Consumer Currents: Retail

Consumer
Currents
Issue 16
Issues driving consumer organizations
Reinventing
retail
The prot behind data analytics
p6 Interview
Matt Shay, President
of the US National
Retail Federation
oninnovation
tudy
p20 Case study
How Procterr &
Gambles green
een
drive delivered
red a
US$2bn dividend
dend
p14 Markets
Why
W the Gulf is
the go-to emerging
economy for
brandsand
stores
b
he issue that should be at the top of every boardroom

agenda in the global consumer industry is generating the
right kind of growth.
Amid the relentless press of world events, it is easy
to feel inundated by the volume, variety and complexity of
challenges facing every consumer-centric company, whether they
are a retailer, manufacturer or supplier. With consumer confidence
growing but fragile, many businesses will understandably remain
cautious about departing from the formula that has served them
well since 2008: stay lean, build a strong balance sheet and
survive. Yet with the Organization of Economic Co-operation
and Development predicting that the worlds GDP will grow 3.6% in 2014, investors will
expect the consumer industry to seize its opportunities, maintain
its margins and grow through innovation, organic expansion and acquisition.
In this issue of ConsumerCurrents, we explore a number of the opportunities and
challenges that face the consumer industry as it seeks to generate the kind of growth that
adds enduring value to the business.
The drive to cut costs has revolutionized the consumer industrys manufacturing
strategy in the last decade. Yet, as we investigate on p16, some brands feel the cost
advantage has not been as significant as they had envisaged and now believe that
manufacturing closer to home or to their main markets can make them more responsive
to consumer demand or reassure customers about the quality of their goods. There is no
one size fits all answer to this but its a question that many brands should consider.
Manufacturing is, at least, an issue that companies can manage with confidence. Yet
from surveys, anecdotal evidence and my own conversations, it is clear that this is not the
case with big data. Some retailers, brands and e-tailers have driven their business forward
with intelligent analytics. Yet many companies admit they are not making the best use
of data and dont quite know how to rectify that. Big data is a complex, time-intensive,
expensive challenge but it can make a profound difference to a businesss performance,
so we investigate the issue on p10. The critical point here is proving cause and effect so
that managers know if they are getting the right return on their data investment and can
learn from their successes and mistakes.
One reason so many companies are investing in big data is that they believe it will
enrich their understanding of their customers. The same desire has persuaded some
businesses to open up their product development to consumers, as we highlight on p4.
By embracing presumers (consumers who push, promote and influence products and
services before they are realized) and custowners (customers who are so keen on a new
idea that they help to fund it), companies can make their R&D more effective.
Sometimes looking inward can generate growth. On p20, Len Sauers, Vice-President of
Global Sustainability at Procter & Gamble, reveals how people at every level of the FMCG
giants business changed their behavior, a drive that has paid off to the tune of US$1bn.
The need to focus on sustainable growth is at the heart of our interview with Matt
Shay, the President and CEO of the National Retail Federation, on p6. He has 17 years of
experience in the public policy world in Washington DC and, he says in the interview, one
of his goals is to ensure that politicians understand the economic importance of retail a
point that will resonate with retailers, suppliers and brands across the world.
The political theorist Niccol Machiavelli once wrote: Whosoever desires constant
success must change his conduct with the times. Though he made that observation 500
years ago, it has seldom sounded more apt.
Willy Kruh
Global Chair, Consumer Markets
KPMG International
@WillyKruh_KPMG
2
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.
ConsumerCurrents 16
Contents
In one minute
searches are
e made on Google
tracks are downloaded

from iTunes
of goods are sold

on Amazon
10
searches are
made on LinkedIn
Hot numbers
comments are pasted on Facebook

of all the data ever
generated in the
world has been
created in the last
two years
megabytes are
produced by a typical
US ofce worker
The challenges
companies face
inputting their
datato best use
Sources: Noble Marketing,
PC Magazine, Business Insider,
Daily Mail, Intel, Go-Gulf.com
4 Off the shelf

Creative consumers, smart-TV, and the rise of the ROBO-shopper
6 First person
Matt Shay, National Retail Federation CEO, on the importance of innovation
10 Key issues
Analytics: how can big data make a big difference to your performance?
14 The Gulf
Your guide to these emerging markets where the retail sector is
expectedto growconsistently and signicantly between now and 2016
16 Productions coming home or is it?

What you need to know about reshoring, cheap labor and your reputation
20 Case study
Procter & Gamble: sustainability head Len Sauers on the groups green goals
22 Lessons from other industries

What can retail learn from the internets impact on the music business?
23 Insights
KPMG provides a wide range of studies and analysis
ConsumerCurrents is published by Haymarket Network, Teddington
Studios, Broom Road, Teddington, Middlesex, TW11 9BE, UK
on behalf of KPMG International. Editor Paul Simpson Contributing
Editor Cathryn Newbery Production Editor Sarah Dyson Art Editor
Paul Yelland Designer Amy Hanbidge Contributors Simon Creasey,
Jeremy Hazelhurst, Lisa Palmer, Kath Stathers, Ian Whiteling,
Picture Editors Dominique Campbell, Jenny Quiggin Group Editor
Robert Jeffery Senior Account Manager Alison Nesbitt Managing
Director, Haymarket Network Andrew Taplin
Cover image Xinhua/Wu Ching-teng/Photoshot.
No part of this publication may be copied or reproduced without the
prior permission of KPMG International and the publisher. Every
care has been taken in the preparation of this magazine but
Haymarket Network cannot be held responsible for the accuracy of
the information herein or any consequence arising from it. Views
expressed by contributors may not reect the views of Haymarket
Network or KPMG International or KPMG member rms.
14
16
3
ConsumerCurrents 16
Off the shelf
Lego understands
the value of
listening to what
its customers want
Creative consumers
Some of the worlds biggest brands are turning to customers to help drive their
R&D as they seek to speed up product development and make it less risky
ven retailers and suppliers who strive

to be customer-centric might balk
at opening up product development
to consumers, but some global
brands feel its a risk worth taking. This
phenomenon started with crowd-funding
websites such as Kickstarter and Quirky
and helped create new types of engaged
customers: presumers, who engage with
products and services before they launch;
and custowners, who invest in the brands
they love and buy from.
Migros, Switzerlands biggest
supermarket chain, decided to engage
consumers on an online forum, Migipedia,
through which shoppers can rate 13,000

of its own-brand products, suggest
improvements and vote for new lines.
Active members are rewarded with points
and product godfather status. Since its
2010 launch, Migipedia has amassed around
30,000 members who have submitted more
than 15,000 product ideas and 130,000
pieces of feedback.
Lego invites fans to submit ideas for
toy sets via its Cuusoo website, which
attracts more than 500,000 unique visitors
per month. Winning inventors receive
1% of royalties from their sets sales. The
advantage for Lego is that this approach
Nexttech
Switch on to t-commerce
Shopping gets easier every day. With smartTVs, customers can now buy
products from home using their TV remotes, opening up a whole new
sector t-commerce for retailers. With smartTV ownership predicted to
hit 500 million by the end of 2015, this new sector is likely to grow rapidly.
Since July 2013, many of Samsungs smartTVs in the US have had the
ShopTV app preinstalled, enabling viewers to buy products on-screen
enables it to launch products faster and

