What: NRF report on Retail Circularity: an action guide for retailers

Why it is important: A guide developed for retail executives and teams as they explore and implement circular business models. Also a resource prepared as a tool to highlight circular retail opportunities, and more.

The Retail Circularity Action Guide 2024, by Deloitte and the National Retail Federation (NRF), focuses on the challenges and opportunities for retailers to adopt circular business models. The report highlights the need for retailers to transition from traditional linear product lifecycles to more sustainable and circular practices.

In order to create the report, NRF shared a 13 question circularity survey, receiving back 100 individual survey responses, and 83 unique company responses.

They found that there were 4 main key challenges in order to adopt circular business models.

Firstly, access to alternative materials. Retailers need greater access to recycled and alternative materials to design and produce circular products at scale.  Secondly the industry standards.  The safety of existing products, quality, and shipping standards are not designed with circularity in mind, requiring industry-level changes. Supply chain and Infrastructure was the third challenge.  Retailers struggle to collect and supply products for circular models due to limited access to high-quality recovered materials, post-customer products, and parts for repair.  And lastly recycling and tracking. Advancements in recycling solutions and infrastructure are needed to lower costs, and retailers need better tracking and grading systems to monitor product disposal and recycling.

The report outlines several strategies for retailers to adopt and implement circular business models.

These were:

1. Product Design: Designing products that can be repaired, reused, resold, or recycled at end of life.
2. Collection and Reverse Logistics: Implementing collection programs to take back used products and partner with third-party organizations for efficient reverse logistics.
3. Resale and Rental: Offering resale and rental programs to extend product lifecycles and create new revenue streams.
4. Repair and Refurbishment: Providing repair services to extend product lifecycles and enhance customer loyalty.
5. Recycling: Developing recycling programs to process and sell recycled materials, reducing waste and environmental impact.

The report emphasizes the importance of consistent company wide strategy, and support from leaders to  successfully implement circular business models. It also highlights the need for retailers to track and measure the effectiveness of these initiatives through various criteria, such as revenue growth, customer engagement, and environmental impact.

NRF Report: Retail Circularity

What: Customers are in an expectative position in the US

Why it is important: The global context is hitting all markets and affecting consumption everywhere

In June, the US Conference Board Consumer Confidence Index experienced a slight decline, dropping to 100.4 from a revised May reading of 101.3, mainly due to a decrease in the expectations component from 74.9 to 73.0. This decrease slightly reversed a nearly 6-point increase observed in May. Although confidence regarding current conditions remains robust, largely supported by a strong labor market, there is caution that any increase in unemployment or other signs of labor market weakening could diminish consumer confidence in the future.

Despite the dip, consumer confidence levels have stayed within a relatively consistent range observed over the past few years, suggesting that the decrease does not signify a notably negative trend. Consumers are displaying a cautious demeanor but are not overly alarmed, continuing to express concerns primarily about high prices, especially for food and groceries.

Other economic indicators such as recent stock market highs and falling gasoline prices, which normally would lift consumer confidence, seem to have had limited impact due to the prevailing cautious sentiment. Inflation expectations have slightly decreased from 5.4% to 5.3%, and there is a reduced anticipation of rising interest rates in the near future. Overall, consumer sentiment in June reflects a sustained unease, neither worsening significantly nor showing marked improvement.

In the US, consumer confidence in a sustained unease

What: Customers are increasingly looking at cross border options for cheaper prices, especially in Asia.

Why it is important: who should bear the cost of returns then, the retailer of the customer? Retailers face a complex balance between managing return fees and maintaining customer satisfaction in cross-border transactions. A significant portion of consumers, especially in India where 60% expect free returns, demand cost-free return policies. This expectation extends broadly across the Asia Pacific region, driven by a desire for a hassle-free return process. Despite this consumer demand, the Asendia’s Shipping and Returns report highlights a trend away from free returns due to financial unsustainability, with less than half of online retailers currently offering this service. Brands like Zara and Asos.com are pivoting towards charging for returns or using subscription models to offset costs. The introduction of return fees can potentially deter customers, impacting sales and loyalty, particularly in regions like South Korea, Switzerland, the UAE, and India, where there is greater acceptance of these charges. Retailers are exploring strategies to balance these dynamics by offering free returns on promotional items or during specific periods, and investing in technology to minimize returns and enhance shopping experiences. Furthermore, according to DHL’s Global Online Shopper Survey 2023, price incentives are a major motivator for cross-border shopping, with significant percentages of consumers in Brazil, Malaysia, and Thailand citing lower costs as their primary reason for purchasing abroad. Quality is another critical factor, particularly in Sub-Saharan Africa and the MENA region. Retailers also need to consider additional trust-building measures, such as ensuring well-packaged goods, transparent consumer policies, multilingual websites, and sustainability practices like carbon offsetting. These elements are essential for fostering consumer confidence in cross-border shopping, particularly in diverse markets with varying expectations on return policies.

How can retailers balance cross-border return fees and customer satisfaction?

What: CBRE forecasts that foot traffic in retail locations will exceed pre-pandemic levelsin 2025.

Why it is important: This does not mean that stores just have to wait for traffic to come back: the need to adapt and radically transform themselves.

Retail foot traffic in major shopping areas is projected to exceed pre-pandemic levels by 2025, with CBRE forecasting a return to these levels by the third quarter of 2024. As of last year, foot traffic had already recovered to 81% of 2019 figures in 10 key retail locations. However, the retail landscape faces challenges due to increased rents, which have risen by 9% in the Americas and 5.8% globally since 2021. This has led to record-low space availability and high rental costs, prompting retailers to explore innovative growth strategies and alternative locations with lower rents and fewer operational constraints.

Retailers are adapting by expanding into smaller, alternative locations to facilitate brand growth and enhance convenience for digital transactions. The importance of physical stores in driving digital sales remains significant; the International Council of Shopping Centers (ICSC) noted that opening a physical store can boost a brand's online sales by nearly 7%, whereas closing one might decrease them by 11.5%. Moreover, the interplay between online and offline sales channels continues to be crucial, with physical stores accounting for 78% of retail growth in 2022, a significant increase from 46% in 2019.

Reports of Street Retail’s Demise Are Greatly Exaggerated

PRINTABLE VERSION HERE

IADS recently held a meeting on the Cosmetics & Beauty sector. Based on market research, NellyRodi and The Style Pulse presented the most innovative brands from different segments in cosmetics and beauty including skincare, makeup, haircare, fragrances, and more.

Check out our selection of these brands and the pictures by clicking the button below!

SKINCARE

IPSUM ALII

IPSUM ALII uses scientifically proven ingredients, infused with the ancient wisdom of Kampo medicinal herbs, associated with their anti-inflammatory and antioxidant properties, to restore skin to its equilibrium state.

