What: Bain & Company has released its Luxury Goods Worldwide Market Study in collaboration with Fondazione Altagamma for 2022.

Why it is important: Even in the face of economic turbulence, the luxury industry took a leap forward in 2022 and the industry is poised to see further expansion in 2023 into the rest of the decade to 2030.

After Covid-19, the market grew back to EUR 1.15 trillion, and surprised everyone in 2022 by growing 19 to 21 percent according to Bain’s estimates.

Despite uncertain market conditions, the luxury market appears to be better equipped to cope with economic turbulence than in the 2008-9 crisis as a result of a larger consumer base that is more concentrated on top consumers who are less sensitive to turndowns.

In 2023 sales growth in the personal luxury goods market could range from 3% to 5% in the base case and up to 6% to 8% in a more positive case depending on the economic recovery in China and the ability of the US and Europe to withstand economic headwinds.

The US market remained strong, becoming the top region for personal luxury goods sales, with Asia switching to second, and Europe following. The Americas personal luxury goods market reached an estimated EUR 113 billion, growing 25%. China remains crucial to the long-term future of the luxury market and is expected to recover by the second half of 2023.

Additionally, Southeast Asia and South Korea have been excelling in both growth and future potential, making new markets such as India stand out as its luxury market could expand to 3.5 times today’s size by 2030.

The luxury market consumer base is expected to grow from around 400 million in 2022 to 500 million people by 2030. Generational trends will be a powerful factor for this sector growth, with Generation Z and Generation Y (millennials) accounting for all of the market’s growth in 2022. The spending of these younger generations, including Generation Alpha, is set to grow three times faster than other generations through 2030.

Department stores experienced faster growth than in previous years, gaining 20%. That reflected a renewed value proposition in the US and successful reengagement with tourists in Europe.

The study suggests four growth engines that will profoundly shape the luxury market by 2030: Chinese consumers should regain their pre-Covid status as the dominant nationality for luxury and mainland China will overcome the Americas and Europe to become the biggest luxury market globally. Additionally, the younger generations will become the biggest buyers of luxury, representing 80% of global purchases. Lastly, online should become the leading channel for luxury purchases with an estimated 32 to 34 percent market share.

Bain & Company releases annual report with Altagamma

What: A review of the UK market which somehow gives a good understanding, if not comprehensive of the situation in the country.

Why it is important:  There is no mention of the increasing gap between regions and the city of London when it comes to luxury stores (Selfridges, Harvey Nichols and, to a certain extent, Fenwick) nor of the notion of “destination” stores, which might be very well the future for many department stores in Europe. In spite of these limitations, the report provides a fair amount of data and numbers.

According to Coresight, UK department store sales are expected to reach £11.4 billion ($13.8 billion) in 2023, with a growth of 2.9% compared to 2022.

The department store sector is dominated by three major mass market players (John Lewis, Marks & Spencer, House of Fraser) and two luxury stores (Harrods, Selfridges), with a total of 325 stores across the five major retailers.

The number of stores has declined by 43.5% since 2015 (this includes the closure of all 124 Debenhams stores) and major department stores are optimizing their store portfolio by opening smaller format stores and investing in private label, rental, resale, repair and sustainability services, digital apps and personalization.

Regarding the market specificities:

-    High inflation is affecting discretionary spending, leading consumers to seek value with private labels and trade down from mass market stores.

-    The return of international tourism and a resilient luxury consumer will support growth in luxury stores, notably Harrods and Selfridges.

-    The UK department store sector is expected to continue optimizing store fleets and making investments in virtual selling and livestreaming, particularly to reach a younger customer base.

Nearly all retailers have embraced circular services including rental and resale, with Selfridges looking the best positioned in this space as it is currently trying to incorporate circularity into its entire business.

There is no mention of either Fenwick, Harvey Nichols or Liberty.

An outlook of the UK department store market 

What: Coresight compiled a report on the suppliers they consider as the most important when it comes to innovation in the last-mile delivery process.

Why it is important: Last-mile delivery is one of the costliest and most complex parts of the retail supply chain that can greatly impact a retailer’s ability to deliver excellent customer service and drive top- and bottom-line business growth.

The use and integration of innovative retail technologies and strategies are key for retailers looking to overcome last-mile delivery obstacles and provide their customers with a superior delivery experience.

The global last-mile delivery market totaled an estimated $128.5 billion in 2022 and is set to reach $200.4 billion by 2027.

In this report, Coresight discusses the US last-mile delivery landscape and opportunity, and identify the next generation of retail innovators in the space. By improving their last-mile delivery capabilities, retailers can offer their customers a superior end-to-end shopping journey that can drive customer loyalty and revenue.

They analyze, evaluate and score the top 10 companies based on their relative performance on a two-factor evaluation scale: level of innovation and market potential. Coresight categorizes the companies into three areas of innovation:

-    Robotics and autonomous vehicles

-    Delivery management platforms

-    Warehousing, micro-fulfillment centers (MFCs) and courier delivery

Companies mentioned in this report are: Bringg, Darkstore, Dropoff, Fareye, Locus Robotics, Nuro, Onfleet, Point Pickup, Starship Technologies, Veho.

Last-mile delivery innovators 

What: Retail Media is expected to be the next big thing for retailers in 2022 and 2023.

Why it is important: It is seen as a way of maximizing existing assets (stores) into integrating them in a marketing and media mix made available to third parties. Smart, but not that easy to set up, all the more that scale is the secret to profitability in this case.

According to Coresight, the global retail media industry is expected to see substantial growth in 2022, with a total estimated revenue of $75.1 billion, an 80.1% increase from the previous year. As a consequence, many retailers are focusing on building up their retail media networks (RMNs) to capture a larger share of advertisers' media budgets.

A recent survey found that nearly 90% of US-based retailers and speciality retailers already have retail media capabilities.

When it comes to on-site retail media, it is more suitable for multi-brand retailers with a higher level of site traffic, while off-site retail media is more advantageous for single-brand retailers, as it helps them reach a wider audience and drive traffic to their own websites.

Single-brand retailers face limitations in terms of the advertisers they can work with, however, non-endemic advertising presents a significant opportunity for them. On the other hand, multi-brand retailers have greater monetization potential, but they must ensure that the advertisements align with their brand image and avoid any possibility of cannibalization.

To make the most of the retail media opportunity, retailers should aim to make advertisements location-specific, personalized, and relevant to the customer. Additionally, the advertisements should align with the retailer's brand image, ensuring that they make natural sense to the customer. Overall, the growth of the retail media industry presents exciting possibilities for retailers, and they must consider their unique strengths and limitations when navigating this new landscape.

 A look at the Retail Media opportunities in the US

What: Coresight annually reviews the US department store market and explores the changes taking place.

Why it is important: Store and e-commerce integration is, according to Coresight, the only way for US department stores to operate efficiently, in order to convert and connect with customers while also making the most of the store fleet and improving the inventory management. Somehow, it is also expected that concentration increases as the top 3 companies already represent 67% of the total market.

According to Coresight Research, the US department store sector is expected to see a slight decline in revenue in 2023, totalling $85.3 billion. They anticipate that the revenue will grow slowly between 2022-2024, then start to pick up in 2025 and reach 8.1% below pre-pandemic levels in 2027.

