What: The article highlights the contradiction between consumer surveys indicating a preference for sustainable products and actual shopping behaviors.

Why it is important: This emphasizes the gap between intentions and actions, the complexity of defining sustainability, vested interests in promoting sustainability narratives, and questioning the premise that buying more "sustainable" products will lead to a more sustainable planet.

The article critically examines the disparity between consumer surveys on sustainable consumption and their actual shopping behaviors, particularly during high-consumption events like Black Friday, in particular the following trends:

Consumer Behavior Contradiction: Despite surveys indicating a preference for sustainable products, actual consumer behavior during events like Black Friday shows a different trend, with little regard for sustainability.

Survey Limitations: Consumer surveys often fail to accurately capture the motivations behind shopping habits, as responses can be influenced by various factors, including a desire to impress or a lack of self-awareness.

Gap Between Intention and Action: There is a notable difference between what consumers claim they want to do (live sustainably) and their actual actions, with only a minority actively changing their behaviors.

Ambiguity of Sustainability: Defining what constitutes a "sustainable" product is challenging due to the complexity of factors involved, such as durability, resource usage, and environmental impact.

Commercial Interests in Sustainability: Organizations conducting sustainability surveys often have vested interests in the sustainability sector, potentially biasing the narrative towards a rise in sustainable consumerism.

Questioning Sustainability in Consumption: The article challenges the idea that purchasing more sustainable products will lead to a more sustainable planet and questions the effectiveness of practices like resale and circularity.

Consumer Behavior vs. Environmental Urgency: The supposed shift in consumer behavior towards sustainability is contrasted with the more immediate and clear tipping points related to environmental degradation.

Don’t believe what consumers say when it comes to sustainability

What: Bain & Company’s report provides insights, strategies, and practical advice for CEOs to navigate the challenges of sustainability, emphasizing the need for technological advancements, behavioral changes, and policy regulations to achieve sustainability goals.

Why it is important: The report highlights the importance of understanding consumer preferences and the potential for cost savings and faster adoption through sustainable innovation. Moreover, it addresses the gap between public commitments and actual delivery on sustainability goals, offering a mix of vision and pragmatism to address the trade-offs that come with sustainability efforts.

The document discusses various topics that CEOs will face in terms of long-term sustainability projects:

1. Need for Change:

• Achieving sustainability will require unprecedented change.

• There is a gap between public commitments and actual delivery on sustainability goals.

• CEOS are advised to ask critical questions about the purpose of their company and the potential obstacles and shortages they may face.

1. Technology Advancements:

• There is an importance of leveraging technology in sustainable practices.

• Companies are encouraged to rediscover the technology experience curve and drive sustainable innovation.

• Companies should anticipate policy shifts and build future-proof portfolios to stay ahead of competitors.

1. Behavioral Changes:

• There is a need for behavioral changes to address sustainability challenges.

• Data shows that consumers are willing to pay a premium for sustainable products and expect to spend more on them in the future.

• CEOs need to listen to the struggles of P&L owners and translate them into team-sized challenges to drive progress towards a sustainable future.

1. Policy Regulations:

• Policy regulations play a big role in driving sustainable practices and changing consumer behavior.

• Companies need to get out in front of regulations and work precompetitively as an industry to shape the regulatory framework.

• Government policies have a big impact on market dynamics and the need for companies to understand and navigate policy uncertainty.

Overall, the report provides guidance for CEOs to incorporate sustainability into their long-term strategies and drive positive impact.

The visionary CEO’s guide to sustainability

What: A critical piece of thinking about Amazon’s failed experiments in physical retail.

Why it is important: The author raises an interesting question: why, instead of starting from scratch, Amazon does not buy a significant player and immediately benefits from its scale effect?

This article critiques Amazon's strategic approach to physical retail under CEO Andy Jassy's leadership, contrasting it with its success in e-commerce and cloud computing. The author suggests Amazon's foray into various brick-and-mortar models, including Whole Foods and Amazon Style stores, has been misguided and unsuccessful. They argue that Amazon, fundamentally a tech company, lacks the intrinsic retail brand persona and experience in physical retail, which is evident in their struggle to establish a successful in-store presence.

The author questions why Amazon didn't opt to acquire existing retail chains like Kroger and Kohl's to quickly establish a physical footprint, given its enormous market capitalization. They point out that Amazon's slow and seemingly uncoordinated approach to integrating physical stores into its business model contrasts with Walmart's more effective strategy of acquiring Jet.com to boost its digital presence.

The piece also touches on the concept of omnichannel retail, where integrating digital and physical platforms is crucial for customer acquisition and distribution. The author suggests that Amazon could have leveraged acquisitions to instantly gain a vast network of stores for distribution and customer engagement, which would have been more efficient than building from scratch.

In conclusion, while acknowledging Jassy's efforts to rationalize Amazon's strategy and focus on profitable growth, the author speculates that Amazon might be better off sticking to its e-commerce roots rather than trying to dominate every retail channel. The future of Amazon's physical retail endeavors remains uncertain, and the author expresses skepticism about its success in this area.

Amazon’s failed physical retail experiment: a point of view

What: The Economist reviews how the management job has become increasingly difficult and subject to contradicting forces.

Why it is important: Department stores are complex organisations where management is key.

Despite their high-ranking positions and substantial salaries, managers are increasingly facing burnout, with a survey indicating that 68% of managers experienced it in the past year, higher than non-managers. The demands on managers are intensifying, requiring not just intellectual capabilities but also stamina, as firms ask about candidates' exercise habits during recruitment.

The role of managers is critical as they coordinate people, goals, and resources, a task becoming more complex with automation and digital uniformity in knowledge industries. The shift toward soft skills like communication, trust-building, and adaptability is evident, with social skills becoming more valuable. This change is reflected in the growing number of management jobs and the emphasis on these competencies in job listings and executive training.

Diversity in the workforce adds complexity, necessitating managers to have strong social "antennae" to understand a variety of perspectives. The increase in remote work further complicates coordination, with virtual management imposing additional overhead and disrupting focus with frequent, shorter meetings.

The rise of AI, illustrated by the impact of tools like ChatGPT, suggests that some traditional management tasks may become automated. This leads to a potential devaluation of 'brilliance' in favour of social intelligence, as AI begins to handle analytical and creative tasks.

Managers are thus at a crossroads, balancing traditional expectations of expertise with the emerging demand for social skills and coordination. Amidst this transition, many feel lost, highlighting the need for managers to adapt quickly to benefit themselves and their organizations.

Middle management: the impossible job

What: Accenture reviews the main trends for 2024 and what could be done to be fully prepared.

Why it is important: Many aspects of their predictions are related to how humans will adapt to new norms, technologies and processes affecting their place in society and ultimately their consumer behaviour. As such, retailers need to think outside of the box to be fully prepared.

Accenture discusses the various layers that mediate between people and their lives, influencing their thoughts, interactions, and emotions. The document highlights the changing relationships between people and these influences, which is putting society into a state of flux. The five trends described in the document are as follows:

1. “Where’s the love?” - This trend focuses on the impact of economic considerations on customer experience. It discusses how cost-cutting measures have led to dissatisfaction among customers, emphasizing the need for brands to balance cost and profit without compromising customer experience.

1. “The great interface shift” - This trend explores the upgrade of people’s experience on the internet through generative AI. It explains how generative AI is transforming the internet from transactional to personal, enabling deeper understanding and relevance. Conversational AI and large language models are identified as opportunities for enhanced customer engagement and personalization.

1. “Meh-diocrity” - This trend examines the declining trust and satisfaction levels of customers due to declining product quality and poor customer service. It highlights the need for brands to deliver exceptional experiences to maintain customer loyalty.

1. “Error 429: Human request limit reached” - This trend focuses on the overwhelming amount of information and choices available to consumers, leading to decision fatigue and a desire for simplified experiences. It suggests the need for brands to provide curated and personalized recommendations to alleviate decision-making burdens.

1. “Decade of deconstruction” - This trend reflects society’s reevaluation of norms, milestones, expectations, and political legacies. It emphasizes the importance of embracing disruption and adapting to new paths driven by necessity and opportunity.Overall, the document emphasizes the importance of customer experience and the need for brands to adapt to changing customer expectations. It highlights the significance of balancing cost-cutting measures with maintaining high-quality experiences to retain customer loyalty. Additionally, it explores the potential of generative AI in enhancing the digital experience for customers.

Accenture Life Trends 2024 Report

What: Remember BNPL? Retail Dive makes an interesting recap of the state of the market.

Why it is important: Some predicted that it would die our of regulation (that did not come) and actually BNPL is stronger than ever.

Buy now, pay later (BNPL) services, allowing consumers to purchase items and pay over time often without interest, have surged in popularity. Originally gaining traction in Europe and Australia, BNPL saw a significant rise in the U.S. with the COVID-19 pandemic, as online shopping increased. The service appeals to consumers, especially millennials and Gen Z, who avoid traditional credit cards, and to merchants seeking to boost sales.

BNPL works by letting shoppers immediately acquire items and pay in installments, typically without interest. While some providers do charge interest or fees in certain cases, the most common model is interest-free, with payments spread over a few weeks. The ease of use has contributed to its growth, especially among younger, digitally savvy consumers.

The market is crowded with players like Affirm, Afterpay (now owned by Block), Klarna, and PayPal, and has recently seen entries by major companies like Apple. Despite the competition, BNPL providers have generally been operating at a loss, under pressure to prove profitability to investors.

The industry faces challenges like potential regulation, as it currently operates in a somewhat gray area under existing lending laws. The Consumer Financial Protection Bureau has raised concerns about consumer debt and data harvesting practices. Meanwhile, BNPL companies are diversifying their offerings and seeking to attract older, wealthier customers.

Consolidation is already happening in the sector, and the market is likely to become more regulated and streamlined in the future, with weaker firms either dying out or being absorbed by larger entities. In response to rising interest rates and funding costs, BNPL providers may increasingly shift towards interest-bearing loans for profitability.

Breaking down buy now, pay later

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*Following the IADS CEO meeting in Mexico City last May, where IADS members were able to visit the latest developments in El Palacio de Hierro’s flagships, the IADS had the opportunity to travel to Salvador to discover the Almacenes Siman stores. The purpose was to discover the market, know more about the company and meet with the leading team.

Siman is a 102-year-old company, operating in 4 countries with 15 stores, in addition to an e-commerce channel. It is almost fully covering the Chortis Block, the continental fragment where Honduras, Nicaragua, El Salvador and Guatemala are located (even though the company does not operate in Honduras but in Costa Rica instead).

Through an astute mix of clever business steering, opportunistic alliances and smart investments, the company managed to become the largest department store company in Central America throughout its history. As Siman is currently involved in a strategic business transformation in order to address the 21st-century challenges in the best position possible, the timing was perfect to discover this company which has become with time a driving force in the region and intends to stay the same in the coming years.

We review our store visit below to better understand this retail giant which is quietly growing on highly dynamic albeit not on the world map markets.*

Company history and background

Almacenes Siman was founded as a small shop in 1921 by J.J. Simán, an immigrant from Palestine, in downtown San Salvador. The business grew quietly with time, as Simán’s sons joined him in the development of the company, which incorporated into a limited company during the 60s under its current name. During that decade the company turned into a department store business, with the development and opening of the largest department store in Central America in 1970, downtown San Salvador (the store remained operational until its relocation in 2010). This 7,000 sqm location was the first store to display an escalator in the whole of Central America.

