Eversheds Sutherland Retail Conference – key highlights
8 March 2017
Keynote: outlook for the retail industry
Helen Dickinson, Chief Executive at the British Retail Consortium, gave an excellent overview of the key aspects retailers should be aware of in 2017 and beyond – the priorities being Brexit and in particular, post-Brexit import tariffs, the incremental rise of business rates, artificial intelligence and the upcoming General Data Protection Regulation.
Helen noted that within the retail sector the forces of change are profound, with costs rising faster than the market is growing. Most importantly, however, Helen noted that the nature of jobs in the future will be overwhelmingly different due to advances in technology, with an estimated 60% of jobs being at risk of automation. Investments will shift to the digital sphere, resulting in more store closures; physical spaces, for example, will decrease substantially, having already dropped from 87% in 1997 to 62% in 2015. In addition, it is estimated that there will be 900,000 fewer jobs in 2025 due to the move to the digital sphere. Coupled with this however are opportunities, retailers will become more efficient (especially those who turn to AI and use of robotics) and there will be more higher skilled jobs in, for example, the digital and analytics arena.
Helen noted that a continuous challenge the industry has faced, is the low pay which the sector offers and this will continue in 2017. Approximately 70% of people working in the industry “feel motivated to give their best at work”, however there are still challenges to overcome, particularly as 57% of individuals “feel that working in retail has a poor image.”
In summary, she noted that there is an uncertain path ahead particularly due to Brexit and the impact of the Trump administration. That being said distribution, labour and operating costs will inevitably rise and retailers must prepare for how this will affect their supply chain. Helen commented that it will be extremely important for retailers to continue to “re-invest, re-imagine, adapt and innovate”.
Richard Lim, CEO of Retail Economics, then presented his thoughts on the impact of Brexit noting that the industry has been and will continue to be in a period of uncertainty. However, Richard noted that immediate reactions post-referendum did not have a huge impact on the market. Whilst the pound slumped the day after the referendum – on the whole, the consumer and retail market did hold out with consumer spending remaining strong towards the end of last year, which continued into 2017.
During 2017, GDP is expected to slow to 1.9%, inflation is expected the rise to 3.0%, consumer spending is forecast to grow 2.0% and real wages are expected to decline by mid-2017. Consumers are also expected to cut back on leisure activities such as eating out and going to the cinema, theatre or concerts, before they reduce spend on shopping.
Richard noted 2017 would bring opportunities for retailers as customers trade down and move across brands.
Brexit: pulling the trigger
James Batham, Head of the Consumer sector at Eversheds Sutherland, chaired a panel discussion on Brexit with Helen Dickinson, BRC, and Naeema Choudry and David Young, Partners at Eversheds Sutherland.
Helen kicked off the discussion by pointing out that once the UK leaves the EU, it will lose the benefit of the EU’s free trade deals with non-EU countries but will, however, look to replace these and create trade relationships with countries that the EU does not have a relationship with. Several countries have already expressed an interest in commencing trade negotiations with the UK including, Brazil, Canada, China, the Gulf States, Mexico, South Korea and the US. In relation to non-EU countries that the UK does not negotiate a free trade agreement, WTO rules require the UK to charge each country the same tariffs, resulting in higher tariffs on imports which retailers must be wary of. The sector should prepare for how this might impact supply chains and overall consumer spending.
Looking at how Brexit will affect the employment field, Naeema stated that whilst times are uncertain, the vote to leave the EU would be unlikely to precipitate immediate and major employment law policy change in the UK. In fact many EU laws are likely to be retained. This is because withdrawal negotiations could take many months (more likely years) and the status quo is broadly expected to continue during that period; many UK laws which originate from the EU have become workplace norms, such that it would be politically unattractive for a government to initiate a wholesale removal. An example would be in relation to part-time and fixed term workers’ rights, some equality laws and business transfers (or TUPE). However, some adjustments might be sought, for example, the CBI has previously argued for a cap on discrimination compensation (this would depend on the political orientation of the party in power at the time); and some UK employment law exceeds minimum EU requirements (for example, family leave rights), or falls outside EU competence (such as unfair dismissal rights). However, on the whole, employment rights stemming from British, not EU, action are unlikely to change because of Brexit.
What’s next? Future of retail tech in retail
Charlotte Walker-Osborn, Head of TMT at Eversheds Sutherland, led the panel discussion on AI and robotics noting that artificial intelligence is a natural evolution of a digital strategy. Competition in the retail sphere is fierce and more and more brands will look to use AI and robotics expertise as a USP to draw in consumers and drive up sales.
Charlotte was joined by Amelia Kallman, Head of Innovation at Engage Works who noted the importance of “customer personalization” and discussed how AI is accelerating the decision making process for customers in a number of industries. Retailers should use AI to better understand, connect with, and create superior experiences for consumers. Amelia highlighted the subscription model for fashion retail, as a potential future trend – “imagine that instead of buying a shirt, you buy a subscription to a brand for twelve months, during which time they become your personal stylist and know what you need before you do. Smart clothes will send a message to the brand that you’ve washed your shirt twenty times and that it’s time to send you a new one, or that you’ve lost those holiday pounds and need to be sent a pair of your favourite jeans in the next size smaller. These insights and disruptive retail model could be the start of a much more personalized service, one that makes you feel like your preferred brand is really taking care of you”.