Online sales will play a role in the growth of the sector, with a projected penetration of 36.8% by 2027. Kohl's and Macy's are the most popular department stores among consumers and the top three stores (Kohl's, Macy's, and Nordstrom) are expected to see a combined revenue of $57.6 billion in 2022, following a growing concentration in the sector.

The report suggests that 2023 will be a turning point for US department stores to integrate their online and physical platforms, making it easier for consumers to discover and purchase products. They will make investments in marketplaces, personalization, and virtual selling to support online sales growth, and in their stores and supply chains for faster delivery and convenience.

Retailers are also expected to form more partnerships and category expansions to meet the needs of consumers, leading for instance to shop-in-shop investments (physically and digitally). In the future, the distinction between online and in-store will fade as consumers shop in a seamless, integrated way.

The report includes numerical data about Dillard’s, JCPenney, Kohl’s, Macy’s, Neiman Marcus, and Saks Fifth Avenue.

An outlook of the US department store market 

What: In the US, many retail companies are increasingly struggling to find their new CEOs.

Why it is important: The issues are at the same time contextual and structural, and could end up in being a true challenge for the industry in case they are not addressed.

Many retail companies in the US are now operating without a CEO (Gap, Diesel…) as filling in those positions is increasingly difficult. 11 of the 91 US Fortune 100 retail companies saw their CEO leave in 2022. This is all the more challenging because the current context (inflation, pricing issues, consumer angst) requires strong leadership in order to stand out from the crowd.

In addition, many analysts also point out that the nature of the CEO job also changed in the past few years, as they had to adapt to many challenges (e-commerce development, global supply chain steering, investments in emerging technologies), after decades of being expected to “simply” be expert sellers.

The way to attract talent has also changed. For years, it was all about junior recruits climbing the ranks step by step. However, now, it is increasingly difficult to convince young talent to join and enter such programs (instead for instance of creating their own companies). In addition, said programs have to adapt by proposing relevant experiences (e-commerce department, discounting division for instance). Associations such as the NRF also play a more prominent role than in the past to promote the image of the retail industry.

As a consequence, many CEOs are now coming from outside the industry: the RealReal CEO comes from a tire company, or the Under Armour CEO from Marriott International, for instance. Other companies also decide not to have a CEO position and break it down into more digestible pieces, such as Pacsun naming two co-chiefs.

The whole situation, if not addressed, could soon add up to the woes currently experienced by the retail industry in the US.

The retail CEO pipeline is running dry 

READ OUR WHITE PAPER IN ENGLISH HERE

LIRE LE LIVRE BLANC EN FRANCAIS ICI

Sustainability in retail is hardly new and has become a major factor in business decisions and investments for retailers of all shapes and sizes. Consumers are increasingly becoming aware of the impacts that their purchases can have on emerging economies and garment workers and are consequentially becoming more demanding to understand how they can make impactful changes by harnessing their purchasing power. Governments are also taking a stance and demanding that retail industries start to release more accurate data that can be traceable through new laws and regulations that can have a large impact on profits and operations.

Retailers do not have the luxury of ignoring this topic. They hold responsibility as they translate customer desires and needs into market opportunities by acting as a bridge between consumers and suppliers. Department stores play an even more important role thanks to their historical and usually very central position in cities, allowing them to bring convenience and product curation to both local customers and tourists who view them as must-see places during their stay.

With such a position and impact, department stores are bound to transform into sustainable businesses offering consumers facilities, products and experiences that create net-positive environmental and social impacts. The IADS White Paper reveals how department stores are innovating and adapting to allow sustainability into their core business in order to remain relevant.

Sustainability is a chance for department stores to reinvent their business model

Now that all stakeholders (governments, investors, and consumers) are on the same page and understand that sustainability is a very important topic that needs to be addressed by businesses, it is time to take action. However, to the dismay of retail leaders, sustainability also reveals itself to be a Pandora’s box, with a seemingly infinite list of complex questions. The difficulty lies in the nature itself of a challenge in perpetual motion, making sustainability “a framework rather than a destination”.

Department stores, due to their size which involves dealing with a large number of suppliers, their central position in cities and customers’ lives, and their complex business models often including historical practices, are on the frontline of the needed changes. While they have already proven their ability to adapt to business disruption, they now face a much more holistic problem of either radically reinventing themselves or becoming irrelevant.

In our new White Paper, “Reinventing department stores through sustainability”, the IADS extensively reviews the sustainability topic from department stores’ point of view, including where they stand, their initiatives and remaining challenges. Hard questions are raised, and potential directions are identified, keeping in mind that while sustainability is not a trend but a true structural change, the solutions built by departments stores cannot be cosmetic and need to efficiently financially address the topic if they want to survive.

The variety of stakeholders complexifies an already fuzzy question: what does sustainability mean in retail?

At first glance, the situation looks overwhelming as even just defining where to start is hard. Retailers started their action plans by defining a Corporate Social Responsibility (CSR) framework, which soon was followed by trackable metrics compiled in Environmental, Social and Governance (ESG) reports. However, they quickly realised that properly addressing sustainable issues required more than reports or guides of good conduct. Simply being able to track greenhouse gas emissions requires nothing less than re-engineering the entire supply chain systems. To make things more complicated, retailers also must deal in real-time with many stakeholders with different views:

-    Customers, who require immediate and impactful actions, but do not always align intentions with their purchasing behaviour, especially in an inflationary context (not to mention that the very notion of sustainability has a different interpretation according to the age group or socio-economic cohort),

-    Pressurised governments, accelerating regulatory efforts without global coordination, leading to a variety of constraints that retailers must comply with, sometimes in a record time (the French AGEC law was enforced in 9 months) leading to the multiplication of non-scalable short-term compliance investments,

-    Suppliers, nudged by retailers to heavily invest to make their production output sustainable, in addition to auditing their carbon emissions to help fill in retailers’ Scope 3 tracking (a titanic task for department stores working with international brands contracting factories dotted across the planet).

Finally, shareholders and employees are worried that retailers will end up paying for the transformation bill, estimated from €315bn to €615 bn between now and 2030, in a shrinking profitability context (-6.5% in the past 6 years in France).

Travelling a long and winding road: an overview of department stores’ initiatives so far

Aware of their social role and seeing a transformative opportunity in this inescapable challenge, department stores have already initiated their journeys towards sustainability, despite not being all at the same stage of progress due to different local geographical and political situations. To document and draw a dynamic picture of these efforts, the IADS used its privileged ties with its members to conduct several studies, the first one just at the beginning of the pandemic, in March 2020, then another one in June 2021, followed by one in 2022.

When it came to defining objectives, retailers answered to mounting legal pressure by teaming up and exchanging ideas and experiences with an unprecedented degree of transparency. This took place through organised bodies, such as the 2030 Breakthrough Initiatives, various retail associations (such as the IADS) and federations helping department stores exchange with strict respect of antitrust guidelines, but also by talking with new third parties (NGOs, trade unions or consumer associations). Such a degree and scale of openness outside of dedicated frameworks from notoriously secretive department store organisations is new and considered critical in order to help them set goals and make progress in real-time.

This cooperation allowed department stores to take control of their Scope 1 and 2 emission rates rapidly, as shown by El Corte Inglés’ reduction of its Scope 2 emissions by 78% between 2017 and 2021, Breuninger’s offer of CO2-neutral shipping or Galeries Lafayette’s entire store electricity consumption being 100% renewable. Dealing with Scope 3 emissions (95% of the total emissions) proved trickier. Exchange organisations helped review market initiatives, such as Macy’s reducing its use of virgin plastic by 50%, or Selfridges’ plan to achieve 45% of its sales through the circular economy by 2030. It is also widely understood that the next area of focus is the supply chain, seen as the second most beneficial area of investment after digitalisation in terms of ROI.

