In Brexit Britain Retail Will Be Mainly Online

When high street goods retailers call for increased taxes on e-commerce to subsidise their local business rates, you know their business models no longer make sense. Online retail sales now represent 17% of total retail sales in the UK, up from 5% in 2008. E-commerce is steadily taking over and UK consumers cannot afford to resist. Consumer debt is at its highest in history. So, add the rise in zero hours contracts with a Brexit headwind, and the shift to mainly online sales of goods should happen even faster. That in turn should boost the market for online sales more generally.

In typically populist fashion, all the usual suspects are blaming someone else. Tesco’s CEO has dubbed his plea for a 2% tax on any goods sold online an “Amazon tax”. He reckons this would raise a meagre £1.25bn but wants that spent on lowering the business rates for his physical stores. In other words, like newspapers, he doesn't make enough through his own online sales to subsidise his own under-performing bricks-and-mortar. 

Such a small sum will barely touch the sides within Tesco, yet it will increase all consumer prices for the ever-increasing volume of online sales. But the UK's over-indebted consumers simply can't afford that - and even if unemployment remains low, the number of zero hours contracts has tripled to account for a quarter of employment growth, and 2.8% of overall employment.

 

Similarly flawed is the UK Chancellor's populist "threat" that tech companies face a “digital services tax”.  It sounds good, but will be futile to protect UK offline retailers and simply raise consumer prices that won't be affordable.

The problem is high street retailers' failure to adapt to the long term trend of rising online sales. You can't blame that on the tax system. Taxes are something businesses have to factor into their planning, not the other way round. And taxes should be technology neutral, rather than making consumers and taxpayers subsidise legacy technology over innovative competition.

So, the sale of goods on the UK high street is doomed as we know it. But as they adapt or fade away, e-commerce for goods should boom. That will boost the market for directly related online services, such as point of sale finance, as well as the market for online services more generally.

The Way of The Green Thing

Wonderful.

Do the Green Thing.

"Distance" selling - secret rules exposed

I've been involved in helping people sell at a distance secretly now since lawyers were first told it was okay in a coded document (97/7/EC) leaked by the European Commission in 1997.

Now I see that two equally shadowy entities, OFT and TSS, are trying to let the cat out of the bag so that virtually anyone could comply.

What a pair of do-gooders.

They say that 66% of people selling remotely have never found the laws that require some bumf on their web sites, which could land them in hot water with local officials.

Well, don't think the official hot tub sessions will stop there, folks. There's a lot of regulation that has been released by the European Commission in code that only lawyers can read. Allegedly, because it helps create confidence in doing business across the length and breadth of the EU.

The Future of Money

Thanks to Blackbeltjones I recently had the privilege of discussing the Future of Money as part of a programme at the Royal College of Art in London.

Based on what I consider to be the relevant drivers of change, the need to solve significant consumer problems from the consumers' point of view and likely sources of resistance to change, I suggested that the innovative retail financial services of the future would tend to share the following characteristics:

1. The service is unlikely to be offered or facilitated by an entity that consumers perceive to be an “institution”;

2. The service solves the root cause of consumers’ critical need in the course of actual or desired activities, linking with trusted third parties to provide a comprehensive consumer experience;

3. The service leverages a shock amongst consumers who subsequently accept that the world has changed, yet helps them to embrace that change;

4. The service leaves day-to-day control of the management of money with the consumer;

5. The service improves rapidly with user collaboration, giving value beyond the facilitator;

6. The service will remain successful so long as the facilitator continues to invest in enhancing the service and meeting related consumer needs rather than seeking merely to enrich itself (i.e. preferring to meet the needs of stakeholders other than consumers);

7. The service is safe, easy to use, and involves communications that are fair, transparent (enabling ready comparison) and neither misleading nor patronising;

8. The service and its operator plays well with the regulators and public policy/opinion-formers.

More soon.

EU Regs Won't Catalyse Cross-border Markets

The European Commission's plans to regulate to create cross-border consumer markets will only limit innovation and growth. Faciliating solutions to more practical problems inhibiting the organic growth of markets would be more helpful.

The European Commission recently announced its decision to propose new EU consumer rules in an attempt to create cross-border retail markets in the EU. The member of the European Commission responsible for consumer policy, Mrs Meglena Kuneva, said:

“I am convinced that consumer policy is uniquely well-placed to help the EU rise to the twin... challenges of growth and jobs and reconnecting with its citizens... The Commission’s vision is to demonstrate by 2013 to all EU citizens that they can shop from anywhere in the EU, from a corner shop to a website, with confidence and equal protection. And we will also show to all retailers that they can sell anywhere on the basis of a single, simple set of rules.
We are a long way from those goals now…”

A long way indeed.

A study by the European Consumer Network on cross border complaints pointed to problems with delivery (46%) and defects or lack of conformity with description (25%) as the two main problems.

