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IADS White Paper - Retail Media

Since its inception in 1928, the IADS’ purpose has been to coordinate information between department stores worldwide and research their activities to help them address the many challenges they must face. This translates into many responsibilities carried out by the IADS, all solely intended to provide insights to its members and help them have a broader understanding of the shifting business environment.

Every year since 2020, the IADS has produced a White Paper on a specific topic perceived as important for its members. In 2020 the purpose was to collect the learnings from the management of the pandemic and how to make sure department stores would be prepared for the next crisis. The 2021 White Paper was dedicated to digital transformation and its impact on the organization. In 2022 it was all about the development of sustainability, CSR and ESG in retail businesses. And the 2023 edition is dedicated to the hot topic of retail media.

Why is it so hot? Just for a start, this subject has generated a considerable amount of buzz, conferences and articles over the past three years (as suggested by the lengthy number of sources that the IADS quoted in its White Paper). Also, it was interesting to see that the 2022 edition of the NRF Big Show was all about retail media on stage, but with very few suppliers at the fair, which was the contrary in 2023, with a significant number of suppliers proposing new solutions to deploy retail media.

The other reason why the White Paper this year was dedicated to this technical topic is because we believe at the IADS that retail media could be a profitable route for department stores willing to maximize the value of their real estate. While retail media has expanded thanks to the digitalization of the world, we believe that the amount of in-store interfaces with the customer, coupled with tracking and measurement capabilities in close-loops that are now allowed with the state of technology, could transform department stores into very efficient media companies, maximizing the value of the number of eyeballs visiting not only their e-commerce websites but also their flagship stores. This vision was also confirmed in 2023 during an IADS CEO meeting, during which the Publicis COO suggested that this was starting to happen in a select number of retailers.

The 2023 edition of the White Paper aims to identify where the retail media market stands, spell out the opportunities (and potential traps) for department stores, as well as suggest a few routes of reflection for department store leaders to prepare their organizations for such a shift. Finally, since retail media is seen as a way to generate incremental, high-margin, revenue, we also explore this school of thought and try to understand the cost of such new revenue, not only in financial terms but also in terms of people, organizations and needed adaptations.

Introduction: retail media is less of a revolution than a reinvention

Retail has never been a stranger to advertising. It started as early as the 19th century with many companies, such as Sears, Printemps, Jelmoli and Harrods, starting to issue catalogues where they encouraged brands to advertise. That was the beginning of an awareness from department stores: why pay for brand advertising when they can do it by themselves? After all, the job of department stores was to make sure that their locations were welcoming enough visitors, or, in other words, make sure that their name was advertised enough.

But then, brands were another story (and somebody else’s P&L chart), and instead of bearing the cost of advertising alone, department stores began to sell them advertising space, creating new revenue streams. This period also coincided with the development of the modern advertising industry, which evolved from selling ad spaces in newspapers to offering complete brand solutions. This shift enabled department stores to forge a new kind of relationship with brands, selling them opportunities to stand out through trade marketing cooperation.

As such, the idea of department stores (and retail companies as a whole) selling advertising space is not new. So, how is retail media any different?

From trade marketing to retail media

The eternal challenge in advertising, from the advertiser's point of view (the brand), has always been to make advertising effective and profitable, especially in terms of return-on-investment measurements. Trade marketing was beneficial for brands to increase demand at the department store level, aligning with their brand strategies. However, top-of-the-funnel strategies (i.e. national advertising) were more difficult to evaluate in terms of ROI, while bottom-of-the-funnel ones (i.e. advertising on the POS, trade marketing) were difficult to scale at a national level.

Things became more complicated with the advent of new technologies and media (like radio, TV, electronic commerce, social media, and mobile phones), as the dynamics of customer engagement and advertising significantly evolved and merged the needs for top-of-the-funnel and bottom-of-the-funnel investments. Retailers started incorporating various advertising activities, ranging from in-store displays to online visibility, aiming to increase demand and sales at the Point of Sales (POS) by starting earlier in the funnel. To cope with the lack of visibility of ROI in the upper funnel, brands were sold access to readers or watchers profiled according to an ideal target, a profiling made possible thanks to the navigation history knowledge acquired about said readers or watchers via tracking (cookies). However, the market has become much harder to navigate, as costs of advertising online have been on the rise for the past few years, and third-party cookies are disappearing in the wake of a stronger concern about personal data. There is no real exit door: when it comes to traditional media formats, the scope of these activities is finite, limited by their available space and frequency.

This is why retail media networks (RMNs) represent a new paradigm, offering individualized advertising opportunities to brands within the retailer’s ecosystem, utilizing first-party customer data. RMNs can be defined as a collection of advertising and promotional tools owned by a retailer, utilizing first-party data to target shoppers and prospects effectively. They offer a significant opportunity for revenue generation without cannibalizing traditional trade marketing activities.

This approach emerged in response to the need for more measurable and efficient advertising models and the opportunities presented by digital acceleration during the Covid-19 pandemic. Retailers, in digitizing their operations, realized the potential to monetize their customer data, thereby providing brands with improved ROI on their marketing investments. RMNs aim to not just rebrand traditional trade marketing but to leverage closed-loop knowledge of customers for measurable KPIs.

RMNs are rapidly growing, with the US market alone expected to reach $61.15 billion by 2024. This growth indicates a significant shift in digital ad spending towards retail media, which in turn translates to opportunities for retailers.

Retail media encompasses many different realities today

The growth in advertiser investments in RMNs is driven by an increase in RMN options and new market entrants. Marketing experts categorize marketing tactics into three groups: traditional analog media, onsite digital media, and offsite digital media:

• Traditional analog media includes long-standing retail advertising methods in physical stores.
• Onsite digital media represents the first phase of retail media (Retail Media 1.0), where retailers use their digital platforms (like websites and mobile apps) to monetize customer traffic through onsite advertising.
• Offsite digital media (dubbed “Retail Media 2.0” by some analysts) involves leveraging retailer-collected first-party data to target audiences outside of the retailer's own digital and physical venues (for example: selling advertising space to travel agencies on a retailer luggage e-commerce website or store section).

Onsite Retail Media offers retailers greater control over first-party customer data and targets customers effectively. However, it faces limitations like restricted media inventory and the quality of search interfaces on retailer platforms.

Offsite Retail Media allows retailers to advertise beyond their properties, significantly expanding their reach. This approach offers benefits like efficiency in advertising, omnichannel sales attribution, and transforming physical stores into digital platforms. However, challenges remain, such as the difficulty in targeting the right audience and gathering accurate metrics from third-party platforms.

A significant portion of US advertisers uses multiple RMNs, indicating a trend towards diversifying advertising strategies. However, the decision to use RMNs remains often reactive, driven by current market conditions and the need to drive product sales, rather than strategic brand building.

Why retail media represents an actual opportunity for a great variety of retailers?

Retail Media Networks (RMNs) provide a significant advantage to retailers, focusing on their ability to monetize proprietary shopper data, the resurgence of physical stores in advertising strategies, and the opportunities presented by non-endemic advertising.

Retailers like Kroger utilize their loyalty and POS transaction data to create targeted advertising and measurement tools. This allows for precise campaign planning, personalization, and post-campaign tracking, offering advertisers detailed insights into customer segments and sales uplift. RMNs have shifted the narrative from trade marketing being a "bottom-of-the-funnel" medium to a strategic "top-of-the-funnel" medium, attracting larger marketing budgets and making physical stores valuable again. They provide incremental revenue, which is particularly appealing in the context of shrinking margins in brick-and-mortar and e-commerce channels.

The context matters: despite the growth of e-commerce, 85% of retail sales in the U.S. still occur in physical stores. RMNs enable brands to target customers throughout their entire shopping journey, including in-store interactions. This has led to a renewed interest in physical stores as strategic assets for advertising. Retailers are finding innovative ways to incorporate advertising into the in-store experience, such as digital screens and in-store radio stations. The integration of these technologies transforms stores from mere points of sale to influential advertising platforms.

Also, RMNs provide a valuable channel for non-endemic advertisers (brands that don’t sell directly through the retailer but offer complementary products or services). Retailers' access to first-party data allows these advertisers to target customers with precision and relevance. This is beneficial for retailers as non-endemic brands often have larger media budgets, enhancing RMN revenues without risking cannibalization of existing sales. It also offers single-brand retailers an opportunity to expand their customer experiences. Retailers like Gap Inc. and Macy’s have experimented with targeting both endemic and non-endemic advertisers, although resulting in varying strategies and outcomes.