Department stores are also experimenting with their own private labels, which in turn raises the painful question of the lack of a relevant global standard applicable to all brands and marketable in a simple way to customers. For that reason, the study of the Green Pea business case in Italy, “the first 100% sustainable department store in the world”, provided an idea of what new standards could look like. In addition to finding new ways to deal with the environmental impact of their real estate footprint, normally estimated to contribute up to 60% of a retailer’s total emissions, Green Pea educates their customers by openly sharing simplified, but brutally honest, information about their own consumption impact.

The head scratching has just begun

The unprecedented collaboration between companies does not overcome the fact that, their customers and markets being by nature extremely different, there is not a one-size-fits-all solution for all department stores. This has made the sustainable journey a collaborative and solitary trip at the same time. In addition, each department store must figure out how to deal with problematics that come on top of environmental issues and that are linked to their own social context, such as diversity and inclusion.

This raises questions on what to communicate and how, and above all, on what platform. The comparison of actions in 2020 and 2022 showed that department stores, always attentive not to be accused of greenwashing, also discovered that consistency across channels (stores, e-commerce) and partners (suppliers and brands) was necessary, but also that messages had to be adapted in each case to maximise reach and clarity.

The other question is the nature of the organisations guiding sustainability efforts. There is a wide variety of options, from a Chief Sustainability Officer to a dedicated ESG committee, also including partnerships with third parties or responsibilities dispatched between departments. Whatever the option chosen, leaders will have to be careful not to add an extra layer of complexity to their organisations, which has been the case in department stores in the past.

Finally, the most pressing topic is obviously the business itself and how to make sure that sustainable efforts are not an additional financial weight, but, on the contrary, contribute to new revenue flows thanks to the necessary reinvention of the model. While it is relatively easy for new companies such as Green Pea to propose contemporary approaches, the situation is different for heritage companies, as they must be creative in addressing the future in a sound financial manner that does not disrupt daily operations.

Don’t judge a book by its cover: sustainability is not a constraint, but a chance to be seized fast

Even though addressing sustainability might be painful, costly, and even hazardous, retailers do not have the choice and must follow the trend if they want to survive. Just as they addressed digital transformation, they need to start their journey as soon as possible, as passing time is definitively lost and could rapidly become a competitive disadvantage. In addition, they should not be troubled about not having a perfect plan: the most important thing is to get started, then the learning process will take place bit by bit in a non-linear progression.

We identify two phases in the approach, the short-term one being to fully focus on the sustainable transformation of the supply chain, as the needed technology is already here, and the longer one being to increase collaboration between retailers to accelerate the pace of innovation. This is proof, if needed, of the relevance of exchange groups and think tanks such as the IADS, which has been actively helping its members since 1928 address the most pressing business issues in a collaborative way.

Credits: IADS (Mary Jane Shea)

PRINTABLE VERSION HERE

The IADS Academy programme, a 27 year-old tailor-made mentoring workshop open to our members’ high potentials only, promotes cooperation and future orientation. Over the years, the IADS Academy have trained 180+ executives from 28 companies in 21 countries, some of whom reached top positions in member and non-member companies (for IADS only, 3 CEOs and 1 COO in 2020).

Introduction: Private Labels are an everlasting question

Considered a key topic by the IADS member CEOs, the question of Private Label profitability is constantly on department stores’ minds since margin enhancement is the first reason to carry Private Labels. So, it was no easy task for the 2022 IADS Academy participants to answer a question that has been asked many times at all decision-making levels in their companies.

At the beginning of their 9-month journey, the Academy group reflected on 2 different Private Label models: John Lewis and Marks & Spencer. In parallel, the International University of Monaco (IUM) partnered with the IADS to offer insights about additional case studies: Target and Nordstrom. Having worked on the topic with Galeries Lafayette, the Kéa & Partners consulting company was invited to share their vision on the Private Labels business. Finally, the group reflected on their own organisations, figures, strengths, and weaknesses to decide the most important KPIs to consider. Starting from reviewing department store members’ businesses and collecting best practices, the group built their own vision for a more profitable Private Label business.

All participants were invited to present the result of their research during the IADS 63rd General Assembly held in Geneva, as the tipping point of the hard work put into the Academy program. It included hours of research, collaboration, and discussions in small groups, as well as online meetings, some of them involving the benevolent support of Mr Jérôme Gilg, the Academy Mentor, and Mr Peter King, the Academy Dean of Honour.

Taking a step back: getting a larger perspective on Private Labels

Case studies: John Lewis, Marks & Spencer, Nordstrom and Target

John Lewis’ Private Label business is regarded as a growth driver. Participants studied ‘Anyday’ own brand, which was recently expanded with prices 20% to 40% lower than John Lewis' other own brands. The label is seen as a step towards modernizing its branding as it intends to offer customers John Lewis’ quality at lower prices. John Lewis is usually perceived as a ‘rather expensive place to shop’, but research shows that Anyday's promotional effort (£500m were invested into pricing and promotion to change customer perception) seems to be working: 25% of Anyday shoppers are either new or reactivated customers, as well as younger, yet less wealthy shoppers. This strategy comes with risks, identified below:

-    The value push could damage the premium status and dilute the brand which used to be aspirational.

-    Anyday tries to reach a new segment of customers, which might leave the usual John Lewis shopper behind.

-    The strategy puts de facto John Lewis against a different set of competitors, such as Primark.

-    A wider range of price positioning holds the risk of losing margins.

-    Staffing levels and service standards will be more difficult to maintain in-store.

As a strategy built on cheap prices didn’t fully convince the participants, they also reviewed Marks & Spencer’s Private Labels which have been simplified and reduced to increase performance. With long-term efforts on brand building, their products are perceived to be high quality among competitors. Interestingly, the company also has a strategy of buying out existing brands (such as Jaeger) and onboarding third-party brands (such as Ted Baker and Superdry) to muscle their offer as well as to be more popular and fashionable. As for John Lewis, the product diversification strategy aims at covering all age groups, including younger segments. Results seem promising: third-party brands account for 4.1% of the clothing and home sales, bringing in £70m of revenue in 2021.

The IUM was tasked to work on Target and Nordstrom business cases and issued their conclusions:

-    Nordstrom should reward associates more for selling Private Labels over other brands. Also, IUM students proposed creating online community spaces where customers could be rewarded for engaging with Private Labels. Finally, students proposed to improve Private Labels by including differentiated collection and visual merchandising strategies for fall-winter and spring-summer.

-    Target: students discovered that price is no longer the primary factor for customers. Quality is gaining more importance in building customer loyalty and encouraging repeat purchases. IUM students highlighted the need for good communication and an updated presentation of Private Labels whether that is done through the product quality or within the store layout, such as using shop-in-shop formats.

Learning from transformation and strategy experts

Kéa & Partners was invited to share their vision on Private Labels in department stores. Alongside the challenge of meeting consumer demands and competing with global brands, running a Private Label means navigating difficulties in the supply chain, dealing with contradictory if not unclear objectives, and finding the ideal margin equation for creating value for the consumer and the company.