be more condent there is a ready-made
audience for its new products.
One set, based on the popular online
game Minecraft, took six months to hit
the shelves, rather than Legos usual
two-year product development period.
Cuusoo draws in visitors with a variety
of interests, from loyal fans to those
more interested in themes, such as
acionados of Back to the Future, who
wanted a model of the DeLorean time
machine from the movie.
Were very interested in ideas from
fans that [are] weird, which wouldnt
have survived the product development
process, Lego New Business Group
Senior Consultant Tim Courtney has said.
If our fans can tell us theres demand,
why wouldnt we consider it?And if we
turn it into a runaway success, that will show
the value of listening to our consumers.
Matt Sevenoaks, UK Manager of
KPMG Crowd Connection, says this strategy
is an evolution of the focus group, but you
are getting deeper insight and more reach
at a fraction of the cost.
Brands are using open and closed
online communities to de-risk product
development and cut time to market.
Customers that engage and collaborate
in this way have stronger brand afnity
and loyalty, he says.
If you want people to really engage
with your brand, you need to make a
connection with your consumers and make
the purchase an emotional experience. This
way of working is picking up pace across all
sectors. Brands that dont join the fray may
not deliver services and products that meet
customers needs.
The longer-term challenge is whether
presumers and custowners will help rms
launch products that are radically different.
The Sony Walkman, ATMs (too impersonal,
complained potential customers), and
Seinfeld, Americas most successful sitcom,
were all nearly stied before launch by
hostile feedback from focus groups.
during shows. The app already covers more than 500 programs and
hundreds of thousands of products. A May 2013 report by ShopTV
creator Delivery Agent found that two-thirds of US shoppers were
interested in shopping through TV, nding it convenient and enjoyable.
Chinese e-commerce giant Alibaba is investing in t-commerce,
launching new smartTVs and set-top boxes in September 2013. The
companys biggest online shopping channels, Taobao and Tmall, hit sales
of RMB 1 trillion (US$159.5 billion)for January to November 2012.
Alibabas strategy looks sound as China has one of the highest market
penetration rates for smartTVs at 44%, according to a 2012 GFK study.
The increasing popularity of shopping on TV represents a sea
change for retailers, advertisers and TV channels, says Mark Larson,
Global Head of Retail at KPMG. The challenge is to understand the
opportunities and risks provided by this fast-developing sector.
4
Trend
Spotting
The spending forecast
Misunderstanding the effect of weather on consumer
behavior could be costing retailers billions of dollars
Changes in the weather influence what consumers buy, where they
buy, when they buy and in what quantities they buy. These fluctuations
might be the last untapped big data frontier in retail. Analyzing the
climate properly could help suppliers and retailers who adjust their
supply chains and product lines accordingly gain a competitive edge.
The weather affects the way people shop in every market, says
Scott Bernhardt, President of Planalytics, a business weather intelligence
firm. Adeviation from normal weather will drive consumers to
purchase or not, to cocoon [stay home] and buy online, or visit local
stores. It changes the pattern: for example, people tend to have a larger,
more expensive breakfast when its colder. Changes in the weather can
break down economic barriers. I might decide not to spend money
today; but if the weather makes me think differently, I will spend money.
The American Meteorological Society estimates 2.3% of USretail
output is sensitive to the weather. Fluctuations in sales in particular
product categories can be spectacular. During the summer of 2013,
hotter than usual in the UK, retailer Argos sold more desk fans in a
fortnight than in the whole of 2012. Luckily, managers had analyzed the
climate so the company had enough stock to meet the demand.
Argos isnt the only retailer to realize it pays dividends to analyze
climate. You cant forecast the weather beyond 14days, says
Bernhardt. But it doesnt matter if the forecast is correct. If the
weather agency says it will be good for barbecue grills and it isnt,
consumers act like it is. In April 2013, forecasts for barbecue weather
prompted a British supermarket to
switch mince production to burgers.
Weekend temperatures peaked at
59F, but British supermarkets still sold
twice asmany burgers as usual.
David McCorquodale, Head of
Retail at KPMG in the UK, says:
average UK temperature in
Online is a game changer when
March 2013, blamed for
it comes to managing the impact
3.4% drop in fashion sales
of unseasonal weather.It enables
consumers to buy off-season clothes which are no longer on the rails,
and retailers can deploy targeted promotions and push a product line to
suit a sudden change in temperature. Between March and May 2012,
clothing retailer Bravissimo promoted its swimwear only on sunny days
using a pay-per-click (PPC) weather-driven online marketing tool. PPC
sales revenues for swimwear soared by nearly 600% compared to 2011,
when it was advertised online in all weathers. Some clothes retailers
and e-tailers now use geofilters to target their promotions: coats for
shoppers logging on from a rainy city or sandals if their skies are blue.
36F
The rise of the ROBO shopper

With online research driving billions of in-store sales,
companies need to capitalize on this consumer behavior,
says Alton Adams, Principal at KPMG in the US
Why does London tailor Archer Adams have a
branded black cab customers can book to take
them to the store? Because the company wants
to get customers who are browsing online
through the doors of its shop. Its a smart move,
because people who research online and buy ofine
(ROBO) spend three to ve times more than when
they shop through the website, according to research
by IDC Retail Insights. When Macys, a major US department-store
chain, introduced its new e-commerce platform in 2010, the website
generated a US$1 billion rise in online sales, and inuenced more
than US$5 billion on in-store sales improvements in its rst year.
The percentage of consumers choosing to ROBO depends
on the product, the consumers age, and how urgently the item is
required. GE Capital Retail Banks 2013 survey of consumers who
spent US$500 or more on a
purchase discovered that 81%
researched online before visiting a
store up 20% on 2012 and
spent an average of 79 days
gathering data before buying.
Regardless of location or age,
consumers are becoming more
pragmatic when buying, but this
behavior is especially prevalent
among the urban young, who are
particularly comfortable with
online and mobile technology.
Comparing products online is
simpler and faster than in a mall. It empowers consumers to decide
which stores they might buy from, and identify stores offering good
deals. The easier it is for consumers to nd your brand and products
online, the more likely they are to buy. This sounds obvious, but
some retailers are struggling to master e-commerce.
Simply being online isnt enough. Consumers expect certain
functions logical navigation, easy checkout, fast shipping and free
returns and will go elsewhere if theyre not satised. As GE Capitals
survey suggests that 88% of consumers who started researching
purchases online via search engines went on to buy in store, this is a
multi-billion dollar opportunity.
Collecting information from consumers online is relatively easy.
The challenge is to understand the relationship between online
research and ofine purchases. If someone walks into your store
and buys a product, they wont tell you they did an hours research
beforehand. Surveys, loyalty programs and promotions can all help
brands and stores better understand omnichannel retail.
Retailers are already rewarding ROBO shoppers who visit their
stores. Start-up app Shopkick has partnered with Visa and brands
such as Target to offer customers points that can be exchanged for
rewards. Many European retailers selling goods as diverse as
books, food and computer games encourage customers to order
online and collect from nearby stores.
Consumers will want to experience some products such as
clothing, footwear and furniture rst hand, so ROBO isnt going
away. Thats why some pure-play e-tailers have opened physical
stores as marketing tools. Expect multi-channel retailers to recognize
that bricks-and-mortar stores are far more than places to sell stock:
they are the perfect places to launch products, raise brand
awareness, and excite consumers about goods and services.
The realization
that ROBO is
here to stay
hasprompted
some pure play
e-tailers to open
physical stores
5
6
ConsumerCurrents 16
First person
Retail
is driving
innovation
Matt Shay, President and CEO of the US National
Retail Federation, reveals how technology is
transforming the way retailers do business
NRF president and CEO

Shay aims to ensure the
US retail sectors voice
is heard and acted upon
in Washington DC
n a wintry morning in Washington,

DC, in the headquarters of the
National Retail Federation, Matt
Shay was sporting a crisp white
shirt with cufinks that pictured Winston
Churchill. Its an American thing to have an
affection for Churchill, explained Shay, the
President and CEO of the NRF, the worlds
largest retail trade association.
Shay became the top advocate for Americas
powerful retail industry in May 2010, after
performing a similar joint role for the
International Franchise Association for six years.
He had worked his way up the ranks at the IFA,
having started there as chief general counsel.
In his rst job, at the Ohio Council of Retail
Merchants, he crafted two laws that earned
businesses multi-million-dollar tax breaks.
Washington insiders were impressed enough
to hire him and, having spent the last 20 years
working in public policy in the capital, he is well
placed to achieve one of his stated aims when
taking ofce to ensure that the retail sectors
voice is heard effectively in Washington.
Right now, as the man who represents
3.6 million retail establishments that account
for one in four American jobs, Shay is aiming
to help his members by campaigning to
ensure they suffer fewer restrictions from
government red tape and rules.
ConsumerCurrents spoke with Shay about
all things retail, such as what emerging
technologies will change purchasing habits
and how world events guide the way the
industry does business.
Especially for our global readers, please

provide a brief overview of the NRF.
We are a Washington DC-based corporate
membership trade association, and our
members are corporations. We represent
companies, not individuals, of all shapes and
sizes, from the very largest retailer in the world
all the way down to the smallest single unit
shopkeeper in a local neighborhood.
What key initiatives does the NRF
offer its members?
Our primary objective is to create an
environment in which retail businesses can
operate without too many impediments from
government regulations. In the past few years,
that has primarily been about getting our
economy going again.
Retailers are more successful in an
environment where consumers feel more
condent in the overall health of the economy
and theyve got jobs. They need to feel they
are in a stable position to make investments,
spend money and buy things for themselves
and their families.
Also, we believe we ought to do more
trade deals. We believe we should do more
to reach the 95% of the worlds consumers
who live outside the United States.
Finally, we ought to get our immigration
policy xed, so that we can attract and retain
the best and brightest talent from around the
world, which is one of things that has made
this country so competitive, innovative and
diverse for so long.
7
ConsumerCurrents 16
First person
The NRFs This Is Retail campaign has

highlighted the industrys role in driving
innovation. Do you believe the sector is
becoming more innovative? And does it
get enough credit for that?
It is becoming more innovative, but we dont
get enough credit for it. If you think about
some of the innovations we take for granted
today, like barcodes and RFID tags, those
are retailer-led investments in innovation.
If you think about the way we do
commerce today, with this [he points to his
smartphone], customers try to nd ways to
innovate in their lives, to do things more
efciently, more quickly, to a higher level of
satisfaction and condence. Consumers have
been driving this revolution in technology that
has caused retailers to spend enormous
amounts of money on innovations just to
keep up with their customers.
Customers are increasingly channel
agnostic, and dont care about whether they
go to a store to buy that sweater, or order it
online from their computer in the ofce, or on
their tablet in a coffee shop, or on their mobile
phone on the subway.
Additionally, they often make different
choices about where they want to pick that
item up, whether its at the store, or having it
shipped home. Its all becoming conated to
the point that retailers now are simply
looking at the bottom line and trying to
create an experience where customers feel
they are moving seamlessly from one
platform to another. It has required an
extraordinary amount of innovation from
retailers to develop systems that can speak
to one another, while maintaining brand
delity across all platforms, to make sure
consumers have an integrated experience
wherever they get it.
There has been a positive benet for
retailers. They can operate their businesses
more effectively and more efciently.
Previously, they had non-integrated
inventories. Inventories were located in
distribution centers that fullled online
orders. Stores fullled the needs of
customers who walked in off the streets.
Now retailers use technology and create
platforms that can look at everything in
every store and every distribution center,
and decide if they can ship it from a store
or a distribution center. Businesses make
thoughtful decisions about whether it is
more cost effective to ship items from the
store close to the customers location, or
whether its best to pull it from a distribution
center ve hours away.
In addition to technology, what other
forces are inspiring new approaches?
Its the consumer experience. With
something like mobile payments, we are
comfortable putting credit card information
into a laptop and sending it to the internet
Shay is rallying for