A tentative panorama of RMNs across the board, beyond FMCGs

Initially, FMCG (fast moving consumer goods) retailers played a central role in the development of RMNs. Facing slow growth and advertising challenges, FMCG retailers saw RMNs as a solution to improve return on advertising spend (ROAS) and forge stronger relationships with brands. The pandemic accelerated online grocery buying, further emphasizing the need for effective digital advertising. Amazon's success in retail media, especially with high margins, set a precedent for other FMCG retailers.

However, RMNs are no longer exclusive to FMCG retailers. Specialty retailers and other retail verticals are also developing their own RMNs to capture a portion of the advertising market. The diversity of RMNs across different retail sectors demonstrates their broad applicability and potential. The landscape of RMNs is dynamic and geographically diverse, with a significant number of players in the US and competitive markets like France.

France, in particular, has seen substantial growth in RMN investment, with a variety of players and tech suppliers entering the space. The formation of alliances and collaborations is more typical in Europe than in the US. These alliances bring together various retailers to pool data and technology resources, such as Unlimitail, which gathers 13 European retailers from various verticals. While this type of alliance should provide its participants a local competitive advantage, and fit in our views of retailers uniting to be stronger together, it should also be seen as a reaction to the lack of scale that US retailers have.

What are the limitations in RMNs that retailers need to be aware of?

First of all, the RMN market is becoming crowded, leading to a potential Darwinian consolidation. Brands are overwhelmed by the plethora of RMNs, leading to the implementation of new selection KPIs, like minimum monthly visitors, which could create a disadvantage for smaller retailers. Despite the success of smaller players like Albertson's, Kroger, and Ahold Delhaize, the largest players dominate the market (Amazon, Walmart). Moreover, the market might face a limit on the number of interested advertisers, potentially capping additional revenue opportunities.

Also, the rise of RMNs has introduced complexity in retailers' relationships with brands:

• Retailers hastily building RMN platforms have led to inconsistencies and data gaps, complicating decision-making for brands. For retailers, RMNs have shifted their role from solely product suppliers to shared responsibility for driving brand demand. This shift demands new competencies and strategies, potentially leading to internal organizational challenges and a need to recalibrate the relationship with brands. Retailers venturing into RMNs faced organizational stress tests, including integrating new competencies and managing cultural shifts.
• Brands heavily rely on RMNs for first-party data as a response to the demise of third-party cookies. However, there is frustration regarding the quality and consistency of data across different RMNs. The disparity in data quality across platforms is a significant concern for brands looking to optimize their investments.

For RMNs to be sustainable, they need to be perceived as strategic brand-building investments, not just tactical sales activation tools. However, many brands currently view RMNs primarily as drivers of sales conversion, indicating that RMNs are not as high in the marketing funnel as desired. This perception could hinder the long-term growth and brand equity building potential of RMNs.

Finally, there is a risk of consumer annoyance due to excessive advertising through RMNs, potentially leading to a negative impact on consumers’ enthusiasm for brands. Retailers and brands must be cautious in their approach to advertising to maintain customer satisfaction and trust.

Moving forward: what does it take to become a media company?

The evolution of RMNs is marked by a shift from onsite to offsite spending. Smaller RMNs tend to focus more on offsite spending, selling data to target customers outside their digital properties. This shift is driven by the potential for higher conversion rates and order values through combined onsite/offsite advertising packages. Retail media is reliant on the value of retailers' first-party data and their ability to collect data across all customer contact points, including physical stores.

Department stores have the potential to offer unique advertising possibilities by leveraging their online and offline footfall. The digitization of stores and the capability to sell first-party information allow for innovative onsite media propositions. This is particularly relevant for department stores due to their significant online and offline traffic.

In particular, physical stores, especially flagship stores, are seen as major untapped channels for advertising. They offer detailed geo-localized data that can inform brands about shopper behaviour in specific areas. This granularity of data is key for advertisers to optimize their marketing and product strategies. Retail media networks enable brands to reach customers close to the point of purchase, making physical stores an integral part of advertising strategies. In that perspective, retailers can use foot traffic data to create hyper-local segmentations and improve advertising efficiency in local markets.

But to successfully transition into a new mass media, retailers need to differentiate their RMN products, address organizational challenges, form strategic partnerships, and make informed technology choices. The landscape is becoming more complex with the emergence of various digital marketing platforms, in-store advertising companies, marketing personalization platforms, retail analytics, experiential technologies, and retail media accelerators.

Conclusion: are RMNs nice to haves, or imperative moves?

Not only do RMNs encapsulate a strong transformative impact and potential, but also complexities and challenges in achieving it.

RMNs mark a paradigm shift in retail advertising, offering precise, data-driven advertising opportunities both inside and outside retailers' own media channels. With projections indicating that RMNs could become a $100+ billion market by 2028, major retailers across various categories are launching their own networks to tap into the burgeoning demand for targeted and measurable advertising.

For them, RMNs present an opportunity to generate new, high-margin revenue streams that can compete with established advertising channels. The integration of brick-and-mortar stores into omnichannel RMN strategies, utilizing location intelligence and digital targeting, further expands the scope and efficacy of these networks.

However, the journey towards fully leveraging RMNs is not without hurdles. Issues such as data transparency, measurement inconsistencies, questions around brand-building value, and organizational preparedness are significant considerations. Overeagerness in RMN adoption without adequate strategy could risk customer trust and devalue retail assets.

To effectively harness the potential of RMNs, retailers need to concentrate on several critical areas:

• Differentiation: Retailers must create a unique RMN proposition, focusing on niche audiences and ensuring data transparency to stand out in an increasingly crowded market.
• Organizational readiness: Implementing RMNs demands robust cross-functional collaboration and new competencies like ad sales and campaign management. This may necessitate structural adjustments within the organization.
• Coordination and standards: The establishment of shared standards for ad formats, metrics, and disclosures is crucial to address current inconsistencies and break down 'walled garden' silos.
• Tech investment: Significant investment in modern ad tech stacks, data clean rooms, edge computing, and in-store technological enhancements are pivotal for executing effective omnichannel RMN strategies.
• Collaboration and exchange: The role of international groups and associations, such as the International Association of Department Stores, in facilitating collaboration and exchange among retailers is vital. Collective action and peer learning can significantly benefit retailers in navigating the RMN landscape more effectively than going it alone.

As RMNs continue to evolve, they hold the potential to redefine marketing dynamics and reshape brand engagement. However, the extent to which this promise is realized depends on retailers' and brands' commitment to carefully navigating the RMN space, investing strategically, and adapting to emerging challenges and opportunities.

Credits: IADS (Selvane Mohandas du Ménil)

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Introducing the NRF Big Show

The 2024 edition of the NRF Big Show took place on 14 – 17 January. The four-day event was fully back on track, with more than 40,000 attendees and several exhibitors surpassing last year’s attendance (1,100), which was already a record. Overall, the event felt overwhelming, not so much due to the number of exhibitors and the energy in the fair section, but through the lines at the entrances of the conference rooms, which were often crowded and had to turn down people. Excitement was palpable, and the international crowd, as well as brands (and not only vendors), were back. The message was that the event was back to its pre-pandemic heights.

The overall mood of the show was buoyed by the positive end-of-the-year outlook: on average, the Q4 2023 reports grew +3% on average for US retailers. While it is generally admitted that the US economy will not go into recession, as spending levels remain stable, it was initially feared that it might crash. Combined with the slowing of US inflation, this gave a sense of optimism that drove many conversations with the intention to invest.

AI was of course the major topic across the room, both in the fair and on stage (last year’s star theme, retail media, was big on stage but few exhibitors were proposing solutions linked to it), but not only, with a mix of US-specific concerns and international issues:

US specific:

• The resilience of customers and a disconnection between their attitude (as every poll mentions that they are afraid of the future) and their actions (spending remains high),
• The level of shrinkage due to organised retail crime, a topic addressed by John Furner, the CEO of Walmart, in the kick-off conference. It was notable during store visits at CVS or Walmart that hygiene and everyday items were often sold behind plexiglass protection, making it necessary to call a salesperson to buy deodorant.

International topics:

• The capabilities to build additional revenue through retail media were often quoted by several international retailers, showing that, while the US still leads the race, retail media networks are expanding.
• New models were often also quoted, including resale (even though questions remain about the profit potential of the business model), as well as the fact that experience (restaurants, travel) is booming at the expense of discretionary spending.

