Philip Clarke: Retail Week Conference

12 Mar 2014

Our Group CEO has delivered the keynote speech at Retail Week Live.

Our Group CEO has delivered the keynote speech at Retail Week Live.

Thank you Declan and thank you to Chris and to Retail Week for inviting me to kick off your conference today. Retail Week Live is a key event in the calendar and I’m sure you are set for a fascinating two days of discussion.

This year’s conference, of all years, should be particularly fascinating. Because never before has this industry been changing as rapidly as it is today.

We are entering a new era of retailing, and the change which is taking place is transformational.

It brings challenges, particularly when combined with the deep and brutal consumer recession which we have just lived through, but which perhaps we might be starting to emerge from.

But I firmly believe – and this will be the focus of my speech today – that this rapid and profound change in our industry presents tremendous opportunity.

We must look forward – forward to an age when the customer is genuinely in control, is able to shop across channels in a way which suits them, an age when the customer is able to engage and transact with retailers across many more touch points and for many more products and services than ever before.

And in fact I don’t need to look forward that far – because that is the age we are entering now.

I should point out that it is not just retail which is changing. Any consumer-facing business is having to wrestle with a profound change in customers’ expectations, fuelled by the proliferation of choice provided by the digital revolution.

Whether media, entertainment, leisure or banking, the traditional ways in which consumers purchase and consume is fundamentally shifting.

It’s driven by today’s consumer. The connected, informed, demanding, restless 21st century consumer.

That puts pressure on existing business models – if you travelled into London on the train this morning you won’t have seen many young commuters reading a paid-for print newspaper.

I’m not denying it can be uncomfortable, but this type of change creates opportunity. Those people may well be reading the same newspaper but on their tablet. If you can persuade them the content is worth paying for, or drive enough traffic so that the advertising revenues make it profitable, that’s a new business model fit for the future.

Pressures on old established business models are not a new thing, nor are they a bad thing. Not many people would choose to go back to having only four television channels or shops which didn’t open on a Sunday.

What is different now is the pace of change. The speed of technological innovation has accelerated exponentially. And this is driven by the customer, who has even higher expectations of the business they engage with. If we as retailers want to keep up with the customer, we need to accelerate change within our businesses too.

Robin Terrell, our Group Multichannel Director, tells an interesting story about when he started at Amazon in 1999; they would get letters from customers who simply couldn’t believe they had ordered a book on the internet and it had arrived on the doorstep. In the world of today’s informed, connected customer, I don’t imagine they get many letters like that any more

The good news is that the most successful retailers have always been built around the maxim of the customer being right. So this should come naturally to us.

Innovating for the customer is something which has always guided our development. Whether Clubcard, Express, Extra, Finest, Everyday Value or the launch of the first supermarket online grocery service in the UK, we have always sought to come up with ideas which make shoppers’ lives easier.

Customers didn’t necessarily know they needed these services – but by taking the time to understand how their lives and tastes were changing, we had a good idea that they were meeting untapped needs. You’d certainly never dream of taking them away today.

These initiatives reshaped the industry, and were the unique strengths which made Tesco the leader in the first curve of retailing – the bricks and mortar one.

And today, we have to take the lead in reshaping the industry again – in the second curve, bricks and clicks environment. What is helpful to us is that you can’t lead in the second curve if you don’t have the building blocks from the first curve – customer insight, a leading online presence, the best brands and store locations, and great colleagues.

There is a lot of talk about multichannel, omnichannel, online, digital – all words I suspect you will be hearing a lot over the next 48 hours.

The word I like to use to describe the new retail world is multichannel, and I’ll tell you why, and what it means to me

It’s not complex in its definition – to me it means putting customers at the heart of the business, delivering them a seamless experience however, whenever and wherever they choose to engage with us.

It encompasses the digital and physical, the transactional and non-transactional – not just how customers spend with us, but how they interact with us.

It means thinking outside the traditional paradigms, about ways customers can shop that they never thought of before. That might mean that our next Click and Collect location is in a store car park, at a tube station or next to a school or hospital – it’s driven by how our customers live their lives today, and tomorrow.

Being genuinely multichannel is a goal. A lot of retailers talk it without making genuine change to their businesses. To reach the second curve requires more than just token gestures.