Check out the IPSUM ALII website here

CHECK OUT IPSUM ALII's INSTAGRAM

MIMÉTIQUE

Mimétique is a skincare brand that targets knowledgeable consumers with scientifically-backed, education-focused products. They offer effective skincare solutions formulated with active ingredients that are kind to the skin and environmentally sustainable, using green chemistry and biotechnology in their French-made products.

Check out the MIMÉTIQUE website here

check out the MIMÉTIQUE instagram here

MTMLABO

MTMLABO is a skincare brand that offers custom-blended products using a unique library of botanical extracts. For over 30 years, the company has specialized in personalizing skincare to match individual needs and skin types, promoting natural beauty and self-acceptance.

Check out the MTMLABO website here

check out the MTMLABO instagram here

TALM

Talm is a skincare brand designed for women during pregnancy, postpartum, and breastfeeding, emphasizing safety, effectiveness, and beauty. Founded by Kenza Keller, the products are organic, vegan, and environmentally friendly, made in France, and include specialized prenatal and postpartum massages to enhance maternal well-being.

Check out the TALM website here

Check out the TALM instagram here

MEGABABE

Megababe is a body care brand founded to address common yet often overlooked issues like thigh chafing, underboob sweat, and body odor. Focused on creating clean, vegan, and appealing products, Megababe aims to tackle "taboo" body topics, helping people feel more comfortable and confident in their own skin.

check out the megababe website here 

check out the megababe instagram here 

MAKEUP

OBAYATY

Obayaty is a men's beauty brand that combines luxury, wellness, and innovation to promote self-care and self-expression. Using sustainable, consciously sourced materials and potent formulas, Obayaty offers a multipurpose collection that encourages male beauty and inclusivity, while striving for harmony with the community and the planet.

Check out the OBAYATY Website Here 

check out the OBAYATY instagram here

FLORASIS

Florasis is a beauty brand that combines traditional Chinese beauty rituals with modern technology, offering products that blend makeup and skincare. Their line emphasizes nourishing floral essences, celebrating the legacy of ancient craftsmanship while promoting inner health and outer beauty.

check out the Florasis website here 

check out the Florasis instagram here

GOOD WEIRD

Good Weird is a beauty brand that champions inclusivity and exploration in the beauty aisle. Emphasizing ease and versatility, their multipurpose products are designed for every gender, skill level, skin tone, and type, encouraging everyone to express their individuality. Good Weird is about looking good, feeling better, and embracing the unique in each of us.

check out the good weird website here 

check out the good weird instagram here

FARA HOMIDI

Fara Homidi embodies "Slow Beauty" with high-performance, cruelty-free cosmetics that prioritize quality and environmental responsibility. The brand uses sustainable materials for packaging and offers refill options, emphasizing a luxurious, eco-conscious approach to beauty.

checkout the fara homidi website here 

checkout the fara homidi instagram here 

What: Savills decrypts the global trends in luxury from last year and this one, in order to have an idea of the market situation

Why it is important: Headwinds are ahead for luxury, but it is cyclical or a new era?

The Savills Global Luxury Retail 2024 outlook report reveals that the global luxury retail market faced headwinds in 2023, with new store openings down 13% year-on-year. However, this decline was largely cyclical, reflecting a normalization after the post-pandemic acceleration. The long-term fundamentals of the luxury market remain strong, with annual growth forecast between 4-8% by 2030.
Key trends identified in the report include a continued focus on "localization," with luxury brands expanding into domestic markets and resort destinations to get closer to their customers. While global store openings slowed, North America and Asia Pacific (excluding China) bucked the trend with increased store activity. China remains the dominant market for luxury expansion but saw a slowdown due to weaker consumer confidence. Resort markets maintained their appeal, with their share of new openings increasing to 8%. The Middle East is emerging as a key growth market, particularly the UAE and Saudi Arabia. Property acquisitions by luxury brands hit a new high, but leasing remains competitive, with upward pressure on rents in prime locations due to reduced availability and improving demand.
Looking ahead, the report anticipates further deceleration in new store openings, especially in China. Luxury brands are expected to continue focusing on strong domestic markets, particularly in North America and Asia Pacific. Large, growing tourist hotspots are likely to move up the expansion agenda. Availability challenges in key locations are expected to place further upward pressure on rents. The report underscores the importance of market fundamentals, real estate quality, and strategic location selection in luxury retail expansion plans.

Savills report on 2024 luxury trends

Printable version here

Have you heard about Taylor Swift, a singer with a global impact?

Last year, NYU announced a class based on her. In March and November 2023, Stanford and Harvard respectively announced they would do the same. Swift holds the record for most songs to ever chart on the US Billboard Hot 100 (188 songs), and in fall 2022 she became the first artist to own the entire Top 10 simultaneously. Finally, Taylor Swift’s 2023 “Eras Tour” is the first tour to gross $1 billion, surpassing Elton John (the previous record holder with $939 million for his “Farewell Yellow Brick Road” tour).

In one way or another, Taylor Swift has amazed the world with her music, persona and business skills for over a decade. Sparked by this buzz, the IADS took a look at this phenomenon to figure out how exactly this popstar branded herself and her music and how she became a master in influence. Her highly engaged community of fans is interesting to look into to understand how emotion is a key factor in enhancing loyalty.

Co-creation, the value of the middleman

Is control everything? 

One of the most notable copyright cases in the music industry happened when Taylor Swift tried to purchase her ‘masters’ (the original recordings of her songs) in an attempt to control her music. The story is that after leaving her former record label where she recorded her first six albums, Swift found out that her manager had acquired her ‘masters’, preventing her from using her own music. This is when she decided to re-record her albums. Dubbed “Taylor’s versions”, they instantly acquired a higher value than the original recordings. Compared to the original ones, the new versions resulted in +43% in streaming and +4512% in album sales.

In a way, Taylor Swift's copyright case could be compared to a brand reclaiming control ownership and trying to increase its margin by going direct-to-consumer hence skipping the multi-brand retailer. This has been a fantasy that DNVBs like Glossier thought they could fulfil before realising that 1) they needed physical outlets to show their products and increase their customer reach, and 2) multi-brand retailers were well equipped to offer them this physical outlet. In the case of Glossier, they opened (and closed) a few free-standing stores and ended up signing a deal with Sephora in the US and Canada. For smaller DNVBs, engaging with a multi-brand retailer is also a way to test the waters before going brick-and-mortar. So just any brand can pretend to be the Taylor Swift of its category.

