apparel, accessories and swimwear offerings. This decision was reached despite the fact that L Brands, Inc. reported an increase in net sales of $1.027 billion for the five weeks preceding 2 April 2016, which represents a 5% increase as compared against the same period in 2015.

Burberry has also announced, as part of a three year plan to reduce costs and reorganise the company, that it will eradicate between 15 and 20% of its product line over the next year to concentrate only on pieces which define the brand.

The focus strategy trend, whilst growing, is not altogether new – in 2015 we saw UK supermarkets across the board (including Waitrose, Tesco, Asda, Sainsbury's and Morrisons) drop hundreds of products from their shelves in efforts to cut prices and increase efficiency. Olay's parent company, P&G, similarly discontinued approximately 20% of its product base in a bid to prioritise core items.

By decreasing product breadth and increasing product focus in key categories, companies increase their chances of being recognised by customers for what they do best; they also can simplify their operations and open up their potential to invest in the areas in which their brands may dominate in the long term.

For further insight into any of the issues raised in this article, please contact a member of the Bryan Cave Retail team.

Know your Millennial customers' buying habits

Authors: Paula Levitan and Nicola Conway

The NPD Group1 has teamed up with Stylitics2 to produce a report entitled 'The New Handbag Customer Revealed 2016' which documents the evolution of the Millennial shopping movement within the U.S. handbag market.

By extension, the report provides insight into the buying trends of Millennial customers in the fashion market and indeed in the retail sphere generally.

Firstly, shopping style is changing. The report reveals that 41% of customers spend over a month researching and scanning the market before making a purchase. This increasingly cautious approach to buying does not signal lower spending habits - in fact, a reported $11.5 billion was spent on handbags in the U.S. in 2015 by women aged 18 and over; representing a 5% increase in handbag sales from the previous year. What it does indicate is the customer's need to feel that they are well-informed about the products available on the market before committing to a purchase. Marketing methods will need to adapt to cater to this.

Secondly, shopping routes are changing. The report identifies that 61% of customers take the first explorative steps in their product research process online (notwithstanding the fact they may later opt to additionally browse and/or purchase the desired item in-store). Retailers whose online platforms are not sufficiently sophisticated to inspire and trigger purchases will find themselves at a significant disadvantage.

Thirdly, shopping habits are changing. Purchasing patterns of Millennial shoppers are unlike those of previous generations - "this customer starts with specific product attributes, not brand, when looking for her next handbag" (Rohan Deuskar, CEO and co-founder of Stylitics). These customers have lower brand loyalty and place far less importance on the name attached to an item than brands may expect. Well-established brands are not safe to rest on their laurels; product development strategies need to be sharper than ever.

In short, this generation demands more from their shopping experience. If retailers wish to stay ahead of the game they need to be diligent to meet the ever-evolving needs of the shopper.

EU Commission maintains close scrutiny of retail geo-blocking

Author: Robert Bell

On the 18th of March 2016, the EU Commission published initial findings from its e-commerce sector inquiry. The initial findings show a widespread use of geo-blocking throughout retailers in the EU. The findings reaffirm the Commission’s focus on this area and may lead to actions by the Commission later this year.

Geo-blocking is the practice of blocking online sales across borders by redirecting international customers back to their own domestic websites or blocking the use of foreign delivery addresses or credit cards. The headline findings are that 38% of the responding retailers selling consumer goods and 68% of digital content providers replied that they geo-block consumers located in other EU Member States.

The economic fear is that whilst e-commerce has expanded widely throughout the EU, cross-border e-commerce has expanded much more slowly. Whilst some of this can be put down to language barriers, the fear is that geo-blocking practises are creating artificial barriers, intending to maintain high pricing for goods through a lack of cross-border competition.

The Commission’s greatest obstacle in tacking geo-blocking however is the lack of legal weapon with which to fight it with. This is because the Commission’s findings show that much geo-blocking is done unilaterally by retailers and is not stipulated between suppliers and distributors (or at least not in writing). If a company is in a non-dominant position, then unilateral geo-blocking falls outside the prohibitions in EU competition law, a fact acknowledged by the Commission.

To counter the above obstacle, the Commission is now openly threatening new legislation to combat geo-blocking, likely to be proposed in the coming months. Whilst moves by the Commission in this area are welcome to many EU consumers, retailers and suppliers will likely resist the moves to maintain lucrative national discrepancies in prices.

What the EU Commission cannot tackle however is the most common geo-blocking found for EU consumers, that being for access to American goods and pricing, often put up to protect pricing and geographical commitments, and due to differing EU/US product regulations. For instance, EU consumers are not likely to get access to US TV programming through American sources or able to capitalise on favourable exchange rates to buy branded clothes straight from the US, anytime soon.

The Commission’s final report on this issue is due in the first quarter of 2017.


 

1. A global industry authority for market size, information and trends.

2. A fashion panel that tracks and analyses purchasing and styling information from over 200,000 Millennial shoppers.

 

Related Practices