The company was dynamic, the store expanded and was equipped with a parking lot in 1974. A second location opened in 1983 in Metrocentro, the largest shopping centre of El Salvador at the time and outside of San Salvador city centre. Due to the 1986 earthquake, which damaged the original store in the city centre, a temporary location opened, La Casona which was by then a historic house located in the Escalon neighborhood of San Salvador. This location, which was originally temporary, was never shut down, and a real department store opened into a mall literally build all around the house, the Galerias Escalon shopping mall, in 1994.

The third department store opened in Santa Ana, the second-largest city in El Salvador, on an original surface of 1,500 sqm, in 1990. It was relocated to the Santa Ana Metrocentro shopping mall eight years later. The third-largest city in the country welcomed a Siman branch in 1994.

The coverage of El Salvador continued with time, especially with the opening of La Gran Via location, a large location in an open-air mall, which was a premiere for the country when it opened in 2004.

International expansion started in 1993 with the opening of a store in Guatemala City, followed by Nicaragua where the company bought an entire mall in 2002 to open a department store branch there. Both countries expanded: 3 stores were built in Guatemala in 2003, 2008 and 2015, and a second location opened in Nicaragua in 2008. Costa Rica operations started in 2009 where 2 stores are currently operating.

As of today, Almacenes Siman operates 15 stores in 4 countries, including 6 in El Salvador itself. In terms of stores, they represent on average a surface area of 10,000 sqm, with the smallest units ranging in the 5,000-8,000 sqm area. As a whole, the department store company welcomes 80m visitors a year, including 60m in their e-commerce channel, and reaches a turnover of $400m a year, of which 13% is achieved via e-commerce (composed of 8% of sales via infinite aisle systems available in stores, 5% of sales via the website, and 4% via WhatsApp). Usually, the website is the privileged destination for the Salvadorian diaspora living abroad (2M people, representing a third of the Salvadorian population) while WhatsApp is a channel for locals.

Interestingly, the Siman group is not only about department stores, as, in its natural evolution, the company tackled other types of business (the diversification came much more naturally than for similar companies in Chile, for instance, where expansion was financially motivated). This is why Grupo Siman also includes:

•    A real estate branch involved in developments now independent from the department store activity (the Galerias Escalon mall which Siman built is now the only one owned by the company),
•    Financial services with a credit card system, Credisiman,
•    Non-department store-owned retail activities, such as La Curaçao, Artefacta specialty stores chains, XClaim multibrand beauty chain or Prisma Moda, a down market Zara-like format of 1,800 sqm selling fashion and cosmetics,
•    Franchised partnerships, such as MAC cosmetics (9 stores in the region), or Inditex: it operates as a franchisee the Zara, Pull & Bear, Berksha, Massimo Dutti and Stradivarius in the whole region (18 stores in 5 countries including Honduras where there are no Siman department stores).

Of course, this gives the group a significant edge in terms of negotiation leverage with mall locations, which is completed by the number of private labels they operate also often available in free-standing stores in the country, such as Sabrina, Orange or Nicole. For instance, in the Multiplaza mall, one of the only upscale malls in El Salavador where Siman does not have a location, 25% of the mall offer are Siman’s private labels’ free standing locations, and a higher proportion of the brand offer also relates to Siman’s controlled brands portfolio: in total, in all Multiplaza malls of the region, Siman rents 70,000 sqm of retail space (including the Inditex locations).

Almacenes Siman also took great care to be perceived as an attractive and trustworthy name in the region, and not simply a place to shop. This is why the group made partnerships with regional artists and singers in order to promote a modern and socially-minded image of the company as early as 2010, especially by insisting on women’s rights, which should not be taken for granted in this part of the world.

Visiting the Almacenes Siman store in Galerias Escalon

Galerias Escalon is the only real estate property owned by Almacenes Siman for the last 30 years, as the company decided then to focus on the retail part of the business rather than on property development. It is the only mall in the world which has been built around a house, La Casona, which dates back to the 30s. La Casona used to be a temporary Siman store following the 1986 earthquake and was then restored while the mall was built all around, to be today a cultural place with exhibitions.

The mall now spans over 115,000 sqm and hosts 133 retail units, after a renovation which started in 2006, adding a fourth floor and a cinema theatre. The new Millenium Plaza 24 floors-high tower, which is connected to Galerias Escalon and includes offices, apartments and a hotel, has been built recently and is about to be inaugurated (Siman is involved in this new development).

There are now 2m inhabitants in San Salvador (out of 7m in the country) which explains the lack of large international luxury labels such as Chanel or Dior. The most high-end available in the country would be brands such as Carolina Herrera, in which operations Siman is involved.

The Siman department store spans over 4 floors and 11,000 sqm. 100% of the business is done in the wholesale model with the exception of some jewelry brands and the café / deli operators.

The ground floor is dedicated to cosmetics and accessories. Cosmetics are displayed in classical black-and-white, low-rise stands, with a few exceptions such as Elizabeth Arden. Accessories are displayed in 2 separate zones surrounding the cosmetics part, with the men’s section on the right and the women’s section on the left (a curiosity according to Siman as it would normally be the contrary). All accessories stands are built with the brand concept, be them large international ones, or private labels (70% of the men’s offer, with a price-conscious approach). Shoes are in the centre and more space is planned to help their development as the category is growing. The floor is dotted with Creditsiman stations allowing to access the credit card account on-site and managing operations.

The first floor is dedicated to fashion, from high-end to contemporary, for men and women. More accessories and shoes are available here. Also, private labels represent a significant share of the business and mix heavy branding with accessible prices on all product categories (polos are sold at $20). Design is made in-house and then produced abroad. They also consider other companies’ private labels as international names, such as El Corte Inglés’ Sfera, which boasts a 70 sqm space. Special categories (petite, maternity, curvy) are perfectly integrated in the shopping journey.

The second floor leads to a gourmet section and a deli (operated in concession), linking to the street entrance, which is not on the same level as the atrium where La Casona and the main entrance are located. This allows to direct the traffic to the nearby kids’ section, nicely set up with décor, and which allows to also push forward Orange, a private label addressing babies, kids and teens.

On this floor, customers have access to tactile screens giving access to more stock than what is displayed in the kids, sports and furniture categories. It works: 4% of the store sales are achieved via this channel (the target is 8%) with variable results from one category to another (kids are 2%, furniture is 10%).

The floor also hosts the Click & Collect space, including the front desk but also the back office, which houses the company’s WhatsApp sales team and the gift wrapping unit (the WhatsApp team was located in this store and in these premises as, since Siman owns the real estate, they do not cost as much as they would do in terms of lost retail space in a rented store). An astute system allows to serve 200-300 customers per day (in the Gran Via location there are 400 daily click & collect orders picked up).

The third space hosts the home & décor category, domestic appliances, sports and toys. A small café neighbours the “club bodas” and the “club de regalos”, two service points where customers can organize their weddings and parties.

The Credisiman options are heavily advertised in the furniture section, where the Customer Service desk is also located. 70% of the total customer service activity is dedicated to Credisiman.

Visiting the Gran Via mall

Gran Via is located on the Panamericana highway (which goes on the whole continent from North to South), next to two other malls, Cascadas (which is successful thanks to its Dollar City point of sale) and Multiplaza, as smaller location with a strong F&B and mid-range offer (Lacoste, Kenneth Cole, Mango, CH..) traction, where Siman does not operate a department store but many of its private labels and direct retail operations (such as Prisma Moda). A Sears is also nearby, operated by Mexican billionaire Carlos Slim.

While both Gran Via and Multiplaza opened in 2004, they are extremely different as Multiplaza insists on entertainment (with a giant slide in its entrance) while Gran Via is an open-air mall, giving the feeling to stroll in a new part of the city, and tends to be more perceived as a “lifestyle” centre.

The Siman store is currently extending on 2 floors and 10,000 sqm but an extension project, currently ongoing, will add 4,000 sqm extra within November 2023 (900 sqm retail space for each floor, more stock space for shoes, accessories and women’s fashion, and a set of new offices which will be built on an entirely new floor). In addition, a brand-new entrance will be built, with a completely new façade. This should change the dynamics of the store's traffic, as, for now, 20% of the traffic only goes through the entrance on the open-air part of the mall, and the rest from the inside, especially from the parking access.

In terms of general approach, the original store was built with a set customer path, materialized by the flooring and fixed lamps. It has been decided that the path should disappear, in order to let the traffic flow infuse in the store, which also implies that the whole store has been re-lamped in a totally new way. All product displays will be removable and flexible, in order to encourage mobility and rezoning when needed.

The whole ground floor will be dedicated to cosmetics (14% of the business), beauty and women’s universe, with the full fashion range from young adult and contemporary to high-end. Here again, private labels will be emphasized, as Sabrina will be displayed on 120 sqm, as much as the space dedicated to El Corte Inglés’ Sfera.

The first floor is dedicated to Men’s, kids, home & décor including appliances and furniture (home and electro domestics represent altogether 30% of the business) where El Corte Inglés private label is also displayed, and electronics, as well as a café, La Barrica.

In this store, the click & collect section is almost adjacent to the customer service, both located in the furniture section (click & collect pickers roam the store to fulfil their orders and can be recognized with their specific outfits).

In terms of services, the infinite aisle shopping service represents 4% of the furniture category turnover. Customers also have access to automated machines allowing them to access the website’s e-commerce section. In the electronics section, some experts are here to give advice on Apple’s Genius bar model.

Going further: what is next for Siman?

Siman has identified the following 5 challenges for the coming years:

*-    The regional challenge: how to thrive in Guatemala and Costa Rica, where the store coverage is significant but lower than in Salvador, therefore not bringing in the scale synergies one could expect,

•    Talents: similarly to IADS members who have decided to dedicate the 2023 Academy program to this topic, Siman is aware that they will need to attract new talents (sometimes in new areas) in order to remain competitive, and this will imply many organizational changes (which started with the appointment of the first CEO not coming from the family, Mr. Juan Pablo Galvez, last June).
•    The need to double down on Siman’s strength, Creditsiman and how to increase its penetration.
•    Some categories have to be addressed: shoes as their growth potential in terms of topline contribution is obvious, but also electronics, in order to contribute to the development of Credisiman. In the same way, the private labels business could also contribute to either the top line (by selling them to other companies) or the bottom line (by purchasing private labels from other companies such as El Corte Inglés).
•    The need to refurbish 5 stores which are all 20 years old in the coming 5 years.*

As a consequence, in order to tackle these highly interconnected challenges, the secret will lie in the combination of resource allocation and capability to innovate, both in terms of systems (a new POS system is being implemented, and new OMS and CRM systems are planned, in order to address the 500k customers in Siman’s database – another area of potential progress -), and organizational mindset, which is why Siman has signed a partnership with the IEM in Madrid to foster innovation within the 6,000-large team.

In a country that had been riddled by a civil war not so long ago, and where the crime rate used to be very high, the good fortune of Siman is impressive, as nothing is taken for granted and there is a constant preoccupation to make sure tomorrow’s challenges are addressed. Given the growth potential that is expected in the region in the coming years, chances are that Siman as a name will become more familiar to international players in the future.

Credits: IADS (Selvane Mohandas du Ménil)

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*Improving Private Labels’ profitability is crucial to the department store business and is a top-of-mind priority for CEOs (this is why the 2022 Academy worked on this topic). Two major strong trends can be seen here:

-    Organisations (including the supply chain) have been reviewed and changed to be more cost-efficient as well as more agile.

-    Secondly, whether they are under an umbrella brand or not, Private Label portfolios have been reshuffled, which often resulted in the discontinuation of some brands to maintain margins, but also in opportunistic ventures.