The share of Private Label sales share can vary but they are generally seen as a tactical component (10% of the total business), a major contribution (20% to 40%) and occasionally as a core business (from 40%). In any case, Kéa & Partners shared the 5 pillars identified to ensure Private Labels profitability:

1. Positioning & Strategy: clear-cut positioning based on target clients, offer, price, and style help differentiate from national brands. There is no set requirement for where to begin or whom to target, and the offer can vary by category and gaps in the market. A helpful tip is to create a target P&L along with realistic KPIs to optimize spending and determine at what stage and scale the Private Label will be relevant and profitable. The KPIs will direct the annual targets which will be defined by the operating model chosen.
2. Offer Structure & Timing: this pillar requires determining the operating model of the Private Label, be it permanent, seasonal, capsule, etc. This will help with managing the size of the offer, its depth and purchasing according to the segmentation that has been decided. Counterintuitively, Kéa & Partners promotes crafting a singular offer that is not based on emulating other brands. This could mean leaving out products that some deem as needed: essentials should be based on the first pillar and not common industry practices, assuming that a generic offer can diminish brand visibility.
3. Sourcing & Purchasing, with a focus on logistical organization. This is where retailers need to overcome MOQ limitations and develop long-lasting partnerships with suppliers. Mixing near and distant sourcing will determine purchasing or developing products based on the margin goals and rhythm. Sustainability needs to be accounted for within the sourcing strategy.
4. The Organisational Model, which is about exploring new models, leveraging activities and expertise in digital processes or through data. In terms of models, coopetition and integration are two possibilities. Either retailers will divide the teams and buyers between Private Labels and national/international brands, or integrate them so that the purchase and sourcing teams are only divided by, for example, product category.
5. Marketing Amplification & Execution: this requires setting up the merchandising strategy as well as a marketing plan. In this case, for example, a capsule collection would influence event size and dates as well as how and to whom the collection is marketed. According to research, 5% of product references account for 20% of sales volumes meaning pushing that 5% could determine the overall success of a collection.

Digging in: Analysing their own Private Labels

Review of the Private Labels organisations

As mentioned by Kéa & Partners, coopetition and integration are 2 possibilities reflected in the IADS members’ organisations. At Galeries Lafayette, a new coopetition organisation has given more agility to the department: national brand buyers are buying the Private Label collections, representing a strong push for Private Labels to be more attractive, efficient and in step with trends. It also means a lighter team, with designers working outside of the company (freelancers and/or outside agencies). Breuninger Private Labels are organised in the same way with buying responsibility separated from the product development (only the Mrs & Hugs brand has a different organisation with shared development and buying responsibilities).

At Manor, each product category (womenswear, menswear…) has its own team including buying responsibility, product management, style, planning, sourcing, merchandising and visual merchandising. At El Palacio de Hierro, the Private Label director manages a team of category managers, each of them responsible for a Private Label: with their team, they are responsible for the strategy and execution as well as buying, planning and allocation. At El Corte Inglés, a category manager is responsible for several brands in the category. This executive manages a head of design who is responsible for a brand manager per Private Label. A brand manager is in charge of the buyer(s) negotiating with suppliers, merchandiser(s), planner(s) and designer(s). At Magasin du Nord, the design and sourcing department is managing all product categories. Each of them includes a buying manager and a merchandiser.

Comparing figures and sorting out KPIs

Participants shared key Private Label figures. Once carefully anonymized by the IADS, the idea was to compare and analyse them to find out the most important KPIs for profitability. The Academy group came to several conclusions:

-    Regarding markups and gross margin levels, a high markup is not a consequence of high volumes whereas low markups are a consequence of low volumes. A high markup (over 4.0), combined with entry-level to middle-range retail prices (€17-75), generates the best gross margins and the lowest discounts. On average, gross margins are 69% for the most profitable brands (62.9%-73.5%) and 49% for the worst ones (29%-62%). The number of pieces produced and sold is significantly higher for the brands with the highest gross margins. Markups are on average 4.22 for the best brands and 2.83 for the worst ones despite higher average full prices: it indicates that, even though they charge higher prices than average, their markups are still significantly lower to keep prices interesting for consumers.

-    When it comes to SKU efficiency, a smaller number of SKU won’t guarantee it. Having more colours in one reference may have a positive impact on turnover, thanks to the ‘Colorama’ effect for instance: one brand tends to confirm this assumption with an 11.7 multiplying coefficient and a 75% sell-thru. At least, having on average 5 colours per style guarantees the success of a collection. The number of SKUs is on average 5 times higher for the brands with the highest gross margin. Also, the turnover per SKU is 5 times higher for these brands (€6,565) compared to the worst ones.

-    When having a closer look at retail prices and discount rates, participants found out that there is no point in having a discount rate over 30-35% as it doesn't lead to a better sell-through. The best brands are limiting their discount rates to 26% on average. Retail prices should not exceed a certain point to be attractive to consumers, but it could be interesting to test elevated prices in Women’s Fashion for example: a wide range of prices could possibly lead to less price sensitivity. However, a very accessible range may lead to more dynamic SKUs and a higher turnover per SKU. Finally, brands with the highest gross margins have better sell-through rates (74.8%) and an average full price 46% lower than the worst brands (€39 vs. €72).

Following the conclusions above, participants proposed actions to be reviewed and possibly included in the final answer to the CEO question:

-    Reduce the number of references while maintaining a certain volume of SKUs.

-    Increase retail prices a bit (if they remain competitive), keeping in mind that an average lower full price can ensure a good sell-through and limits discounting to a healthy point, which in turn drives a higher gross margin.

-    Focus on the exit margin.

Creating their own vision: Private Labels will keep you going, Private Brands will keep you growing

The Academy’s overarching theme centred around the importance to transform Private Labels into real, independent brands. Department stores have the reputation and resources, so they benefit from competitive advantages. But, what’s missing?

Dealing with the internal ‘monsters’

After having identified the external threats to their existing Private Label business, the Academy participants focused on the internal ones (‘monsters’ as they called them) that need to be overcome.

Price positioning was listed as the first internal monster. It has become a critical topic with the current high inflation rates forcing department stores to increase their retail prices, at a time when customers are more price sensitive. This trend could also question the medium- and long-term investments necessary to build a healthy Private Label business, especially knowing department stores are fully responsible for every stage of the Private Label operations, making the risk greater.

Also, all participants from the start of the program shared one common challenge: misalignment inside their respective companies. This threat was immediately considered very important by the group as marketing and merchandising teams can face issues regarding priorities, budgeting, and scale. A cultural shift is necessary to get all departments on the same page.

The Academy’s proposed key actions to improve profitability

Participants really stressed the idea of allocating more marketing and advertising budget to Private Labels as they require visibility and their own storytelling. On top of enhancing the brand’s awareness, investing in marketing would increase the top line, boost sell-through rates and contribute to lowering the actual discount rate, ultimately leading to a higher margin in value. In the end, participants advocated for marketing departments to be seen as a profit centre rather than a cost centre.

Despite the difficulties Private Labels are facing, they have a good margin level when compared to other business models that can be found in department stores. In a comparative P&L, participants concluded that Private Labels offer the second-best EBITDA at 35.6% of sales (after the consignment model having an estimated EBITDA of 40% of sales). The concession model is 27% and the wholesale model is 23.9%. Private Labels have an estimated average net margin of 50-55%, just below the consignment model at 56-58%. Wholesale estimated average net margin is 40-45% and concession is 25-28%.