There was a sense of satisfaction from many players to see how resilient retail has been, and how it has managed to engage transformation. Marc Metrick, the CEO of Saks, for instance, explained that the bet of separating stores from dot.com businesses paid off, as online is the true centre of gravity. Such a positive view was also notably echoed by the CEO of Tractor Supply, an operator of retail farm and ranch stores across the US, which topped $1 billion in e-commerce sales and started using AI for marketing copy, replenishment and customer service (including an AI-powered bot).

Aside from AI (which we will report separately later on), general conversations were all about adapting product offers to customers’ tastes, and how to do that in a productive but speedy way, making meaningful partnerships and making sure they add some value for the final customer, and, finally, the recognition that price is not everything and experience should be redesigned to make stores interesting again (this is reflected by the selection of 3 interesting stores available in this report). We believe that when it comes to tech, the most interesting quote came from Thierry Cotillard, CEO Les Mousquetaires (Intermarché): “In 2024, we will ask our tech partners to commit on the ROI promises they make. It might go as far as to start paying them when the expected ROI starts to be delivered.”

Monetizing personalization through retail media

The exchange started with a review of retail media now that the practice is well implemented in the industry. The concept can be assimilated to content-driven commerce, significantly influenced by customer behaviour shifts, particularly since the pandemic. In markets like China, consumer journeys increasingly begin with media-led interest, incorporating content creation within retail spaces. This trend reflects a growing convergence of retail, media, and entertainment sectors, which is becoming increasingly visible. It is proven now that retail media strategies can enhance traffic and sales, and ultimately augment customer lifetime value.

Retailers need to keep in mind that achieving this requires the injection of new competencies within their organizations. The question that looms is to understand what and who will drive, lead and influence the customer journey.

As a leading food grocery organization, GPA (the largest food retailer in Brazil) has integrated retail media through its extensive loyalty programme and robust online presence. They have adopted a two-pronged approach:

• Customer Focus: Utilizing their comprehensive loyalty programme data gathered both online and offline for personalized customer engagement.
• Data Utilization: They realized that they needed to clean and qualify their data better, which is why they relaunched their programme to include tiered segmentation, enabling more targeted communication and monetization opportunities through their app (the top-tier customers have a tenfold longer lifetime value than entry customers).

This approach allowed them to become a real bridge between brands and consumers, making sure that they push the right product at the right moment to the right customer. Incidentally, this has opened a significant avenue of income on the way.

Now Brazil and Latin America's largest marketplace, Mercado Libre started with e-commerce, and then expanded in logistics and fintech, before embracing retail media with Mercado Ads. It has already become a significant business: in Brazil, 70% of the ad spend is digital and 25% goes to retail media. Their leading position is facilitated by the fact that in the country, 7 out of 8 customers looking for a product start their search on Mercado Libre. In addition, 80% of the searches are unbranded, as they are searching for a product type. As a consequence, this has opened a huge opportunity for Mercado Libre to sell visibility to brands.

When asked about the complexity induced by the fact that retailers need to become content producers now that they have the data on the target customer and the tools needed to reach them, both GPA and Mercado Libre acknowledged that this is a challenge. Retailers are not content creators by definition. GPA focuses on generating interest through engaging app content and non-sales-oriented live streaming. Mercado Libre notes that in Brazil, and more generally in the West, it is unlikely that super-apps such as the ones found in China could emerge, however, it is more probable that different platforms might combine themselves to serve the customer differently. This is why Mercado Libre partners with content companies (Disney, Paramount, HBO…) and encourages customer interactions.

When asked about the tools used to monetize their data, and what other retailers need to know, GPA emphasized the need for technical infrastructure, full leadership commitment, and recruiting individuals with growth potential (retail media being relatively new, the perfect candidates do not exist, and for this reason, leaders must identify individuals with a vision and potential). GPA also stresses the importance of diverse support systems (like in-app and in-store media) and considers for the future sophisticated data utilization for more nuanced recommendations (for instance, instead of recommending meat, beer and charcoal to a customer purchasing a barbecue, suggesting a coffee machine based on individual preferences).They also note that retail media, in their case, has also contributed to increasing instore traffic, by increasing online orders with in-store pick-ups to a rate of 50% (this suggests also that special attention needs to be given to the instore pickup point in store and the process). Mercado Libre, on its side, highlights the necessity of a dedicated ads unit with its own resources and infrastructure, real-time data access, and collaboration with brands and agencies for both performance and awareness campaigns.

Key Takeaways:

• Understanding the customer through quality data is crucial for long-term success in retail media.
• Developing new capabilities related to content management, media, and redefining brand partnerships is essential.
• Retail media presents a significant opportunity, but it requires a blend of technological prowess and innovative marketing strategies.

The great transition: redefining retail and modern commerce

The retail landscape is witnessing a significant transformation. SSENSE, a fusion of fashion and creativity bolstered by technology, epitomizes this change. They build their e-commerce components in-house, and aim to embody a blend of fashion with tech. Furniture retailer Wayfair, initially an online-only DTC entity, expanded into the physical realm with its first store in Boston in 2022 (they now operate 5 stores and a new flagship is planned to open on 15,000 sqm). This move signifies a strategic shift from a series of microsites at the inception of the company in 2011, to a more integrated retail approach now that the turnover is reaching $12 billion.

The conversation started by redefining the terms, as the concept of unified commerce has overtaken the traditional omnichannel approach. It's about harmonizing the customer experience from end-to-end. Wayfair, for instance, strives to ensure customer enjoyment across all platforms, including its app, website, and physical stores. This unification is key to meeting evolving consumer expectations while giving them enough options and leeway to make decisions when it comes to furniture.

When asked about what changed in the past few years, both companies were very clear about what had been at stake:

• SSENSE decided to focus on customer understanding and focus its tech approach to that focus. For that reason, they decentralized the data production at the team level: each tech team is also a data team (for instance, the payment team owns the payment data). This allowed the granting of real-time data access to every stakeholder in the company and an infusion of a deep sense of understanding the customer.
• At Wayfair, since Covid-19 was a significant shift in terms of customer journeys in the furniture space, which nowadays start more often online, it was all about interconnecting each interface (stores, app, website) to reach the customers where they are and when they want.

For both, customer acquisition also goes with frictionless checkout. SSENSE's focus on performance and speed led them to develop a single-page checkout that aggregates and pre-fills customer preferences. This innovation allows them to process up to 2,000 orders per minute, while reducing checkout time by 70%. In a similar manner, Wayfair knows that when customers are ready to place an order, it often comes at the end of a long consideration journey. For that reason, when they are ready, they are offered an easy, auto-populated and trusted checkout process, complete with financing options. This process is available in each and every channel (store, app, website) and can be completed in each of them.

A significant challenge comes with the need to combat fraud, while at the same time not discriminating against loyal customers having their cards rejected for whatever reason. SSENSE has adopted dynamic payment routing to select the best payment provider in real time, aiming to enhance customer experience and minimize frustrations like card declines (this incidentally also grew the business by +5%). Wayfair reports a rise in organized fraud, necessitating continuous vigilance and adaptive strategies. They are currently exploring instant payments, and are also looking at simplifying checkout process.

When it comes to customer retention, Wayfair considers that their selection is their main asset (do they have interesting products at the right price?), and then they complete this with AI-based product filters and styling services, financing options, easy returns, and loyalty perks. SSENSE just launched its loyalty programme, but bases its retention on being a cultural player: customers are part of a community. This is illustrated by the fact that their website landing page is editorial content-only, not products. They then leverage their customers’ tastes and cultural points of interest with the help of AI to propose hyperpersonalized options.

Key Takeaways:

• Technology integration and customer focus: SSENSE and Wayfair are integrating technology deeply into their operations to enhance customer understanding and experience, shifting towards a unified commerce approach.
• Streamlined checkout processes: Both companies have developed efficient checkout systems, with SSENSE offering a single-page, fast process and Wayfair providing an easy, multi-channel checkout experience.
• Fraud prevention and customer retention: They are actively combating fraud while maintaining customer trust. SSENSE uses dynamic payment routing, and Wayfair is exploring new methods. For retention, Wayfair focuses on product variety and services, while SSENSE builds a cultural community around its brand.

Uncorking luxury retail experiences: a conversation with Philippe Schaus (CEO, Moët Henessy)

According to Philippe Schaus, Moët Hennessy, the years 2021 and 2022 showed varying trends in the US and Asia. While the US experienced a period of post-pandemic normalization after the immediate YOLO effect, Asia witnessed exuberant sales. These differences influenced stock allocation at Moët Hennessy, with resource reallocation taking place in response and sometimes making harsh choices, for instance by diminishing available stores in the US to the profit of Asian countries.