Besides these 2 major sources of optimization, new questions are emerging lately. Improving branding and awareness is key to developing the business. The pricing strategy offers 2 different directions: the lower-price path, or a possible premiumization of Private Labels which is increasingly considered to grow margins. In addition, department stores and retailers sit on a data treasure as they know who’s buying what, where and how. With the emergence of the retail media business, it seems data could be leveraged to improve Private Labels’ efficiency and relevancy. However, some questions remain, and the Private Label digital strategy and the communication on CSR efforts are among the most important ones.*

Transforming Private Label organisation towards cost optimisation and production efficiency

Changing the model: ‘Coopetition’ and ‘Integration’?

There’s no one-size-fits-all model when it comes to Private Labels. Retailers rely on a variety of operating models, ranging from highly centralized organizations with dedicated resources (including brand management, product design, sourcing, marketing, and consumer insights) to decentralized operating models in which merchandising teams own much of the strategy and execution. The organisation question comes down to 2 organisational options:

•    Coopetition: the Private Label team is in charge of sourcing, style and product development, while the buying function is taken care of by the buying team in charge of national and international brand purchasing.

•    Integration: the buying responsibility is part of the Private Labels team’s duties.

The benefits of the ‘Coopetition’ model: the example of an IADS member

In 2021-22, an IADS member changed its organisation from Integration to Coopetition with several significant benefits:

•    The team downsized from 58 FTEs to 28. As an example, the kidswear team was reduced from 12 to 6,5 FTE thanks to management responsibility mutualised with another product category and fewer people in sourcing. Also, the buying responsibility went to buyers in charge of national brands. Finally, designers are now working freelance.

•    More efficiency at the design level thanks to a collaboration with a local creative intelligence agency defining clear creative directions for the season. Also, designers are now freelancers and are more eager to bring relevancy to the table.

•    National brand buyers are providing detailed and accurate feedback to challenge the product’s appeal.

Reorganising the supply chain: finding the balance between a more secure production and higher retail prices

In January 2021, the IADS offered to participants to compare their production schemes. At the time of this research, members’ production lead time (from offer definition kick-off to first date in-store) ranged between 37 and 61 weeks. With the Covid-19 impact on China, the war in Ukraine, and the energy shortage, department stores had to rethink their production schemes as explained in the IADS Merchandising dedicated to Private Labels end of 2022. Their main initiatives include production planning starting earlier, which saves up to 2 months on the production lead time. Also, nearshoring in the Euromed zone allow some members to save up to 8 weeks: however, it comes at a price, as production costs can vary by as much as +3% when switching from China to Euromed, while they can decrease by -4 to -8% in other South East Asian countries (but raising new operational and logistic questions). In any case, reliance on Chinese suppliers was reduced, sometimes by up to 6%, in favour of South East Asian countries (+6%) and the Euromed zone (+1.5%) to improve lead time and dilute the risk linked to producing in China. Finally, raw materials are 100% booked in advance with members committing to suppliers and paying later. As a result, compared to 2019, members had to increase their retail prices from 5% to 27% to secure margins.

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Optimizing the Private Label portfolio: downsizing, product efficiency, and a dose of opportunism

Cancelling brands is efficient

Cancelling inefficient brands is a widespread strategy coming with 2 options. The first one is about working under a single umbrella brand to avoid product overlapping and product gaps. For instance, Manor cancelled brands to only operate a Manor-labelled transversal brand. Despite a very different size and scale of the business, Magasin du Nord now also operates under a store umbrella brand. Both retailers see the umbrella brand as an opportunity to enhance the store brand itself. Knowing that having several brands requires dedicated investments, a single umbrella brand is also considered a way to be more cost-efficient. On its side, Galeries Lafayette reduced its brand portfolio to focus on one umbrella brand but kept an additional brand in womenswear, menswear and kidswear.

The second option is about relying on several Private Labels. IADS members such as El Corte Inglés and El Palacio de Hierro are not working with a single umbrella brand but with different brands, each of them having a clear DNA and a focus on a specific consumer group. Still, El Corte Inglés reduced from 41 brands in 2019 to 21 in 2022 to increase the initial margin, secure EOS sell-through close to 100% and a minimal turnover per label per year. At El Palacio de Hierro, 3 brands (out of 6) accounted for over 75% of sales. As a result, 2 inefficient womenswear brands were discontinued.

Favouring a mono-product strategy

As discussed with member IADS-1, mono-product categories have proved to be more easily profitable (men’s shirts, women’s soft accessories, cashmere sweaters, and linen during summer). SKU efficiency is key here, and a smaller number of them doesn’t mean success: to a certain extent, having fewer references and more colours in one reference has a positive impact on turnover (with an average of 5 colours). Also, the 2022 IADS Academy group analysed members’ anonymised figures: they found out that the number of SKUs is on average 5 times higher for the brands with the highest gross margin.

Expansion through opportunistic additional business

Agile expansion of Private Labels could possibly rely on product trends. Surfing the huge athleisure wave, Target’s brand All in Motion launched in 2020 is a good example: a year after it launched, the label achieved the company's goal of generating USD 1 billion in its first year. It was developed in-house, with an eye toward sustainability, quality, inclusivity, and consistent with the “more for less” Target mantra.

Buying out existing brands is also an interesting option favoured by Marks & Spencer. First, they reduced the number of Private Labels. Now, the company is buying out existing brands (such as Jaeger) to muscle its offer. Results seem promising: third-party brands account for 4.1% of the clothing and home sales, bringing in GBP 70m of revenue in 2021.

At some point, acquiring a brand and operating it collectively or developing one together was considered by some IADS members. In that regard, the example of Farfetch acquiring New Guards Group (Heron Preston, Opening Ceremony…) and the cosmetic brand Violet Grey is interesting but raises questions. The brand price point should be quite low to fit all department store members but right now such brands are facing huge difficulties as they can’t scale up to become omnichannel. Besides, even though customers are increasingly attracted to the same international brands, cultural differences still exist with the products local customers might favour.

Leveraging Private Labels: branding, pricing strategy and… data?

Brand image: building awareness to attract younger customers

When it comes to muscling the brand image and attracting Gen Z, partnering with external brands or influencers can be a winning strategy. Several examples are interesting to look at. Magasin du Nord had a collaboration with a major Danish influencer: a capsule of 11 styles priced at EUR 40-120 led to an impressive sell-through rate and net margin as well as important net sales. 54% of the customers were new customers and the number of online searches increased 5 times. Also, Fred Segal can represent an example of ultimate Private Label branding: benefiting from a certain coolness, the US lifestyle retailer betted on printing the store name and logo of its first Private Label t-shirts and hoodies (retailing at USD 390). Also, JCPenney recently partnered with the infamous brand Juicy Couture at a time when it was on trend again.

Pricing strategy: going low or going up, that is the question

Price has always been a key component in the success of Private Labels. John Lewis’ Anyday brand, positioned 20% to 40% lower than John Lewis' other own brands, recently expanded to reach new, younger customers. Promotional efforts worth GBP 500m (including the opening of an experiential free-standing store) seem to be working: 25% of Anyday shoppers are either new or reactivated customers, as well as younger, yet less wealthy shoppers. However, this strategy comes with the risk to fight de facto against powerful low-price competitors such as Primark. On its side, El Corte Inglés’ ambition is to transform some of its lower-price Private Labels into real brands. To continue with this strategy, UNIT (entry price vertical RTW and accessories brand) will soon launch brick-and-mortar stores in malls, close to Primark stores.

On another hand, premiumization includes higher price point, elevated marketing tactics and sustainability. Overall, consumers think that Private Labels are extremely good value for money which doesn’t mean being the cheapest they can be. Besides, for less powerful department stores, there is no interest in trying to be the cheapest. The price of the Private Labels is no longer the primary factor for some customers. This is the case at Target, where product quality is gaining more importance than price in building customer loyalty. Some retailers already tackled the idea of a premiumized Private Label: with Monoprix Gourmet‘s success (700 products), Monoprix (the French urban “variety” store) shows that the key factor is not about being the cheapest but offering quality to urbanites willing to pay more. In 2022, Printemps introduced a make-over of its Private Label fashion lines (men’s, women’s RTW and accessories). The Private Label was rebranded Saison 1865 (from the year the department store was created), hence decorrelating the store name. The claim is to offer transgenerational wardrobe essentials with excellent value for money and sustainable options. This premiumization comes with a 15% retail price increase overarched by a sustainable claim, more elaborated communication and marketing, which could help in building a true identity for the Private Label./nbsp]

Some IADS members’ department stores are already tackling higher price segments: Breuninger’s Ms & Hugs is successful with EUR 250 dresses for instance, and Manor performs well with rather high-priced items such as cashmere coats at EUR 600. Manor, Galeries Lafayette and El Palacio de Hierro are considering launching a premium Private Label, knowing that premium might have different meanings and price points from one department store to another. For instance, at Galeries Lafayette, the price point would be similar to Sandro’s and the inspiration would take cues from premium consumer aspirations (responsible, slow life, craftmanship). On its side, Manor would favour quality basics using fabrics such as Supima cotton.

Is data the next big lever for Private Labels?

Farfetch’s decision to launch a Private Label (dubbed There Was One, offering minimalist basics for women priced between USD 95 and USD 2,000) was informed by consumer shopping data. Data showed that since the start of the pandemic, shoppers were investing in long-lasting and sustainable pieces. Among the key factors to Private Label success, Alix Partners mentions that customers’ insights should be injected into all steps of product development processes. Firstly, this should be eased by the access retailers have to their own customers’ data through their various payment and loyalty schemes. This strategy already proved its efficiency: Amazon is famous for leveraging data to build several of its Private Labels, sometimes to the dismay of marketplace sellers. Secondly, retailers and department stores are currently entering the retail media business, putting store data at the brands’ disposal through dedicated platforms. This could serve the Private Label business as well as other brands.

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Private Label success is a complex combination of an effective and agile organisation, the right portfolio articulation, positioning, planning, and a dose of opportunism. While ensuring Private Label profitability and relevance remains a never-ending concern for department stores, additional levers for growth – if not all new – could be considered. Among them, doubling down efforts on branding and brand awareness could help create a true identity able to attract the younger generations, much needed to rejuvenate the customer base. The right pricing strategy is also key: in that perspective, department stores are assessing the possibility of a premium Private Label, which could be an additional way to grow the business and increase margins. While the latter has not proved to be broadly efficient yet, using sales and consumer data increasingly grows as a way to develop retailers’ businesses. The possibilities offered by new retail media ventures could be expanded to benefit Private Labels.

Also, additional questions are still unanswered. The digital strategy for Private Labels appears to be a work in progress for many department stores. It seems most members are not differentiating their online and offline product offers and didn’t truly build omnichannel strategies yet. Some department stores are more advanced though: for instance, El Corte Inglés’ Private Labels have their own landing page on El Corte Inglés’ website. This might lead the company to eventually create a specific website for each Private Label in the future. Also, Manor’s website promotes and prioritizes Private Labels products as soon as they are strong enough: this is the case with cashmere and ‘essentials’ sections putting Manor products first.

Another tricky question is about department stores' CSR efforts in Private Labels. Often more ambitious than national brands, department stores face issues when it comes to communicating information to customers: they have a hard time deciding on a “communication” umbrella efficient both offline and online. Risks for department stores are to appear as they are lacking credibility and of course, they could be accused of greenwashing. Overall, department stores didn’t find yet the right balance between providing precise information and being simple, honest, catchy and inspirational (including for their international consumers).*

Credits: IADS (Christine Montard)

Printable version here

Explore the pictures here

*Following the IADS CEO meeting in Mexico City last May, the IADS had the opportunity to travel to Chile to visit Paris Department Stores’ and Falabella’s flagships, located respectively in the Alto Las Condes center and in the Parque Arauco mall.

