In the wake of the dual impacts of the COVID-19 pandemic and Brexit, both the risk and opportunity landscapes for the retail sector have evolved rapidly. Yet, despite the recent challenges, businesses are still targeting growth over the coming months and years. And the initial signs are good. The Financial Times recently reported that retail sales between April and June 2021 increased 10.4 per cent compared with the same period in 2019, the fastest rate since records began. Similarly, Barclaycard reported an 11 per cent increase in consumer spending in June 2021, compared to the same period in 2019. Now, with Covid-related restrictions lifted on 19 July, the retail sector can hopefully continue the trend, both in physical stores, and also digitally.
One of the lasting effects of the pandemic is likely to be that it necessitated an acceleration in how, and how quickly, retailers embraced digitalisation. Rather than being a short-term ‘fix’, an increased emphasis on digitisation in the retail sector looks set to be a fundamental trend: retail’s ‘new normal’.
Below, and following Deloitte’s recent consumer growth campaign, Deloitte’s Legal Advisory specialists examine how retailers can utilise digitisation at every stage of the value chain to rethink their businesses for the post-pandemic world, as well as the associated legal considerations.
Rethink your IT and online infrastructure
Cloud and hosting
As operations shift online and the boom in home working shows no sign of slowing, retail companies will need to have the right digital and data capabilities in place to cater to the ‘new normal’ consumer landscape.
Cloud computing allows retailers to meet increased online demand in the absence of a reliable high-street presence. It allows for high processing speeds for webpages and enables the leveraging of data to create actionable insights; thus improving the end-to-end customer experience.
Cloud computing’s scalability models have the potential to save retailers significant costs. However, it is important for retailers to select the right service for their circumstances. Cloud Service Providers are not a ‘one size fits all’. Retailers should consider carefully what service they need now, and going forward: Infrastructure as a Service, Platform as a Service, Software as a Service, and via which deployment models (e.g. public, private or hybrid cloud). Each option has its own pros and cons in terms of cost, efficiency, risk, and integration.
Retailers must also be conscious that cloud contracts can be difficult to negotiate. Many providers will insist on contracting on their standard terms unless the customer is willing to spend substantial sums on the service. These standard terms may limit the provider’s liability considerably, even in the event of a full service outage. They tend to offer limited quality assurances, favour unrestricted cross-border data flows, and give the bare minimum of security protections. Retailers should also consider obligations to customers and other third parties, and whether they can go “back to back” with these obligations, or whether they can bear the associated risk.
Website Terms and Internet Regulation
Data is a valuable asset in its own right. But whilst the opportunities represented by big data are now recognised, and seemingly endless, retail companies’ use of data analytics is being increasingly scrutinised by consumers. Media reporting on consumer rights issues and data breaches is partially responsible for consumers’ growing wariness, and a failure to honour these rights can cause serious reputational damage.
In addition, retailers who serve EU clients should prepare for the introduction of the Digital Services Act (DSA) and the Digital Markets Act (DMA). These proposed regulations create a framework of obligations which apply to intermediary service providers such as platform operators. These include increased consumer protections, regulation of advertising, protecting end users’ fundamental rights and promotion of competition. Very large digital platforms which have especially strong economic power and an entrenched market position will be categorised as “gatekeepers” for the purposes of the legislation. Such platforms will be subject to additional compliance requirements, with the aim of preventing market fragmentation, increasing competition and improving platform accountability and transparency. Retail companies, particularly those operating very large platforms, will equally see increased regulatory compliance obligations when it comes to registration, reporting, and auditing; and a requirement to cooperate with requests for access and scrutiny of online databases and APIs. The European Commission’s powers under the DMA are likely to be significantly increased, and fines for violations of the DMA and DSA will be substantial, possibly as high as 10% of global annual turnover for gatekeepers.
Test your advertising and platforms
The pandemic has exponentially accelerated the need for even the most traditional of retailers to fully embrace ‘digital’. The shuttering of brick and mortar stores, as nations locked down worldwide, put the onus firmly on exploiting online sales channels to mitigate losses and drive growth in the post-pandemic retail market. While the quick turnaround required to digitise retail businesses almost overnight may have been challenging, the need to increase online presence equally provides retailers with an opportunity to become more agile, sustainable and future-proof in the face of a market increasingly affected by external factors at a macro level.