Convenience and relevance 

In their defence, it is worth reminding that, as a middleman, department stores also have a large and diverse range of merchandise and are located in city centres most of the time. As a result, to be efficient with their time and resources, it could be a more rational decision for the customer to shop at their facilities rather than at a single retailer. Convenience is an important factor in the customer journey that can greatly influence the purchasing option. On top of customer ease, department stores offer other significant advantages. As they attract different types of customers, they often have a superior market knowledge compared to a single brand. Adding a middleman into the sales process is also in the interest of the brand, as they can gain insights into customer behaviour and the performance of competing businesses. This is increasingly the case thanks to the retail media growing business (see our latest white paper on the topic). Also, when it comes to fashion or lifestyle brands, they can gain more flare and coolness by being displayed and mixed with other labels. And above all, department stores assume most of the market risk.

The case of the collaboration between Beyonce and Flannels 

Retailers are evolving from being a pure marketplace to experience hubs or even cultural centres as mentioned in a previous IADS Exclusive. In that regard, department stores are and have always been cultural stakeholders and their cultural footprint is ever-present. Luxury brands are also embracing the cultural aspect of physical retail with the emerging trend of mega flagships such as the Dior one in Paris.

In the world of department stores, Flannels is currently rethinking the role of its London flagship store. They opened a new space dubbed Flannels X. Rather than a space designed to sell products, it is meant to become an ever-evolving cultural playground of pop-ups, gigs and exhibitions for cultural creators to exchange and broadcast ideas. On the occasion of Beyoncé’s tour coming to London in May 2023, Flannels X had a pop-up store showing the Beyoncé x Balmain couture collection for the first time, and also selling merchandise from Beyonce’s Renaissance World Tour. While positioning the store at the intersection of luxury and pop culture to offer more experiences, this initiative helps Flannels create a community of younger engaged customers able to develop influence. It also demonstrates the relevance of department stores when it comes to collaborating with artists or brands: in the case of Beyoncé, Flannels offers her a convenient outlet she wouldn’t have otherwise. And in the case of brands, department stores remain customer magnets.

Developing influence: the power of a community

Building a community  

Beyonce has the BeyHive and Taylor Swift has her Swifties. They analyse her social media posts, lyrics, and visuals and try to predict the artist’s next move. This type of superfans is crucial to the success of the artist: they are the people who buy everything from vinyl records to merchandising, collect memorabilia, spend hours streaming the newly dropped music on every platform possible, and get the most expensive ticket package at every tour. But there’s more.

In 2007, researchers Duncan Watts and Peter Dobbs interrogated influence as a phenomenon. Their work revealed that influence is not driven by individuals but by a critical mass of easily influenced individuals. In fact, their research suggests that the Beyoncés and Taylor Swifts of the world are only modestly more influential than average individuals. This may sound counter-intuitive, but the spread of ideas and behaviours depends less on the person who starts them, and more on how susceptible the group is to what is being spread. It would be irrelevant to deny Taylor Swift’s influence though, but her true influence is on the Swifties, who in turn influence their friends, their other connections and beyond. In other words, Swift influence power should be attributed to her ability to foster a community. Rather than trying to reach out to everyone, it’s more effective to speak to superfans.

Rewarding the superfans 

First, Taylor Swift rewards her super fans by reposting or commenting on their posts. But the superfans are granted more. They can receive an invitation to secret sessions which are small and intimate gatherings in Swift’s home, in which she hosts previews of her new albums. While it seems Taylor Swift has its own tier-based loyalty programme, it might be difficult for retailers to offer a similar kind of reward as it goes through a true form of intimacy. However, DNVBs such as Glossier succeeded in establishing direct lines of communication with their customers through their websites, social media, etc, which foster a strong sense of community and trust. Superfan customers feel heard and valued as if they were truly part of the brand's adventure and narrative. But they (the VICs and VVICs) need to be rewarded in an emotional way that could compare to what Swift is doing with her secret sessions. Retailers have taken notes.

Loyalty programmes: rewarding through emotion

The case of Sephora 

A recent example of rewarding VICs comes from Sephora. When reopening their Paris Champs-Elysées store in October 2023, they gave privileged access to some of their best customers, even before the stars flooded the opening party. Over the past decade, Sephora has become a champion in leveraging the emotional drivers of loyalty. Research has found that almost 75% of what drives customer engagement and loyalty are emotional perks. Sephora believes emotional rewards are the new currency of loyalty. Sure, the right balance of transactional and emotional is needed, but Sephora’s Beauty Insider programme leans toward the emotional side, especially since 2017 when they launched the Beauty Insider Community for their superfans. It was designed to be an opportunity for beauty addicts (spending more than $1000 per year) to come together, ask questions, comment on products and post beauty looks. It is also a great way to get product recommendations, not just from Sephora but from the community itself. It’s a real-time, real-talk forum that has become a great resource for the customers and for the retailer to collect precious data.

Other examples from the industry 

When inviting a handful of their best customers to their runway shows, luxury brands master the emotional part of loyalty. With competition being increasingly fierce, some of them upped the ante by inviting their superfans (their VVICs) to their showrooms. It is a way to offer access to a form of ‘behind the scenes’, but mostly they can choose the items they want months ahead of their official in-store release. Other luxury brands understand the power lying in rewards based on human interaction. For example, Brunello Cuccinelli himself meets and spends time with the top brand VICs.

During the IADS Operations Meeting dedicated to Chief Customer Officers, members talked about customers' rising expectations for non-tangible benefits. In that regard, The Mall increases the benefits related to status such as lounge access, free parking, pre-sales and special seats for events. To create an emotional bond, El Palacio de Hierro offers a bottle of wine or a meal at one of their restaurants for their best customers' birthdays. On its side, Boyner considers offering airport fast-track for their top-tier customers. They also found out that people ask for digital subscriptions like Spotify premium: the cost is low and appreciation is high.

Other examples are interesting to consider in the reward economy. Chewy (the US pet brand) sends its best pet owner customers free, personalised portraits of their cats and dogs. Moreover, when a customer loses their pet, Chewy sends a letter of condolence. This human touch is priceless for the ones receiving the letter and a guarantee those customers will be returning to Chewy as soon as they get a new pet. Moreover, by rewarding their best customers, brands and retailers generate meaningful word of mouth and earn media value. The fans who attend one of Swift’s secret sessions will tell everyone they know about it for years. The customer who gets an unexpected pet portrait from Chewy will share it on social media and offer Chewy free marketing.

Conclusion

The remarkable success of Taylor Swift offers insights for the retail industry, highlighting the power of community and emotional engagement in fostering customer loyalty. Swift's ability to build a dedicated community of fans, the Swifties, is a lesson in developing brand loyalty. Retailers can learn from this by developing their own communities and rewarding their most loyal customers, as exemplified by Sephora's Beauty Insider programme, which balances transactional and emotional rewards to foster a strong customer connection. In addition, the emotional aspect of customer rewards, a key component of Swift's success, is crucial. Retailers can create a lasting impact by offering unique experiences and personalised gestures that resonate emotionally with customers, much like Swift's secret sessions or Chewy's personalised pet portraits. Besides, in the digitalised world we are living in, boundaries between categories tend to fade away. It is an opportunity to learn from other industries as they share the same customer base as retailers. They might have different practices which can be inspiring for department stores.