Chile is considered one of South America’s most prosperous nations, in terms of competitiveness and income per capita. Before the pandemic, with consistent GDP growth of around 3% to 4% annually, the country enjoyed economic diversification across sectors like mining, agriculture, manufacturing, services and tourism. The nation's stable institutions, market-oriented policies, extensive trade agreements, and high global competitiveness rankings attracted foreign investment.

The COVID-19 pandemic had a profound impact on Chile, affecting various aspects of society, the economy, and public health. The country witnessed a significant number of confirmed cases and fatalities, placing immense strain on the healthcare system. To curb the spread of the virus, strict measures such as lockdowns, travel restrictions, and social distancing were implemented. Being one of the leading countries in terms of vaccinating its population as early as December 2020, combined with the massive adoption of digital technologies and telecommuting, Chile was able to weather the crisis earlier than other countries, and this showed in Falabella’s numbers, then a member of IADS. While GDP shrank by -5.8% in 2020, it grew +23% in 2021, exceeding the previous record of 2018. While normalization took place in 2022, this led to an extraordinary expansion for retailers, both in nominal and in terms of e-commerce growth, a channel already well implemented in the country.

Falabella opened in great fanfare its newest flagship store in November 2021 (our report here) and it was hailed as a perfect integration of omnichannel practices into a physical store. The IADS took the opportunity of a visit to the region to go and review the store, and to compare it with its competitor’s neighbouring flagship store, Paris.*

History and background: Cencosud and Falabella, two multifaceted and similar giants

Almacenes Paris (Cencosud)

Almacenes Paris, a former member of the IADS (2000-2005) was established in Santiago in 1900 by José María Couso as Mueblería París. The store originally carried Italian merchandise copied from French models, and evolved into selling copies made by local artisans, before expanding into home (rugs, tapestries, mattresses, bed furnishing) and accessories (glassware, china, porcelain, cutlery and bathroom supplies). Fashion came later and the business was sold to Antonio Gálmez in 1910. The company changed its name to Almacenes Paris in 1950.

Almacenes Paris started to branch out from Santiago city centre by opening in the metropolitan area (Providencia) in 1983, in spite of a poor national economic context. It then continued expansion through a mix of opportunistic moves (the bankruptcy of Brazilian department store company Muricy in Chile in 1990, after 19 years of operations, allowed Paris to acquire their Parque Arauco and Mall Plaza Vespucio stores, both in the metropolitan region of Santiago ) and pure expansion (Plaza Oeste in 1994 and the first store outside Santiago in Concepcion in 1996), reaching a total of 7 department stores (each of a surface comprised between 8,000 and 15,000 sqm) by 1996, second to Falabella in terms of store number, and addressing middle-class customers.

It went public that same year and immediately engaged in diversification: real estate (by taking shares in Plaza del Trebol and Plaza Oeste existing malls, but also in new projects in Puente Alto and La Serena ones), speciality stores (by acquiring Tecnopolis, a chain of computer stores). It also doubled down on financial services: Almacenes Paris was the first retail company to introduce a credit card, Tarjeta Paris, in 1970, in Chile, and boasted 1.3m credit cards by 1998. They also kept on investing on a new venture, Paris Express, a virtual store enabling customers to purchase online, in 1999. By 2002 Paris was selling a third of its merchandise online.

The retail chain also kept expanding: 3 new stores were built, soon completed by the 1999 acquisition of failed Chilean operations of JCPenney (which had entered in 1994), allowing Paris to reap its Alto Las Condes mall store and to reach a total of 14 stores by 2000. A new corporate headquarters tower (Torre Paris in Providencia district) and 3 more stores allowed the chain to reach a total of 150,000 sqm of retail space disseminated in 16 stores in 2002. However, analysts worried that the company was falling behind its rivals Falabella and Ripley, which led to a corporate reorganisation into 4 subsidiaries: retail, industry, real estate and financial services. The leading source of income, however, was not coming from retail activity, but credit (75% of the group’s total sales were financed by its own credit cards).

As the retail division kept on lagging behind its rivals, the Gálmez family sold 52.4% of its shares to a group of various investors in August 2004, who implemented a turnaround plan. However, the country was shocked to learn that Cencosud, the largest retailer in Chile and Argentina with Jumbo and Santa Isabel hypermarket chains, made a surprise offer and was able to purchase 72.67% of the company in February 2005. As a consequence, Paris was no longer a public company and became a subsidiary of Cencosud.

Cencosud today is the largest retail company in Chile and the third largest in Latin America behind Companhia Brasileira de Distribuição and the Mexican Walmart de México y Centroamérica. It operates 3 supermarket brands (249 units), the Easy home improvement specialty chain (37 stores), 35 shopping centres, and the Cencosud Card (2.5m users in 2015) in addition to 49 department stores in the country for a total of 286,000 sqm of retail space (Cencosud also operates in the rest of the region, but Paris remains limited to Chile).

The department store company offers a mix of private labels (Alaniz, Attimo, Greenfield, among others), with international brands distributed in exclusivity (Brooks Brothers, Lacoste..) presented in brand corners, and is the third largest department store business in the country, behind Falabella and Ripley.

Falabella

A former member of the IADS (2006-2022), Falabella was founded in 1889 by Salvatore Falabella as a tailor shop in Santiago. Operations started to expand in 1937 when Alberto Solari joined, incorporating new products, opening new points of sales and revising the business model as a whole, until becoming a true department store in 1958 including home goods.

They opened their first store outside of Santiago in 1962 in Concepcion, however business development was slowed by the political and economic context of the country. Following suit in Almacenes Paris’ footsteps, Falabella launched its own credit card in 1980, called CMR Falabella. In the 80s, Arnaldo Falabella, the son of the founder, passed away, and Alberto Solari retired, leaving room for new management under the helm of Juan Cuneo Solari, his nephew. He led a group of investors and purchased 75% of the company, marking the beginning of diversification into finance, insurance, real estate and tourism.

Falabella took stakes in the Mall Plaza group, which opened 7 malls (Plaza Vespucio, Oeste, Talaba, Norde Santiago, El Trebol in Concepcion, La Serena and Los Angeles). By 1996 Falabella was operating 22 stores and had started international expansion in Argentina and Peru, when it became public the same year. Similarly, to Paris, expansion accelerated in various retail activities (through partnerships with Home Depot and a national drugstore chain), travels and insurance, and the launch of Banco Falabella.

They also jumped the Internet bandwagon by launching e-commerce activities in 1999, adding the final touch to a whole ecosystem where customers were able to find products from Falabella’s various divisions in many different places and stores, and financed by the retailer group. As a consequence, it held 43% of department stores market share in 2001. Expansion accelerated: the group extended its reach on the DYI market by purchasing Sodimac, the market leader, among others. The expansion was financed through capital increases, leading to the practical disappearance of the remaining family members on the map of significant shareholders. At that time, just like at Almacenes Paris, half of the company’s profit was coming from credit card operations.

The Falabella group today is present in Peru, Chile and Colombia (both Paris and Falabella took the opportunity of the Covid-19 pandemic to exit Argentina). Its activities encompass department stores, hypermarkets (Tottus, 72 units), DYI (Sodimac, 85 stores in Chile), real estate (in malls), banking (Banco Falabella), a travel and insurance company, a credit card service (7.2m active customers), as well as an Internet and mobile service provider company. In 2022 there are 47 department stores in Chile, of which 19 are in the Santiago metropolitan region.

Interestingly, the department store division has been renamed ‘omnichannel retail’ in 2021 after it was decided that www.falabella.com (launched as early as 1999) would integrate e-commerce and marketplace services in a division separate from the physical department store operations.

Similarities

Both groups started online operations quite early, and often earlier than their international counterparts. Through a mix of in-house developments and external acquisitions, they both completed their digital capabilities in terms of product distribution, logistics and payment capabilities. As a consequence, both are able to offer a real ecosystem to their customers, similar to the Asian “super-apps”, but different in terms of how the various components are articulated and presented to customers (to respect privacy rules which, in Chile, are in line with the rest of the Western world).

Another similarity is linked to the fact that the metropolitan area of Santiago is saturated with department stores. As a consequence, growth came from services, such as travel and insurance first, but rapidly, banking appeared as the most interesting way to capture customers in the developing ecosystems. The financial strength of retail groups is extremely important: in 1998, 21% of all Chilean customer credit came from Falabella, Almacenes Paris and Ripley, representing 2% of the country’s GDP (this represented by then 10m credit owners out of 14m total population by then). They have then largely contributed to the progress of debit card, credit card and digital wallet ownership in the country.

Today, Falabella and Cencosud’s banking services are ranking high in a country where 74% of the population (19,4m people in 2022) have a bank account (vs. 49% in the region). This financial evolution helped Falabella and Almacenes Paris to develop large customer databases early, which in turn explains why they were able to enter the e-commerce and digital world early.

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Visiting the Almacenes Paris store in Alto Las Condes

The Alto Las Condes 231,000-sqm-wide mall is a medium to high-positioned mall, catering for the needs of the posh Las Condes neighbourhood (which may be why the mall is surprisingly not accessible by public transportation). While there are Falabella and Ripley units in the mall, the highlight is for sure the 4-floor Paris store, which used to be a JC Penney store  and is now a flagship for the company, headquartered in the mall itself.

The ground floor is dedicated to a strange mix of categories, as it presents fragrances, women’s shoes, kidswear and toys, as well as lingerie. Transitions from categories to categories are harsh and immediate, this is a feature that is also common to Falabella, and product universes are often simply juxtaposed next to each other.

The first floor is dedicated to women’s fashion. The floor is mostly dedicated to private labels (another common feature with Falabella), with a concept store section including brands such as Hoss Entropia (a Spanish brand) and more anonymous labels such as Tienda de Carolina or Club Mol. Overall, it is obvious that there is a glass ceiling in terms of price point but also in the types of styles presented to Chilean customers. The purpose is more to sell garment than pure fashion, and international brands are hardly visible apart from names such as Springfield, Allsaints or Esprit.

Interestingly, sustainability is a very visible and outspoken topic, through various aspects:

-    Some ceiling decors that remind the ones at Galeries Lafayette Re-Store,

-    A vintage shop-in-shop, well merchandised and fully integrated in the omnichannel processes (customers have the possibility to return products within 24 hours from home after purchase, and access more second-hand products online, through an infinite aisle accessible with a QR code),

-    A denim recycling point, “Foster”.

In spite of the product offer not being very fashionable, customers can customize their purchases at a “Paris lab”.

The second floor is dedicated to men’s fashion, and tech, which is literally next to the sport section. Tech brands are heavily branded but tend to be more seamlessly intricated in the RTW environment than the categories on the ground floor. The floor is designed with a category approach in mind rather than lifestyle: everything is available (RTW, shoes, underwear, accessories) in dedicated spaces next to each other, and poorly transitioned. The sport section, near the Tech category, also presents women’s products.

The third floor is dedicated to home & décor, as well as services and a gourmet section. The scenic effort is more visible here, in order to help customers project themselves with the displayed products. The travel agency is located in the middle of the tableware section, and white goods are presented in front of the sofas and other home furniture rather than being connected next to the kitchen and home accessories section.

Overall, the store has an impression of being mostly dedicated to selling private labels, in a rather straightforward approach that still relies on a category approach rather than thinking in terms of universes. Two elements were however noteworthy: the sustainable communication as already mentioned, but also and more importantly the omnipresent omnichannel capabilities across the store:

-    On all floors, customers have access to barcode readers that allow them to get price information about the product they are scanning thanks to their loyalty card,

-    Other readers also allow reviewing the points left and the available credit limit on the store card. Those readers encourage the use of the Paris app, luring customers with specific and tailor-made promotions only available on their own app.