The most immediate affects AI and the use of robotics will have on the industry will inevitably be increased efficiency and fewer out of stock problems. Amelia noted that whilst there may be issues with customer data – those companies who get it right and gain the consumers’ confidence when dealing with their personal data will gain customer loyalty, which will result in brand enhancement.
Peter Shervington, Senior Associate at Eversheds Sutherland who also joined the panel, highlighted that retailers should note and understand the allocation of risk and liability when dealing with AI and robotics. Whilst retailers will be quick to claim ownership of data and discoveries made by such devices, they will undoubtedly want to limit their liability in the event that something goes wrong and as such, retailers “must be clear about the capabilities and limits of your consumer facing products.”
The panel discussed the impact of having legal frameworks to properly assign responsibility, not just to identify liability, but also to offer technology companies and users certainty as to where the other stands in relation to risk allocation. The question remains, however, “does liability rest with the creators, in the form of product liability?” It will be extremely difficult to identify the liability path from the robot to the user or manufacturer, especially if neither the user nor manufacturer can distinctly control the robot’s actions.
Fred Bassnett, Retail and Consumer Specialist at the Department for International Trade, chaired the international expansion panel discussing mature market challenges.
David Croft, EMEA Operations Manager of Bureau Veritas, kicked off the discussion noting that as businesses expand, retailers are using more and more production factories and factory workers to meet with this rising demand. As such, some retailers are turning to factories which use unauthorised workers. David noted that health and safety is a real issue at these factories and retailers should audit the production processes before using them, given the heavy penalties and fines that could result and adversely impact their organisation. For example, fines up to £1m for non-fatal accidents and compensation claims have been imposed.
Retailers must future proof their contracts when thinking about international expansion, ensuring that robust provisions are in place to account for a change in law as well as having flexible termination provisions.
Wade Stribling, Partner at Eversheds Sutherland, commented on retailers looking to expand in the US and noted that they must be wary of a myriad of state laws that may be applicable. Nevertheless, retailers that meet EU standards are likely to meet federal standards. Wade made an interesting observation, commenting that the retail shopping mall could potentially be a threatened species as 20 of 220 malls in the US aren’t profitable; US property will only account for 2% of the retail sphere and retailers must move in line with technology to stay ahead. Therefore, shopping centres must reinvent to survive e.g. by incorporating leisure. In fact, Javier Ibáñez, Managing Partner for our Spain office, also commented that retailers must look to update their flagship stores to allow customers to “live the experience”.
The panel discussed the importance of investing more in logistics to support international expansion and should note that their responsibility to the consumer doesn’t and shouldn’t stop at the end of the sale.
Building the legal team of tomorrow
John Jeffcock, CEO at Winmark, kicked off an interesting debate about in-house legal incorporating technology to increase productivity.
Organisations should also look to work with AI companies to help with research and document management. In fact, if we aim to improve the efficiency of the legal market, there is no lack of technology to choose from – IBM’s Watson, for example, could potentially transform contract review and law practice
The panel also discussed appointing third party suppliers to outsource functions to improve efficiency. Other successful solutions include team away days to help morale, the use of precedents, training and identifying key risk areas to remove any burdens.
Preparing for the GDPR
The General Data Protection Regulation will significantly impact how retailers collect and process personal information. Gayle McFarlane, Partner at Eversheds Sutherland, discussed how keeping up to date with related insight and how to navigate and prepare for this extensive piece of new legislation over the next two years, is going to be a huge task. Practical GDPR pointers include looking within your business and working out what you should do next e.g. carry out data audits and data mapping exercises and understand what data processing your organisation currently undertakes.
Gayle noted that although a May 2018 start date may seem far away, the sector should not underestimate the amount of work involved and time needed to prepare for GDPR, and should start to prepare now. It will require a fundamental rethink by each business about how it approaches data protection compliance, from what details are treated as ‘personal’ or ‘sensitive’ in the first place, to ensuring rigorous compliance with retention and destruction policies and, above all, ensuring it can prove how its use of personal data complies with all aspects of GDPR.
Regulators like the ICO, with its new Commissioner, are already expecting more from businesses and demanding an increase in compliance standards, backed by an increasingly robust use of the current enforcement regime. GDPR gives regulators even more power and the increased importance allocated under GDPR to individual rights to privacy, transparency and choice in relation to personal details will be backed by competition like sanctions for any breaches. This could result in fines of up to, the greater of, 4% of the preceding years global annual turnover or €20 million, potentially on a group wide basis. So, with that in mind, 2017 should be viewed as the year of the privacy programme, with preparations commencing as soon as possible in 2017.
Retailers should start to think about developing a plan from a list of challenges, into a high level list of practical next steps, to assist key stakeholders in starting to deal with the key risks identified. The goal here would be to establish an approachable plan and prioritise tasks to achieve GDPR compliance. As first steps, retailers should look at updating their standard contracts with suppliers, review and audit their privacy and standard of consent wording, under which their marketing database has been collated.