Credits: IADS (Christine Montard)

Printable version here

The future of department stores has become a topic that experts and media have expressed their views on many times, predicting the end of the model. While the so-called “retail apocalypse” didn’t happen, the retail landscape is indeed changing with a long list of mid-range store chains collapsing everywhere in the world and department stores evolving their model. With COVID-19, they showed agility to reinvent themselves by developing online capabilities overnight, updating their product offer and including more experiences and services to differentiate from the competition.

However, the transformation is not over yet. We are seeing an increase in the number of department stores resembling malls, favouring luxury over the idea of a ‘department store for all’. Conversely, branded retailers are increasingly resembling department stores. In that regard and following a premiumization strategy, Zara's most recent stores are taking cues from the department store playbook. Also, Marks & Spencer has emerged as a winner in the UK retail landscape.

Is that a natural evolution from both sides? Now that branded retailers are taking on the department stores’ codes, what’s in for department stores themselves? Are there any fundamental risks if they lose their factor of differentiation, or is it just a not-so-important question of display and presentation? Some department store companies have dropped the traditional way of presenting products by section and opted for a very immersive approach, becoming very large concept stores in the process. Is the future approach of department stores to merge customer journeys into innovative store concepts, to remain destinations for customers and differentiate from copycats who contribute to commodifying their once-typical approach?

A progressive evolution towards a luxury mall experience on some department stores’ floors…

Traditionally, department stores have been regarded as stores selling luxury in one form or another (either via their ‘look & feel’ or simply with the products and services offered). Take Galeries Lafayette in Paris: they are expanding the luxury footprint on the ground floor, with leading leather goods brands such as Loewe, Gucci and Balenciaga having bigger shop-in-shops. Considering their remarkable size, they can increasingly be compared to these brands’ free-standing stores. Also, Chanel and Louis Vuitton are growing their presence on the first floor, only further emphasizing the luxury mall feeling. Finally, with brands like Rabanne, Jacquemus, Carven, Marni, Jil Sander and Acne Studios, more affordable luxury fashion is also expanding with larger shop-in-shops on the second floor (compared to their previous locations on the first floor). Expanding luxury on the second floor is unprecedented as it was previously only dedicated to premium brands such as Sandro and Maje. In Copenhagen, Illum has Celine, Prada and Balenciaga shop-in-shops that are both accessible from the street and the department store's ground floor, transforming them into real free-standing stores. This set-up with double access to boutiques is now visible in every part of the world, from KaDeWe in Berlin to Beymen’s Zorlu location in Istanbul, or The Mall Group EmQuartier in Thailand.

Another example is Harrods, in London, which relentlessly ups the ante with luxurious shop-in-shops. The first floor is dedicated to luxury RTW and has truly become a mall. The plan also includes transforming the affordable luxury and contemporary fashion floor in the same way. Luxury fashion is undeniably ingrained in the DNA of department stores, so it's only natural for them to prioritize it. But one can wonder if the flare of those stores is still there; from a customer’s perspective, why shop at Harrods when you could have the flagship store experience a few blocks away? In the past, department stores allowed customers intimidated by luxury flagships to have access to luxury products. Now, in the new-generation Harrods, such clients may not feel as comfortable shopping there following the upgrade.

But to what extent is that a deliberate strategy? Luxury brands are increasingly pressurizing department stores to provide an experience in their locations on par with what brands are now able to display in their own, highly sophisticated, experiential, free-standing stores. In case department stores are not able, or willing, to accept such requests (which also often come with new demands in terms of financial arrangements), such brands do not hesitate to leave, putting the department store’s ability to regroup a compelling and aspirational offer in one place at risk.

…while, at the same time, branded retailers take on their codes

In the UK, Marks & Spencer is an interesting breed achieving growth while others are struggling. With the opening of 9 new stores in November 2023, they are in the middle of a massive store rotation and optimization programme aiming to transition from 247 stores to 180 higher quality, higher productivity, full-line stores, while maintaining their competitive advantage with the right locations. Also, M&S focuses on and streamlines its product range and achieves digital transformation, resulting in strong financial performance and increased sales. M&S's CEO, Stuart Machin, emphasized going back to the company's foundations of providing quality products at the best price and putting the customer at the heart of everything they do. Marks & Spencer gives a series of reasons to pay a visit:

• The onboarding of third-party brands: they bought out Jaeger (after its collapse) to revive its fashion department and include more beauty brands (they now sell 47 labels accounting for 40% of the beauty sales).
• In Leeds, which is their “best store yet” according to the CEO, the 9,000 square metre surface (formerly a Debenhams store) houses a supermarket, a fresh market-style food hall, a flower shop, a spacious clothing, home and beauty department, and a 164-seat café.
• A product offer tailored to local needs.
• Fun sensorial attractions to emphasize the experiential feeling, with cow sounds in milk aisles and rooster sounds in the egg areas.
• Events with daily M&S product testing such as alcohol-free wines or specialty coffee.

It is telling that M&S’s CEO has vowed to open “better, bigger” stores in former Debenhams locations than in the past, as it increasingly blurs the once very clear boundary between them and middle-class department stores selling fashion, home and beauty.

The case of fast-fashion operator Zara also raises a series of questions, as it has consistently challenged the boundaries between their offer, and, for a long time, luxury brand codes. After all, they were among the first ones to present coherent and structured stories in their windows at a moment when then old-school luxury houses were still simply showing products to passers-by. In the same perspective, they muscled up the notion of visual merchandising, as the concept of having an enticing store at each visit is part of their business model. Luxury brands and department stores noticed and learned along the way.

Fast fashion’s second transformative wave is now about associating the qualities once solely linked with department stores and making them the norm. Fast fashion seems to have appropriated them in a very convincing way: branded retail stores now look like department stores, and should their logo be removed, the illusion would be perfect.

For example, Zara in Battersea Power Station in London or in Champs-Elysées in Paris: both in terms of categories and set-up, they look like mini department stores. The new Zara concept is described as a stroll through different sophisticated atmospheres. The use of different upgraded materials and contrasting shades helps to delimit the spaces and product lines. Accessories and shoes now have their own section with a comfortable seating area and single shoes displayed on shelves, as in any department store. Lingerie is displayed in a specific cocoon-like area. While the Champs-Elysées store (2,700 square meters) only offers men's and women's RTW and accessories, the Battersea Power Station store is even more impressive. Spanning 4,500 square meters, it is the home of all product categories developed by Zara: men’s and women’s RTW and accessories, but also kids, beauty and an impressive Zara Home shop-in-shop. The result is quite stunning and extremely elevated for a fast fashion brand. Also, the customer journey is easier and more efficient thanks to the embedded RFID technology: Zara offers self-checkout options, but also faster access to fitting rooms as the counting of items is automated in real-time. Besides, customers can book their fitting room in advance to avoid waiting in line. Finally, as the stores have different departments and are getting bigger, there is a need for more directions: QR codes help customers locate the different sections on a map.