-    Most of those readers are available in zones also presenting banking services allowing customers to draw cash, manage bank accounts, and use other services.

-    Tactile screens give more product options to customers, especially in the Home & Décor section.

-    When it comes to paying for the purchases, customers have the choice of either walking into the staff cash desks or using the Express cash desk, a self-service check-out where customers have to remove the anti-theft systems by themselves, under the supervision of a distant staff.

-    The Click and collect pick-up space is located on the 3rd floor, either in the customer service section or in the “Retiro express” one if customers have chosen the speedy option.

All in all, the store gave a strong impression of being well equipped and connected in terms of systems, which are all designed to help customers with their purchases.

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Visiting the Falabella Parque Arauco store

The Parque Arauco mall is not especially new, as it opened in 1982, and constantly evolved, through territorial expansion, with for instance the open-air luxury district, which opened in 2013 with the likes of Louis Vuitton and Armani. Falabella entered the mall in 1983 when it purchased the failed Sears department store, and Paris in 1991 when Muricy went bankrupt. Ripley also joined the mall later on. Today, the mall is 110,000 sqm-wide and aims at an international and touristic clientele, even though there is no public transportation connection as the subway connection is only planned in 2027.

Falabella relocated its Parque de Arauco store in the mall in 2021 to a new and larger location, on 25,000 sqm and 4 floors, which makes it the largest of its kind in South America. The store was hailed as an omnichannel proof of concept for Falabella when it opened, as it is equipped with the latest available tech and systems.

The ground floor is dedicated to men’s and tech. The overall impression is the omnipresence of a specific design, which gives the store more identity than the Paris one in Alto Las Condes. However, the surprising and sometimes brutal lack of transition between categories is also very present here, as they are simply juxtaposed and not designed to merge into each other, in the framework of a customer journey.

The men’s section is quite extensive and includes a mix of private labels and mid-market international brands such as Dockers, Polo or Lacoste in RTW, Clark’s or Aldo in shoes, Levi’s and Nike in denim and sportswear. It is all about customer experience: sport attire can be customized, and outfits can be made to measure in the formalwear section.

The electronic section includes a gaming zone, obviously aimed at the younger generation, but surprisingly located very near the store pop-up activation section, which was dedicated at the time of the visit to Carolina Herrera (women’s offer). As a consequence, the commercial animation felt a bit disconnected in this specific location.

The whole store has a backbone of automatic staircases framed with giant screens, on which seasonal animations and promotional messages are displayed. As a consequence, moving from floor to floor feels very dynamic and energetic.

The second floor is dedicated to women’s cosmetics and accessories. The staircase brings customers immediately next to a café as each floor has a F&B offering in the customer landing one. Here also, the zoning feels surprising, with shoes in front of lingerie and next to cosmetics (the cosmetic one feels very luxurious thanks to the use of heavy lighting and low-rise display furniture). The accessories section feels busy in terms of product density with a mix of private labels and brands such as Bimba y Lola. Here again, there is a feeling of a glass ceiling in terms of maximum price point and brand type offered to customers.

The third floor is dedicated to women’s fashion. Brands are presented in lightly decorated shop-in-shops, which makes them slightly more attractive than in the men’s section. The circulation plan is a bit more complex as the space is also dotted with small lounge spaces mixing RTW and accessories, with dedicated cash desks suggesting they are operated in concessions.

Significant spaces are allocated to international mass brands (Mango, Maison 123) and Falabella’s private labels: Sybilla, University, Basement. A personal shopper service is located just next to the fitting rooms, and in the case of Sybilla, the space is so large that it has its own cash desk (both staffed and self-check-out).

Across the floor, many messages related to sustainability are made extremely visible and insist on Falabella’s various commitments.

The fourth floor is dedicated to Home & Décor, and kids. In the kids section, an ice cream zone and a Samsung store make the connection with the home section.

In the home section, next to the heavily branded and decorated electro-domestic section, a virtual showroom displays on a huge screen any piece of furniture selected on an Ipad and allows customers to see its full-size rendering. Once visualized, the product can be sent to the customer’s shopping cart.

Just like at Paris, omnichannel capabilities are everywhere:

-    Screens allow customers to browse the website (which raises questions in terms of internal organization and incentives as instore and online operations are operated by 2 different business units),

-    QR codes on tags allow to have access to in-store ordering, asking for help or advice. However, those services are accessible via a Wifi system that cannot be used without a Chilean PIN number, which is not possible for a tourist,

-    The click & collect space, in the Men’s space, is beautifully executed and has been designed to make the potential waiting time painless,

-    All Falabella services, including banking, insurance and other, are available on dedicated machines across the store.

Here also, the store feels modern, well-equipped and fully integrated into a real omnichannel ecosystem placing the customer at the centre of the model.

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Going further: the job is done?

*Overall, the technology demonstration and its full integration in stores are impressive at both retailers. While the Falabella store is newer, and therefore its design is more modern, when it came to the range of services made available to customers, both Falabella and Paris felt on par.

However… in both cases, the selection made available in-store, both in terms of price point, types of products and brands, was relatively uninspiring and felt mundane. While Chile is a relatively closed country with specific states, it is nonetheless a fact that the younger generation is more connected everywhere in the world and more aware of the trends. For that reason, it felt very hard to imagine that both stores were able to draw a younger crowd, and during both visits, the clientele felt rather middle-aged, with a middle-class income, and not really looking for something fancy.

In addition, the product and brand offering felt very similar from one store to another, even though there were many private labels presented. One may only wonder if, while Chile is more advanced than others in terms of omnichannel capabilities, it is not lagging behind in terms of product assortment and desirability, a key feature to remain competitive in front of large pure players and disruptors such as Shein, all looking for such new rich markets.*

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Credits: IADS (Selvane Mohandas du Ménil)

Printable version here

*In recent years, inventory tracking has become increasingly sophisticated and popular. In that regard, RFID (radio frequency identification) is being used to provide real-time location tracking of inventory items. In 2021, a study conducted by Accenture revealed that the use of RFID in North American retail was booming with 93% of store chains saying that they are using RFID, especially as e-commerce grew so quickly with Covid. In addition, RFID can be coupled with endless other technologies, such as the Internet of Things (physical devices embedded with technology and connected), to offer customers more unique experiences.

Also according to Accenture, information captured from RFID technology can be used in collaboration with blockchain, supply chain analytics, self-checkout, supporting omnichannel fulfilment, reducing stockouts and improving customer engagement.

In addition to more efficient inventory management, RFID can help reduce supply chain waste and help businesses to grow more sustainably at a time when consumers are increasingly asking retailers for more responsible operations.

So, what’s not to love about RFID? It happens that successful case studies are plenty, but as discussed during the IADS Supply Chain Meeting held in June 2023, there is no consensus about RFID among IADS members. Let’s understand why.*

How RFID can help reduce the cost of supply chain waste

Avery Dennison came as a guest speaker for the Supply Chain Meeting to explain the benefits of RFID technology in reducing supply chain waste. To measure the real cost of supply chain waste, they conducted 2 global surveys covering 5 markets (UK, US, France, China and Japan) and 5 industries (apparel, food, beauty, pharmaceuticals and automotive): no less than a total of USD 163bn worth of revenue is lost every year in discarded inventory. In the apparel industry alone, 6% goes to waste due to overproduction and damage, representing USD 15.3bn worth of inventory. In the beauty and personal care industry, waste represents over 10% of products.

More in detail, RFID provides solutions to the challenges arising from supply chain waste:

• There is a disconnect between sustainability concerns and supply chain initiatives: 58% of businesses surveyed are actively tracking supply chain waste but not aligning sustainability with supply chain initiatives. Efficient inventory handling is a solution as it reduces overproduction and therefore cuts down on CO2 emissions and packaging waste, allowing companies to reach ESG targets more quickly and efficiently.
• Overproduction is a major issue as companies are investing in additional inventory to avoid product shortage and consumer dissatisfaction. Overproduction occurs due to a lack of clarity on the amount of stock already being produced, distributed and purchased. Inventory visibility is a solution: item-level end-to-end visibility of inventory negates the need for safety stocks and companies can better implement FIFO (First-In, First-Out) policies.
• Damage is triggering inventory waste: 4.3% of inventory is wasted globally due to the accidental damage or destruction of goods, representing a total of USD 81.6 billion of global inventory value wasted across the five sectors. Data can pinpoint where damage occurs and by knowing exactly where and how damage occurs, supply chain teams can work with suppliers to solve issues.

Companies recognize these problems, and those surveyed said their use of key technologies such as blockchain, RFID, AI, robotics and drones will at least double in the next two years (54% currently track unique items within their supply chain, but this will rise to 100% in future, which could help to reduce waste). According to Auburn University, apparel retailers currently have 65% inventory accuracy but with RFID, the rate improves up to 99%. On its side, McKinsey identified ‘more than’ a 25% improvement in inventory accuracy by using RFID in retail.

Case studies: from back-of-house technology to customer-facing enhanced experience

There are several ways to use RFID. Uniqlo has extensive technologies in place from item tracking to ultra-fast stock take (they can inventory a pile of clothes in seconds) and seamless self-checkout. French sports retailer Decathlon also took advantage of RFID, and the company is said to have profitable operations. They started RFID implementation with one product category and then, step by step expanded to additional ones. The process was successful, and this is also the method Avery Dennison would recommend. Implementing RFID depends on volumes: it usually requires a 3-month pilot to implement, test and adjust. Depending on volumes, implementing RFID on one product range per year could be a safe and efficient pace.

Grupo Boticario, a beauty brand in Brazil, uses on-metal RFID tags as they seek end-to-end traceability across its increasingly complex supply chain. Thanks to these tags purpose-built for beauty, stockouts were reduced by as much as 97% and the identification of hidden stockouts increased by more than half. For the company, a key use for RFID is FEFO (First-Expired, First-Out), which eliminates most product expiration and allows them to balance inventories between the front and back-of-house.

Adidas is using RFID for its Infinite Play circular programme in the UK. The solution allowed them to deal with reverse logistics, scale their ability to buy back products and give them a second life. RFID also allowed Adidas to be certain of the product’s authenticity.

Etam (French lingerie brand) adopted digital ID technologies to drive omnichannel innovation and transparency. The brand’s ‘Try @ Home’ initiative leverages RFID as a way to increase consumer convenience. Also, clients can scan the QR code on product labels to get instant access to short videos that provide insights into the actual factory where the item was produced.

As explained during the Shoptalk retail conference held in May 2023, H&M’s COS smart store’s ambition (currently in a testing phase) is to serve both the staff and the customers as well as to connect the digital and physical worlds using RFID technology. Overhead RFID readers are set up in the store, fitting and stock rooms allowing the store staff to have a constant view of where products are on their mobile app. On top of showing a map of the store to see where the item they are looking for is located, the mobile app also provides style suggestions able to help sales associates increase turnover. The RFID technology also helps with store replenishing and merchandising. For COS, it represents a true competitive advantage as new employees can be very productive in a reduced amount of time. On the customer side, once the item is brought to the fitting room, the RFID tag automatically connects to the screen in the fitting room: style suggestions are proposed, as well as additional products. Using the screen, shoppers can also request different sizes and access mobile checkout. Overall, according to COS management, their smart store based on RFID technology is said to significantly elevate the customer experience and increase sales.