Inflation was a hotly discussed topic:

• Schaus acknowledged the lack of inflation experience within his team. However, he believes it is possible to do a thriving business even in inflationary times, provided people are ready to learn. He cited an example of doing business in Argentina, where inflation can reach three figures, emphasizing the need for constant pricing adaptation.
• To adapt to this context at the global level,  Moët Hennessy established a revenue growth management team two years ago to simulate the impact of price changes on customer demand. This team helps adjust pricing based on evolving costs and predicts demand fluctuations
• A critical point in luxury business, consideration for customer elasticity in response to price changes, is crucial. Overpricing can lead to reduced demand, necessitating careful review and product improvement.  Moët Hennessy invested in retail to transfer their product improvements to customers, through efforts on production (greener sourcing) but also experience on the point of sales.

Moët Hennessy aims to transform the way alcohol is sold by integrating luxury retail into their boutiques, focusing on conveying history and quality through presentation. They've placed Hennessy bars in prestigious locations like Harrods and KaDeWe. In short, they want to bypass liquor stores.

Chandon has elevated its brand by offering a unique experience encompassing nature, craftsmanship, and food, creating a club-like atmosphere distinct from traditional liquor stores. This approach allows for communication of craftsmanship and justifies higher prices.

When asked if he believed that Americans were prepared to pay higher prices for this experience, Schaus answered that he believes that consumers are willing to pay more for better quality and a guarantee of enjoyment (even though he does not forecast a price increase in 2024 as steep as the one that took place in 2023).

The conversation ended with his views for this new year:

• He is optimistic about the demand in the US and South-East Asia, as well as in travel retail. This will be helped by the fact that supply and inventory levels have balanced out since the initial post-COVID demand surge.
• He has noted a shift from nightlife to restaurant experiences which also explains why  Moët -Hennessy increasingly invests in local wines & spirits to become a global alcohol hub.
• Social media is key for wines & spirits, even though this could be seen as very counter-intuitive. Collaboration with artists and celebrities, such as Jay-Z and Alicia Keys, helps infuse energy and a fashion element into their social media presence, and, as a consequence, make sure they constantly have ways to interact with customers.
• His main source of concern is the geopolitical situation and the potential consequences on sea transport (100% of the LVMH wines & spirit transportation method).

Key takeaways:

• Inflation response: Moët Hennessy established a revenue management team to adapt pricing strategies in light of inflation, focusing on managing price changes and customer price sensitivity.
• Retail experience transformation: The company is moving towards luxury retail experiences, like Hennessy bars in upscale locations and Chandon's unique atmosphere, to enhance value perception and justify premium pricing.
• Future trends and optimism: Despite logistical concerns, Moët Hennessy is optimistic about growing demand in key markets and is capitalizing on social media and celebrity collaborations to enhance brand engagement.

The golden age of retail media networks: how physical retail is unlocking RMN’s full potential

In 2023, retail media revenue reached the same amount as TV in the US, and is expected to double it in the next two years. Lipsman quoted Jeff Bezos “when we win a Golden Globe, we sell more shoes” to explain that, in his views, Amazon is the model that many retailers will follow in blending content and media in their retail models in order to sell more ads. This is something that Walmart already does, with much financial success.

Offsite retail media is significantly growing, with a projected 37% Compound Annual Growth Rate (CAGR) over the next seven years. This growth can be attributed to the many strategic partnerships retailers are inking with various media companies, aimed at content creation and generation.

The fact that in-store attribution is now possible also makes in-store media extremely appealing to brands: measurements make markets. Instore retail media now brings to advertisers what TV does not do anymore: scale, brand safety and customer targeting.

Walmart shared insights about their Walmart Connect initiative. Over the past 18 months, they have been revamping their display business andemphasizing programmatic advertising, self-service options, and API-driven solutions. A notable addition is programmatic display capabilities, as well as in-store app products designed to facilitate connections between brands and in-store experiences.

Walgreens, with its vast network of 9,000 stores, found its niche in the retail media landscape. Taking inspiration from Walmart, they highlighted their unique strengths in the offsite landscape. Walmart's shopping app, which also serves as a marketplace, has been instrumental in their journey. Advertising within the app plays a pivotal role in driving search and discovery, with media partnerships rapidly growing. Transformation is then made at the counter. They emphasized the integration of retail media as an additional means to engage with customers, rather than treating it as a separate channel.

Regarding attribution, Walmart has been providing online and in-store attribution for the past four years. They also offer insights into sales lift for display advertising, allowing advertisers to measure the impact of their ads on purchasing behavior. Search advertising at Walmart focuses on direct sales attribution, providing comprehensive insights into impressions and sales, even at the product group level.

Key Takeaways:

• Offsite retail media growth: The sector is projected to grow at a 37% CAGR over the next seven years, driven by collaborations between retailers and media companies.
• In-store media developments: Retailers like Walmart and Walgreens are enhancing in-store media, offering targeted advertising and customer engagement through programmatic solutions and in-app features.
• Enhanced Attribution Analytics: Retailers are providing detailed insights into the impact of advertising on sales, both online and in-store, allowing for more precise measurement of ad effectiveness.

Interesting stores:

Note: we will add the locations below to the New York City Guide.

Wegmans, 770 Broadway

Petco, Union Square

Crate & Barrel, 881 Broadway

Credits: IADS (Selvane Mohandas du Ménil)

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Every Baby Boomer knows the building thanks to the internationally famous cover of the Pink Floyd album, Animals. However, there are now high chances that every Gen Z and Gen Alpha also discover this iconic location, but for entirely different reasons.

Built between the ‘30s and ’50s, Battersea Power Station, located in South West London, once supplied a fifth of London’s electricity. It was decommissioned in 1983 and remained dormant for years. Finally, in 2012, the building was sold for £1.9 billion. A £5 billion investment arrived from Malaysia to start redevelopment plans (it is said to have reached £9 billion in the end). The list of investors included PNB (one of the largest banks in India), Sime Darby Property, SP Setia (both Malaysian real estate companies), and Malaysia’s Employees’ Provident Fund.

As is often the case in such commercial development, investors had to contribute to more than the mall itself and had to fund a part of the subway station, the residential scheme surrounding the shopping centre and the ‘Electric Boulevard’ construction (one of the nearby streets). Redevelopment officially began in 2014 to open on 14 October 2022 with half of the commercial units having tenants (Covid delayed the opening from 2020 to 2022).

Following the 2023 IADS General Assembly held in London in November 2023, the IADS team had a chance to visit the premises. Now that the mixed-use project is almost completed and all units have tenants, is Battersea Power Station just another shopping centre or is there more to it? Most importantly, is it viable in the long term? What can department stores learn from this one-of-a-kind venture?

What is Battersea Power Station anyway?

First of all, it’s big. This is the most expensive property deal ever done in the UK, and its dimensions are, even by any continental European standards, unprecedented. Also, it’s way more than a shopping centre as the overall project encompasses:

• A 4-storey shopping centre with a retail space accounting for 289,283 sq. ft., 100 shops including 2 car dealerships and a fine art gallery.
• Grocery with a Marks & Spencer supermarket, a gourmet store and several bakeries.
• Pop-up stores: at the time of the visit Peloton bikes, The Alkemistry jewellery and Creed fragrances had pop-up locations.
• Hospitality with around 40 cafes, bars and restaurants from burger to occasion (including a Gordon Ramsay restaurant and pet-friendly places).
• Entertainment with a 9-hole golf course, virtual reality experience, a theatre, 2 movie theatres, a ping-pong salon, a permanent exhibition space and a lift to go to the top of one chimney to benefit from a 360° view of London (£15.90 for an adult).
• Expensive housing (a 3-bedroom penthouse apartment was sold for £ 6 million). The residential spaces built around are by Frank Gehry and Fosters + Partners, and this comes at a price. Some say the area is the new Chelsea, and Tatler Magazine dubbed it the new Belgravia (considered the richest area in London).
• Services with an optician and a hairdresser.
• Wellness with 3 sports options: cycling, boot camp and a 24,000 sq. ft fitness studio (to open in 2024).
• A hotel designed by famous Spanish designer Jaime Hayon with a rooftop pool (approx. £500 per room).
• A working space offering coworking, ready-to-use flex-office options (open 24/7) and a convention centre.
• A dedicated well-connected subway station.
• Nature with Battersea Park close by.
• An underground car park with 300 spaces.
• Office spaces which include Apple UK HQ relocated to the top level of Battersea Power Station, the US Embassy relocated to the area and 200,000 sq. ft of office space (to be completed end of 2023).