policies to drive
economic growth
of 4-6% and give
customers enough
condence to buy
world. Rather than have to lug around a

computer, maybe it is stored in a chip in your
phone or in a direct link to the bank. Mobile
payments and the evolving electronic wallet is
one development retailers feel excited about.
Retailers are clearly leading on mobile
payments in ways no other industry is.
Also, we will see point-of-sale changes.
The old method where the sale occurs at
the cash register is not as common now.
Now a sales associate walks around with
anelectronic tablet to make the transaction,
like in the Apple store. On the experience
side, it is much easier to have the sales
associate walking around and interacting
with the customers rather than them
sittings behind a counter. It gives customers
more human interaction, because the
associate is with you and youre doing
something together.
8
What recent innovations in the retail

industry do you feel have been
particularly successful?
The use of mobile devices is the one that
jumps out most quickly. Think of the ability
to use technology to drive messages to
mobile devices using geolocation systems
while customers are in stores. This is a
signicant area that is going to be what
retailers focus on and invest in, because its
the way consumers want to shop.
How well do you think retailers are
adopting new technologies and
opportunities from using digital and
mobile channels?
Retailers are at a high level of awareness
and at a signicant level of adoption. We
are at the beginning of this development,
not the end. More capital investment needs
to take place. Retailers on the cusp of
investment decisions now have to decide
whether to build more stores or distribution
centers, or adopt technology and invest in
innovation? Its a constant balancing act. The
store experience is not going away any time
soon. With certain items we need and want,
we can only get them in a store. On the
other hand, the investment in online and
mobile will continue.
How is the interplay between online,
mobile, and bricks and mortar shaping
the retail industry?
Do you mean bricks and clicks? The CEO of
Macys recently made the observation,
almost as if he were surprised to hear this,
that the supermarket chain is the tenthlargest internet retailer. So the big players
on the internet are going to be the big
retailers. They are not there yet. Part of that
has to do with their investments in stores.
But retailers dont distinguish as to where
they make the sale. Like consumers,
retailers are increasingly channel agnostic.
It all goes to the same bottom line.
With consumer condence quietly
returning, would it be true to say that
generating the right kind of growth
is the top priority for the US retail
industry in 2014?
Yes. Consumer condence has been up
and down. Looking at the past ve years,
people shop differently today to the way
they did before the recession. People at
all income levels are more thoughtful in the
way they spend. The afuent are not back to
spending the way they did before. Everyone
has adjusted to some degree.
Do you believe the credit crunch and the
economic crisis have permanently
changed customer behavior?
If you think of the recession as a credit
recession. Yes, people are not condent
Like consumers,
retailers are
increasingly
channel agnostic.
Itall goes to the
same bottom line
about what growth is going to be and,

therefore, they are not as willing to take
big risks to extend themselves. Thats
because they dont know if the economy
will grow. Am I going to get a raise? Can
Imake that investment? Home purchases
were good this year, auto sales came back,
and home improvements are doing well,
but they came at the expense of other
kinds of spending. Consumers could either
spend money on discretionary purchases
or make investments in durable goods, but
they couldnt do both. But we need an
economy that can do both simultaneously.
What are the biggest challenges American
retailers face?
Consumer condence, job creation, and
economic growth. If customers arent
condent about the health of the economy,
they are not going to shop. We cant resign
ourselves to 2% GDP growth. We take the
view that we should be doing things to get
the economy growing at 4, 5 or 6%.
US RETAIL BY THE NUMBERS

US$2.5trn in retail contributes to
Americas GDP.
42 million Americans work in retail.
2-3% annual sales growth in-store
takes place in US retail.
12-15% annual sales growth online
takes place in US retail.
95% of US retailers work in one
location.
95.2 million Americans shopped on
Black Friday, 29 November 2013, the
first Friday after Thanksgiving Day.
77% of US holiday shoppers did
some of their shopping online.
1911 was the year the National
Retail Federation was founded.
What important developments in world

events and economics are guiding the
way retailers do business?
Trade. We need to reach consumers outside
of this country. We need to be facilitating
commerce across borders and encouraging
a new generation of leaders, thinkers and
innovators to come to this country.
Think of the phrase that the US sneezes
and the world catches a cold. What we
import creates opportunities for
manufacturers in China, Brazil, Germany
and around the world, because it helps
markets in other places. The US needs to
be a growing, consuming economy.
In terms of immigration, I tell people that
ifthey think we should be protectionist
andisolationist, then we are going to be
asecond-class economy.
Is there a particular management theory,
thinker, writer or book that has inspired
you or you feel would be important for
retailers to read?
Having been a lawyer my whole career,
Iwent back to Georgetown University a few
years ago to get my MBA once I started
working as a CEO. At graduation, one of our
professors who taught strategy gave an
address on the importance of strategy.
Right after him, the keynote speaker, who
was the CEO of a company, got up and
came to the podium and said, Professor,
I just want you to know that culture will
eat strategy every day of the week!
In an organization, which comes rst, the
strategy or culture? I think culture comes
rst. If you dont create the right tone or
environment, then strategy wont make
a difference, because you will never be
able to execute it.
9
ConsumerCurrents 16
Analytics
FROM
PROMISE
TO PROFIT
The mountain of information retailers are accumulating is about to
pay big dividends. But to harness the true power of big data,
crunching the numbers is less signicant than strategic vision
ith the amount of stored

information growing four times
as fast as the world economy
and the processing power
of computers nine times faster the most
striking aspect of big data is its sheer scale.
Yet for consumer brands, suppliers and
retailers, the quest to realize the immense
promise of data analytics doesnt begin with
zettabytes, software packages or organograms
depicting real or imagined ows of
information, it starts with a spot of self-analysis.
Eddie Short, Partner and Lead for Data and
Analytics at KPMG in the UK and EMA, says:
Its not all about the numbers behind the
strategy, its about the strategy behind the
numbers. You need to understand the key
drivers of value in your business, make sure
you have a clear line of sight between data
and your strategic priorities and make sure
you have the processes you need to convert
data into actionable insight.
Big data is an urgent challenge but the
temptation to act now and discuss later
should be resisted. Understanding your
priorities is crucial if you are to achieve the
requisite return on investment. George
Svinos, Head of Retail for KPMG in the Asia
Pacic region, says: What some companies
are struggling with is proving there is a
cause and effect in any measureable way.
If you invest in new data or new analytics
capabilities to launch a discounted
promotion to a particular customer segment,
how do you know that you wouldnt have sold
to those same customers anyway?
In the retail industry, which has invested

billions in customer relationship management
systems and powerful data warehouses,
complacent executives may assume they
have data covered. Not so, Short cautions:
Companies like Google, Facebook and
Amazon already know more about most
companies customers than they do
themselves. The only thing you can be certain
of is that doing nothing is not an option.
You have to up the ante to win market share.
In the retail sector, big data is often
reductively seen as relating to the kind
of consumer metrics luxury goods brand
Burberry has developed. Programs such
as Customer 360 a data-driven shopping
experience that invites customers to
digitally share their buying history, shopping
preferences, Twitter posts and fashion phobias
harness powerful data platforms to analyze
and deliver that information to sales staff via
their tablet computers. Such schemes have
already proved their value, but Short says
theres far more to big data than getting to
know your customer.
KPMGs research has identied three
types of analytics that companies focus
on, and in each area, big data could make
a crucial difference:
Core analytics
Amazon has relied on analytics that support
the organizations core purpose and its
culture of metrics to achieve its growth
targets. Successful companies in this area,
Short says, recognize that analytics is not
just about driving prots but helping monitor

trends internally and externally, which helps
them stay ahead of customers, suppliers and
their competitors. So, for example, if youre
doing sentiment analysis on social media, you
might identify a trend six months before your
rivals and steal a march on them.
Ancillary analytics
Some activities are not core to the business,
but still need to be monitored and can be
improved. Here the focus is not on being
the best but on having adequate capability.
Even so, data can still yield dividends. By
sharpening its understanding of ancillary
analytics, Heineken has been able to reduce
the number of vendors it uses by a factor of
10. Better insight into its vendors has also
translated into major improvements in its
contractual arrangements with them.
Remedial analytics
Big data isnt always driven by the need to
seize an opportunity. When the worst happens,
companies need to quickly and accurately
understand what went wrong and how to
rectify it. Short says: Our research indicates
organizations that take a disciplined approach
to the key areas of analytics are likely to
bounce back much more rapidly from disaster.
All these kinds of analytics are critical to
long-term success yet they will affect each
organization differently. The questions
may be similar Where would big data be
a game-changer for the business? What
10
ConsumerCurrents 16
Analytics
Reshoring
G UM
A packet of Wrigleys
chewing gum is the rst item
scanned using Universal
Product Code in a Marsh
supermarket in Troy, Ohio
attributes are rated on every

item purchased using a
Tesco Clubcard to build up
a prole of the shopper
of Chinese consumers
shop on their mobile
phones, compared to
16% of US consumers
loyalty program memberships are

held by US customers in 2012
The rise in in-store
sales US retail giant
Macys attributes to its
investment in data
processing
items carried by
the typical US
supermarket
location-based payments are made

every year in the US
RFID tags were in circulation

by the end of 2011.
Byte size
of US federal IT
budgets expected
to be spent on big
data within ve
years, an
investment
of US$13bn
internet-connected devices will exist in the world

by 2020, 2.6 per head of population
Sources: IDC, Radicati Group, TR Research, Pow Internet, LoyaltyOne,