IADS members’ experience with RFID technology

Why is there no consensus about the technology? It seems the potential provided by RFID is not used to its maximum, proving that efficiency is limited. Also, as mentioned by members, the technology has been here for a while now and many retailers have not yet embraced it. Besides, many questions need to be answered, such as at which stage of the operations should RFID tags be added to the product. It seems ideal to have suppliers putting them on products but in case it’s not negotiable, is it still beneficial and efficient enough to add them to goods at the department store’s DC? Besides, RFID implementation is in essence more challenging for a retailer than for a brand. Let’s also remember when Walmart announced that all of its suppliers needed to have their pallets tagged with RFID in under two years. This forced adoption ended up leading to RFID’s demise when the project resulted in the realisation that the costs, at the time, outweighed the benefits. Then the project was deemed a failure in the retail industry.

One IADS member has been using RFID quite extensively for 7 years (especially with their Private Labels). Digital IDs are put at the suppliers’ facilities. The department store convinced some external brands to include RFID in their products, but it can sometimes come with insoluble problems:

If a brand is only doing it for a single retailer and not implementing the technology as a strategic move, the quality of information can be very poor.

So far it has been impossible to put RFID on very small items, FMCG and bulk items.

Companies, such as luxury brands which are essential to many department stores, are refusing to invest in RFID technologies.

Also, and out of security reasons, this IADS member decided not to use the technology in payment processes and as an anti-theft device. Tags can be too easily removed compared to hard EAS anti-theft tags. While they are reviewing the possibility of mixing both technologies in soft tags, their security department feels that these tags can be cut or damaged very easily.

RFID costs can be an issue: they are difficult to evaluate as they depend on volumes. Still, Avery Dennison estimates that RFID tags are roughly USD 50 per 1,000 whereas fabric tags are USD 20 per 1,000 and paper tags are USD 30 per 1,000. RFID technology can be put inside the price label, so retailers can optimise the cost of the tag. Also, the information embedded in the RFID tag can include any information such as product composition, traceability facts and instructions for use, showing multiple ways of optimising product tagging. In the end, retailers could only have one tag including all related product information from the origin of materials to the price tag for customers.

Ultimately, the technology is pricey, but the ROI could be fast and straightforward. The IADS member using it identified the main RFID benefits:

The cost and productivity of the physical stocktake management. With RFID, it’s possible to inventory 5,000 tags in one minute. Since it’s so much faster, it reduces the in-store inventory cost and labour management. Stores can easily run weekly stocktakes whereas they could only do 3 per year previously. Some retailers see QR codes as a cheaper, yet efficient alternative to digital IDs, but QR codes don’t give the possibility to scan multiple products at the same time.

It is also critical to omnichannel business growth: with quick commerce delivery options, a very accurate inventory is much needed.

There are benefits on lost products as RFID technology works better than any relevant IT system. Sales also increased since the stock is more accurate and products are easy to locate and retrieve.

|  |  |  |

| --- | --- | --- |

| Pros of RFID | Cons of RFID | RFID benefits acknowledged by IADS members |

| Reduce disconnection between sustainability concerns and supply chain initiatives | Lack of security as tags can be too easily removed compared to hard EAS anti-theft tags | Item tracking allows frequent ultra-fast stock take |

| Reduce overproduction | Time-consuming implementation process | Accurate stock, needed in quick commerce |

| Reduce damage to products | Onboard suppliers and brands | Increase in sales |

| Item tracking for ultra-fast stock take | Cost |  |

| Increase stock accuracy, needed in quick commerce | More challenging for a retailer than for a brand |  |

| Increase sales |  |  |

| Efficient store replenishing and merchandising |  |  |

| Seamless self-checkout |  |  |

| Reduce waste thanks to FEFO (First-Expired, First-Out) and FIFO (First-In, First-Out) policies |  |  |

| Helps with reverse logistics for returns and buying back products |  |  |

| Increase customer convenience with product suggestions and information |  |  |

| New store employees are quickly productive |  |  |

Pros and cons of RFID and what IADS members think about the technology

*Whether it’s at the DC or in-store, having an accurate inventory is an obvious RFID’s ROI. The technology can also be used to source products for delivery or for stores from the best places depending on factors such as time, location, or sustainability. At the store level, faster and more frequent stocktakes, more proper replenishments and the easy localisation of products can automatically increase sales but also give more time for sales associates to take care of customers and sell.

Finally, at a time when crises are coming more often, RFID technology allows users to support the many disruptions in the supply chain by providing visibility and efficiency. For example during Covid, many shipping containers were backed up with lots of products in them. With RFID-enabled products, retailers could scan the container to prioritize the ones to unload and the ones that could wait without disrupting the business even further.

Despite such benefits, retailers are tiptoeing when it comes to extensively using RFID technology. Costs, long implementation process, collaboration with brands on the topic and in-store security issues seem to represent obstacles.*

Credits: IADS (Christine Montard)

El palacio de hierro store pictures

Printable version here

*The Mexican member of the IADS, El Palacio de Hierro, is one of the largest in the world by turnover. Founded in 1891 with a store in the centre of Mexico City, the company was the first Public Limited Company in the country’s retail industry. El Palacio de Hierro, owned by Grupo Bal, is also the owner of shopping centres in the country.

Lately, the introduction of experiences to generate traffic and answer customers’ expectations has been key to El Palacio de Hierro’s strategy. Whether it is Polanco, Perisur or their new Coyoacan store, each of them offers something unique, from architectural features (such as Coyoacan’s huge 1,270 square-meter glass dome on the top floor) to product offerings and unprecedented and tailor-made services. Celebrating Mexican history, culture, and art, each store reflects the group’s strategy of offering different designs inspired from their direct environment.

The IADS travelled to Mexico for the CEO mid-year meeting in May 2023, an opportunity to visit the Coyoacan store and the recently refurbished Polanco and Perisur stores.*

Coyoacan store: storytelling and ‘retail-tainment’ at their best

Architecture and design

A year ago, following a US$140m investment, El Palacio de Hierro reopened its Coyoacan store located in the Mitikah shopping mall. The Coyoacan area is Mexico City’s second most visited place in Mexico, thanks to its cultural and historical importance. The Coyoacan store design takes cues from its neighbourhood’s architecture and famous inhabitants such as the actress Dolores del Río, the photographer Gabriel Figueroa, the artist Frida Kahlo, the actor and filmmaker Emilio "El Indio" Fernández, the architect Miguel Ángel de Quevedo Zubieta and the poet Salvador Novo. Spanning 5 floors, each floor is dedicated to a cultural icon. For instance, embroideries from Frida Kahlo's dresses have become reliefs on the ceiling. Also, the typical doorways and facade textures of the Coyoacan area are replicated in the separation of spaces and on the doors. Frida Kahlo’s house’s, Casa Azul mosaics are reinterpreted on the floor of the ground floor atrium. Others are more subtle and show rare and amazing attention to detail: for example, the iron structures separating spaces in the restaurant atrium subtly form the letters of El Palacio de Hierro. The store also includes eighteen murals inspired by Coyoacan and designed by Mexican artists, the most striking being the ones covering the escalators.

Wandering the floors

With a part of the mall still under construction, the store is not fully finalized yet: when finished, it will be 46,000 sqm, an expansion from its current 38,000 sqm surface.

The ground floor gathers the luxury accessories and beauty department. Some displays reproduce the staircase of the home of Dolores del Rio. The atrium gives the feeling of a village and the terrazzo reproduces the Casa Azul house. The luxury department emphasizes quality jewellery and watches with a mix of Mexican and international brands in a space inspired by one of the most renowned cinematographers and directors of Mexican cinema.

The beauty department features the cosmetics brand on the periphery and mass-market brands on the back. More interestingly, Origen (El Palacio de Hierro’s new beauty and wellness space) gathers niche, green and clean brands. Designed to compete with Sephora, the concept was imagined to be able to attract and test new brands. It is independent from the rest of the store but feels fully connected. Not brand-personalized, the space is by essence very flexible and looks luxurious. The space is elegant and modern, reflecting the product and brand curation. It is divided into four categories: clean, vegan, organic, and positive impact. The concept will be rolled out with the same ‘look and feel’ to encourage recognition. A hair studio and nail bar complete the space. Also, Sisley opened their first spa in LATAM in the space.

El Palacio de Hierro’s ambition is to be the leader in niche fragrances. The perfume department features palm trees replicas and is inspired by Mexican actress Lolita. The space combines California landscapes with Mexican architecture with simple white displays and mirrored details. A concierge to advise customers is available close to this section.

A ’Hello Yellow’ section completes the ground floor. The space is offering a selection of yellow products anchored to El Palacio de Hierro’s identity. Overall, a lot of effort is put into storytelling.

The first floor gathers women and kids categories. The women’s department has an elegant and modern feel, with florals, geometric patterns, and silver and gold details. From casual wear to a space dedicated to special occasion dresses, the department’s ambition is to serve every need. The space beautifully mimics cobblestone streets as well as colonial houses, and also integrates coffee shops serving as transitions between the escalators and the shoe section. Personal shopping services are connected to the elevator for easy access. With a very homey feeling, the fitting rooms are not far and can be privatized for VIPs.

Vibrant colours, geometric patterns, and flowers fill the children’s department which was inspired by the Casa Azul house. In a creative and playful environment, kids are guaranteed to be entertained in this space which also features the Kids Lab and Candy Shop. The Kids Lab is a fun hair salon which includes toys to keep children entertained. Kids up to 16 years old can have their hair or nails done with non-toxic dyes and accessories. Next to the hair salon which is cleverly located, visitors will find the Candy Shop. Here, kids and adults alike can indulge in candy, pastries, chocolates, ice cream, and more.

With a sophisticated, sleek aesthetic, and the use of wood and darker colours, the second floor is the home for men’s shopping and entertainment. The floor gathers a dynamic selection of RTW brands (including casual and formal wear but also a multi-brand store dedicated to Mexican brands) and men’s shoes with a very smooth transition between sneakers and formal offerings. In the shoe section, cleaning and maintenance services for sneakers and other footwear are available to shoppers: professionals can diagnose shoes and have them look brand new in two weeks.

Entertainment and services are at their best with a bookstore (including notebooks, travel gadgets, stationery and fun objects) and a barber shop with traditional aesthetics such as wooden furniture and vintage chairs. Services include haircuts, classic shaving, and beard and moustache styling. A tattoo parlour is adjacent to the barber shop: fathers and sons are confident to come together thanks to the El Palacio de Hierro brand power.  Also, the second floor is the home of a mezcaleria: emphasizing the mezcal culture, the bar provides a collection of more than 100 brands. Finally, the tech space reproduces the trees of the Coyoacan village. Products are demonstrated with iPads and customers are encouraged to touch and try out the various devices to ease the purchasing process.

The home department located on the third floor is a comforting and inviting space, with light wood, exposed brick, and shades of pink. Also, the floor gathers pet products, luggage and the following services: optics, click & collect, customer service, insurance, travel and a dedicated service for celebrations.

Decorated by Mexican contemporary artists, the fourth floor is for F&B (on top of a variety of gourmet food and drinks throughout the store). Zubieta is the department store’s first contemporary Mexican restaurant. It has a natural atmosphere with wooden chairs and tables, green accents, and tree decorations. El Gran Café Palacio is also an option for customers to take a break from their shopping spree. Visitors will also find La Terraza Palacio which features a variety of cuisines that can be enjoyed under the big glass dome. Restaurants are accessible outside of the store opening hours.