The brutalist building itself is worth the visit. Overall, the quality of refurbishment is state-of-the-art and the level of execution of the whole concept is excellent. The architectural features are understated to emphasize the historic architecture. The remaining pieces of power production are beautifully restored and magnified. Every store has the same illuminated rectangular sign outside with the retailer’s logo in black, so they are easily identifiable to visitors. The design gives consistency and elegance to the brands’ signages. The shopping centre surroundings offer cute, paved alleys with free-standing stores (such as Zara for instance) and beautiful contemporary architecture.

What are the results so far?

What about traffic? According to Forbes, 11 million visitors came to Battersea Power Station in the first year. New residential space and the companies relocating to the area should help provide regular returning customers. But a year after the opening, with such expensive prices, apartments are far from sold out even though more workers should flock to the neighbourhood thanks to the office spaces opening at the end of 2023. All the amenities have been designed to transform the whole location into a destination that attracts tourists and one-time visitors.

The mall itself intends to cater to all kinds of people, needs, cravings and wallets with a rather unusual brand mix. One can find high-street brands such as a 48,000 sq. ft Zara store, Mango and Uniqlo units, but entry-price retailers such as Primark and H&M are nowhere to be seen. Most of the stores are premium such as Lacoste, Theory, Gant and Ralph Lauren. Upscale watches are part of the mix with IWC Schaffhausen, Breitling, Hublot, Rolex at Watches of Switzerland, Tag Heuer and Omega, as well as a Cartier store. The first impression (and lasting) is that the mall is more high-end than the usual mix of high street retailers that can normally be found in shopping centres. In that regard, retailers such as Primark and H&M and restaurants such as McDonald's are missing to truly cater to all. It was probably done according to the developers' plan so that there is not too big of a gap between entry-price retailers and Cartier.

With post-Covid tourism resuming, the mall has benefitted from American and Middle Eastern tourists since its opening. Battersea Power Station also bets on Chinese travellers as the number of upscale watch brand options clearly shows. But what about their spending power at a time when the Chinese economy is challenged and the British government discontinued tax-free shopping? So far, the ones visiting London are spending way less than before the pandemic: according to the New West End Company (representing stores and hotels in the area), in September 2023, Chinese visitor numbers were just 2% below 2019 levels, but their spending was down 58%. It’s unclear if those tourists have been taking a subway trip to the neighbourhood.

At a normal pace, the area should cater to a balanced mix of local, newly located and tourist shoppers. But will locals shop there, especially with inflation hitting hard the British economy? So far, only 20% of the first year’s traffic came from South West London. Also, at the time of the visit (on a weekday afternoon), traffic was extremely slow, and tourists were nowhere to be seen.

What can department stores learn?

Battersea Power Station did not open without questions over the viability of what is ultimately another enclosed mall. The project developers certainly played by the retail trends playbook: a mix of shopping, hospitality and experience, pushing the mixed-use trend to its farthest.

In some ways, Battersea Power Station can be considered inspired by some department store for all (also as the brand mix ranges from mid-range to luxury). It’s something that many operators want to be, but few truly manage. But what works for department stores doesn’t necessarily work for malls: customers are used to seeing luxury beauty and accessory brands on many department store ground floors, they might be afraid of the luxury watch stores and their security guards who are the first ones visitors see when arriving from the Battersea Power Station subway station. A Chanel beauty corner on a department ground floor can be appealing to all customers, but a security guard in front of a Rolex store is a different story.

When it comes to store concepts, some retailers are at their best. Nike opened a community store that can transform into a place to exercise with activities twice a week, yoga sessions and various sports activities. The Body Shop opened a store entirely made of recycled materials favouring loose goods.  A unique place, a unique shop: Zara opened its biggest British unit with a very high-end ‘look & feel’ and many digital options such as fitting room e-reservation, self-checkout and online pickup. It is truly reminiscent of a department store, with true corners to highlight certain ranges (sports, lingerie, home, etc). In that regard, Zara is a retailer to monitor; they are playing the department store concept by the book, they multiply interesting collaborations and, more importantly, venture into more categories (home, cosmetics, fragrances, and recently hair care).

Conclusion: Time will tell

The redevelopment of Battersea Power Station is a significant project in London with economic and social impact, creating jobs, housing, and business opportunities. The moving of Apple UK and the US embassy in the premises (or close) shows the effort put in to ensure the right mix between working, living, shopping and entertainment (which could be the definition of what a neighbourhood should be).

The brand mix remains a key question. Will wealthy local consumers and tourists cross the river to come and buy an expensive watch there rather than enjoy a shopping experience in a flagship store in the city centre where shopping options are endless? Will average Londoners enjoy visiting the shopping centre knowing there might be very few shopping options for them? Only time will tell.

Credits: IADS (Christine Montard)

What:  The NRF released a guideline of principles for the retail sector when using AI.

Why it is important: As AI is a rapidly growing technology that is being used by almost all retail players and businesses, the NRF has provided a guidelines for the use of artificial intelligence (AI) in the retail sector, aiming to ensure strong governance, prevent discrimination, promote transparency, and encourage ongoing oversight and review of AI applications.

The NRF Center for Digital Risk & Innovation has published principles for the use of artificial intelligence (AI) in the retail sector. These principles include:

• Governance and Risk Management: Retailers should develop strong internal governance practices for AI tools and capabilities, involving various stakeholders across the company. This includes risk management, oversight, and security throughout the lifecycle of AI applications.

• Customer Engagement and Trust: Retailers should develop and deploy AI applications in a manner consistent with applicable laws and regulations. Ongoing oversight and review of AI-enabled capabilities should be conducted to ensure compliance. Guidelines for employee use of generative AI tools should be provided, including warnings about inadvertently exposing trade secrets and non-public information.

• Workforce Applications and Use: Retailers should engage in ongoing oversight and review of AI applications that impact employees or support business needs.

• Business Partner Accountability: Retailers should establish clear guidelines and expectations for business partners providing AI tools and services. Integration of AI governance into third-party risk management activities and transparency about vendors’ AI governance is encouraged.

These principles aim to ensure effective governance of AI, support customer trust, prevent discrimination, and facilitate beneficial use of AI technologies in the retail sector. Retailers can tailor these principles to support their internal AI governance and strategic planning. NRF plans to update these principles periodically based on stakeholder input and changes in AI use within the retail sector.

Principles for the use of AI in the retail sector

What: The IADS attended the annual Federation of International Retail Association (FIRA) gathering, a body of which the IADS is a member.

Why is it important: This article provides a comprehensive analysis of the retail industry's performance in 2023 and outlines the challenges and trends for 2024. It includes insights from various international retail associations and experts, focusing on consumer behavior, sustainability, digitalization, labor issues, and the impact of AI and geopolitical factors.

The insights are crucial for understanding the evolving landscape of the retail sector, highlighting the industry's response to changing consumer habits, the increasing role of retailers in the carbon economy, and the need for high-level skills in the face of technological advancements. It also emphasizes the importance of international cooperation in addressing these challenges.

FIRA’s retail industry insights: challenges and innovations in 2024

FIRA Presentations

Check out FIRA's guest speaker presentations below!

IADS' presntation at FIRA 2024

China's Retail industry - Kevin Peng

China Retail Unveiled - Deborah Weinswig

EU policies on Digital commerce - Luca Cassetti

What: The private label business is a source of profitability and customer loyalty.

Why it is important: Poaching executives is not enough, it requires an impeccable sense of timing, vision and strategy.

Retailers seeking a turnaround often focus on operational efficiency and merchandise improvements, with a particular emphasis on developing private labels. This strategy has been key for major retailers like Macy’s, J.C. Penney, and Kohl’s to grow sales and attract new customers. Target stands out as a successful model in this area, boasting nearly 50 private brands across various categories, with several generating over $1 billion in annual sales.

Target's success in private label merchandising has led competitors like Macy’s and Bed Bath & Beyond to recruit talent from Target’s team. Macy’s has directly hired and contracted with Target’s private brand designers, while Bed Bath & Beyond hired Target’s chief merchant Mark Tritton. However, Bed Bath & Beyond's experience shows that simply adopting Target's approach does not guarantee success, as it went bankrupt last year.