IBM, Food Marketing Institute, Havas Worldwide, Deltek, Macys, MeriTalk
17
In one minute
searches are made on Google
tracks are downloaded

from iTunes
of goods are sold

on Amazon
searches are
made on LinkedIn
f
comments are pasted on Facebook
of all the data ever
generated in the
world has been
created in the last
two years
supportive process, policies and structures

will be needed? What expertise will add
the most value when aligned to your
business objectives? but the answers
certainly wont be.
For some, the immediate value may
reside in reducing churn in a critical sector of
the workforce. For others, it may be about
analyzing why the ratio of oor trafc to sales
varies so much between stores. One upscale
US retailer has used big data to analyze
key data points (sell-through rates, out-ofstocks, price promotions) at the product
or stock-keeping unit level at a particular
time and location, developing thousands of
scenarios to assess the probability of selling
a product so it can optimize assortments by
location, time and probability. A US retail bank
monitors social media activities to identify atrisk customers. One large consumer products
company, analyzing related-party payments by
contractors and third parties, identied over
US$30m of erroneous checks and payments
over an 18-month period.
megabytes are
produced by a typical
US ofce worker
Until recently,
advances in our
capacity to collect
data has exceeded
our ability to use it
protably. This is
starting to change
Sources: Noble Marketing,

PC Magazine, Business Insider,
Daily Mail, Intel, Go-Gulf.com
There is a lot of hype around big

data. Technology critic Evgeny Morozov
recently quipped: If you have a trove of
unpublishable papers, just add the words
Big data and see them go viral. Yet Short
says: Big data will be one of the essential
management tools of the 21st century.
Indeed, various studies into the potential
impact of big data have concluded that
analytics could improve retailers margins
by anywhere from 40-60%, far from
insignicant in an industry where margins
are constantly under pressure.
Big data describes vast quantities of
raw, digital data that test the ability of
existing software and management tools
to manage and analyze, data so massive
it is hard to know what it can tell you and
what it cant and what value it might
bring to the business. Svinos says: Until
recently, advances in digital technology have
meant that our capacity to collect data has
exceeded our ability to use it protability.
That is starting to change.
12
ConsumerCurrents 16
Analytics
Many companies are already realizing
the latent competitive advantage in mining
the data they already own (or can access).
One major US retailer, which moved from
spreadsheets to big data in three years,
credits its investment in analytics for a
10% increase in store sales. Other retailers
believe that in a world where consumers are
tracked in-store as closely as on websites,
and consumer personalization is becoming
exponentially more sophisticated, big
data could help them solve the enduring
conundrum that is the omnichannel. This
conviction may explain why US retailers
spent US$2bn on business intelligence
and US$9.4bn on infrastructure in 2013.
To succeed, business leaders need to
realize that putting analytics at the heart of
their business is not the same as becoming
a slave to data. Svinos says: Not everything
that succeeds in business is based on
what you have done before. A successful
product will not necessarily predict the next
successful product. But this kind of analytics
is an essential component of sound
decision-making. Take away the hype, the
software and the technology, and you could
argue that big data is just evidence-based
management elevated to the nth degree.
Eddie Short
eddie.short@kpmg.co.uk
Eddie is a Partner
and Lead for Data
and Analytics at
KPMG in the UK and
EMA. He has more
than 20 years
experience helping
multinational
organizations
leverage their data
to create bottom-line
business value
Managerial mindsets
Although some analysts argue that big
datas algorithms can replace managers as
decision-makers, Short says: Management
insight remains a vital part. The deeper
your insight into your business, the
less you will have to rely on the kind of
mathematical muscle Google brings to big
data. Often, even when the data scientists
have interpreted the information, it may
not present you with one solution. It may
suggest there is an opportunity or problem
to be faced and your experience, insight or
instinct could guide your response.
In their book Big Data, Viktor MayerSchnberger and Kenneth Cukier suggest
the key is not replacing management with
data-crunching software but developing a
corporate mindset where managers can
analyze data, understand how to tap into
it and unlock new forms of value.
To do this, companies need expertise.
Hal Varian, Googles chief economist, says:
Data is so widely available and strategically
Burberry delivers detailed

customer data direct to
the tablets of its sales staff
Trial, error and strategy
BIG DATA: THE BIG CHALLENGES
Turning left-over data into valuable

data-driven processes
Identifying which data is valuable and
which data only complicates analysis
Embedding analytics into the
corporate culture
Confirming the accuracy of externally
sourced data
Ensuring IT data investments deliver value
important that the scarce thing is the

knowledge to extract wisdom from it.
The interaction between managers
and data scientists is critical. Historically,
companies ask a question and collect data
to answer it. With big data, its the other
way around. The data is being collected and
its up to you and your data scientists to
know what to ask. The challenge for data
scientists is how they present their ndings
and make their assumptions clear. The
challenge for managers is to intelligently
interrogate the ndings and not xate on
the precision of the data or suggest that the
best solution is to ask for some more data.
Being able to ask why, rather than
spending more time demanding to know
more, is likely to deliver genuine insights that
can be acted upon, says Short. There is, he
admits, a risk that C-level execs scream for
more data, seeing it as a panacea. Showing
them that not all data is business-critical
some is utterly useless can be difcult.
Yet when the relevant data has been
dened, managers and experts must feel
free to mine it for value. Svinos says: Often
the real value comes when you combine
different data sets. Lets say, for example,
that you are a supermarket that is branching
out into insurance. If you found a data set
that told you an applicant regularly lled
their car up at 3am at a downtown gas
station, that would affect how you handle
their application. The key is developing an
understanding as to which relationships
between data and data sets are important.
Hiring data scientists and investing in
software do not, by themselves, create an
information-led organization. You also need
anew attitude towards IT. Many managers
at retailers perceive IT as a back-ofce
function in other words, alarge cost
center whereas with big data, it needs to
become the engine of business growth.
Increasing the flow of value-added data

and analysis
Identifying and maintaining the right
expertise and capabilities
Understanding how big data could affect
your IT infrastructure
Using big data to improve financial
planning, business performance
management and financial consolidation
Successful companies make analytics

an enterprise-wide, strategic priority;
identify whether they have the appropriate
governance, operating, competency and
process models to make the best use of
the investment; and act to ensure they
have the mechanisms to deliver the right
information to the right managers. Time
is of the essence front line managers
tend to want it all and want it now but
so is simplicity. Complex legacy systems
should not prevent retailers or brands from
delivering a single customer view across all
products and markets.
Given such complexities, Svinoss advice
to companies about to invest in big data is:
Remember its a case of trial and error.
Dont bet everything on one approach.
Accept your defeats, learn from them, and
think hard about the kind of information you
are collecting and how it can deliver the most
enduring value for your business. And always
remember the question you should start out
with: what am I trying to achieve?
13
ConsumerCurrents 16
Global trends
Inside
the Gulf
states
With a combined GDP of US$1.37trn, this region is one of

the few emerging markets where the retail sector is forecast
to grow signicantly and consistently over the next three
years. Here is our guide to the Gulf Cooperation Council bloc
BAHRAIN
STATE OF
THE MARKET
STRENGTHS
WEAKNESSES
KUWAIT 3.4%
Recent political unrest has

failed to affect the countrys
economic outlook. GDP rose
by 2.5% in the rst quarter of
2013, fueled largely by rising oil
output. Although oil accounts
for around a quarter of its
economy, Bahrain is considered
to have the most diversied
economic mix in the region.
The retail market is tough

to gauge due to recent
political unrest, but
reports suggest consumer
condence has rebounded
with spending set to rise.
Bahrains major malls enjoy
high occupancy levels and
strong rental growth.
Social unrest, which erupted in

2011 and caused the Grand Prix
to be canceled, hurt tourism and
the large nance sector. CBRE
reports that occupancy
rates have fallen in
some smaller
malls.
BAHRAIN 3.5%
QATAR 8.8%
SAUDI ARABIA 5.7%
Annual GDP growth

for GCC, 2010-15
Originally launched in 1913

from a small shop in a souk,
today Ashrafs WLL is now
one of Bahrains leading
retailers. The company sells
major international fashion
brands and household
goods, as well as consumer
electronic brands such as
Kenwood, Nikon and Sony.
FOREIGN
INVESTORS
Waitrose now has four

storesin Bahrain. Gant
Hypermarket, apartnership
between Fu-Com International
and Groupe Casino of France,
is the largest retailer in
Bahrain. LuLu is opening three
hypermarkets this year as part
of a long-term US$334m
investment program.
UAE 3.6%
Average GDP growth

for GCC states, 2010-15
Source: Oxford Economics
CONSUMER
STARS
OMAN 4.0%
Annual GDP growth

for world, 2010-15
5.45% 2.96%
THE VERDICT
Bahrain was the only

GCC country badly
hit during the Arab
Spring. Tourism was
severely affected, and
consequently retail.
But now things are
relatively stable and the
economy is responding
well, with investor
condence returning.
Anurag Bajpai, Partner,
KPMG in the UAE
14
KUWAIT
OMAN
QATAR
SAUDI ARABIA
UAE
Launched in 2010, Kuwaits

