The European Central Bank has declared in its wisdom that a glut of euro currency will enter usage in one fell swoop. Retailers will be in the front line, says Elaine Watson The stock market didn't collapse, aeroplanes didn't drop out of the sky and computer systems across the globe sailed smoothly into 2000. If most people greeted the dawn of the new millennium with the hangover from hell, IT departments around the world breathed a collective sigh of relief. Y2K had arrived and the millennium bug had failed to rear its ugly head. So, with this precedent, can we expect business as usual on e-day' as the 12 nations in the Eurozone get to grips with the new currency next year? And can businesses in the UK afford to do nothing while the government waits for the right moment to approach the sceptical British public on the issue? Recent research suggests there is no room for complacency. As January 1 2002 approaches, businesses in Belgium, Luxembourg, France, Germany, Spain, Portugal, the Netherlands, Finland, Italy, Austria, Greece and Ireland are beginning to realise a new set of notes and coins could prove a far more formidable opponent than the millennium bug. And it's not just IT chiefs who will be wringing their hands if things go pear shaped. Take one scenario. It's New Year's Day 2002 in Dublin. Everything is shut except local convenience stores. Armed with some small change and a crisp new 10 euro note withdrawn from an ATM that morning, you stagger into the corner shop, pick up a couple of packets of cigarettes and some Alka Seltzers and head for the checkout. The bill comes to 12.43 euros (IR£9.79). Still dazed and confused from last night's revelries, you hand over the 10 euro note, reach into your back pocket and try to work out if the IR£1.71 you have in change will cover the remaining 2.43 euro. Meanwhile the checkout assistant is wondering what to key into the till and a queue is building up behind you. Finally, incapable of the mental gymnastics required, you ditch the Alka Seltzers, pay for the cigarettes and make your exit. One lost sale. Probably nothing that a bit of staff training couldn't handle, but a stark reminder that it's not just computer systems that need to be prepared to deal with the new currency. "Y2K was an IT issue," says Cap Gemini, Ernst & Young director Nick Gill. "The euro is a business problem with IT implications. The problem is that the people charged with looking at it are the same ones who dealt with Y2K. And that demonstrates a certain narrowness of thinking about the issue." NCR euro programme manager Simon Robinson concurs: "The technical side is relatively easy." A more pressing concern for retailers is ensuring they don't lose market share to their competitors by making things difficult for the consumer in the early weeks of 2002. Back in 1998, pan European retail lobby group Eurocommerce warned the European Central Bank: "The European retail industry will be in the front line of EMU. The sector's ability to make a smooth changeover will play a key part in shaping consumer acceptance, and consequently in determining the overall success of the euro. If, at the beginning of 2002, consumers feel lost when they make their first transactions in the euro, the entire economy will slow down." Because the central bank will not allow mass distribution of the new currency before January next year, the vast majority of the 14 billion notes and 50 billion coins to enter the eurozone will be put into circulation in the first two weeks of 2002. Retailers will play an instrumental part in this process by accepting payments in both legacy currency and euro for a limited transition period ­ two months or less ­ but only giving change in euros. When that period is over, only the euro will be accepted. In practice, this means retailers will have to ensure cash handling and back office equipment can handle two currencies at once, and buy in vast quantities of the new currency with all the attendant security implications, in order to get through the January sales. In 1999, Eurocommerce issued a second warning: "If consumers have no euro notes and coins before December 31, retailers will have to take on almost the entire distribution of coins and of the 5 and 10 euro notes [assuming ATMs will dispense a limited number of low denomination notes]. "This would require stocks 10 times higher than the usual value of cash stocks, and such a situation is impossible. The principle of handing back change only in euros will only work if a significant number of consumers pay with euro notes and coins." Since then, the ECB has said it will allow minikits' of coins to be on sale to the public at banks from December 15, and notes from December 27 or 28. But consumers in Greece and Ireland won't be able to buy any currency before January 1, something which baffles Eurocommerce euro adviser Carole Brigaudeau. "We're still lobbing the ECB about this now. The counterfeiting argument is no real argument." Concerns about counterfeiting "really are bordering on paranoia," observes NCR senior business consultant Ian Buxton, while the reluctance on the part of the ECB to agree to mass consumer frontloading means the pressure on the ATM network will be "immense". Meanwhile, retailers are urging banks to load ATMs with low denomination euro notes so consumers don't withdraw a 500 euro note, walk into a shop on January 1, buy a loaf of bread and pint of milk, and empty the till of change within an hour of opening. "Forget the technical issues," says NCR's Simon Robinson. "The main challenge will be getting all this cash into circulation from banks to retailers and from cash in transit companies into ATMs. This is why it would have been far better to bring the currency in gradually." The cash requirements for floats will be astronomical and retailers will bear the brunt of insurance costs, a bone of contention in Germany and Portugal, where banks and retailers have been arguing over who should foot the bill. Ahold's EMU programme director Jacques Duin admits the storage of the new currency is his main worry. "Safety is crucial, but we're expected to pay for it." Irish lobby group RGDATA says there is no way existing storage space in outlets and banks is sufficient to cope and alternative facilities must be arranged as Irish consumers will have no euro currency at all before January 1. Tesco Ireland corporate affairs manager Sara Morris says the timing of the changeover is particularly unfortunate: "Really it's happening at the worst possible time in the retail calendar, the busiest time of year." One solution being bandied around to ease confusion at the checkouts and avoid the expense of needing tills and staff to handle two currencies at once is an instore Bureau