Private labels offer higher margins and competitive advantages, with around a third of sales at Target and 28% at Costco coming from their private brands. However, creating a successful private label requires a comprehensive approach, including sourcing, branding, consumer testing, and effective visual merchandising.

Macy’s, for example, has focused on private brands as part of its Polaris turnaround plan, aiming for them to contribute a quarter of its sales. The retailer's recent launch of the On 34th label, developed by former Target merchants, is an ambitious attempt at establishing a lifestyle brand. However, patience and potential adjustments are necessary for such efforts to yield results.

What it takes to build a private label

What: The Financial Times argues that Farfetch’s woes are intrinsic to the luxury business.

Why this is important: One fundamental truth is that luxury brands are looking to increase their control on the sale of their products, and this means that business models that are successful in other industries simply do not work in luxury.

While platform companies like Uber and Airbnb have achieved significant market values through their digital platforms connecting buyers and sellers, Farfetch, aspiring to be the "Uber of luxury," faced challenges. Initially valued at $24bn, Farfetch's equity was eventually wiped out in a $500mn deal with Korean e-tailer Coupang and Greenoaks Capital Partners. The difficulty lay in the nature of the luxury goods market, which is dominated by a few major brands, unlike more fragmented markets like ride-sharing or short-term rentals.

Farfetch hosted thousands of brands, but a 2020 Bernstein analysis revealed that most were minor, with nearly 70% of them offering fewer than 50 products on the platform. Major brands like Nike and Adidas were likely driving most of Farfetch's traffic. The concentrated market structure of luxury goods gave more power to suppliers, many of whom preferred direct sales to customers, limiting their engagement with middlemen like Farfetch.

After Coupang's intervention, Farfetch remains operational but faces an unclear path to profitability. Its options include drastic cost-cutting or focusing on emerging brands, which might not have the same customer draw or willingness to pay. There's no evident solution for revamping Farfetch's challenged business model.

Why luxury goods just isn’t a platform business

What: McKinsey identified 10 key takeaways from Davos leaders meeting.

Why it is important: if there are 4 takeaways to remember: speed of transformation is crucial, sustainability is not an option, generative AI is just the beginning and, most importantly, international cooperation is not contrary to competition.

Davos 2024 revealed key insights for global business leaders, reflecting cautious optimism despite ongoing challenges. Here are the 10 key takeaways from the 54th Annual Meeting of the World Economic Forum:

1. Speed and Performance: Fast-moving companies report significantly higher operational resilience, financial performance, growth, and innovation compared to slower peers.
2. Coopetition: Balancing cooperation with competition can advance shared interests, even when overall alignment is lacking.
3. Generative AI Revolution: Gen AI is set to transform various functions like sales, marketing, and software development, unlocking substantial economic value across multiple sectors.
4. Sustainability as Imperative: Despite complexities, taking bold action in the net-zero economy can accelerate value creation and position companies ahead of competitors.
5. Women’s Health and Economy: Addressing the women’s health gap could significantly boost global economic prosperity.
6. Comprehensive Transformation: Success in transformation relies on four elements: will, skill, rigor, and scope, crucial for outpacing competition in a disruptive environment.
7. Talent Alignment: Many organizations fail to match top talent with critical roles. Skills-based hiring could access new talent pools.
8. Effective CEO Leadership: The best CEOs leave their organizations better than they found them, creating distinctive value without succumbing to complacency.
9. Diversity and Performance: The business case for diversity grows stronger, crucial for maintaining financial performance amidst a rapidly changing business environment.
10. India’s Rising Potential: India's rapid transformation and growth in technology, talent, healthcare, and other areas are critical to watch in 2024 and beyond.

These takeaways emphasize the importance of agility, collaboration, technological adoption, sustainability, diversity, and strategic leadership in navigating the complexities of the current global business landscape.

10 Davos key takeaways retailers should know

What: The Chinese luxury market is projected to grow at a mid-single-digit rate in 2024, driven by offshore retail and the resurgence of professional daigou (surrogate shoppers), as reported by Bain & Company.

Why it is important: This growth signifies a rebound from previous slowdowns and highlights the evolving dynamics of luxury consumption in China, which is crucial for global luxury brands due to the significant market share held by Chinese consumers.

The Bain report anticipates a solid double-digit rebound in China's luxury market in 2024, though it hasn't fully recovered to 2021 levels. The market saw a 12% growth in 2023, with Chinese consumers making up 22-24% of global luxury consumption. Key growth areas include fashion goods, lifestyle, jewelry, and beauty, with the Hainan duty-free market expanding by 25%. The report identifies offshore retail and the return of daigou as major growth drivers. Price differences between Europe, Asia, and mainland China encourage Chinese shoppers to spend abroad or rely on daigou services, which offer significantly lower prices. Luxury brands are advised to manage their wholesale channels and implement global pricing strategies to maintain consumption within mainland China. By 2030, excluding daigou sales, mainland China is expected to account for 24-26% of global luxury sales.

Chinese luxury market to see ‘solid double-digit rebound’

What: Paul Sims, Primark’s CTO, shares his impressions on the 2024 edition of the NRF event.

Why it is important: Apart from AI (which should be used to provide full answers in search results), he saw that RFID and inventory tracking, as well as loyalty schemes, were some hot topics in the aisles of the fair.

Paul Sims’ key takeaways from #nrf2024 highlight significant trends and insights in the retail industry:

1. Commerce Evolution: Terms like multichannel, omnichannel, and connected commerce all point to the evolving nature of retail, ultimately converging into simply 'commerce' or 'retail'.

1. AI in Retail: Shelley Bransten's statement "You can't spell Retail without AI" underscores the growing importance of AI in retail, despite its cheesiness.

1. Automation and Robotics: The increasing presence of robots (like pizza and fries-cooking bots) raises questions about the implications for human-centric aspects of retail.

1. Fabric as the New Mesh: A shift in the retail tech vernacular, possibly indicating new technological trends or frameworks.

1. Search Evolution: The transformation of search functions to provide contextual, conversational answers rather than just results.

1. Loyalty Scheme Changes: A move from traditional points/discounts to personalized services, utilizing AI for more customized customer experiences.

1. Empowering Retail Workers: Leveraging AI and data in real time to enhance customer interactions and streamline operations.

1. Composable Tech Expansion: The growth of composable technology, including in supply chain and demand planning, challenging traditional players in these sectors.

1. AI and Data Dependency: Highlighting the critical need for robust data to effectively utilize AI in retail.

1. RFID Technology: The prevalence of RFID at NRF indicates its importance in inventory management and loss prevention.

1. Rise of Citizen Data Scientists: Similar to citizen developers, this trend reflects the democratization of data analysis and tech development.

1. “Just Walk Out” Technology: Evolving from traditional self-checkout systems, indicating a move towards more seamless shopping experiences.

1. Demand for Transparency and Sustainability: These elements are now fundamental expectations in the retail industry.

NRF 2024: Key takeaways from an expert CTO 

What: A paper reviews how department stores could be repurposed in education centres in the heart of cities.

Why it is important: Without being as radical since this hypothesis carries the demise of department stores, having schools on the premises could be an interesting idea.

Dame Sharon White, head of John Lewis, has proposed a royal commission to address the decline in high street shops, highlighting over 6,000 UK store closures in the past five years due to factors like online consumerism, the pandemic, Brexit, and economic shifts. Given this context, innovative uses for the empty spaces left by department stores are being explored, particularly in further education.

A RIBA-led initiative has proposed repurposing department stores as educational hubs, particularly for further education. This concept is designed to cater to a diverse range of learners, including 16-19-year-olds and adult learners. The idea is to integrate these large, centrally-located spaces into the community as learning centers that provide accessible education and training opportunities.

Using Kendals in Manchester as a case study, the plan involves transforming these department stores into multi-storey learning environments. The ReStorED concept features curriculum areas that act as interactive 'shop windows', with facilities like theatres, studios, and digital spaces. This approach aims to create a mature learning environment conducive to training, re-skilling, and up-skilling, particularly for adult learners who might be hesitant to enter a traditional college campus.

The design focuses on experiential learning, connecting different curriculum areas to encourage interdisciplinary interaction, and includes features like climbing walls and indoor green spaces. Emphasis is placed on sustainable architecture, such as achieving Passive House standards and repurposing existing structures to reduce carbon footprint. Internally, flexible learning spaces are created using adaptable materials like Oriented Strand Board (OSB), and the exterior includes recreational spaces with renewable energy sources, sensory gardens, and allotments.

This venture challenges conventional norms around urban regeneration and the use of high street spaces, suggesting a transformation of traditional educational environments and integrating them into the revitalized town center landscape.