ve-year plan to strengthen its
private sector, most notably
with major infrastructural
investment, seems to be
working: GDP is growing by
around 6%. Strong retail sales
are being fueled by urbanization
and a big inux offoreign
workers from Iraq.
With a relatively small

population of just over three
million, Oman has a lower
GDP per capita (US$26,000)
than some neighbors, but
a large number of high
net worth individuals. The
concentration of wealth
has particularly attracted
luxury brands.
With the highest GDP per capita

in the world US$102,000 in
2012 Qatars global prole
keeps rising as it prepares to
host the 2022 FIFA World Cup
Finals. Current GDP growth
of 6.5% is set to continue as
some experts predict the states
population could double to
4million by 2020.
Despite a fall in oil production

this year, the National
Commercial Bank expects
GDP to rise in Saudi Arabia
by 4% in real terms in 2013.
The burgeoning middle class
is expected to drive growth.
The Oxford Business Report
estimates that the retail sector
accounts for 17% of GDP.
The GDP of the worlds

eighth-largest oil producer
grew 4.2% in 2012. Non-oil
GDP growth is 3.1%, as
tourism booms. Dubai is
second only to London in real
estate consultancy CBREs
rankings of global retailer
presence. Dubai Mall attracts
35 million visitors a year.
Retail sales are forecast to

grow by US$4bn from 2011
to 2015. GDP per capita in
Kuwait is circa US$40,000.
Global brands are popular,
particularly fashion, and
young people are splashing
out on electronics. Two new
malls will add 2.4 million sqft
of retail space.
The capital, Muscat, is

driving change in Omans
retail sector. New projects,
such as the Muscat Grand
Mall and Mustafa Sultan
complex, should attract
global retailers. Consumer
spending power should
increase, driven by more
tourists and expats.
Growing afuence, expat

numbers and tourism are
driving growth, as will
Qatars new airport. The
healthy 3,200 sqft of retail
space per 1,000 people is set
to rise in
the run
up to the
World Cup.
One of the Gulfs fastest

growing retail markets,
Saudi Arabia will benet
from the arrival of around
1.7 million new consumers
over the next ve years.
Retail oor space has grown
rapidly, increasing by 80% in
Jeddah alone since 2005.
The UAEs free-market

economy makes it one of
the easiest Gulf states to
do business in its often
used as a test bed for
retailers new to the region.
Clothing sales in the UAE
and Saudi Arabia are
strong, expected to exceed
US$14bn this year.
Kuwaits censorship laws

have deterred certain retailers
of books, lms, records and
clothing. Virgin Megastore and
Dubai-based record distributor
Music Master withdrew in
2012. Of greater concern is a
political crisis which has led to
parliament being dissolved six
times since 2006.
Oman is seen as a stable rather

than spectacular opportunity for
retailers. The economy keeps
growing and consumer
condence is stable, but malls
and supermarkets arent
expanding as fast as elsewhere
in the Gulf possibly because
the economy is small and GDP
per capita relatively low.
Projected high infrastructure,

housing and retail-space growth
in Qatar means its population
and economy need to grow by
over 5% a year, say nancial
experts. The economy needs
to become less dependent on
energy. Theres a fear the retail
property market could overheat
if not carefully managed.
Youth unemployment in Saudi

Arabia is around 30%, one
of the highest in the world.
There are lingering concerns
over the countrys supply
chain infrastructure, which
government plans to invest
US$110bn in the next ve years
may help to address.
A dearth of retail space in

Dubai has led to high rents.
This will be eased by new retail
projects, such as Nakheel Mall
on the Palm, which will provide
an extra 1 million sqft of space
by 2016. High-street stores
face a threat from online sales,
tipped to rise from US$280m
today to US$1bn by 2020.
Long-established Kuwaiti
Al Ostoura fashion boutique
has more than 40 stores
occupying over 107,600 sqft
of retail space under its
Al Ostoura or Limelight
fascia. The chain also runs
stores under the names of
fashion designers whose
clothing it stocks.
Established in 1870,
Khimji Ramdas
runs more than
50 Khimjis Mart
supermarkets
across Oman and
manages a chain
of Welfare Markets
for the police.
Qatar-based supermarket
and hypermarket chain Al
Meera runs 33 stores
and six more are
in the pipeline. It is
also developing a
network of stores
with French retailer
Casino under the
Gant fascia.
Fawaz A Alhokair & Co

(known locally as Alhokair
Fashion Retail) trades off
its strong local market
knowledge to forge franchise
partnerships with global
fashion brands such
as Gap, Banana Republic
and Zara.
Founded in 1974, Jumbo

Electronics is one of the
UAEs leading
consumer
electronics rms,
with 27 stores and
nine service centers,
selling such brands
as Apple, Dyson,
Lenovo and Sony.
Kuwait hosts many Western

brands, including IKEA,
Victorias Secret, Prada,
Mothercare and American
Eagle
Outtters.
EMKE Group
has opened
hypermarkets
in the country.
LuLu, which is part of

the EMKE Group, has
a strong hypermarket
network across Oman.
Major retailers LVMH,
Marks & Spencer and
LOccitane have all
had a presence in the
Gulf state since 2007.
Tex-Mex brand California Tortilla

opened a store in Qatars capital
Doha this year. Marks and
Spencer has two shops there.
Al Meera runs three WHSmith
outlets eight are planned for
the new Doha airport. Fashion
brand By Malene Birger has
recently opened stores in
the capital.
Toys R Us operates 11 stores

in Saudi Arabia under a licensing
agreement, and plans to open
two more this year. In August,
the retailer unveiled plans for
a new 377,000 sqft distribution
center that will be the hub
for its ve-year
regional
growth plan.
Fashion brands Crazy 8,

George and Calzedonia
launched in Dubai this year,
Abercrombie &
Fitch will follow suit
in 2014 while LVMH is
investing in a new mega
fashion mall. Fashion retailer
M&Co plans to have 12
stores in the UAE by 2018.
Despite little economic

diversication and a big
reliance on oil, Kuwait
has a mature retail sector
and high penetration of
multi-brand and fashion
stores, including many
Kuwaiti retailers. But
low tourism means less
growth potential than
other states.
There have been some

major moves in terms
of retail penetration,
with more modern and
well-established retail
brands increasing their
presence in Oman, as
are supermarkets. As
a result, the economy
is becoming far less
fragmented.
Qatar has seen rapid

development of many
shopping malls featuring
high-end retailers, along
with the penetration
of a lot of established
supermarket brands
due to the big potential
spending power of
the rapidly growing
population.
GDP per capita is lower

than its neighbours,
reected in Saudi Arabias
retail brands, while the
market is fragmented,
focused on the main
cities. But with entry for
foreign brands easing and
60% of the population
under 30, the country has
strong growth potential.
Seen as a safe haven,

the UAEs retail sector
is being boosted by
tourism and investment
from Saudi Arabia
and Qatar. The next
evolution is likely to
be homegrown UAE
retail brands expanding
across the GCC and
beyond.
Neeraj Dassani, Partner,

KPMG in the UAE

KPMG in the UAE

KPMG in the UAE

KPMG in the UAE

KPMG in the UAE
15
ConsumerCurrents 16
Reshoring
Productions
coming home
Reshoring is more than a buzzword. There is a strong case for
consumer goods companies to rethink their manufacturing
strategy as long as they drill down to the detail
enai Sports creates 100%

sustainable clothing. Like so many
others in the labor-intensive fashion
industry, this American company
started off manufacturing abroad. Hats that
cost 45 cents to make and T-shirts that came
in at under $1/piece were a sirens song for
an upstart apparel company, says Kenai
founder Charlie Bogoian.
With cheap oil, low labor costs in
many developing countries and new
technologies making it easier to manage
these relationships, offshoring has been
the strategy of choice for many businesses
for more than a decade, especially since
China joined the World Trade Organization
in 2001. Yet in the past two years, moving

manufacturing back home (reshoring), or to
other low-cost regions closer to key markets
(near-shoring), have become fashionable.
Bogoians experience helps explain why.
With issues like unreliable communication
and extended lead times, customer
satisfaction was quickly waning, he says.
Avoidable mistakes prevented us from
realizing the cost advantages we anticipated.
Those problems were coupled with an overall
lack of accountability that showed little sign
of changing. Kenais leadership decided the
best way to fix those problems was to return
production to the US.
In a survey published last year, the
Massachusetts Institute of Technology found
that 33.6% of the 340 respondents were
considering bringing manufacturing back to
the US, with 15.3% definitely planning to
reshore. Some American businesses have
led the charge. Tailors Brooks Brothers, for
example, moved 70% of its suit production
to a plant in Haverhill, Massachusetts, rather
than offshoring production to Thailand.
Easybike Group, which makes electric
bicycles, is moving production from China
to Saint-L in Normandy at the start of 2014
to benefit from government subsidies and
tax breaks, and to build on the Solex brands
French heritage.
Many companies coming home are
reaping the rewards not just operationally,
but also in the marketplace. Homegrown
16
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
The rules of reshoring

Seven points to ponder when considering relocation
1. Dont just follow
the herd
Organizations may notice their
competitors reshoring production
and increasing their market shares,
says Andrew Underwood, Head
ofSupply Chain at KPMG in the
UK.But this does not mean it
isright fortheir businesses. Any
movemustbe supported by
anassessment of all factors
associated with reshoring.
2. Challenge your
assumptions
Reshoring can help companies to exert more
control over their suppliers, and to rejuvenate
their supplier network. But reinventing supply
chains can be traumatic, disruptive and prove
more of a drain on resources than forecast.
Companies need to be robust about challenging
the case for moving manufacturing. Do your
gures still make sense if your assumptions
about quality control or reliability turn out to be
5% worse than forecast?
3. Weigh every cost