de Change. However, opponents of the scheme point out this would require dedicated staff, high security and huge amounts of currency. Likewise, it wouldn't be practical in a small shop. Because of legal requirements to display prices in euros and legacy currency both before and after January 1, retailers cannot suddenly slap any old ticket in euros on their products and exploit customers without the time or mental arithmetic skills to determine whether prices have gone up. Exact conversion rates will be displayed prominently instore and many retailers will offer conversion points enabling customers to check they're not being diddled. However, when a retailer converts a IR£1.99 pack of Pringles into euros, he is left with an uncongenial price of 2.53 euros. To make this a more psychologically appealing price point of 2.49 euros (IR£1.96), he either has to suffer a dent in his profit margin or ask Procter & Gamble to come up with a cheaper pack with fewer crisps in it. Nudge up the price to 2.59 euros (IR£2.04) and customers could get suspicious. Although some retailers will seize the opportunity to make a fast buck and risk driving up inflation, the larger ones know they cannot afford to take that chance, says NCR's Teresa MacClagan. "Decimalisation was inflationary, and they're conscious of that. If anything, the big players such as Ahold and Carrefour are likely to be overly cautious. Major retailers are totally focused on customer retention." At Ahold, Duin concurs. "The consumer is in charge here. We don't know what is going to happen. The weakest point is the moment of payment so we have to make the process as simple as possible." Most large retailers have already started dual display to familiarise customers with the new currency. Tesco Ireland's Sarah Morris says: "Our intention is to be as transparent as possible, especially as Ireland is the only country in the Eurozone where psychologically prices will appear to go up when we convert to the euro [IR£1= 1.27 euro]." A recent survey by consultants Cap Gemini Ernst & Young revealed many senior managers across Europe had failed to grasp the complexity of the changeover or properly assess the impact it could have right across the business, from marketing and sales to finance and human resources as well as IT. A third had not even addressed the logistical issue of how to handle the notes and coins, while 15% had not initiated any IT changes whatsoever in preparation for the euro. In-depth interviews with 133 retailers revealed "worryingly low levels of euro preparedness," a widespread tendency to underestimate the time required to make the necessary preparations and a lack of dedicated staff tasked with devising and implementing a changeover programme. Bearing in mind 34% of continental Europeans live within 30km of a national border, consumers will wonder why the same pack of Pringles costs 10 cents more across the border and companies could well be forced to re-evaluate their marketing and sales practices in terms of products, pricing and distribution. Ask any consultant which section of the industry is most vulnerable and they will answer small businesses. "Imagine it," says NCR's Simon Robinson. "You're trying to cash up at the end of the day and you don't have a multimillion pound IT system to do it for you. So you're doing your books manually with a calculator perhaps. You've got to handle two currencies and balance your books, pay your staff in euros and convert all the historical accounts as well." Here in the UK, the euro is such a political minefield it is difficult to extract any information from retailers as to what preparations they are actually making in the event we join the single currency. The government is still being far too vague, says the BRC. "Retailers need certainty and clarity from the government on the UK's entry into the single currency. Without this they will continue to be reluctant to invest any resource, time or money in preparing for the changeover." While Somerfield has appointed a euro project manager (who is currently on maternity leave without cover), a spokeswoman made it clear the euro was not top of the retailer's priority list: "It's a false economy to throw money at something that might never happen." Asda and Sainsbury were equally reluctant to provide details of their preparations, although the latter has set up a steering group dedicated to addressing the practical implications of EMU right across the business. Safeway was more forthcoming. From summer 2000, all new software and hardware bought by the business had to be euro compliant, says business systems manager Jeremy Wyman. "We've mapped out what needs to be done and when, depending on a number of scenarios. The IT project kicks off in a few weeks." Small retailers are less clued up about the implications of joining the single currency, says the ACS, which has had regular contact with the Treasury to discuss how the transition might be handled in the UK. Most are simply waiting to see what happens on the continent. With operations in the Eurozone, Tesco and M&S are well ahead of the game and more willing to divulge their euro secrets. Indeed, with Eurozone operations generating only a tiny percentage of group turnover, both are in the enviable position of gaining hands-on experience of the changeover without risking the core business if they make mistakes. "If the UK joins, Tesco will be many steps ahead of its rivals," says a spokeswoman. "We have a huge head start." M&S euro programme manager Paul Smith says all of the retailer's 11,000 tills are euro ready, with euro compliant software being rolled out in the UK this year. He stresses UK retailers would be impacted whether they were trading in the Eurozone or not, as European suppliers would expect to be dealt with in euros. When it comes to the crunch, no one really knows how consumers will react once they get their hands on the new currency. But one thing is certain. If the cash handling equipment across the Eurozone is not euro compliant, then chaos will ensue, warns De La Rue's head of desktop products Steve Beadle: "Lost revenues, lost business, delays in transactions and ultimately the undermining of the economy will result if systems across the continent are not geared up for the changeover." Some disruption is inevitable and clearly the winners in the short term will be those retailers that manage to minimise this as far as possible. Confusion at the checkouts could turn public opinion against the euro and prompt a slowdown in consumer spending. In the long term, the winners will be those who recognise the single currency is not only about buying new cash registers but an opportunity to review their entire business strategy. {{COVER FEATURE }}