Could department stores have a new future by being educational centres?

What: Raconteur reviews the evolution of advertising on TV and ponders if it is still an valid option for brands.

Why it is important: Department stores use TV as a part of their marketing mix. But are they using it in the right way?

The advertising landscape in broadcast television is undergoing a significant shift. High costs for prime time slots on major networks are leading marketers to question the return on investment, especially with the rise of streaming services and declining traditional TV viewership in the UK.

Pendragon, and automotive retailer, emphasizes the continued relevance of TV advertising as part of a diverse marketing mix. The CMO argues for a strategic use of TV ads, necessitating a clear understanding of sales baselines and the synergies of adding targeted TV to the mix. She highlights the undeniable impact of targeted TV advertising, especially during live events, and suggests using a combination of Video on Demand (VOD) and live streaming for more strategic and affordable targeting. She notes that an omnichannel approach, leveraging dual-screen behavior of consumers, can enhance the effectiveness of TV campaigns, as demonstrated by CarStore's campaign leading to a significant uplift in online enquiries.

Magnite, and ad platfom, points to the evolving TV viewing habits, with a shift towards streaming TV and free ad-supported TV (FASTs). The CMO argues that the digital nature of streaming TV offers more relevant, efficient, and personalized advertising opportunities. The flexibility and control provided by programmatic execution in streaming campaigns are seen as advantageous, suggesting that while TV advertising is not endangered, it is certainly evolving beyond traditional formats.

Both perspectives highlight the need for advertisers to adapt their strategies to align with changing consumer behaviors and the opportunities presented by streaming and digital platforms, while still recognizing the value of traditional TV advertising when used creatively and strategically.

Is TV advertising still worth the cost?

What: Christopher Knee, an Honorary Adviser at the International Association of Department Stores, argues against the notion that the department store business model is inherently flawed. Instead, he points to real estate owners' detrimental impact on these retail institutions, as seen in notable cases like Jelmoli and Globus in Zurich.

Why it is important: This perspective shifts the blame from the retail model itself to the practices of real estate investors who leverage department store properties for their gain. Knee highlights instances where department stores suffered not because of their operational model but due to the financial strategies and high rents imposed by property owners. This situation has been particularly pronounced in the UK with the collapse of Debenhams, BHS, and House of Fraser, among others.

Christopher Knee's letter to the Financial Times challenges the narrative of department stores' decline due to outdated business models. He provides examples from Zurich and the UK where real estate strategies, rather than retail mismanagement, led to the downfall of historic department stores. Knee's insights call for a reevaluation of the challenges facing department stores, emphasizing the need to distinguish between retail failures and the consequences of real estate exploitation.

Letter: Blame real estate owners for the woes of department stores

What: Forrester’s research shows that free delivery is more important than speed of delivery for e-commerce consumers.

Why this is important: It can give an edge to department stores that make them still relevant in front of larger operators.

A Forrester report suggests that while same-day and next-day delivery options are costly for retailers and not highly valued by most consumers, free shipping remains a key factor for online shoppers. Nearly half of consumers are indifferent to same-day delivery, and many prefer in-store shopping for groceries. Instead, options like buy online, pick up in store, curbside, and drive-thru pickups are seen as more appealing and cost-effective. Despite this, major retailers like Target, Walmart, and Amazon continue to invest in same-day delivery, with Amazon achieving its fastest Prime delivery speeds due to investments in regional operations and same-day delivery facilities. Overall delivery times have decreased, partly due to a variety of carriers and reduced pandemic-related barriers.

Free shipping is more important to shoppers than same-day delivery

What: The HBR reviews what happened in 2023 for what regards sustainability.

Why it is important: While everything is not exactly rosy, things are progressing and sustainability will increasingly have to be on every retail leader’s mind.

The year's major sustainability developments are summarized as follows:

1. Anti-ESG Movement's Impact on Companies: There was a significant backlash against ESG (Environmental, Social, and Governance) principles, particularly in the U.S. This movement, challenging "liberal values," caused controversies for companies like M&Ms, Target, and Disney, leading some to adopt "greenhushing" or reducing public discussions on sustainability. Despite this, ESG remained a crucial focus for businesses and investors.

1. China's Leadership in the Clean Economy: Remarkable progress was made globally in clean technology investments, with over $1 trillion spent, surpassing fossil fuels. China played a pivotal role, potentially peaking in gasoline demand and carbon emissions, significantly investing in solar energy, and collaborating with the U.S. on renewables. However, China's continued development of coal plants and global trends toward conservative, fossil fuel-friendly policies posed challenges.

1. Rising Regulations for Sustainability Reporting: New regulations in the EU and other regions demanded more comprehensive reporting from companies on carbon emissions and other sustainability metrics. These regulations created significant workload and complexity for businesses but are critical for transparency and accountability in sustainability efforts.

Other notable trends included advancements in "hard to abate" sectors like steel and aluminum towards lower carbon emissions, increased scrutiny of companies' policy positions versus their sustainability goals, insurance industry's response to climate change impacts, growing consumer influence on sustainability, engagement of Gen Z in sustainability discussions, efforts to quantify the value of nature, and the challenge of ensuring living wages in supply chains.

Overall, these developments signified both progress and resistance in the journey towards a more sustainable, equitable economy and society.

2023: A strange, tumultuous year in sustainability

What: The annual NRF report on returns shows that the phenomenon is amplifying.

Why it is important: US customers are increasingly resorting to frauds such as “bracketing” (ordering many sizes and keeping only one) and “wardrobing” (wear a product once and send it back).

In 2023, US retailers faced $743 billion in merchandise returns, representing 14.5% of total sales. Online purchases had a higher return rate at 17.6%, compared to 10.02% for physical store returns. Retailers are actively seeking ways to reduce these figures, particularly to combat return fraud, which accounted for $101 billion in losses. For every $100 in returns, $13.70 is lost to fraud.

Efforts to minimize losses include detailed product descriptions online, strict receipt requirements, and policy changes to limit return flexibility. Nearly half of the retailers reported experiencing 'wardrobing' (returns of used, non-defective items), and a significant number faced returns of stolen merchandise or items bought with fraudulent methods.

Retailers are also contending with a new category in online returns: claims and appeasements for issues like missed or damaged deliveries, a rapidly growing area for return fraud. The holiday season, a peak sales time, sees a slight increase in return rates, with a notable portion of these returns expected to be fraudulent.

The NRF issues its 2023 report on returns and frauds in the US

What: Mass culture is shifting and product placements are changing nature.

Why is this important: Everything is being fluidified, including the notion of retailing a product, or a moment.

The landscape of product placement in films and television has evolved significantly, becoming a crucial part of storytelling and driving consumer demand. Key points include:

1. Consumer Influence: A BENLabs study revealed that 46% of consumers first learn about products through TV or movies. Subsequently, 75% search for a product/brand after seeing it on screen, with 57% making purchases.

1. Studio-Brand Dynamics: Film and TV studios are now emerging as brands themselves. Instead of relying on third-party websites for merchandising, studios like A4 Studio are collaborating with independent brands and designers to create and sell themed merchandise directly through their own websites.

1. Product Authenticity and Emotional Connection: Product placements in media offer consumers a tangible connection to the fictional worlds they adore. This trend has grown beyond traditional merchandising, with studios directly selling items like makeup or accessories featured in films, such as the eyeliner from Sofia Coppola’s film or the "Heart of the Ocean" necklace from "Titanic".

1. Direct Studio Sales and New Consumer Mindset: Modern consumers are less concerned about perceptions and more driven by the emotional satisfaction derived from products linked to their favourite films. Studios are tapping into this sentiment by selling directly, enhancing the authenticity and desirability of the merchandise.

1. Advantages of Studio-Brand Partnerships: This approach offers several benefits, including creating limited edition products that drive excitement and demand, doubling exposure through collaborations, and positioning studios as lifestyle brands. It also provides cross-merchandising opportunities, driving traffic to both upcoming films and related merchandise.

1. Shift From Licensing to Authenticity: Consumers now perceive products made directly by studios as more authentic, enhancing their appeal. This contrasts with products from off-price outlets, which may not match the quality or authenticity of branded counterparts.

1. Evolving Nature of Product Placement: The future of product placement is about holistic integration into films, with studios partnering with brands to create product-inspired films. This approach goes beyond traditional product placement, creating media that authentically incorporates products into the storyline.