You can see from this slide the journey a customer could conceivably go on, using technologies to put him or her in charge of the process.

To me, success is when multichannel is a word we don’t use any more and it is simply how we behave. But I don’t think any retailer can claim to be genuinely multichannel yet – we all have a journey to go on. What varies is the stage we’re at.

And the future’s not as far away as you might think. That shopping trip powered by the customer’s mobile – as you can see here, the technologies are either live now, or in pilot and will be widely available this year.

Making the transition to the second curve also requires honesty. In April 2012 I told the world that in my opinion the space race was over, and that we would not need more big new stores in the future.

That was not an easy message for someone running a business with more big stores than any other. But it was the right one, and meant we were ready to work on how that space can be used better and made more relevant in the new era.

So if the space race is over, what does the future hold for stores?

Well, I am a firm believer in the role of the store in the multichannel world, and, to be clear, we at Tesco are still opening stores.

The stores we are opening, however, are primarily convenience stores.

The growth of convenience is not just a UK phenomenon. A move towards proximity based retail with a higher frequency of visits is a growing trend, which we see in each of our 12 markets, and more generally around the world – look at the success of the dollar stores in the US, for example.

The reason these stores are successful is that they suit the way customers live their lives today. People are living their lives on the move, they want to grab and go, and they want stores which provide what they need at that particular location.

But like big stores, small stores have to evolve. One size fits all doesn’t work in today’s world – our stores serve the broadest range of shopping missions, affluence and demographics.

They also lend themselves especially well to Click and Collect. After all, one of the great myths about home delivery is that it’s convenient – but it’s only convenient if you happen to be at home.

But what then of large stores?

We have a portfolio of large stores which is second to none, and in great locations, but the reality is many customers no longer want to buy televisions in a supermarket.

In the multichannel era, no-one has to leave their sofa in order to shop. We were early into online grocery and have almost half the market in the UK. But when shopping online is so easy retailers need to give a customer a reason to leave the sofa for a store. Their free time is precious, and if they’re going to jump in their car to a store, many customers want an experience.

That was why we invested in exciting, entrepreneurial brands like Harris & Hoole, Giraffe and Euphorium.

These exciting brands will help us create genuine destinations in our largest stores. You can see what we’re trying to do from these pictures of our store in Watford.

It’s now somewhere our customers want to spend more of their time – not just somewhere to come in, shop, and get out as quickly as possible

Not all these ingredients will work everywhere, and we have a suite of others to ensure every store is tailored for the missions and propositions it serves.

I’ve talked about tailoring the offer in stores, but the successful retailers of the future will have to go further and provide an offer which is tailored for every individual.

The greatest opportunity the digital revolution provides us as retailers is the opportunity to personalise what we do. Tesco is for everyone, and our scale, our range of brands and the power of technology make a hugely powerful combination

They enable us to provide every shopper with a personalised Tesco – which they can shop with and engage with in whichever way suits them.

We have a powerful stable of brands – Tesco itself of course, but also Blinkbox, our digital entertainment business, Tesco Bank and Tesco Mobile to name but three, and we continue to develop them all - this year we’ll be launching a digital current account and Blinkbox e-books.

How we bring those together in a way which enables our customers to engage with us across channels, rewards their loyalty and surprises and delights them will be key to earning their loyalty in years to come.

None of this is possible though without knowing who your customers are. That’s why for us at Tesco Clubcard is an invaluable tool – because it means we know who our customers are, helps us understand their likes and dislikes, their needs and wants, and that means we can ensure our offer to them is the right one, personalised to them.

We will be able to do this even better when digital Clubcard launches later this year.

Retailers have always been good at making the unaffordable affordable, the inaccessible accessible. It wasn’t that long ago that the avocado was considered an exotic delicacy.

That role remains today, but it’s no longer simply about food. We see part of our role of being a leader in the multichannel world as democratising technology. Trust me – a lot of us in this room may treat tablet computing as something we take for granted, but a lot of our customers haven’t been able to.

That’s why we came up with the Hudl tablet. It is our attempt to make tablet ownership accessible to all, creating a product comparable with the best in the market but at an affordable price.