As a consequence, Zara’s stores are part of the process helping the brand to elevate itself in terms of customer perception, without raising its prices, which is a strong competitive advantage in a moment when new business models (Shein, Temu) are rising fast1. In the process, one could feel confused: remove the Zara sign in Battersea, and it would be easy to feel in a U.S. department store for instance, thanks to the quality of execution and store zoning. In a similar manner, the new Massimo Dutti store in Paris Champs-Elysées would not look too foreign to the usual men’s department store section anywhere in the world, as IADS’ partner Newstores reported last December.

But if branded retail smells, looks and tastes like good old department stores, what should actual department stores do to remain ahead of the race?

In 2024, what is a department store anyway?

To stay relevant, make a difference from copycats and aside from their price point, it is generally agreed that department stores should make sure to propose the following:

• Show tradition, authenticity and roots, but not too much to avoid looking old and stuffy
• Develop experiences, which means the store should be interesting enough to be worth the trip
• Emphasize novelty, spectacle and events, which will depend on where the store is located and whom it addresses
• Include more hospitality, an increasing part of the shopping experience
• Increase services, be it human or otherwise linked with understanding
• Guaranty variety in the product, brand and category offer
• And make sure the overall environment will make lingering worthwhile.

While most of these key points are ticked by iconic department stores such as Selfridges, Galeries Lafayette and KaDeWe, good examples of department stores not looking like department stores, but actually interesting destinations, could be Liberty in London, Le Bon Marché in Paris, Bergdorf Goodman in New York, or Jelmoli in Zurich. The catch? All these department stores are destinations because they only have one store. But what are the options for department store companies with more than one flagship store? 2 options seem to rise from the analysis of the market:

• Become Harrods, Liberty or Selfridges. Retailers now know they don’t need a store everywhere. Fewer but better stores with a deeper rather than broader assortment and a high level of service could be a solution. The extreme is of course for a chain to shrink to one door only, lose scale effect and negotiation power, and end up being dependent on external factors which become critical from merely influential in the past (the reasons of the demise of Barney’s in New York in 2020 are, in the end, purely linked to their inability to generate scale effect and, therefore, remain dependent on lease conditions. Jelmoli in Switzerland is the same).
• Become John Lewis (especially the Oxford Street store) or Frasers. This means going wide and increasing the entry-level appeal.  The issue is that the days of “everything under one roof” and “a bit of everything for everybody” are not anymore a working recipe for physical retail now that companies like Amazon do that very well online.

So, what should we learn from the fact that department stores have such a footprint that they are now imitated by large single-brand retailers, leaving them in a position of not being able to pivot unless they lose their most critical factor, their bargaining power thanks to their scale? Does this mean that the only future of department stores is to become great again by becoming a single destination, to the point of disappearing because this is the nature of any business based on trends?

Some markets have generated the conditions for the appearance of new concepts and business models. In China, department stores such as SKP-S and K11, or EmQuartier in Bangkok, Thailand, are interesting because they keep the purpose of a department store (curate an interesting offer for a curious customer and make sure the location is attractive and enticing, in one coherent and unified concept) but also unbundle its components at the same time. In SKP-S, K11 or EmQuartier, product offer is not organized by department, but by customer journey. In addition, the whole store displays such a strong concept (otherworldly at SKP-S, arty in K11 and entertaining in EmQuartier) that it becomes a destination per se, just like Galeries Lafayette Haussmann with the cupola, Harrods with the Egyptian staircase, or the atrium at Saks Fifth Avenue in New York), but with a je-ne-sais-quoi based on something else than purely architectural details. In addition, these concepts are created with the ambition to bring their specificities to various locations, not to base their uniqueness on one single, iconic location.

For anyone familiar with the evolution of fashion retail in the last 50 years, this means that large department store companies are putting the notion of concept store on steroids, by expanding this approach on a much larger scale (both in terms of single store surface and number of stores), mixed with the capability of department store companies to identify, curate and enhance interesting new trends and brands, but this time organized by customer journey and profile, and not anymore by section. In other words, any customer can have a different high-octane experience in these stores, at each visit.

Conclusion: Department stores have embedded their own reinvention in themselves since the beginning

It is no secret that department store companies have managed to adapt to many retail disruptions in the past, from the appearance of malls and commercial centres in cities’ peripherical zones, to discounters, hypermarkets, speciality chains, e-commerce and DTC brands. As they have managed to do so until now, they will probably manage to find a solution to this seemingly strange issue: how to remain special when companies from other industries do everything possible to look like them?

As SKP-S, K11 and EmQuartier show, it is possible to remain special while also being attractive to both customers and brands (who are not tempted to think that these department stores are increasingly becoming commoditized by new players). However, heritage companies such as Galeries Lafayette, El Palacio de Hierro or Breuninger do not have the luxury to close their stores and rebuild them in a new manner (even though this is what Breuninger is doing now that it has acquired the former Konen department store in Munich).

And yet, this is with this reinvention in mind that new initiatives should be seen, from the increase of high-end restaurants in Harrods (to revamp the experience just like what K11 is doing) to the Wellness Galerie in Galeries Lafayette (mixing retail and paid experiences like in SKP-S) or the way new El Palacio de Hierro stores are designed (in terms of seamless customer journey, independently of brands or business models, just like in EmQuartier).

Everyone in the industry knows that status-quo is not a viable strategy for survival. While chain stores and branded retail are progressively adopting old-world department store codes to gain credibility and luxury perception, department stores are, on their side, reviewing what they bring to a customer who has also changed in recent years. Old recipes will not work for new generations. This is one of the reasons why many IADS department store members have already started working on reviewing their approach to the customer journey, to imagine how they can present what they have to offer to new customers, accustomed to purchasing differently compared to their parents.

Credits: IADS (Christine Montard)

What: In the US, the extreme storm season has left its mark on spending power and retail.

Why it is important: Expect this kind of impact to generalize accross the board.

In April, Visa's U.S. Spending Momentum Index (SMI) saw a significant drop of 4.8 points month-over-month, settling at 93.8, which is below the critical 100-point mark indicating broad-based consumer spending expansion. This decline marks a departure from two months of robust growth and was influenced heavily by severe weather conditions, including an unusual spike in tornado activity, with 300 recorded tornadoes making it the second highest for any April on record. The adverse weather substantially reduced consumer mobility, directly impacting spending habits across all categories.