Participants established a ‘core focus’ program to improve profitability: it includes sourcing, assortment, positioning, and net margin as key pillars to be paired with KPIs to be closely monitored. The group acknowledged the difficulty of providing a fixed number per KPI when each company has different goals and scales. For example, they decided that 5 sourcing countries per product category could represent an average ideal number for healthy and controlled sourcing, considering many supply chain issues spurred on by COVID-19. Having backups is one way to provide more agility, however, the number of suppliers may vary per company, label, and category. Having compared how the recent supply chain issues impacted their business, the group set a target of 30% of SKUs produced in near-import countries to dilute the risk linked to producing in China and improve lead time.

Changing a Private Label into a brand also includes making the strategy visible on the shop floor. To that end, they advocate creating a difference between the assortment broadness (what customers see) and assortment depth (what the inventory looks like): the idea is to make the collection’s ‘candies’ (fashionable products such as a trendy pink jacket for instance) as visible as basics to attract customers who will ultimately buy the commercial and basic part of the collection.

A key point also showed when reviewing the Private Label anonymized figures: there is no need to be too cheap. Participants consider that prices should be 10% lower than comparable brands, not cheaper. Also taking cues from the figures, they set a discount rate of 28% to reach a minimum 90% sell-through rate after sales. This implies the need to carefully monitor the promotion strategy and calendar by killing the slow sellers at the beginning of the season (discounting them by 30%). All of these actions could allow Private Labels to reach a minimum 50% net margin.

Also, a true Private Label will become a driver of sustainability to promote responsible products, develop a sustainable selling environment, and ensure the working conditions in its production countries. Ultimately, Private Labels can have a competitive advantage as they often have higher standards than national brands: they should increase their capacity to communicate more proactively on these higher standards. Consequently, they could become a driver for traffic, transformation, loyalty and for the generational shift that department stores are hoping for by attracting more Gen Z consumers, who are expected to represent 28% of the world’s income in 2030.

Best practices from members 

When it comes to muscling the offer and attracting Gen Z, an interesting example came from Magasin du Nord’s collaboration with Trine Kjaer, a major Danish influencer. With a small capsule of 11 styles priced at €40-120 and 2,500 pieces produced, the sell-through rate reached 50% in 2 days, a net margin of 64% in 3 weeks and total net sales of €95,000. But most of all, 54% of the customers were new customers and the number of online searches increased 5 times, reaching 15,000 searches.

For El Corte Inglés, the example of their partnership with La Redoute (owned by the Galeries Lafayette Group) shows how integrating an outside marketplace can improve sales and profitability. In 2021, the department store’s Private Labels and other brands reached €5.5m on the La Redoute marketplace. Monthly fees (including commissions, set up and platform integration) are €55,000. Such results are positive, though there was no clear decision from participants about selling Private Labels through marketplace platforms. While it is an exciting proposition, using marketplaces could dilute the brand and lower margins. Reputational risks are also a factor when adding new selling channels outside of a group’s activity. This avenue also requires additional investment and organisation, making it an aspiration and not a qualification for a successful Private Label.

The importance of creating a visual identity was also something stated by Kéa & Partners and IUM students regarding the Target business case. This is backed up by one member example: Manor is currently working this way by developing shop-in-shop fixtures to give a true flare to their Private Labels. While it’s an ongoing process for fashion categories, the results have already proved efficient when it comes to home categories (bed and bath linen, tableware) as discussed during the IADS Merchandising Meeting dedicated to Private Labels held in December 2022. They have been reorganised with a more efficient display. Manor created new event zones and reworked the navigation by material (types of cotton, linen…) as the first decision criteria, and then by colour. A material testing zone, also known as an ‘education point’, is available. Beds demonstrating bed linen are more systematically displayed.

Conclusion: Private Label profitability is a complex combination of positioning, planning, marketing, closely monitored KPIs and faith

The question of Private Label profitability is likely to keep on going in department stores in the years to come. There are many reasons for companies to expand their offering through Private Labels, especially as inflation ramps up, leading many consumers to choose store-brand products over international and national brands. While each department store will need to adapt its plan, the insights provided by the IADS Academy offer a way to reassess the Private Label model. Setting KPIs for the ideal quantity of SKUs, for sourcing, planning, margins and discount rate can help with tailoring the offer and capturing their full value ahead of other brands. As the Academy Participants, IUM students and Kéa & Partners highlighted, having a unique offer that is specifically aligned with the department store is a great way to attract customers, meaning there is no perfect formula, only guidelines for creating an ecosystem to support Private Labels.

For the 27th edition of the IADS Academy, it was no easy task to define a toolkit for this increasingly important business endeavour. Each participant confronted the CEO’s question with involvement and seriousness, getting to step back from daily operations to learn from different department stores. Having the opportunity to work together across the world helped participants understand other visions, develop team spirit while expanding their network of peers facing similar missions.

Credits: IADS (Christine Montard)

PRINTABLE VERSION HERE

IADS recently held a meeting all about the Men's Fashion brands to look out for in 2023. Based on market research, IADS and NellyRodi presented a curated selection of 10 brands that are trending right now. Check out our selection of these brands!

CASUAL

DRÔLE DE MONSIEUR

Distinctive and wearable everyday wardrobe pieces that draw on iconic

sportswear halfway between 70’s and 80’s aesthetic and nostalgia for the

90’s. Past and present meet with the sophistication of retro silhouettes

combined with studied modern cuts and details for everyday wear.

Check out the DRÔLE DE MONSIEUR website here

CHECK OUT DRÔLE DE MONSIEUR INSTAGRAM

UNIFORME

A collection of minimalistic silhouettes that combine precise tailoring and

military lines to create streetwear that is stylish and utilitarian made in

France and Italy, crafted by specialized artisans to the highest standards of

luxury savoir-faire with responsibly sourced materials free of plastic

derivatives.

Check out the UNIFORME website here

check out the UNIFORME instagram here

DAVI

Created by Davide Marello under the label “davi”, the brand’s first collection

focuses on quality construction and artistic influence with its floral prints

developed for men’s shirts, trousers, and accessories.

Check out the DAVI website here

check out the davi instagram here

STREETWEAR

NEIGHBORHOOD

Tokyo-based brand established in the '90s by a motorcycle enthusiast,

NEIGHBORHOOD combines western influences with Japanese streetwear,

London’s punk scene and strong military influences to create a varied lineup

of utilitarian pieces, printed jackets and unexpected lifestyle pieces.

Check out the NEIGHBORHOOD Website Here 

check out the NEIGHBORHOOD instagram here

JJJJOUND

Originally launched as a digital mood board, JJJJound has grown into a

collaborative design studio producing timeless menswear pieces by

prioritizing materials and construction.

check out the JJJJOUND website here 

check out the JJJJOUND instagram here

RAEBURN

UResponsible and functional pieces that are fit for fashion and the

outdoors.

Check out the RAEBURN website here

Check out the RAEBURN instagram here

NEW & EMERGING TALENTS

BOTTER

Botter is a hybrid fusion of Caribbean culture, music, literature, food and

the arts that has evolved into an elegant and colorful collection of

sustainably conscious garments.