Less apparent or hidden expenses such as exchange rates, taxation, real estate, and
organizational overheads, which can have a big impact on prot must be considered.
The rationale for making

goods in China is more
about access than cost
products project such desirable values

as quality and sustainability because of a
shorter distribution network, while tapping
into consumers patriotic sentiment. Recent
research suggests that 76% of US shoppers
notice made in the USA labels. Last year,
Karen Kane dresses, blouses, and jackets
promoted with Made in the USA posters at
Dillards department store posted 15% higher
sales than similar non-promoted clothing.
When Jack Welsh was chief executive of
General Electric, he said the ideal strategy
for a global company would be to put every
factory it owned on a barge and oat it around
the world, taking advantage of short-term
changes in economies and exchange rates.
Reshoring, offshoring and nearshoring, or the
most efcient combination of the above, are
a more realistic way of maximizing growth
opportunities. Yet Boards need to consider the
big questions: What are the strategic goals?
Does a shift in manufacturing support the
strategy? Have we truly considered all costs?
Many businesses failed to assess the
costs associated with offshoring correctly,
with error margins of around 20% in some
cases, says Andrew Underwood, Head of
Supply Chain at KPMG in the UK. When
considering reshoring, the mistakes should
not be repeated.
With Underwoods advice in mind,
here are ve factors that every company
should consider before they recalibrate their
manufacturing strategies:
4. Consider your key markets

One of the strongest arguments against reshoring is market access. Many offshoring hubs
are fast-emerging economies with a burgeoning middle class. Youve got to think about
the markets where you are likely to see growth where you might regret pulling back,
says Underwood. If you follow the herd for short-term cost benets, you may later nd
these are exactly the places you want to be. Swedish white goods giant Electrolux, for
example, is still manufacturing in China and Thailand while closing plants in Australia,
Europe and North America, partly because it believes that many of its future customers
will be in Asias emerging markets.
5. Its not just about

the manufacturing
6. Dont ignore
sustainability
With recent research suggesting that by

2025 developing economies will account
for nearly 70% ofglobal demand for
manufactured goods, some
multinationals are taking a broader
long-term view, seeking a deeper local
presence in countries they previously
regarded as sources of cheap labor. One
Swiss corporate giant has moved on from
what it described as a cost arbitrage
strategy for countries such as China to an
in country for country approach that
encompasses not just manufacturing but
the location of product management and
R&D functions. This thinking can
persuade organizations it is better to stay
close to rapidly developing new markets.
Failing to consider social responsibility can

seriously damage your brand. Awareness
of sustainability means you might prefer
not to ship products long distances, says
Professor Ann Vereecke ofBelgiums
Vlerick Business School. Manufacturing
close to your markets makes environmental
sense. This will become increasingly
important ascarbon taxes rise.It will be
interesting tosee how Australias expansion
of the carbon tax
toencompass
thetransportation
sector impacts on
supply chain costs
when it comes
into force in 2014.
7. Is it wise to bet everything on one country?

Reshoring may look like a viable option, but do you have to manufacture all your goods in
asingle market? Manufacturing in different countries might reduce the risk of being caught
out by uctuations in consumer demand, political instability, natural disasters and exchange
rates. Offshoring and reshoring are not mutually exclusive.
17
ConsumerCurrents 16
Reshoring
Close for comfort?

Speed tomarket is
vital for fast-moving
consumer goods
retailers such as Zara
Cost analysis
The catalyst for most companies decisions
to offshore their manufacturing was cost,
driven by cheap labor. Yet in many emerging
economies, labor is more expensive than
it used to be. Better educated workers are
increasingly aware of their bargaining rights,
and low-skilled labor is becoming harder to
nd. Wages in China, for example, have risen
by 15 to 20% per year over the past four
years. In comparison, US salaries have fallen
by 2.2% since 2005.
The relentless automation of the
manufacturing process the International
Federation of Robotics predicts global robot
sales will rise by 2% to 162,000 units in
2013 has also meant that labor accounts for
a diminishing proportion of total cost. These
factors have prompted several manufacturers
to mull over reshoring.
But before taking the plunge and bringing
production home, its important to assess
how such a move would inuence costs
across the business, from exchange rates
and taxation to energy charges, organizational
overheads and distribution. After careful
consideration you may nd that taking only
a proportion of your manufacturing home
makes the best nancial sense.
Rather than pulling manufacturing out
of China altogether, for example, some
companies especially textile producers
are adding another production base
in a lower-cost Asian country, such as
Bangladesh, Cambodia, Indonesia, Malaysia,
the Philippines, Thailand or Vietnam.
To make the right decision, its crucial to
have an in-depth understanding of the exact
cost to serve across each line of product
The question that

every company
considering moving
production should ask
is: where are
ourcustomers?
and channel in your business. Much of the
necessary information tends to be available
within organizations enterprise resource
planning (ERP) systems, yet too many
companies struggle to use this data to run
effective programs and projects.
Customer centric
The question every company considering
reshoring should ask is: where are our
customers? This was a key factor in Karen
Kanemoving most of its manufacturing back
tothe US and Mexico.
If products are mainly exported
especially to markets close to existing
production facilities reshoring could
lengthen the supply chain, ramp up
distribution costs and lengthen the time
taken to reach the market. Do you really
want to cease or cut production in a market
like China where, by 2022, 630 million
middle-class consumers could provide a
huge potential audience for your products?
As Professor Ann Vereecke of Belgiums
Vlerick Business School says: If you want
tosell in China, you had better be in China. To

compete you must use the same weapons
as those already in that market.
Youve got to think about the markets
where you are likely to see growth
where you might regret pulling back, says
Underwood. If you follow the herd for shortterm cost benets, you may nd laterthat
these are exactly the places youwant to be.
Another option is to nearshore: to
locate facilities in a country close to the
companys base and/or key markets. Swedish
furniture manufacturer IKEA is planning to
start production in the US to cut delivery
costs, while some British manufacturers
are choosing to nearshore in Poland and
the Czech Republic. For American rms,
Latin America (especially Mexico) is proving
particularly appealing. Siemens is focusing on
Indonesia and Thailand as it seeks to expand
in these emerging markets.
Speed to market is vital for producers
of fast-moving consumer goods (FMCG).
Spanish retailer Zaras fashion-forward
reputation rests on how quickly it gets
designs from the drawing board to stores:
just two weeks for the 60% of products
it manufactures in Europe. The remaining
basics items such as plain T-shirts whose
demand is less inuenced by shifting
trends are made in Asian and African
countries where the benets of cheaper
laboroutweigh shorter lead times.
There is some evidence that consumers
spending habits have become more stopstart and less predictable since the global
nancial crisis, prompting companies to
seek shorter, more exible supply chains.
Technology has also driven this behavior as
18
customers test out new channels, some of

which make demandmore volatile, such as
the rise inreturns stemming from customers
over-ordering online to try out products.
Hazard warning
Organizations are waking up to the
challenges of offshore manufacturing in
distant parts of the world and the risks,
says Underwood. Many CFOs believe that
reshoring helps them manage these risks
more effectively. Relying on one region can
be dangerous. The 2011 tsunami in Japan
disrupted the supply chains of many of the
worlds electronics manufacturers, while
2013 oods in Thailand shut an area that
makes almost half the worlds disk drives.
Yet reshoring production has its own
hazards. The changeover period will cause
instability in the supply chain and could
disrupt orders. A manufacturers tier-one,
-two and -three suppliers may not decide
to follow, meaning the component supply
chain lengthens and becomes more exposed
to risk. The other option is to source new
suppliers, which can be very time-consuming
and has pitfalls of its own, such as no shared
history, contracts that may be misunderstood
and differing expectations of service.
Nor should companies assume aplentiful
supply of skilled labor in home markets. A
2012 survey by recruitment rm Manpower
found that 81% of Japanese companies had
struggled to recruit qualied technicians and
engineers to ll vacancies. A shortage of
appropriate labor could harm product quality.
Reputation management
Manufacturing thousands of miles away can
have a profound inuence on your reputation,
especially if something goes wrong. Its not
just the plant at the end of your supply chain:
your brand is out there, too.
KPMG research has found that many
global manufacturers had little condence in
their supplier risk audits, while many have
looked to localize/regionalize supply chains
to manage their risks better. Such concern
was brought into tragic focus when atextile
factory in Bangladesh collapsed in April 2013
killing more than 1,100 workers. One major
UK clothing retailer, which used the plant,
featured in news headlines for all the wrong
reasons when protesters waved placards
outside its agship store in London. Another

European brand that denied using the factory
had to change its statement after its labels
were photographed in the rubble.
All the rms implicated in the Dhaka
incident have vowed to get a clearer view of
their supply chains, but Underwood says this
is remedial and reactive. A good chunk of
people are not doing enough due diligence.
The importance of R&D