Furthermore, Eurobarometer discovered in October 2006 that while 27% of EU citizens shopped online in 2006, only 6% made a cross border purchase online. It also found that consumer perception is focused on more practical concerns: "... it is harder to resolve problems such as complaints, returns, price reductions, guarantees etc” (71%); “there is a greater risk of falling victim to a scam or fraud” (68%); “there is a greater chance of having delivery problems with goods or services” (66%); “there are more problems returning a product they bought at a distance within the "cooling-off" period” (65%). From a business standpoint, “the biggest perceived obstacle to cross-border trade is the insecurity of transactions (61%)… potential problems with resolving complaints (57%)… difficulties in ensuring after-sales service (55%) and extra delivery costs.” A further 43% of respondents cited language differences as an obstacle to cross-border trade. Such issues may point to problems with enforcement of existing laws and contracts, but not to any fresh regulatory opportunities.

Similarly, a May 2007 study by Civic Consulting reveals that efforts to construct a single European market for consumer credit by introducing a new consumer credit directive are flawed. According to the consumer organisations and national banking associations who were polled, “the main [non-regulatory] barriers hindering selling of consumer credit products in other EU Member States are different language and culture; consumers’ preference for national lenders; credit risk for lenders – no access to creditworthiness information; problems related to tax, employment practices etc.; difficulties to penetrate local market; different consumer demand in different Member States; lack of consumer confidence in a brand; differing stages of development of consumer credit; and lack of adequate marketing strategies.” The study concluded that “a single market for consumer credit cannot be expected to be created by harmonisation of legislation alone, and this is a long term rather than a short or medium term perspective.” As such, “the supply side of the market… does not expect increased demand and therefore economic growth from the proposal.”

In short, the European Commission is proposing a regulatory solution for problems that have no regulatory solution. And worse, for those of us who do share an ambition to create cross-border markets, is that, ironically, regulation in this area is likely to stifle innovation and constrain growth rather than promote it. As has been observed by Marsden et al. (2006) in connection with the reform of the TV Without Frontiers Directive, prescriptive regulation tends to cause markets “to develop towards more closed and concentrated structures”. This is because larger participants can afford compliance costs, lobbying efforts and have the bargaining strength to shift liability onto suppliers and consumers in a way that smaller market participants cannot – “hence, incumbents and regulated actors have incentives to drive up regulatory costs in other parts of the value chain”. Complex regulatory regimes may also either avert venture capital investment from attempted innovation in the regulated activity or ensure that it “will only flow to those companies considered to have the ability to ‘play a good game’ with the regulators”.

If the European Commission must play a role in creating cross-border retail markets, then it should help foster solutions to the real obstacles, bottom-up amongst market participants, not pose new ones.

How we view and use money

Simon Gleeson of Clifford Chance has written a very concerning overview of the shortcomings in the Financial Services Authority’s review of how the retail financial services that it regulates are distributed to consumers.

He suggests that the proposed three tiers of advice, coupled with EU-driven changes to the test of what is appropriate, will increase the cost of products, leaving the “mass market” with only the Sunday newspapers to help them invest. Which means they won’t.

To be fair, the FSA says it has an open mind on the proposals, and the initial consultation doesn’t end until December.

But the most troubling aspect of the review is that it proceeds from the perspective of whom and what the FSA regulates, and not in terms of how consumers want to use money. As consumers, we don’t think about who is regulating the different ways we use our money. We just expect it to be able to use it as we wish, without complex, artificial or costly barriers being placed in our way.

There is already very little focus on providing more usable, transparent and cost-effective financial services from the consumer's standpoint, because that would seriously impact bank profitability that is already under pressure. For example, according to Uswitch, figures for RBS Group, as at March 2007, showed that retail profits rose 1.5% (about 25% of group profits) against a rise of 14% in retail write-offs (69% of all write-offs).

Witness also how UK banks have actually gone to court to defend fees that consumers and regulators have long complained are too high; and their grudging agreement to speed up electronic payments, only in the face of competition inquiries.

Of course, over the past decade consumers have seized upon usable Internet technology to disrupt traditional supplier-determined experiences in travel, music, retailing, betting/bookmaking, games, telephony, TV and so on. Social lending and micro-finance are established elements of this rapidly evolving trend, which will surely reshape banking, insurance, asset management and pensions in due course - provided that regulation does not get in the way.

For a further catalyst, look no further than the current credit crisis. The inability of banks to understand who owes what to whom so that they can confidently lend to each other again is illustrative of how badly transparency is lacking. The savers' run on Northern Rock shows that consumer feel it too, and are prepared to act when they consider that someone is less than transparent about what is being done with their money.

So it is now more critical than ever that the FSA views the financial services market not from the perspective of the institutions and products that it regulates, but in terms of how consumers want to use their money transparently and cost-effectively, and what is needed to help them do just that.