Economic factors also played a role in this spending slowdown. Job growth in April decreased with only 175,000 new jobs added, a notable reduction from March's 315,000. Wage increases also slowed, with nominal gains rising by just 0.2 percent compared to 0.4 percent in the previous month. Additionally, a significant increase in gas prices, which rose 5.4 percent month-over-month and 17 percent since the year's start, further strained consumer budgets. This financial pressure led to cutbacks in essential spending, such as groceries, significantly impacting the non-discretionary SMI.

The culmination of slower job and wage growth, along with rising energy costs and severe weather, contributed to a sharp decline in consumer confidence, reaching a 21-month low in April. This decline in confidence likely spurred consumers to reduce discretionary spending, further driving down the discretionary SMI.

In the US, extreme weather now has a visible impact on retail

What: Visa reviews the situation in Europe to understand if there is light at the end of the tunnel.

Why it is important: To make a long story short, the answer is “yes, maybe”.

The economic landscape of 2024 shows signs of a potential turnaround following a sluggish start, particularly in Europe. Despite varying economic performance across countries, with the U.K. and Germany experiencing recessions and Spain showing relative strength, there is a general easing of inflation and a resilience in labor markets across the region. Central banks are cautiously optimistic, adjusting their inflation forecasts and tempering expectations for immediate rate cuts.

Consumer spending in Europe remains subdued but is expected to gain momentum as real incomes improve and inflation pressures subside. According to Visa’s regional Spending Momentum Index, consumer spending growth is evident, though Italy has seen a stagnation. Consumer confidence has reached a two-year high, supporting forecasts of continued spending increases throughout the year.

Inflation in the Eurozone is on a disinflationary path, with significant reductions from a peak of 10.6% to 2.4% by March. Some nations, including Italy, Ireland, and Finland, have seen inflation rates dip below the European Central Bank's target of 2%. Core inflation is also decreasing, projected to stabilize at 2% by the end of the year, fostering expectations for a rate cut by late spring or summer.

Europe: is a turnaround coming soon?

What: Forbes argues that retailers need to be much more assertive and brave when it comes to transforming themselves, otherwise they might go bust.

Why it is important: tech companies are able to radically transform themselves, sometimes very painfully (see X). Retailers might need such a dose of courage in order to revitalize themselves and become attractive again.

The retail industry has experienced significant transformations over the last two decades, reshaping the competitive landscape and the dynamic between buyers and sellers. Despite these changes, many brands have responded with only incremental adjustments, leading them to irrelevance or potential extinction. Notable failures include once-dominant retailers like Bed, Bath & Beyond, Blockbuster, and Sears. These companies, emblematic of broader trends within department stores, have lost market share due to their inability to adapt, opting instead for minor improvements and cost-cutting strategies in a bid for survival.

The shift in consumer preference towards more accessible physical stores with focused assortments and better value, such as TJX and Ross Stores, highlights the inadequacies of department stores. The success of TJX, now significantly outpacing Macy’s in revenue and store count, along with the rise of Ulta Beauty from a regional brand to a major player, exemplifies the missed opportunities and the high cost of timidity in the face of industry evolution.

The concept of the "transformation gap" discussed in the book "Leaders Leap" illustrates the risk inherent in not innovating or adapting swiftly enough in a rapidly changing market. Retailers clinging to outdated models are finding that minor, conservative changes are insufficient when radical shifts are required, potentially leading to a rapid downfall.

Retail transformation: the price of timidity is very high

What: The Robin Report reviews what’s going on in Paris retailwise.

Why it is important: their extensive review is somehow extremely positive and potentially gives a taste of what tourists are going to discover this Summer during the Olympics.

The evolution of department store retailing has seen a marked decline in iconic U.S. brands compared to their Parisian counterparts, which continue to thrive as centers of luxury and experiential shopping. In the U.S., significant mergers and consolidations have reshaped the landscape, leading to the closure of seven historic brands. Modern U.S. stores have moved towards maximizing floor space and sales efficiency, often at the expense of design and customer experience. In contrast, Parisian stores like Le Bon Marché, Galeries Lafayette, Printemps, and Samaritaine, which started in the 1800s, still celebrate their Belle Epoque heritage with lavish interiors and distinctive glass domes that enhance the shopping experience.

These Parisian stores are not just retail locations but cultural landmarks that blend shopping with art and social interaction, making them memorable destinations. They follow a concession model where luxury brands operate mini boutiques, creating an exclusive and curated environment. This contrasts with the more generic and crowded feel of many U.S. department stores. Additionally, Parisian stores frequently update and engage with modern trends while respecting their architectural history, something U.S. stores struggle with as they often prioritize economic efficiency over heritage.

Despite the challenges of maintaining large, historical buildings and the competition from online retailers, Parisian department stores remain relevant by focusing on luxury, exclusivity, and a unique customer experience. These factors draw both locals and tourists, making these stores more than just shopping destinations but integral parts of the urban fabric and Parisian cultural life. Meanwhile, many U.S. stores have failed to adapt to these changing consumer preferences, leading to a decline in their presence and influence in the retail sector.

An American point of view on Paris retail

What: Barclays predicts significant growth for India's luxury market, potentially expanding at an annual rate of 15-25% over the next seven years, with estimates ranging from 23 billion to 38 billion euros by 2030.

Why it is important: This growth is driven by India's expanding middle class and solid GDP growth. Despite current challenges like income disparity and limited retail space, India's burgeoning economy and developing retail infrastructure suggest substantial potential for luxury brands, particularly in cities like Mumbai, New Delhi, and Bengaluru.

Barclays' report highlights the potential for India to become a significant player in the global luxury market despite its current modest share. The rising middle class and robust economic growth provide a fertile ground for luxury sales to flourish. Challenges such as income disparity and a conservative outlook on luxury spending remain, but opportunities in high-value items like jewelry and watches are promising. Major cities are already establishing themselves as luxury hubs with significant retail developments, attracting major global brands. As India's luxury market infrastructure expands and consumer attitudes evolve, the country could become a pivotal market for luxury brands, mirroring growth trajectories seen in other Asian economies.

Could India be the next China for luxury fashion?

What: Forbes’ Walter Loeb reviews what missing, in his views, for US department stores to thrive again.

Why it is important: Among many interesting points, he notes that organizations are too heavy and cluttered, and smaller stores are not the answer to rightsizing if there are not enough to cover a market.

The sustainability of traditional department stores in the digital age is challenged by a variety of operational and strategic missteps. A primary concern is the excessive management layers exemplified by Macy’s, which maintains nine chief executives, each with significant overhead costs, in contrast to more streamlined operations like those at TJX Corp. This bloat in leadership contributes to inefficiencies and inflated costs.