Companies should not underestimate
the synergy between manufacturing and
R&D. The quality of products, your ability
to innovate before your rivals, and how
quickly you can bring goods to market are
all at stake. There is an appetite to bring
manufacturing and R&D closer together,
says Underwood, but this doesnt mean
all production facilities will necessarily
be reshored. PZ Cussons, a Londonlisted healthcare and consumer goods
manufacturer, produces soap bars in Eastern
Europe, but reshored liquid soap to Salford,
near Manchester, because it has greater
value added and demands more R&D.
You also need to gauge how
straightforward your manufacturing process
is. The simpler it is, the easier you might
nd it to manufacture some distance from
your R&D. If the process is complex, it may
be safer and more efcient to keep itnear
R&D. The US is home to a third of the
worlds high-tech researchers, which is why
so many rms whose revenue is driven by
R&Dare based there.
No tipping point yet
US 1,856
UK 231
Republic of Korea 279
Japan 1,084
Italy 308
India 226
Germany 614
France 268
China 1,923
Partner, Management
Consulting, Supply
Chain Management,
KPMG in the UK
andrew.underwood
@kpmg.co.uk
Reshoring is in vogue but Underwood says

we have yet to reach a tipping point.
Market instability means many companies
are reluctant to move production at all; 97%
of respondents to Area Developments 2012
Annual Corporate Survey did not expect to
move a foreign facility back to the US, while
98% didnt expect to relocate a domestic
production plant off shore.
Youve got to think about likely growth
markets, says Underwood. Making
aquick, trend-led decision purely on cost
isvery dangerous. You must carry out a full,
detailed assessment of all associated costs
and factors before making any changes.
Some of the
desired benets
International comparisons of
of near-shoring
increased
manufacturing output 2010 (US$ billion)
agility, shorter
lead times
and improved
information
ow can be
achieved in an
existing company
structure by
arenewed focus
on operational
and distribution
efciency.
Brazil 282
Andrew
Underwood
The key questions

Will moving production cost or save
you money?
This is the first question every Board asks but
they dont always come up with the right
answer. You cant just calculate wages and
shipping costs. The aspects that are too often
ignored or not investigated properly are
inventory carrying costs, quality, speed of
communication, government policy, impact on
innovation, and travel costs. If these arent
considered, you cant get a true picture.
Will the move enhance or damage
your brand?
Making products at home may help you
market the quality of your products but you
have to deliver. Similarly, unless you keep
close control of your supply chain, if you let
cost override every other factor in your
manufacturing strategy, you run the risk of
aBangladesh-style disaster.
How much confidence do you have in your
supply chain?
The horsemeat scandal in the UK led some
supermarkets to source their products from
close to home. Horsemeat was an especially
emotive issue but the wider point remains:
ifyou have a very complex global supply
chain, you run the risk of similar quality
issues. The other concern for companies is
resilience: some supply chains are becoming
so interdependent that it is hard to isolate
them from the impact of events such as the
earthquake in Japan.
How significant are your logistics costs?
Cheap oil was the magic ingredient that
made many long supply chains work a
decade ago. That era is over, although some
manufacturers have been attracted to the
US by headlines suggesting the shale gas
boom will slash industrial energy costs.
Some sectors look set to gain more than
others but, in general, it is important that
companies should not exaggerate the
competitive benefit to be derived from
lower energy prices.
Wherever you manufacture, how easy is
it to do business there?
This is one factor that is too often
overlooked, even though the World Bank
runs an authoritative global competitiveness
index. Torsten Slok, Chief International
Economist at Deutsche Bank Securities,
says: If you ask how many days does it
take to open a business, to get electricity,
things like that, you realize there are a lot of
reasons why the business environment is
much better in the US than in places where
labor happens to be really cheap.
Source: UNNationalAccountsMainAggregatesDatabase
19
Len Sauers,
Procter & Gambles
Vice President,
Global Sustainability
FACT FILE
Name Procter & Gamble
Founded 1837, USA
Headquarters Cincinnati, USA
Chairperson AG Laey
Website www.pg.com
Sustainable
strategy
Procter & Gambles rigorous
goals to minimize its carbon
footprint are good for the
planet and for the FMCG
giants bottom line
en Sauers, the Vice President for Global

Sustainability at Procter & Gamble, has
a job on his hands. He leads an
organization that has to nd ways to:
power its manufacturing plants with 100%
renewable energy; use 100% renewable
materials in its products; ensure no consumer
waste goes to landll; and deliver products
that have a smaller carbon footprint.
Procter & Gamble is a US$84 billion
business with 140 factories worldwide.
It has 25 brands that generate over a billion
dollars in annual sales. And it tasks its
workforce with innovating and acting to make
every day better for people and the planet.
Sustainability is a priority for Procter &
Gamble, even in uncertain economic times.
Its sustainability program has brought
US$1 billion to the bottom line over the past
10 years through smart use of manufacturing
At P&G there
is a directive
that sustainability
be a part of
everyones job
waste materials. For example, the company
has sold diaper manufacturing waste for use
in cement products. Currently, 50 of the
multinationals manufacturing sites send no
waste to landll, while 96% of the raw
materials leave in its products. The rest is
either recycled (3%) or reused. The roof tiles at
some of its sites are made from paper refuse.
Sauers, who has a PhD in toxicology,
began his Procter & Gamble career 26 years
ago as a toxicologist. He has since taken on
roles of increasing responsibility in the areas
of biotechnology, human and environmental
toxicology, and regulatory affairs. P&G has
always seen value in having someone with
a technical background lead our sustainability
work, he says, so when the job opened up,
I had the right skill set to step in.
Companies that prioritize sustainability
understand the challenges and the business
benets. Business leaders like Sauers are
accountable for outcomes, whether meeting
greenhouse gas reduction targets or
managing waste water. Focusing on
sustainability can drive business success
because it can inspire companies to devise
new solutions, he says. For instance,
reducing its blades and razors packaging saves
Proctor & Gamble over US$1 million annually,
while making the products easier to open.
Sustainability issues can still be a hard
sell at board level, but they are increasingly
becoming a core component of doing
business. Sustainability investments must
deliver the same return as other business
units, Sauers says. Companies leading the
way on sustainability issues seem to have
one trait in common: they integrate the
nancial, social and environmental risks and
opportunities around sustainability as they
would any other aspect of their business
that is, without special treatment.
Only four years ago, Procter & Gamble
faced rising commodity prices and slow
growth in some developed markets.
Yetsustainability was still seen as a way
tobuild protability. The company had
begun to put a price on waste and
greenhouse gas emissions attributable
to products, from production to use by
consumers. Its environmental vision added
value and boosted the bottom line. These
goals were incorporated into Procter &
Gambles annualUS$2 billion R&D budget,
driving environmental innovation.
What is Procter & Gambles secret?
20
ConsumerCurrents 16
Case study Procter & Gamble
All company leaders are involved in

sustainability decisions, says Sauers,
and there is a directive that sustainability
be a part of everyones job.
He doesnt get a free pass on his ideas.
When he sought to replace foam-based
packaging with a renewable material, such
as haircare brand Pantenes bio-resin bottle,
he met with nance to explain why it made
sense to switch to something that cost
20 cents more per pound. The time frame
for return on investments is a stumbling block
sustainability ofcers must overcome. You
have to go in with a business case, he says.
I want us to move from a petroleum product
to renewables because they use fewer
greenhouse gas emissions in their production.
As laudable as that goal sounds, it isnt
enough to swing the board. Sauers also has
to put numbers on business risk and brand
value, something nance people understand.
Renewable materials can give you more
exibility in materials supply, he says. It can
be this factor that a consumer is responsive to
and that drives a purchase decision.
Procter & Gambles sustainability strategy
is ambitious. Sometimes fullling it is a
matter of detail. When managers studied the
use of laundry detergent, they found that the
environmental impacts differed between
the developed and developing economies.
If I think of the developed world and I
look at the laundry sector, energy is the main
sustainability theme. Hot water washing of
clothes accounts for 4% of the total energy
use in the United States, says Sauers.
If we look at the developing world, under
laundry, water drives the footprint.
This analysis has driven the development
of products such as Downy Single Rinse, in
which one rinse provides the same
performance as the traditional three-stage
process. In regions where household
water can be several hours walk
away, the product also saves time
and effort.
One of Procter &
Gambles key sustainable
goals is reducing the
environmental impact
of its products
5 key steps toa greener Procter & Gamble*
$52 billion
68% reduction in absolute waste in last ve years
14% drop in water use
8% fall in energy consumption
11% cut in carbon dioxide emissions per unit of production
sales of sustainable innovation products
(US$2 billion over target)
*Achieved from 2007 to 2012
As Sauers works on attaining Procter &

Gambles 12 new 2020 goals, he says he has
come to realise thatlong-term partnerships
are integral tosuccess. In 2013, the company
joined forceswith companies including Heinz
andNike in the Plant PET Technology
Collaborative to develop plant-based
plastics.The aim of the group is to replace
conventional plastic made from fossil fuels
with plant-based versions, which would
signicantly reduce the environmental
impactof plastics manufacture.
Although businesses such as Alcoa,
Google and Procter & Gamble have embraced
sustainability through investments and
decision-making, many companies in the
Standard & Poors 500 lag behind on such
efforts. Luckily, more rms are moving in the
right direction by creating alliances and
making sustainability part of everyones job.
The investments Procter & Gamble has
made, on Sauers watch, prove that being
good for the planet can pay dividends.
Thats one win-win CFOs would
be foolish to ignore.
Vincent Neate,
Head of climate
change and
sustainability at
KPMG in the UK
Make a business case for sustainability