But all this transformation brings with it legal considerations. As retailers produce more content online, and obtain more data than ever before, they must ensure compliance with all necessary laws and regulations. For example:
- Retailers looking to maximise the impact of targeted marketing by leveraging the huge amounts of data they process will have to ensure that any such processing is done within the constraints of data processing laws in the UK and (where relevant) the EU;
- Retailers increasing their digital marketing capabilities to exploit changing consumer habits, such as social media-based shopping, will face scrutiny from regulators such as the Advertising Standards Authority (ASA) and the Competition and Markets Authority (CMA). The ASA regularly bans online adverts appearing on a range of platforms for non-compliance with its advertising code. Actionable breaches include the use of misleading claims and attempts to disguise paid promotions. Similarly, the CMA has extensive powers to impose sanctions and is currently cracking down on unsubstantiated claims concerning sustainability; and
- Retailers must ensure that they have the right to use – and the ability to protect – all the content they post online. In a world of rapid content sharing, it’s easy to forget that images, music, videos and memes are all likely to be IP-protected. Retailers need to have a handle on what agreements and licences they need, with content creators and software developers, and regularly undertake IP portfolio and use reviews.
New platforms and routes to market breed new brands, trading names and logos. They also often result in the development of new functionality, as well as beautiful graphics and interfaces. Securing IP protection for these assets is crucial to keep competitors at bay. The scope for infringement and counterfeiting in the online space has increased in line with the explosion in the amount of content being shared online, meaning that these protections are essential. Digitisation has also brought new ways of monitoring and tackling infringements of IP, with artificial intelligence increasingly being used to identify and take action against dupes and counterfeits.
Review your distribution networks
Despite the growing shift to online operations, transporting retail goods will always involve engagement with real-world infrastructure. There is naturally an increased focus on shipping products directly to clients, in greater volumes. Meanwhile, consumers expect more from the online shopping experience: it must be easy, quick, but also, increasingly, environmentally friendly.
The prevalence of consumers sharing their experiences of their purchases on retailers’ websites and on social media (in the form of reviews, photos, unboxing videos, and even screenshots of interaction with customer service teams) only serves to emphasise the need for a positive customer experience. Fortunately, digitisation allows for the different moving parts of the value chain to become more aligned and communicate more easily. The sharing of data between each company involved in the manufacturing, sale and fulfilment process, via software solutions, can give consumers an increasingly seamless experience. However, whereas the customer experience can be closely regulated in-store, doing so throughout the online purchase experience may be more difficult. The involvement of third-party companies throughout the value chain leaves scope for things to go awry, and the retailer exposed. It is therefore important for retailers to go back to basics with their contracts and put in place protections to make sure they have the necessary recourse to the companies they partner with.
From a more positive perspective, the challenges presented by online shopping are, without doubt, driving innovation in the retail sector. New technologies deploying virtual reality and artificial intelligence, for example, which allow consumers to see how clothes or furniture would look on them or in their homes, or which learn what a consumer is going to need, and when, based on previous purchases, are among a host of new technologies aimed at improving the online purchase experience. However, these innovative and increasingly immersive technologies raise their own legal considerations, including the need to ensure that third party protections such as patents are not infringed, and that consumers’ sensitive personal information is processed in compliance with all relevant laws.
Unlike many other industries which have turned to digitisation to mitigate the effects of the pandemic, the business of retail remains rooted in goods, meaning that pivoting from a predominantly in-store offering to a largely digital one may not be as simple. However, digitisation offers retailers the opportunity to give their businesses a platform from which to excel in the ‘new normal’. And rather than reacting to the changes brought about by the pandemic with short-term thinking, retailers are likely to be better served embracing digitisation for the long term, provided they also pay due attention to the legal pillars of contract law, asset protection and compliance. Done right, strategic, as opposed to reactive, digitisation will leave retailers legally, commercially and technologically well-placed to not only survive but thrive in the new retail landscape.