Polanco and Perisur stores are offering a good balance between products and services

Polanco store

Opened in 2015, Polanco is a very different experience from Coyoacan which shows a much more immersive strategy. The store entrance can initially give the feeling of a mall with a lot of luxury shop-in-shops. El Palacio de Hierro wants to make sure Polanco’s customers would not feel they are in a mall but in a store with its own identity, which is why they are progressively challenging the brands’ designs, asking for more transparency and see-through. Some shop-in-shops have 3 floors and are connected (Gucci, Louis Vuitton with 475 sqm, Chanel). 90% of Polanco’s customers do not shop in Masaryk Street (100 meters away) which explains that brands have a store in Polanco and another one 500 meters away. The interior design is inspired by the city centre, with reference to Paseo de la Reforma (the main street in Mexico City). Pop-up spaces are reproducing the railings of the street, the atriums are decorated with lamps inspired by the ones on the street, and the canopy is reproducing the Camino Real Hotel symbol, Finally, the ceiling is a homage to the Anthropology Museum in Mexico.

The ground floor is dedicated to beauty, luxury and accessories. Overall, the customer journey is being adjusted and oriented towards more fashion and luxury: for instance, Saint Laurent is taking additional space and absorbing Aristocrazy space. Brands are increasingly encouraged to have see-through stores to maintain harmony. A Moreau (leather goods) pop-up store is at the crossroad between the luxury and cosmetics spaces. Nearby, there are soft corners for bags and accessories displayed in a double exposure with other store locations. The cosmetics area reproduces the Alameda area, another part of the Mexico City centre, and its trees. Also, there is a new writing accessories space, which is working well and a new fine jewellery multi-brand space. The VIP room is used for brand presentations. Designed by a local artisan, benches are available throughout the floor and can be moved around. The atrium has a coffee shop which is an exclusive concept. Its roof is covered with LED screens reproducing the Chapultepec area.

The first floor is dedicated to women and kids. The women’s fashion categories include contemporary (with tree reproductions to separate spaces, and a seating area) and nightgowns (with a salon feeling). A huge shoe department includes a multi-brand space at its centre, shop-in-shops on the periphery and a sneaker maker. In the middle of the fashion space, there is a huge spa (for men and women) located in the middle of the fashion department, as well as a section dedicated to leather RTW and personal shopping services (accessible to all customers).

The shoe area leads to a second atrium where the kids’ department is located, decorated with palm trees as a reference to Chapultepec. The kids’ department is built with reference to a local amusement park, including a rollercoaster track decorating the ceiling.

The floor is also home to unique offerings: Chanel Privé for massage services and La Maison Dior for fragrances. Also, ‘La Suite’ is a 120 sqm apartment dedicated to receiving customers. Interestingly the space is not only used for hosting VIPs but also families for bridal try-ons or ceremony outfit buying. Brands can use the space to present their collections to customers, in which case 50% of the customers are invited by El Palacio de Hierro. This service is not charged (neither to customers nor to brands, the latter only paying for their catering). The space is also open at night.

Inspired by the Chapultepec area, the men’s department as well as F&B offerings are located on the second floor with the escalator leading to restaurants, a whisky and tequila bar and a terrace with a city view. The men’s department includes a barber shop operated by a very old and well-known company from the Mexico City centre. Finally, the third floor is for the home department with a showroom space where customers can try beds. The space is equipped with curtains allowing shoppers to get some privacy.

Perisur store

The store has a completely different feeling and takes cues from the volcanic stones and the sculptures from the 1968 Olympics which were held in the neighbourhood. The store is dedicated to Lance Wyman, the designer of the Mexico 1968 logo (there is a café named after him on the ground floor). The atrium offers a huge mobile moving with the air and the canopies reproduce the Perisur logo.

The ground floor gathers cosmetics, luxury and accessories. Boutiques are all see-through. The accessories multi-brand space is equipped with a luminous ceiling, reproducing the aesthetics of Pedregal houses (the name of the area). The fragrance multi-brand space is equipped with video columns. Close to the escalators, the Lance coffee shop is a destination point for people all around the store. There is also a champagne room treated as a boutique and a small VIP room also used for brand presentations.

The first floor gathers women and kids categories. The transition between women’s RTW and shoes is very wide and easy, only separated by cash desks. This is the most profitable area of the store. Kids are offered a cookie space just near the click & collect space. There is a thoughtful transition towards the women’s section which is completely open to the mall. An escalator leads to a Fauchon café, right in the middle of the fashion section. Personal shopping services are also near the escalators, in a space decorated as an apartment.

El Palacio de Hierro’s men’s customer base is very loyal. The second floor is their home and also offers sports, electronics and services. As in Coyoacan, there is a sneaker cleaning service. Shoes can be shipped to customers’ homes for 3 or more products. There is a bar located in contemporary fashion and a restaurant close to the pet section.

The third floor is for home categories, food and restaurants. The home section is offering a space dedicated to “solutions” (architects, designers, etc…). The food section is decorated with typical tiles from Pedregal houses. The standard restaurant concept Cantina Palacio is available here, only with a different feeling from Coyacan’s. Overall, El Palacio de Hierro’s F&B activities represent 300,000 customers per month. Restaurants (30 POS) are welcoming 13,000 customers per month, food halls welcome 107,000 customers per month and canteens (19 POS) serve 1 billion meals per year. Product sourcing is directly coming from farms.

El Palacio de Hierro’s services: a customer-centric vision

Palacio Contigo: maximizing contact with customers

Palacio Contigo is the name for both the loyalty card program and a customer-focused team. The team centralizes all customer services (before the pandemic customer service was dispatched per BU). There is a unique phone number for customers and call centres have been converted into contact centres operating through phone, WhatsApp, social media, website... Customers can ask any question via WhatsApp and book a product, but the purchase has to be in-store. This new organisation allowed El Palacio de Hierro to serve customers when stores were closed. It also helped reduce the complaints and increase NPS.

Suites and personal shoppers for all!

Not only dedicated to luxury shoppers, suites are available in all stores and used to help customers organize parties, buy products, and have meetings with specialists for special services such as house refurbishing. Basically, they can be used for anything to maximize the business. Due to the pandemic, customers learnt about this service and are increasingly using it. To run these suites, El Palacio de Hierro relies on 40 personal shoppers dispatched throughout the company. They are trained by the brands which send them information about the collections. The personal shopping team is not attached to one of the 14 stores but is independent. A manager oversees Mexico City and operations, another one manages the office and figures. Two drivers and a van are also part of the team to serve customers. Finally, two beauty concierges are available in 6 stores.

Optimization is on the way

Some challenges remain when it comes to data. El Palacio de Hierro misses the connection between POS transactions and the database. They use Salesforce and several different software which do not always work well together. The goal for the end of 2023 is to achieve a full connection able to offer the company a unique and holistic customer vision.

El Palacio de Hierro also works on how to convey personal shopping online. A new team was created in March 2023. For now, a bot pops up on the e-commerce website in all sections except for luxury (as for luxury products, it appears when customers start to scroll down). Also, they have to make sure that only the right people on the staff see and use the database at the right moment.

El Palacio de Hierro’s stores are remarkable in many ways. Firstly, and with incredible attention to detail and storytelling, they are purposely very different from one another as they intend to be truly part of their environment by using interesting neighbourhood architectural features or by paying homage to local cultural figures. Secondly, experiences and services, whether it is a personal shopping suite, a restaurant, a candy shop for kids or a barber shop in the men’s department, are efficiently and seamlessly embedded into product offerings. As a result, El Palacio de Hierro stores can be seen as great examples of customer-centricity.

Credits: IADS (Christine Montard)

What: A report exploring the potential for sustainable retail and the role it could play in encouraging further urban community and environmental growth.

Why it is important: Sustainable retail can bring lots of opportunities such as economic benefits, but there will need to be the right processes in place for communities to benefit.

Sustainable retail is defined by increased use of renewable/green energy sources; more energy-efficient buildings and smarter use of water supplies; a reduction in the use of plastic; a focus on ethical supply chains, zero-waste to landfill, and maximizing recycling; and independent local businesses with local supply chains. Consumers, local authorities, and retail brands value localism, collaboration, data sharing, and incentives and costs as key features of sustainable retail.

The report suggests that such retail destinations could add nearly £100m to local economies while boosting revenues for retail brands by up to 13% over the longer term. The public prefers sustainable refurbishments of local shopping centers, and authorities consider independent stores and transport connections, while brands focus on consumer preferences that are economically viable.

To accomplish their sustainability goals, the stakeholders interviewed emphasized the need for data transparency, baselines, and targets for improvements.

The potential of sustainable retail

What: The Financial Times wonders if the clientele for luxury is not simply vanishing for multiple reasons.

Why it is important: Any issue with luxury retail would impact department stores hard.

The global luxury goods industry, which boomed post-pandemic with an average growth of over 20% annually since 2020, is witnessing a slowdown. Shoppers have reduced luxury spending due to rising prices and a sluggish economic outlook.

After enjoying record growth fueled by lockdown-induced indulgences and China's growing affluent class, luxury spending is moderating. Industry giant LVMH reported a quarterly sales growth of 9%, down from 17% the previous quarter.

LVMH's CFO expects growth to align more with the historical average rather than the recent surges. Despite growth in Japan, luxury markets in the US, Europe, and other parts of Asia are cooling off. While luxury grew significantly in the past few years, the industry's historical growth rate is closer to 6%. This year, growth might average 5-10%.

LVMH's sales reveal a decline in the demand for wines and spirits, especially in the US.

Department stores are adjusting inventories, focusing more on aspirational luxury price points. While brands like Chanel and Hermès remain strong, many other recognizable luxury brands are struggling. Economic pressures like inflation, which outpaces wage increases in Europe and the US, have eroded consumer spending power.

Overall, the luxury industry is moving towards a more moderate trajectory due to a blend of economic pressures and possibly waning consumer interest in luxury goods.

How many customers can really keep on buying luxury?

What: The HBR shows that companies with a co-CEO structure have consistently overperformed in the past 25 years in the US.

Why it is important: The IADS welcomed the former co-CEO of Whole Foods Market in 2021, who stated that this structure allowed to have right and left brain, fully working together. The FT makes a parallel with some rumours regarding Goldman Sachs.

Rumors suggest that Goldman Sachs is considering a co-CEO leadership structure in the wake of challenges faced by its current CEO, David Solomon. Unverified reports indicate that Jim Esposito and Marc Nachmann might be the potential candidates for these roles. This discussion has gained traction especially after Swiss group Vontobel recently announced a similar co-CEO leadership structure.

Historically, the dual CEO approach has yielded mixed results. For instance, First Republic had adopted the co-CEO model but faced leadership issues, which might have contributed to a crisis later resulting in a rescue by JPMorgan Chase. Deutsche Bank, under the co-leadership of Anshu Jain and Jürgen Fitschen, faced challenges due to internal conflicts and external pressures, which left the bank in a weakened position.

Tech companies like Netflix, Salesforce, Oracle, SAP, and BlackBerry have experimented with this leadership model, but not all sustained it. BlackBerry, for instance, faced significant market challenges under its co-CEOs.

Despite some of the negative outcomes, a Harvard Business Review study found that on average, companies with co-CEOs significantly outperformed their counterparts. The success of such a structure appears to be more pronounced in the tech sector and where there's a clear division of tasks and responsibilities, often leveraging complementary skills.

Historically, Goldman Sachs, when unlisted, had often been successfully led by co-heads. John Whitehead, a former co-head of Goldman, believed that dual leadership could lead to better decision-making. Considering the bank's multifaceted operations, reintroducing a co-CEO model might be a valid consideration for its future.

Is co-CEOs a viable structure?

What: Fast Company reviews the notion of heat waves and warns they should be taken with the same seriousness as hurricanes.

Why it is important: Businesses will be affected during heatwaves, for instance, e-commerce deliveries won’t be possible.