We spent two years working on it and the reviews – and the sales – suggest that we were right to. It sold out at Christmas and we are selling them as quickly as we can get them in stock.

But this is more than just a new product in the best traditions of Tesco. It’s also a driver of loyalty, a strengthener of the bond with our customers. The T button on the Hudl seamlessly connects the customer to the world of Tesco on their tablet, opening up a world of movies and music via Blinkbox, as well as our home shopping for groceries, clothing and even TVs.

What I am talking about is a dramatic change in what a forward-thinking retail business does and that requires new types of skills in the business.

Who would have thought even five years ago we would have an app Development Centre in Clerkenwell where we have some of the best digital talent in the industry working on the next generation of apps for Tesco and our digital entertainment businesses?

Or that we would be backing the next generation of digital entrepreneurs through our investment in Rainmaking Loft – you can get a sense of what this does by visiting them in the networking area

But we have also brought digital talent into the heart of business – through people like Robin, like Mike McNamara our chief information officer, and Michael Comish, the founder of Blinkbox who is now our chief digital officer.

And that’s important because if you are to be genuine leaders in multichannel, people with industry leading digital skills need to be at the heart of the business, not sat in the corner marked ‘online’.

But this isn’t just about the colleagues who work in our offices. Everyone in the business has to understand that in this new world we have to do things differently to meet the changing demands of the customer

Here’s an example. Shopping patterns in store are changing – customers are visiting us at different times. So in the past 12 months we have moved 300,000 colleague hours in the UK so that they were in the right place at the right times for the changing way in which our customers shop.

I’m delighted to say our colleagues have embraced this change. They can see that we are investing to help them do their jobs better and to serve customers the right way. We couldn’t have made the changes we are making without them.

In fact the role of colleagues on the front line of the business becomes more important than ever in this new multichannel era. In this new world customers invite you, as the retailer, into their homes, so it’s essential that our home delivery colleagues are the best possible ambassadors for our business.

While retail is changing profoundly, the importance of delivering the basics, faultlessly, is one thing that doesn’t change.

Chris Bush, our UK MD, knows this better than anyone. You may remember our six point UK plan which launched in 2012 and was essential to getting the business back on track to meet the expectations of our customers.

Having great people delivering top quality service is one of the basics of retail which doesn’t change in the multichannel world.

Product quality and the strongest ranges are also vital, and we’ve relaunched our entire Everyday Value and Finest ranges in the past two years, as well as 8,000 of our core own brand products.

And while there may be encouraging signs of economic improvement, which of course I welcome, I don’t see customers’ focus on price changing in the immediate future. For many families, disposable incomes remain highly constrained and wages are not yet rising sufficiently to get living standards increasing again.

My final thought on the future of retailing, but perhaps the most important of all, is that we as businesses have to work harder to demonstrate to our customers how we use our scale for the good of the communities we serve.

Retail has an image problem. Yet we are the largest private sector employers. We regenerate communities starved of investment. And we provide affordable access to products many would have considered delicacies only a generation ago.

I am proud to be a retailer, as I am sure you in this room are. There is no job I would rather do. Yet we have to accept that bigger is not seen as better by today’s customer. It’s not about size any more. Better is better.

Put simply we need to open up our businesses. The connected customer expects transparency. They want to see how their food is made, how it reaches our shelves, how we treat the people who produce it. They want that confidence in what we sell them and this is a challenge we need to rise to.

As I said at the start, this is an unprecedented period of change.

We as retailers have a choice. To carry on as normal and resist the change, or embrace it and accelerate our own transformation so that we are ready to anticipate and meet the needs of tomorrows customer.

It won’t surprise you that I am in the latter camp. It has meant some pain in the short term, I don’t deny that for a moment.

But to me, this journey to the future of retailing is a tremendous opportunity. We are using every means possible to serve our customers, to delight and surprise them in ways they never would have thought possible.

We all know the names of retailers which failed to evolve and are no longer with us. Some of them were on this stage not that long ago.

It is the ones which embrace the future, those brave enough to recognise that the game has changed, who will prosper in the years to come. And I’m confident, with the plans we have in place, that Tesco will be among those winners.

Thank you.

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