Another significant issue is the slow delivery times compared to digital competitors like Amazon, which often offers overnight delivery. This expedience meets immediate customer needs and diminishes the appeal of shopping at physical stores. Additionally, department stores often sustain unprofitable locations that negatively impact overall financial health. Macy’s plans to close such stores by 2026, but the urgency to act sooner is evident as digital entities continue to capture their market share.

Pop-up shops within department stores also suffer from poor execution and lack of publicity, failing to engage even loyal customers. Furthermore, the strategy of opening mini-stores, such as Bloomies and Mini Macy’s, is only effective if executed on a large scale, which current management structures seem ill-prepared to support.

Private labels, while successful in some cases, often fall behind national brands in style, design, and market acceptance. Better investor relations management is also crucial, as effective communication with stakeholders is essential during times of change.

Customer service in many department stores does not meet the high standards set by competitors like Nordstrom, which actively engages customers with personalized services. This deficiency in customer service, combined with an overreliance on constant sales promotions, undermines the potential for department stores to effectively attract and retain consumers.

Rebuild Department Stores For Success In A Digital World

What: The luxury conglomerate is deepening ties to build up AI capabilities in China.

Why it is important: It highlights how the partnership between LVMH and Alibaba use advanced AI to enhance customer experiences in China.

LVMH and Alibaba have extended their partnership to enhance LVMH’s digital, data, and omnichannel capabilities in China. This collaboration works with Alibaba Cloud’s advanced AI technologies, including Model Studio (Bailian) and the Qwen large language model, to provide a more personalized shopping experience. These AI tools will make it easier for LVMH’s customers to have customized recommendations and richer digital interactions.

Since 2019, LVMH has utilized Alibaba Cloud’s Dataphin and PAI platforms to manage data and develop tailored services for the Chinise markey. The partnership has enabled about 30 LVMH brands to use digital features like live streaming, virtual try-ons, and 3D product displays on Alibaba’s Tmall Luxury Pavilion.

The integration of AI also aims to improve operational efficiencies, such as supply chain management, by providing accurate demand predictions and inventory management. This is critical given the current unstability in the Chinese market, where LVMH has experienced a decline in sales.

The collaboration allows LVMH to better navigate the complex Chinese digital ecosystem, which is dominated by super-apps and rigid data regulations. It also supports LVMH’s broader strategy of enhancing omnichannel capabilities and delivering emotionally engaging digital experiences.

Overall, this partnership is expected to not only elevate LVMH’s market presence in China but also to  provide Alibaba with a stronger reputation, reinforcing it as a key player in the luxury market.

Decoding LVMH’s partnership with Alibaba

What: This case study explores how brands and retailers, such as Ulta Beauty and Brandon Blackwood New York, develop and optimize effective loyalty programs that incentivize repeat purchases, enhance customer lifetime value, and leverage valuable data for personalized marketing. The study emphasizes the importance of balancing rewards with costs, maintaining brand equity, and engaging users.

Why it is important: In a competitive market with rising customer acquisition costs, loyalty programs are crucial for brands to retain existing customers and increase their purchase frequency.

Loyalty programs have become central to the business models of various sectors, including beauty and fashion. This case study highlights Ulta Beauty's highly successful program, which drives 96 percent of its sales through 43.3 million active members. The program, combining points and tier systems, offers financial and emotional incentives, crucial for repeat purchases and customer engagement. Smaller brands like Brandon Blackwood New York have also seen significant sales growth and higher average order values through their loyalty programs. Effective loyalty programs balance rewards and costs, maintain brand equity, and keep customers engaged. This report provides best practices and success stories for brands at any stage of their loyalty program journey, emphasizing the creation of online buzz and brand evangelism.

Case study- building an effective loyalty programme

What: Philippe Fontalba, an expert in retail and travel retail, gives his views on the market perspectives in 2024.

Why it is important: Travel retail is increasingly connected to the same expectations than in full price markets: sustainability, digital transformation, product diversification. However, and this does not make things easier, the customer is changing.

The travel retail sector is poised for significant growth, with projections suggesting the global duty-free and travel retail market will expand from USD 75.63 billion in 2024 to USD 121.09 billion by 2029. Asia-Pacific is expected to lead this growth, driven by increasing air travel and rising consumer purchasing power, particularly in China and India. New, affordable travel packages and digital advancements are likely to further stimulate this market.

In the MENA region, countries like Egypt and Saudi Arabia are enhancing their travel retail capabilities, leveraging rich cultural attractions and significant investments in tourism infrastructure. This includes Saudi Arabia's Vision 2030 and Project Travel, which aim to transform the country into a travel retail hub. The demand for premium and luxury items, especially perfumes, remains strong in the Middle East, with Dubai being a key market.

Product diversification continues with an increased offering of fashion, accessories, electronics, and food products within duty-free spaces. Key players include Dufry, Lagardère Travel Retail, DFS Group, Lotte Duty Free, and Flemingo International, who are emphasizing innovative marketing and competitive pricing.

Sustainability has become a critical focus, with initiatives such as eco-friendly packaging and green retail spaces becoming standard. In beauty, demand for luxury cosmetics is growing, with brands like L'Oréal Paris, Estée Lauder, and Chanel Beauty leading the market through innovation.

Digital transformation is reshaping customer interactions, with technologies like Amazon's Just Walk Out enhancing the shopping experience. The expansion of duty-free spaces in airports and seaports, especially in Asia-Pacific, aligns with the overall strategic growth of the sector. Leaders in travel retail are urged to adopt strategies that embrace sustainability, technology, and localized offerings to cater to a diverse and evolving consumer base.

An expert view on the state of Travel Retail

What: The Robin Report reviews the state of the business in Korea, a notoriously digital market.

Why it is important: mobile and high-speed broadband penetrations in the country are among the world’s tops. For that reason, looking at the evolution of the retail market there can give some hints on what could happen in the rest of the world.

Dongdaemun in Seoul, encompassing about 30,000 fashion shops, epitomizes the growth of Korea's fashion sector. Despite the rise of Korean fashion brands, local retailers face challenges from Chinese online platforms like Alibaba, Temu, and Shein, which offer lower prices and greater convenience. This competition highlights the limitations of Korean e-commerce innovations against large-scale operations.

Korean e-commerce has thrived on high broadband and 5G penetration, with mobile transactions constituting 75% of the $166 billion spent online in 2023. Innovative online models and KOL-driven marketing have fueled the "Hallyu" wave, significantly contributing to Korea's cultural exports and a $10 billion beauty market.