Check out the botter website here 

check out the botter instagram here

S.S.DALEY

S.S.Daley takes British elitism and its classic silhouettes to illuminate the

flowery femininity of what had been traditionally considered hypermasculine,

aristocratic dress.

Check out the S.S.DALEY website here 

ISO.POETISM

ISO.POETISM™ is a Copenhagen based fashion brand creating techwear as

artefacts that present as structural and rugged silhouettes with textural

prints and a futuristic undertone.

Check out the ISO.POETISM website here

CHECK OUT THE ISO.POETISM INSTAGRAM HERE

MWORKS PARIS

Inspired by the evolution of modern ways of living, architecture, and the

blending of contemporary cultures, MWORKS creates a sustainable

wardrobe that combines artisanal details with playful proportions.

Check out the MWORKS PARIS website here

check out the MWORKS PARIS instagram here

What: Salesforce reports a record level of returns for Christmas 2022, which however did not change the overall yearly balance compared to 2021.

Why it is important: Promotions were heavily used to offload inventories during the pre-holiday and holiday periods. However, this could come back as a boomerang and aggravate inventory issues during Q1 2023.

In Salesforce’s 2022 holiday spending report, returns are mentioned to have reached a total of $1,39bn, 13% of total holiday spending, growing +63% yoy. Returns in the US are now estimated to grow faster than revenue for 91% of retailers. For those that reported improving inventory situations heading into 2023, record return levels could be a troubling sign, as many retailers could be stuck with bloated inventories in Q1 after the current wave of returns subsides.

This record level of returns was in the context of total consumer spend of over $1.14tn globally across the 2022 holiday season, which was roughly flat with 2021’s numbers. In the US, spending on online holiday orders exceeded $270bn, representing a +5.1% y/y increase over 2022. Along with stronger than anticipated demand amid a deteriorating macroeconomic backdrop, Salesforce noted that “steeper discounts on peak days” and a surge in Buy Online and Pickup In Store (BOPIS) adoption contributed to “stronger online sales growth than expected.” This was based on data from more than 1.5bn shoppers on retail sites that use Salesforce’s Customer 360.

US retailers experienced “staggering” levels of returns after Christmas 

What: Coresight explores what is at stake in the Product Information Management market.

Why it is important: PIMs are key for department stores as they are essential in becoming more efficient and productive.

PIM (Product Information Management) is key for department stores as these tools manage the complex offer, including product information entry and dispatch to each of their platforms (APIs, warehouses, stores, e-commerce website, marketplace). They are quietly transforming into PXM (Product Experience Management).

PIMs are here to improve the customer experience across all sales channels, through personalization across them. However, it is also a way to earn a few productivity points by making the process more efficient than the current reliance on spreadsheets.

New-generation PIM systems include AI in order to automate product enrichment, content creation, categorization, and SEO.

The report reviews the current situation with PIMs and where retail companies stand in their implementation, as well as explores where these systems are bound to go.

What’s new in PIM? 

What: Returns will hit a record level this year and this raises questions on how to find new ways to manage this topic.

Why it is important: Some academics suggested appointing a Chief Return Officer. But would not this be adding up to the complexity of multiple layers in department stores we described in our 2021 White Paper?

The final quarter of the retailing year is when the industry takes account of the damage inflicted on bottom lines by the stubborn problem of returns. This fiscal year (ending Jan. 31 for most retail companies and brands) will be a record, estimated by the National Retail Federation to exceed $816 billion worth of merchandise. That's about 16% of total retail sales for the year being returns, up from about 10% two years ago. $816 billion is roughly equal to the combined sum of all US retail sales in 2021 for Walmart, Amazon, and Costco.

Returns are a nightmare for companies. Most of the returns that cannot be resold are apparel that will likely end up in a landfill in India or a landfill in Ghana. Returns are costly when general retailers' average net profit margin is less than 2.5%.

An idea proposed by two University of Tennessee academics is to appoint an executive responsible for the end-to-end returns process. Another solution is to find ways to “limit returns before they happen, in the pre-sale process;” improve product descriptions “so customers have a better sense of what they are buying.”

With soaring returns, do retailers need a Chief Return Officer? 

What: Returns in e-commerce are killing the retailer margin, and many operators think that they have gone too far in facilitating customers’ lives at no cost.

Why it is important: E-tailers are now starting to follow the example set by many brick-and-mortar operators and charge for returns. This might help change customers mindset and habits, but for the good or the worse?

In the fashion industry, implementing paid e-commerce returns has become necessary for some players since the Covid-19 pandemic. In France and the UK, where respectively 21% and 33% of fashion sales were made online in 2021, return rates were around 20/30% before Covid while Germany was already around 50% due to its historical culture of mail order. Today, return rates in Germany have hardly increased but exploded in France and the UK, where they have increased by 10 to 15 points compared to 2019. This increase in returns is also linked to a change in the categories of products (fashion is more size-sensitive than joggings).

This change in policy comes at a time when online fashion sales are slowing down, as with Boohoo and Asos. The costs are such that for low-value items, it is less costly for the e-commerce company to offer the item rather than proceed with a free return. A majority of Shein returns end up in landfill. This is also the case with Amazon.

If they decide to ask for payment to return goods, some retailers highlight the environmental argument, so that the billing will be less painfully perceived by their customers. But for retailers like Uniqlo, Zara, H&M and Etam, who have both physical stores and an online presence, charging customers for returns seem to be a profitable strategy. Due to their physical stores, they can offer a free alternative: returning the item in-store, which generates foot traffic. This is crucial at a time when in-store traffic is continuously decreasing, plus obviously generates additional sales (between 40% and 60% of consumers leave the store with additional items).

Anyways, the equation does not work. In Europe, the average cost of returns charged to customers is on average between €3 and €5. In France, the average is €3, with variations: the cost of a return is €0.95 at H&M and €5.99 at Levi's. According to a Sendcloud study conducted among 10,000 European consumers in 2022, for an order of €15, customers are willing to pay €2.90 in return fees. This is far from covering the actual costs (€6 to €7).

In spite of all this, e-retailers are starting to follow suit: Boohoo now charges €3 for returns, and it is expected that Asos will also change its policy as sales are slowing down.

Pure Players are increasingly asking customers to pay for returning products (IN FRENCH)

What: Vogue Business reviews the challenges that fashion executives must face when it comes to circularity.

Why it is important: Selfridges aims to achieve 45% of its turnover through circularity within 2030, from 1% today. Is that possible while maintaining the sale level of profits?

Vogue business reviews what is at stake when it comes to circularity and lists a selection of 11 circular ventures and their funding (interestingly, Vestiaire Collective, a leader in the space, is not listed). Be it repair, rental, recycling or reuse, many brands have entered this space in the recent times, and department stores too.

However, this does not hide the fact that there is a debate about it: circularity might very well a convenient excuse to continue business as usual as some consider that the main target for fashion brands should be to stop selling more each season.

In addition, challenges remain: circularity as a whole might not be as environmentally friendly as expected when packaging, emissions and dry cleaning (for rentals) are taken in the equation, and for each of the “R’s” of the equation, specific issues remain:

-    Resale: how to deal with quality and make sure all products can be efficiently sold on a scalable dimension,

-    Rental raises the question of ownership: should rental operators be coordinators of items own by individuals and rented, or should they own the stock?

-    Repair can be costly, time-consuming and a barrier to new sales, as discovered by Bottega Veneta.