1. Trend of Product-Inspired Media: Expect a rise in films that blend historical elements, nostalgia, and products to create iconic, emulatable characters. This trend represents a more fluid form of product placement, blurring the lines between media, studio, and product.

In summary, the relationship between product placement, film studios, and consumers has become more direct and integrated, with studios acting as brands and offering authentic, emotionally resonant products that extend the film experience into real life.

Product placements are morphing

What: The WRC, a partner of the IADS, has interviewed with 12 experts and retail leaders to review what should be expected in 2024.

Why it is important: The existential crises that we are experiencing are not going away, pushing retailers to focus on delivering sustainable growth and profitability in an environment where sales and turnover are under pressure.

The IADS contributed to this issue with an article the meaning of store windows in the digital age, as well as a special report on the Christmas windows in department stores (visible here as the PDF does not display the pictures).

WRC Annual Report 2023

What: B&O bets on the fact that the “rich will only get richer” and this is an opportunity for them.

Why it is important: their bet is based on a strategic focus on a specific part of the market, which is what department stores should also adopt as a strategy.

Danish high-end speaker and television manufacturer Bang & Olufsen is optimistic about its prospects in the luxury goods market despite a recent downturn in luxury demand. CEO Kristian Teär believes the company's unique position in the premium audio sector, with products like the £110,000 Beolab 90 speakers, gives it an edge. He aims to attract younger generations interested in design and technology, as well as wealthy individuals seeking aesthetic home additions. Teär asserts that the wealthy, the brand's primary clientele, will continue to grow richer and seek unique products to express themselves. Bang & Olufsen, founded in 1925 and known for innovative products like its early mass-produced radios, faced challenges during the pandemic but has been focusing on growth and clarity of direction, especially in markets like London. However, the company experienced a 7% revenue decline in the last financial year.

Bang & Olufsen says it will defy luxury slowdown

What: McKinsey reviews the role of the Chief Transformation Officer and how this role is crucial in shaping the future of companies.

Why it is important: It is easy to misunderstand what the words really imply when it comes to corporate transformation. What is a transformation anyways?

The Chief Transformation Officer (CTO) plays a crucial role in guiding organizations through significant changes, going beyond mere cost-cutting or surface-level initiatives. This role involves leading comprehensive, organization-wide transformations that fundamentally enhance performance and effectiveness. Such transformations are participatory, engaging employees in a new way of working, rather than imposing changes on them. This approach fosters a sense of ownership and involvement in the transformation process.

CTOs are unique in the C-suite for their independent perspective and experience in steering organizations through complex challenges. They focus on delivering impactful results aligned with strategic priorities and have strong support from the board, CEO, and top management. Their role includes managing both short-term improvements and long-term value creation with limited resources. Their compensation is directly linked to achieving transformation and enterprise goals.

The role of a CTO is not static but varies based on the organization's needs and the type of transformation required. There are three archetypes of CTOs:

1. Responder: Focuses on crisis management and rapid financial improvements.

1. Revitalizer: Aims for accelerated performance improvements and long-term change.

1. Reinventor: Leads substantial strategic changes, like shifting business models.

CTOs work closely with CEOs, having the authority to make decisions and challenge others in the organization to meet targets and milestones. Financial incentives can be a crucial tool for CTOs, motivating employees to engage in and contribute to the transformation process.

Business transformations, including digital transformations, are essential for organizations to reach their full potential. These transformations involve making fundamental changes in operations and continuously deploying technology to improve performance and capabilities. The Transformation Office (TO) plays a key role in ensuring the success of these initiatives by providing specialized guidance, defining goals, and acting as a steward of new performance standards.

In summary, the CTO is pivotal in driving significant organizational change, requiring a blend of strategic vision, operational expertise, and the ability to inspire and mobilize an entire organization towards a common goal.

What does a chief transformation officer do?

What: The Business of Fashion and McKinsey & Company release their “The State of Fashion 2024” report which highlights the challenges and opportunities facing the fashion industry

Why it is important: The report provides a comprehensive analysis of the challenges and opportunities facing the fashion industry, offering valuable insights for fashion executives and stakeholders.

It predicts a modest year-on-year retail sales growth of between 2% and 4% in the year ahead. The industry is expected to face macroeconomic, geopolitical, and climate-crisis pressures, leading over 50% of fashion executives to plan price increases.

Opportunities for growth and innovation in areas such as generative AI, sustainability, and travel are identified. Consumer confidence remains fragile, and the industry is predicted to focus on new pricing and promotion strategies rather than volume increases. Climate crisis resilience, cost-saving strategies, supply chain transparency, regulations, generative AI, and brand marketing are identified as key focus areas for fashion companies.

The fast-fashion industry may face additional pressure from new regulations and increased competition. Additionally, the importance of emotional connections with customers and authenticity in marketing is emphasized.

The State of Fashion 2024: Riding out the storm Full report 

Business of Fashion Article 

What: A non-exhaustive list of the challenges CEOs will face in 2024.

Why it is important: it ranges from the most futuristic (AI) to the most mundane (pay rises).

Rise of AI and Geopolitical Challenges: 2024 is unlikely to offer a major turning point with challenges like the rise of AI impacting employment and complex geopolitics, including the Russia-Ukraine conflict, affecting the economy and causing inflation.

• AI's Role in Business: Business leaders, like those from Depop and Bupa, see AI as more than an efficiency tool, with potential to enhance user experience and assist in areas like healthcare diagnostics. Upskilling staff in AI is becoming a priority.

• Human Oversight in AI: Importance of human supervision in AI, especially in media and content creation, to avoid issues like deepfakes.

• Approach to Pay Rises: Amidst cost-of-living crises, businesses need to balance pay rises with operational costs. A pragmatic, proportionate approach is suggested, focusing on lower earners first.

• Political Stance of Businesses: Companies advised to comment only on relevant issues, avoiding alienation of certain groups. Real-life actions, like Bupa's support for Ukrainian refugees, are preferred over performative gestures.

• Importance of ESG: Strong ESG (Environmental, Social, Governance) credentials are increasingly important to consumers, especially Gen-Z. Businesses need genuine commitment to ESG strategies, not just as an add-on.

• Diversity and Inclusion in Workplaces: Progress in diversity and inclusion is crucial for attracting and retaining talent. Companies should view diversity as an opportunity.

• Resilient and Progressive Leadership: Success in 2024 hinges on leaders' ability to keep people within and outside the organization happy, openness to feedback, willingness to learn, and thoughtful decision-making about public statements and actions.

• Navigating Tough Times: Despite difficulties, success in 2024 is possible with careful scrutiny of costs and decisions, and a focus on long-term value.

2024 leadership trends – understanding AI and coping with perma-crisis

What: Coresight reviews Shein’s metrics prior to its IPO.

Why it is important: Unless a major regulation changes, Shein is poised to remain a major threat to department stores involved in fashion.

Shein is the leading fast-fashion retailer globally with estimated revenues of $23 billion in 2022 and 18% share of the global fast-fashion market. Coresight expects Shein to gain more share through 2027. 13% of surveyed US apparel shoppers had purchased from Shein in the 3 months prior to September 2023, making it the 7th most shopped apparel retailer. 18% of 18-29 year olds surveyed shopped at Shein. Shein ships to over 150 countries and has over 6,000 supplier factories, mainly in China. It targets Gen Z consumers. Shein is expanding into new categories like home and beauty and has opened its first permanent offline store. New North American distribution centers will aid its rapid fulfillment model. As a fast-fashion disruptor, Shein poses an intense threat to incumbent value/discount apparel retailers in Western markets who have lagged in e-commerce. Sustained rapid growth for Shein could steal market share from legacy fast-fashion players like H&M and Inditex as well as offline-skewed discount retailers.

Report: Shein in Numbers as It Files for a US IPO

What: As IADS members know, online sales are not entirely decorrelated from their store network coverage.

Why it is important: There is some danger in considering that “the destination store” with only one flagship might be the future of department stores.

A study reported by ICSC CEO Tom McGee and discussed on Yahoo Finance reveals that physical stores significantly impact online sales. Opening a physical store can boost a retailer's digital sales by nearly 7%, while closing one leads to an average online sales drop of 11.5% in the surrounding area. This phenomenon, termed the "halo effect," demonstrates the synergy between online and physical retail spaces. Physical stores not only serve traditional shopping needs but also act as mini fulfillment centers supporting online sales. The study also found that younger consumers, despite their integration with technology, share a preference for physical shopping similar to baby boomers, valuing the in-store experience.

Online sales fall when a physical store closes: study