How easy it is to do this depends on the
sector and the sustainability issue. For
Procter & Gamble, making a business case
for saving energy and water wasnt too
difficult, because efficiency measures save
resources and money.
There are more complex issues, such as
providing healthcare in developing countries.
Convincing someone that teaching about
cleanliness and health activities is a good
investment is a life-changing thing to do.
Sustainability can improve a firms image
Companies and brands that have fallen
foul of sustainability issues have had their
reputations badly damaged. Undertaking
a sustainability program is, therefore,
aboutgetting things consistently right,
and ensuring your business activities
wont harm your brands reputation.
Believe in sustainability and your
strategy will succeed
Any sustainability program must be driven by
your companys desire to actually do good, not
just appear to be doing so. If you believe
in sustainability, make it integral to everything
you do. Then theres no risk of you sacrificing
sustainability principles when things get tough.
Measure the difference you are making
Although its easy for companies to measure
inputs, activities and outputs, its
significantly harder to measure what the
impact of a sustainability program is on the
local community. That really is the Holy Grail
of sustainability programs: to measure and
understand the positive impact your
activities are having.
21
ConsumerCurrents 16
Lessons from other industries
BOTTOM LINE
1 Be strategically vigilant
The internet creates new products
and services, kills existing ones
and accelerates the pace of
change. In IT, its a case of survival
of the fastest that may soon be
true for music and retail. CEOs
must look ahead, be strategically
nimble, and ready to innovate
with new business models.
2 Weigh risk and reward

When transformational change
beckons, it can be easier to
quantify likely losses than potential
revenue from completely new
products and services. The
winning companies will be those
whose goals are not impeded by
alegacy mindset.
3 Put the customer rst
Moby: musician,
producer and
open-source pioneer
Remaking music
With the internet poised to transform retail, the record labels
experience of the digital revolution could well prove instructive
he most intriguing aspect of Mobys

new album Innocents isnt the music,
its the fact that the musician credited
with helping bring electronica to the musical
mainstream has open-sourced the drum,
guitar and keyboard parts so fans can remix
his songs. So far, Mobys bundle of music
has been downloaded two million times from
BitTorrent and 21,000 fans have remixed his
music to suit their personal taste.
Innocents is the culmination of a
revolution that started in 1979 when Sony
launched the Walkman portable cassette
player. The success of this device and the
CD version launched in 1984 proved that
consumers were willing to pay to play music
where and when they wanted to, integrating
their favorite songs into their everyday lives.
Yet this revolution had limits. Even with the
Walkman, music still had to take aphysical
form (cassette or CD), be bought from a store
principally in a format (the album) that was
protable for the labels and the CD player,
though portable, was still hefty.
The internet changed all that. With digital
les, physical products were a choice, not a

necessity. Artists could circumvent record
labels by distributing music from their
websites as Radiohead did, selling 1.25 million
copies of their album, In Rainbows, this way.
The major labels, having invested millions
in the 1980s in digitizing their music for CDs,
initially saw the internet as a threat, rather
than an opportunity. Their business model
had been built on revenues generated by the
album format. Millions of consumers still
liked albums, yet many others preferred to
download, share or rent music and were
happier paying 99 cents for a song than $20
for an album with a few llers.
Anxious not to cannibalize their existing
business, the labels allowed outsiders such
as Napster and Apple to drive this digital
revolution. Then in 2000, global recorded
music revenues began to decline and kept
declining until 2012 when they grew, by
0.3%, to US$16.5bn.
To be fair to the labels, the disruptive
power of the internet was not obvious. The
major known unknowns included: how
Are you providing the service

your customers need or one
that is convenient for you to offer?
The labels past focus on
traditional formats and outlets
letnew entrants flourish. Many
retailers are struggling to create
amulti-channel strategy that
letsconsumers buy what they
want, when, where and how
theychoose.
severely it would hurt traditional music

retailers, what kind of consolidation it might
trigger among the labels, and how artists
would view this revolution. And despite
repeated predictions of the CDs demise,
CDs still accounted for 57% of the industrys
global revenue in 2012, compared to 35% for
digital, the fastest-growing sector.
Like many large companies forced to
reinvent their business in a hurry, music
labels initially found change easier to
articulate than to execute. Dening a new
strategy was tough. Aligning leaders and
divisions behind that strategy, measuring
and reacting to success or failure and
changing behavior was even harder.
Music is now everywhere and the labels
are proting from new revenue streams.
Some have invested in Spotify, aservice with
six million who subscribe to stream music
rather than purchase it. Sony and Universal
Music partly own Vevo, the biggest music
video outlet on YouTube, on which Miley
Cyruss latest video generated a record
19.3 million views within 24 hours. Some
have also negotiated deals to take a cut of
their artists total income, including revenue
from merchandizingand live performances.
Mobys fans can remix his album for free,
but if his innovation succeeds, artists,
companies like BitTorrent and labels could
charge consumers to personalize the music
they love. Rock and roll is an unlikely open
sourcing pioneer but such initiatives suggest
the industry is rediscovering its mojo.
22
ConsumerCurrents 16
Insights
KPMG member rms provide a wide range of studies, analyses
and insights for the Retail and Food, Drink and Consumer
Goods (FDCG) industries. For more information, please visit
www.kpmg.com/retail or www.kpmg.com/FDCG.
Other publications
Agribusiness Agenda 2013

The series tackles the big
issues facing agribusiness
in the areas of biosecurity,
markets, community,
water, regulation, people,
the meat sector and
sustainability.
Intellectual Property
RightsStudy
This report examines
current consumer
attitudes in Hong Kong
and Macau towards the
purchasing of
counterfeit goods.
Consumer Executive
Top of Mind Survey 2013
This survey identies
thetop priorities for
consumer executives in
the areas of growth,
operations, responsibility
and regulation.
Focus on Consumer Goods

This UK multimedia
magazine looks at some of
the greatest threats to the
Consumer Goods sector,
including the impact of
harmonization on
innovation and tactics for
beating cyber crime.
kpmg.com/app
23
kpmg.com
Contacts
Global contacts
Willy Kruh
Global Chair, Consumer Markets
+1 416 777 8710
wkruh@kpmg.ca
KPMG International
Dan Coonan
Global Executive, Consumer Markets
+44 20 7694 1781
daniel.coonan@kpmg.co.uk
KPMG International
Mark Larson
Global Head of Retail
+1 502 562 5680
mlarson@kpmg.com
KPMG International
Elaine Pratt
Global Marketing, Consumer Markets
+1 416 777 8195
epratt@kpmg.ca
KPMG International
Missed an
issue of
Consumer
Currents?

Regional contacts
Patrick W. Dolan
Americas
+1 312 665 2311
patrickdolan@kpmg.com
KPMG in the US
Nick Debnam
Asia Pacic Consumer Markets
+852 2978 8283
nick.debnam@kpmg.com.hk
KPMG in China
John Morris
Europe, Middle East and Africa
+44 20 7311 8522
john.morris@kpmg.co.uk
KPMG in the UK
George Svinos
Asia Pacic Retail
+61 (3) 9288 6128
gsvinos@kpmg.com.au
KPMG in Australia

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Consumer
Currents
Issue 12
Issues driving consumer organizations
How
much?
The politics of pricing and how
consumers are ghting back
p6 Li & Fung
The Chinese supply
chain giant on the
future of low-cost
manufacturing
p10 Sustainability
ainability
Why smart
rt
companiess
are reporting
ing
their green
n gains
2011 KPMG International Cooperative (KPMG International) KPMG International provides no client services and is a Swiss entity with which the independent
dependent member
Mark Sievers
+49 (40) 32015 5840
marksievers@kpmg.com
KPMG in Germany

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Nutraceuticals
Are food g
groups
ready to take
on the
t might
of big pharma?
rms of the KPMG network

ne
are afliated
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Photography and illustration: Procter & Gamble, Lego, Bloomberg/Getty Images, Peter Kramer/NBC/
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Consumer

Issues driving consumer organizations

The prot behind data analytics

he issue that should be at the top of every boardroom

tracks are downloaded

of goods are sold

comments are pasted on Facebook

4 Off the shelf

16 Productions coming home or is it?

22 Lessons from other industries

Off the shelf

ven retailers and suppliers who strive

through which shoppers can rate 13,000

enables it to launch products faster and

The rise of the ROBO shopper

NRF president and CEO

n a wintry morning in Washington,

Especially for our global readers, please

The NRFs This Is Retail campaign has

Shay is rallying for

world. Rather than have to lug around a

What recent innovations in the retail

about what growth is going to be and,

US RETAIL BY THE NUMBERS

What important developments in world

ith the amount of stored

In the retail industry, which has invested

just about driving prots but helping monitor

attributes are rated on every

loyalty program memberships are

location-based payments are made

RFID tags were in circulation

internet-connected devices will exist in the world

Sources: IDC, Radicati Group, TR Research, Pow Internet, LoyaltyOne,

searches are made on Google

tracks are downloaded

of goods are sold

supportive process, policies and structures

Sources: Noble Marketing,

There is a lot of hype around big

Burberry delivers detailed

Trial, error and strategy

BIG DATA: THE BIG CHALLENGES

Turning left-over data into valuable

important that the scarce thing is the

Increasing the flow of value-added data

Successful companies make analytics

With a combined GDP of US$1.37trn, this region is one of

Recent political unrest has

The retail market is tough

Social unrest, which erupted in

SAUDI ARABIA 5.7%

Annual GDP growth

Originally launched in 1913

Waitrose now has four

Average GDP growth

Source: Oxford Economics

Annual GDP growth

Bahrain was the only