In fact, circularity needs to be embedded in the products when they are being designed to make sure the model is relevant. But then, tracking progress is another question, which is why many call regulators to step in, which they have started to do.

Finally, regarding social impact, sustainability experts say the industry is too focused on technological solutions and startups based in the Global North, and is neglecting its social impact, especially in the Global South.

The Fashion exec’s guide to circularity 

What: Alix Partners shares their predictions for 2023 and advice to retailers.

Why it is important: 2023 will not be a “back to normal” year but will bring fresh and new challenges.

Alix Partners reviews the strategy retailers need to adopt to address 2023. The year is bound to offer challenges which will be different from what retailers encountered in the past 3 years: the question is not anymore to get the product to consumers at any cost.

The analysts consider that retailers need discipline and rigor in order to overcome rising operating costs and customers’ inflationary worries. For 2023, Alix Partners considers that:

-    Consumers will spend more discerningly, and their debts will creep up (including through Buy Now Pay Later solutions),

-    Perceived pricing will be vital, which should favor private labels,

-    All retailers will have to stop heavy discounting to get rid of their inventories, and protect their margins at any costs, leading to more negotiations with brands,

-    Digital will be a must-have in the relationship with customers, and not only a transactional tool,

-    Business models will need to be customer-centric, in order to make the most of zero-party data (retail media networks) and loyalty programs,

-    Circularity will keep on growing, due to inflationary concerns for brand new goods,

-    Inventory management will come back to “normal”,

-    Supply chains will diversify their sources and not rely only on China in a tense geopolitical context,

-    Cash management will be king.

2023: don’t hope, plan 

What:  A comprehensive article on AI from an academic point of view, addressing the fears AI generates, how to overcome them, what to do in a business with AI and how to start.

Why it is important: The most difficult is not to set up a system, or to get going, but truly to connect the dots and be creative in the use of AI in every aspect of the business, and not only the most obvious ones.

The whole IESE article is about the fear that AI can generate, thanks to public culture, among business leaders, even though it is very much possible to use AI for good management and conduct of operations.

AI can be incorporated into companies' processes without overhauling their entire business model. Some ways include using chatbots and digital assistants for customer care, automating certain processes, predicting and anticipating customer needs, using AI for better resource planning, using AI for sustainable management of resources, using AI to minimize palm oil in products and ensuring sustainable harvesting through blockchain technology and satellite images, among others. Many AI models are readily available and can be easily used without the need for coding skills. Companies can also use existing AI tools and solutions from partners to achieve results in their specific industry.

The article discusses a path for companies to take in order to effectively implement AI within their organization. It recommends starting with structured data and identifying meaningful use cases, connecting data across different collaborators and platforms, identifying a process to optimize with AI, paying attention to company culture, staying people-centric, and developing an ethical compass for AI.

It emphasizes the importance of having a strategic view and understanding how AI can impact the business model and competition. The writers also stress the importance of transparency, explainability, and auditability in AI, and the need for an AI ethics board to monitor strategic-level concerns.

However, the most important, and the most complex, for leaders who have understood the importance of AI in a given field of activity, is to understand that there is actually no limit to its application and that it could very well be rolled over other departments or activities as easily.

Using AI for good management 

What: The BoF reviews what retailers can expect in 2023.

Why it is important:  2023 will not be the year of normalization, but rather the year of adjustment from exceptional times to standard supply chain and inventory management operations.

2023 is likely to be more ‘normal’ than the two previous, tumultuous years. No more supply chain disruption, energy prices are getting lower, e-commerce growth is now back to pre-pandemic levels, so many retailers expect 2023 to be a clean slate, hopefully without unexpected catastrophes.

Many of them will have to correct the mistakes made in 2021, especially the large levels of inventory, which will mean relying on necessary pains such as discounting. Expect difficult inventory planning meetings, especially when it comes to predicting customer demand.

The keywords for the opening year are: cost control and supply chain flexibility.

2023 will set a new baseline for retail 

What: AI is transforming the retail industry in many ways, from supply chain operations to in-store operations to the customer experience.

Why it is important: Even though the report might look a bit optimistic, it is a refreshing reminded of everything which is currently on the market and designed to optimize retail operations. Articulating everything and making sure all systems works and interact together will be the first major challenge, the second one being to make sure this makes economically sense.

According to Coresight Research Analysis, global revenues generated by AI for retailers will exceed $38 billion in 2030, up from an estimated $8.5 billion in 2023.

Contactless commerce will be prevalent in brick-and-mortar retail through 2030, thanks to service bots, personal assistants and payments that enable contactless and personalized shopping experiences. AI will prove central when it comes to data analysis and store merchandising adaptation in real-time, including reorders but also in-store activity and how to improve product display. Coresight considers that this will be a great margin contributor margin (which will be needed to compensate for the cost of equipment).

Virtual agents and robots will be able to handle most store operations autonomously by 2030. Additionally, nearly every aspect of the supply chain will be impacted by robotics and AI by 2030, with significant benefits in warehouses (fulfilment made by robots, use of IoT, RFID…), in-store inventory, loss prevention, and the last mile (autonomous vehicles).

AI is also automating interactions between humans and machines, and all activities in the metaverse (including the embodiment of virtual idols such as Lil Miquela). It is expected that 95% of interactions will be powered by AI in 2025. Integrated with VR and AR technologies, AI is providing customers with smooth and seamless interactions with AI assistants, which are not possible in today's world, including a true capability to interact in natural language and being able to respond to sentiments and feelings, well beyond written communication (i.e. an app or a website could interact with a customer in the same way than a sales associate answers questions today in the store). It is expected that 76% of US customers will use AI-enabled voice activation to make purchases in 2030, up from 17.8% today.

Personalization and the overall customer experience will greatly benefit from improvements in AI over the next 10 years. Artificial empathy will allow retailers to build fully complete customer profiles, providing them with highly personalized experiences thanks to the combination of all customers’ elements (e.g. connected home devices).

Although AI algorithms today are still crude and not fully capable of seamless interaction with humans, they are advancing at a rapid pace and will impact the retail sector in a meaningful way. It is important to note as well that, even though all these technologies already exist and are available, integration at scale for full autonomy within stores will be expensive and painful.

The future of AI in Retail 

What: Shopify shares its insights and predictions for 2023.

Why it is important: 2023 will be all about managing a return to normalization in a very chaotic and unpredictable context.

Shopify issues its 2023 report outlining the major trends identified in supply chain, payment transactions, marketing, e-commerce and retail. Since ‘unexpected is the new normal’, this report aims to help brands and businesses to address inflation and new customer behaviours. In terms of identified trends:

-    Supply chain: the war in Ukraine has broken hopes of a return to normal in 2023 and shows that long-term planning is needed in order to set up resilient supply chains, though new sourcing lines and inventory control,

-    Strategies to cut costs during inflation might be extremely beneficial to customers also impacted by the context, provided the savings are passed to them. Price raises are also possible but need to come along new product proposals,

-    Marketing: collaboration will help to overcome third-party data hurdles, with influencers for instance,

-    Ecommerce becomes social commerce,

-    Instore experiences need to be reviewed and upgraded in order to entertain a local customer in order to maximize its lifetime value.

Commerce Trends 2023 

What: Ports evolution tells where logistics businesses are looking at: East.

Why it is important: Department stores are heavily relying on logistics to get their goods on time. A shift in the traditional relationships between logisticians and hubs will impact the way they operate and force them to adapt.