Cities urgently need to prepare for the increasing threat of heatwaves. The Adrienne Arsht-Rockefeller Foundation Resilience Center highlights the contrast between well-established preparedness for hurricanes and the lack of similar readiness for heatwaves. July 2023 was the hottest month ever recorded, and the impact of such extreme heat is devastating: Europe saw 61,000 deaths in summer 2022 and the U.S. lost $100 billion in productivity in 2020 due to heat. This suggests that just as we don't expect deliveries during hurricanes, the same should apply in extreme heat. Proposals to increase preparedness include naming heatwaves to raise awareness, urban tree planting (as demonstrated by Freetown, Sierra Leone's initiative to plant 1 million trees), adopting cooling building materials, and creating open urban spaces for better air circulation. The UN-Habitat emphasizes that each city experiences heat differently and requires unique solutions, but all cities have vulnerable populations that need protection from heat.

Heat waves are a new part of our future

What: A critical piece on why department stores are digging their own grave.

Why it is important: E-commerce is not responsible for department stores’ woes. Lack of strong, decisive actions is.

Many department stores, particularly in the U.S., claim they are undergoing transformations, but results suggest they are struggling to make real progress. Mid-tier retailers like Macy's and JC Penney have made efforts but haven't seen significant growth, while upscale stores like Nordstrom and Neiman Marcus are in a similar boat.

Despite the perception that e-commerce giants like Amazon are the primary cause, department stores' decline has spanned over two decades and their challenges stem largely from two main shifts.

First, retail is experiencing a division where consumers either opt for high-quality experiences or cost-effective options, making it difficult for traditional department stores to find their niche.

Second, the definition of shopping convenience has changed; malls are no longer the primary convenient shopping locations.

Despite these clear trends, most department store strategies have been slow, incremental changes to an outdated model. Bold, decisive actions and a culture of experimentation are required, but given the time that has already passed, one can only speculate where these brands could have been if they had fully embraced change earlier.

Retail escalating commitment to a failing course of action

What: The Robin Report analyses the key success factors but also the potential risks for TikTok;

Why it is important: There are chances that TikTok might become a sales channel and a new competitor for department stores… unless a newcomer replaces it.

TikTok, despite its initial ad-free vision, is pushing into the lucrative market of video ads, with brands spending $78.45 billion annually.

The recent launch of the TikTok Shop feature aims to capture a portion of this market, with 92% of SMB owners planning to use it in 2023. This move into e-commerce comes as other platforms like Meta's Instagram and Facebook are scaling back their live shopping features.

Challenges include appealing authentically to Gen Z, a demographic critical of overt advertising, leading to declining usage among younger users.

Despite the potential setbacks, such as regional bans and concerns surrounding its parent company, ByteDance, TikTok is offering aggressive promotions, including subsidizing Black Friday sales. The platform is being watched by e-commerce giants like Amazon, indicating potential future collaborations.

Currently, brands have a golden opportunity to experiment with TikTok Shop due to its subsidized discounts. However, with uncertainty surrounding TikTok's future, companies are advised to be cautious.

What does TikTok mean for Ecommerce?

What: Korn Ferry estimates that less than 1 worker out of 2 has a positive view of their company.

Why it is important: Retaining key employees is crucial, and to do so, it now requires more than money or corner offices: values and commitment for the greater good

Employee confidence in their companies' business prospects has declined after the optimism of 2022.

A recent study revealed only 47% of workers have a positive view of their company's outlook, marking a 6% year-over-year decrease.

Although outside factors like office return mandates and layoffs might temporarily influence employee sentiments, the current negativity starkly contrasts the optimism of other stakeholders.

Industries face unique challenges: financial services workers doubt leadership adaptability amidst layoffs and growth issues, tech workers' confidence plummeted by nearly 17% due to layoffs, and the retail industry's decline in confidence could adversely affect customer experience. Conversely, construction was the only sector where confidence grew.

Experts suggest leaders focus on retention strategies, emphasize company culture during hard times, and continually reaffirm the company's values and purpose to rebuild trust and confidence.

Companies are going through a crisis of employees’ confidence

What: The FT reviews how rich customers display their wealth today, and how “aspirational” rich customers copy them.

Why is that important: Judging a book by its cover is no longer relevant and department store staff have to be extremely careful when dealing with their VICs who might not look like their personal net worth.

Wealthy individuals no longer flaunt their affluence overtly. Instead, they embrace "stealth wealth" or "quiet luxury," a more subtle display of their financial status.

This approach entails wearing casual or mixed-brand clothing rather than outfits from high-end designers from head to toe.

Contrary to the old belief that one's attire reflects their wealth, people now prioritize individualism and authenticity over blatant luxury.

Some signs of wealth, like custom-made shoes or a rare diamond, remain, but they're often understated or accompanied by less pricey items. For instance, a custom-tailored suit might be paired with old chinos or worn-out shoes, or a high-end watch might be worn alongside a simple shirt.

Recognizable brand logos are less sought after, with many wealthy individuals preferring lesser-known brands or items without evident branding. Watches and shoes are still indicative of a man's wealth, while women's affluence might be judged by the quality of fabrics they wear, their grooming, and unique jewelry pieces. Yet, many of these indicators are now so subtle that only those in the know can spot them.

How customers “rich look” has changed

What: The role of Chief Marketing Officers in the fashion industry has evolved significantly.

Why it is important: CMOs in the fashion industry have taken on more significant responsibilities, requiring a holistic understanding of the business, data-driven decision-making, and the ability to deliver results while staying true to the brand's long-term strategy.

Once primarily responsible for advertising, CMOs now have broader responsibilities such as maintaining brand presence, organizing live events, and building the brand's personality across different channels. To excel in this role, CMOs need a deep understanding of the business, including product, channel strategies, and supply chain. They must also be data-driven decision-makers, proficient in analytics, and work closely with various teams within the organization. Successful CMOs are increasingly seen as potential candidates for CEO positions, indicating the growing importance of marketing in driving overall business growth.

CMOs today must not only be creative visionaries but also possess strong analytical skills. With the emergence of digital marketing and the need for data-driven decision-making, CMOs need to be well-versed in using analytics tools and collaborating with teams across the organization. They are expected to experiment with emerging technologies, stay on the cutting edge, and deliver quick wins while maintaining a long-term vision for the brand. Building internal communication and gaining support from colleagues and executives are critical for CMOs to successfully implement their strategies. The role of CMO offers opportunities for growth and advancement, with many marketers transitioning into CEOs or securing board seats. In addition to focusing on customers, CMOs must also consider the interests of shareholders and manage relationships to secure funding for the brand.

The evolution of the CMO

What: Despite having an action plan to respond to climate change, brands are slow to act.

Why it is important: The fashion industry's continued failure to prioritize decarbonization, despite having clear strategies, poses significant environmental risks, making immediate action both a moral and business imperative.

The global fashion industry, despite having clear guidelines and strategies to reduce greenhouse gas emissions, continues to trend in the opposite direction due to structural challenges. Consumers prioritize design and price over sustainability, capital allocation for decarbonization is hampered by high costs and shared suppliers, and companies prioritize profits over environmental welfare. While some brands have made efforts towards sustainable solutions, the overall industry progress is slow. As the environmental impact of the fashion industry becomes more visible and consequential, regulatory and climate pressures are increasing, making it imperative for the industry to prioritize decarbonization.

Brands know how to curb their climate impact. Why won’t they do it?

What: Coresight Research explores the US department store sector in the post-pandemic retail environment, providing also some insight on their dynamic.

Why it is important: The US department store sector will reach USD 81.7 billion in 2023, a 6.1% year-over-year decline, reflecting continued post-pandemic challenges and structural changes, including increased competition from online-only rivals and brands selling directly to consumers.

To stay competitive in the evolving retail landscape, department stores must transform and begin addressing consumers’ shifting needs and expectations via a wide variety of strategies, including forming strategic partnerships, adjusting store formats and introducing private-label offerings. Engaging consumers through social and live commerce trends will also be crucial moving forward, as will be integrating technology and experiential retail into all shopping experiences. Sustainability and inclusivity are additional important trends department stores should embrace, particularly focusing on resale, adaptive apparel, gender-free products and extended sizing options.

Department stores looking to expand their offerings and reach should embrace innovative strategies, such as marketplace and dropship models, and venture into the realm of retail media. Finally, integrating emerging technologies across all operations and creating immersive virtual experiences will redefine customer engagement and enhance the omnichannel experiences department stores provide, providing a path forward.

The report also includes some very detailed company profiles for a few key players such as Kohl’s, Macy’s and Nordstrom.

The state of US department stores

What: Placer.ai reviews the state of US malls thanks to its geolocalized data.

Why it is important: In the US, malls have attracted a more affluent clientele, especially in the open-air locations, and urban malls are recovering faster than suburban ones: is this the dawn of a new era for US cities?

The report analyzes consumer behaviour and trends related to different types of malls in the US, including indoor malls, open-air lifestyle centres, and outlet malls.

• Visits to malls are increasing again after declining during the pandemic, with open-air lifestyle centers seeing the strongest growth.

• Malls attract more affluent visitors compared to the general population. Open-air lifestyle centres draw the wealthiest shoppers.

• Mall visits tend to be higher in summer months when the weather is warmer, especially in hot southern states where shoppers take advantage of the air conditioning.

• Urban malls are recovering faster than suburban malls, with urban visits up 3% year-over-year compared to a 1.7% decline in suburbs. However, suburban malls remain popular weekend destinations.

• Each mall format serves a different purpose and caters to distinct demographics. For example, outlet malls attract value-driven shoppers while open-air lifestyle centers cater to high-income shoppers seeking an experience.

• Location, layout, and proximity to shoppers impact how malls are used, whether as part of a leisure outing or for quick errands. Suburban malls tend to be destinations while urban malls provide more convenience.

Overall, the report shows malls remain highly relevant spaces with a unique role in retail, though they must cater experiences to their target demographics based on location, format, and seasonality.

The state of US malls

What: Eurocommerce takes stock of the e-commerce business in Europe in 2023.

Why it is important: While e-commerce is back to the pre-pandemic trend line, it is still growing in spite of economic headwinds.

The 2023 European E-commerce Report provides insights into the size, growth, and trends of digital markets across 37 European countries. It includes data on internet penetration, online shoppers, and total B2C e-commerce turnover.

In 2022, total European B2C e-commerce grew to €899 billion, up 6% from €849 billion in 2021. Growth slowed from 12% in 2021 as online shopping cooled after COVID-19. Western Europe dominates with 67% market share. The UK, France, Germany and Spain are the top countries by turnover. Looking at inflation-adjusted growth, e-commerce declined 2% in 2022 due to economic shocks before recovering slightly in 2023.

Internet penetration in Europe reached 92% in 2022 versus 90% in 2021. Northern and Western Europe lead in internet adoption while Southern and Eastern Europe lag. E-shopper penetration held steady at 76% in 2022 after hyper-growth during COVID-19. Inflation has dampened online spending. Western Europe has the most online shoppers at 87%, followed by Northern and Central Europe.

Key challenges include the war in Ukraine and resulting inflation reducing consumer purchasing power. The digital divide between SMEs and large firms may widen without support for technology adoption. Opportunities lie in new technologies like AI and VR to enhance experiences, and seamless payments to facilitate shopping. Sustainability efforts are increasing via eco-friendly delivery networks, packaging, and limiting product returns.

Overall, the report shows continued e-commerce growth and internet adoption in Europe despite economic headwinds. Supporting small businesses and sustainable practices can help strengthen the resilience of European digital markets. Advanced technologies and improved logistics will likely drive further e-commerce penetration across the continent.

Eurocommerce releases its 2023 E-commerce report