The Tuas Mega Port in Singapore is a vision of the future for ports worldwide, as it uses technology to meet demand in the face of obstacles to new developments. It is the first of 21 berths planned for completion by 2027, with an estimated cost of $15bn. PSA International, the Singaporean owner of the port, expects it to be the largest container port in the world when completed in 2040. The development is part of a larger trend in the logistics industry, which is betting on the rising importance of Asia, particularly South-East Asia.

The IMF expects the region's five largest economies to be the fastest-growing bloc in the world by trade volumes between 2022 and 2027. However, the expansion of seaports is becoming more difficult worldwide as space in the right locations is scarce and environmentalists are becoming more vocal in opposing new developments. One solution is to make existing logistics networks more efficient. Another is to reclaim land from the sea, but this is expensive. Some ports are choosing to build upwards, using automated cranes to stack containers higher. Another option is to build elsewhere and consider the options of “dry ports”, i.e. load the goods into containers well in advance and load them on ships as they arrive. For instance, a network of 13 dry ports has been built in China, with some being 2.400 km away from the sea.

According to The Economist, this points out the shift of gravity of the ports business eastward. Asia's trade has become more multidirectional, and Asian economies have become large markets. The logistics industry is investing in the region, with a focus on warehouses and distribution hubs. Global manufacturers are looking to diversify production away from China and India is likely to see a boost. Shipping giants are also investing in the region, with a focus on intra-Asian trade.

Investments in ports foretell the future of global 

What: A piece on the situation of BNPL in the US.

Why it is important: Buy Now Pay Later has been worrying regulators for more than a year now, and retailers should fear a backslash from customers the moment they realize that BNPL’s main promise, which is to be different from more traditional credit options, is actually not true.

From 2019 to 2021, the total value of buy-now, pay-later (or BNPL) loans originated in the United States grew more than 1,000 percent, from $2 billion to $24.2 billion, the Atlantic reports. Any kind of goods can be bought with BNPL, from a sandwich to cardigans or OLED TVs.

This is especially popular for the younger class of customers, usually below 30, and who usually do not own a credit card already, as they watched how their parents sunk in credits in the 80s. However, and even though BNPL is a new packaging for credit, younger customers do not see it in that way and tend to use BNPL for hedonistic purchases. Social media help BNPL as influencers advertise the “zero interest lifestyle” which is equivalent to having “free money” in their minds.

However, an increasing number of customers are behind their repayments, which is increasingly worrying regulators. Because BNPL providers are not subject to the same scrutiny as banks, consumer protections are scant. The Atlantic argues that this is the beginning of a new credit crisis cycle about to burst.

Is Buy Now Pay Later a bubble about to burst? 

What: Wunderman Thompson explores 100 trends that they see as noteworthy for 2023.

Why it is important: While many are related to brands’ problems, some might also very well be interesting for retailers.

Wunderman Thompson reviews, in an extensive 226-pages report, the trends to be watched, divided into 10 categories: culture, tech & metaverse, travel & hospitality, brand & marketing, food & drink, beauty, retail & commerce, luxury, health and work.

Among the various trends spotted, some of them are worth IADS’ members’ attention:

-    In culture, the ‘next-gen ownership”, or how digital platforms own the membership rather than renting a social experience. In other words, they propose a new way of allowing brands and consumers to interact with digital goods, services and content,

-    In travel & hospitality, the “urban sanctuaries”, or how hospitality brands are designing luxury spaces at the heart of cities to help locals and tourists to refresh and recharge. It would not take much to see such spaces open in department stores,

-    In brands & marketing, the notion of “virtual ambassadors”, already experienced very successfully by Brazilian retailer Magazine Luiza for twenty years, with Lu boasting more followers that any other virtual influencer on Earth…

-    In the same category, the “earth as stakeholder”, following what Patagonia did at the end of 2022, and which might, as some stage, become a must-have for any brand or retailer willing to prove its commitment to sustainability,

-    In food & drink, the “clubstaurant” trend is noteworthy, providing ultra-elite dining experiences. Given the general trend within department stores amplifying and upping their F&B offer, here again, this could be a way of differentiating.

-    In retail & commerce, the “multiversal design” is also important, as store designers need now to take into account both online and offline, and make sure that both dimensions are well-articulated in a meaningful way,

-    In luxury, the “wellness guilds” is a clear echo to the initiative launched by Galeries Lafayette on 3,000 sqm last September 2022,

-    In the work section, the notion of “workplace wellness” is seen as a way to attract and retain talent, by going beyond generic wellness programs.

Trends and changes to watch in 2023

What: Even though it was not highly publicized, France has triggered a first round of regulations that are forcing changes across the fashion industry.

Why it is important: This echoes both the presentation of Laurent Raoul at the IADS 2022 General Assembly and the first 2023 CEO Talk with Sucharita Kodali. Department stores are not immune to the risk: most of them sell private labels too.

On the first of January, France enforced a new law, AGEC, making it mandatory for the biggest fashion players to provide shoppers with detailed information about environmental characteristics (the proportion of recycled material in a product, or where garments are sewn and material woven). LVMH confesses that there are gaps in every Maison when it comes to compliance with this new law.

According to Business of Fashion, fashion is not ready for such a ground-breaking regulation, which is also why the French law only applies to the largest players for now, in order to leave time for SMEs to adapt. All segments are involved and the reporter mentions that a visit to Nike’s or Zara’s website shows that they are also struggling to provide customers with the right amount of information.

This requires a change in the way things are operated but also shows that many things were not in control so far. The New York State is currently considering a similar regulation too.

Fashion is not ready for the regulation coming for it 

What: ChatGPT could be a game changer for chatbots and customers’ request management, but it is too early?

Why it is important: There are as many risks associated to using ChatGTP now as there are benefits for retailers. This is a cruel dilemma: try now, take risks, but be prepared for the future, or wait, enter the game late and face a prepared competition and higher costs of implementation.

Companies have long sought automated solutions that can match or surpass human customer service, but chatbots have often been seen as clunky and unhelpful.

For this reason, businesses are excited about the potential of ChatGPT, a new artificial-intelligence technology from OpenAI, to turn ordinary chatbots into impressive sources of information, potentially transforming customer service. To achieve that, OpenAI is planning to add ChatGPT to its application programming interface, allowing developers to embed the technology into their own products.

However, many executives are proceeding with caution due to limitations in ChatGPT and OpenAI's older AI language system, GPT-3. Executives warn that overreliance on such AI models could lead to companies providing incorrect information to customers. They also note that while many chatbots are trained to say "I don't know" when they can't compute a request, ChatGPT is more likely to provide a response with confidence, even if it's incorrect.

OpenAI's CEO has advised against relying on ChatGPT for important tasks at the moment. ChatGPT is unique in its ability to provide reasonable answers to most prompts, regardless of users' spelling and grammar, and to respond in full, natural-sounding sentences without scripting. However, companies should exercise caution when using the technology, as it's still early days for deployment of mission-critical systems based on ChatGPT.

Some companies are using AI to write chatbot responses in sensitive situations, but this has backfired in the past. Sports brand Fanatics plans to use a customer-service chatbot fueled in part by GPT-3 when it launches an online sports-gambling division this year, but is testing the chatbot carefully to avoid risks, especially reputational ones.

Companies tap Chat GPT to make their chatbots smarter