However, Korean platforms are struggling domestically as savvy shoppers increasingly turn to Chinese sites, which now rank among the top e-commerce traffic sources in Korea. The struggle has led to bankruptcy filings by businesses like Linkshops and potential acquisition interests from Alibaba in platforms like Ably Corp. Additionally, Korea's protective trade measures against foreign e-commerce might backfire, potentially inviting retaliatory actions from China, further impacting Korean cultural exports and businesses.

Korean online retailers are compelled to adapt to survive by enhancing their reach and competitiveness in pricing, amidst a market driven by consumers proficient in navigating global online spaces.

Is the Korean luxury and fashion market falling victim of e-commerce?

What: Tourism spending in Europe is nearing pre-pandemic levels, potentially offsetting local luxury market stagnation.

Why it is important: This resurgence is crucial for the European luxury sector, as international tourists historically account for a significant portion of its revenue. Given the decline in local consumer spending, the increased influx of tourists, particularly from the US and the Middle East, provides a necessary boost to sustain the luxury market's vitality.

Luxury spending by tourists in Europe is showing signs of recovery, which could be pivotal for the luxury retail sector amid declining local consumer interest. This recovery is highlighted by the increased tax refunds to tourists, suggesting a rise in spending. Before the pandemic, international tourists constituted 40-50% of the European luxury market's revenue, drawn by lower prices and the allure of buying in prestigious locations.

The report details that while US and Middle Eastern tourists have substantially increased their spending, the return of Chinese tourists—previously the most significant spenders—remains slow. This slow return is partly due to fewer available flights and ongoing economic strains within China, which temper the potential for a swift recovery in Chinese outbound tourism.

Despite these challenges, the slight improvement in Chinese tourist spending in early 2024 brings hope. Moreover, the luxury sector may need to adapt its strategies, focusing more on high-value client interactions and less on broad market transactions to cater effectively to this changing demographic. This strategic shift could ensure sustained growth and stability in the European luxury market amidst global economic and geopolitical uncertainties.

Can tourism save European luxury?

What: The McKinsey ESG 2023 report on accelerating sustainable and inclusive growth for all.

Why it is important: The report details the important efforts that McKinsey is taking to help their clients make distinctive and substantial improvements in their performance.

McKinsey is dedicated to creating positive and enduring change by working closely with leaders and communities to drive transformative impact. Their commitment to sustainability, inclusivity, and responsible practices are the main points of the 2023 report.

They aspire to simultaneously accelerate sustainable, inclusive growth, and responsible practices. For McKinsey, this starts with growth. Growth that builds resilience, and that helps businesses prosper and generates positive enduring change for people and the planet alike.

Efforts were focused on sustainable and inclusive growth, with a commitment to be a motivation for decarbonization. First steps included sustainbiiltiy engamgenet with clients, partnerships with COP28, and efforst to reduce carbon emmissions. Inclusive growth efforts led to contributions to GDP growth, job creation, and business development support. Economic inclusion, talent diversity, and ethical practices were also important priorities, with a focus on becoming skilled at diversity.

McKinsey ESG 2023 report

Printable version here

*The IADS attended the 2024 edition of the World Retail Congress, held in Paris from April 16th to 18th, which gathered 850 participants from 400 companies across 16 countries. During this edition, the Association had the privilege to moderate a roundtable between the CEO of Galeries Lafayette, Nicolas Houzé, and the CEO of Harrods, Michael Ward.

This report is a selection of the most relevant insights gathered for our members.*

*Table of contents

1-    Introduction: the difficult task of forecasting in 2024 (Deloitte, Blackstone, VML)

2-    But what is retail anyway? A fresh perspective (Springstudios)

3-    How to win the new generation customers (Claire’s, MARS Wrigley, Pepe Jeans)…

4-    …in a time of mass distraction (Adidas)?

5-    What to expect from AI in retail? (Keystone, Decathlon, Google Cloud)

6-    The human factor: purpose, planet, profits… and communities (ThredUp, REI, Milani Cosmetics)

7-    A look at 3 retailers set in motion: Sephora, Printemps, Myer

8-    The future of department stores: the IADS interviews  Harrods and Galeries Lafayette

9-    Interesting Quotes*

As retail continues to navigate unprecedented challenges and rapid transformations, the 2024 WRC focused on how to maintain high performance, from integrating cutting-edge technologies like GenAI to adapting to changing consumer behaviors influenced by economic, social, and environmental factors and the overall convergence of digital and physical retail.

During the opening speech, the Chairman and CEO of Carrefour set the tone, as he dwelled on the 4 more important challenges faced by the industry:

• The unprecedented challenges faced by retail, through an uninterrupted series of crises.
• The digital transformation, which started 20 years ago, with a strong acceleration last year, increasingly blurring the border between online and offline. Some models born with this new paradigm, such as quick commerce, disappeared, however, new marketing models have disrupted the industry, and omnichannel strategies have proven successful. Digital transformation now focuses on AI-driven technologies, which could lead to the optimisation of supply chains, product assortments and personalised promotions.
• Inflation has reached unparalleled levels and will continue to impact businesses. Although inflation may subside, its effects will still be felt through fragmented shifts in customer behaviour.
• Climate change presents a decisive challenge, requiring businesses to adapt beyond merely reducing carbon emissions. Factors such as rising commodity costs and volatile energy prices demand transformative approaches as resources become scarcer and more expensive.

In fact, the retail industry is on the brink of rapid and intense transformation, with new shocks expected.

When it comes to Carrefour, the company has undergone a significant journey over the past six years. With 15k stores across 26 countries and various retail formats, it faced difficulties six years ago that required restructuring and selling off activities, such as in China.

Three strategies were employed to tackle the issue of low growth in the hypermarkets segment:

1. Adopting a customer-centric approach using NPS (for the first time!).
2. Changing processes to increase productivity.
3. Partnering with entrepreneurs for troubled stores (a significant change from the historical strategy of controlling all stores).

In addition, Carrefour implemented a CSR policy in 2018 that was formally integrated into its corporate status. The new plan, Carrefour 2026, focuses on acceleration and continuity with the aim of building a European platform and verticals (centralised purchasing in Spain, retail media, etc.).

Introduction: the difficult task of forecasting in 2024

The Global Chief Economist at Deloitte started the panel by stating that the economy in the world was not as in bad shape as often painted. In the US, a strong outlook is driven by low inflation, a tight labour market and robust consumer spending. Europe faces challenges, particularly in Germany and the UK: inflation may rise faster than expected, which might trigger answers from the European Central Bank very different from the US Federal Bank. China's growth will be relatively slow due to state favouritism of the public over private sectors and difficult demographics.

Overall, globalization is experiencing shocks from events like pandemics, trade wars, and geopolitical tensions. Companies now prioritize resilience and diversification over low cost and speed. This shift benefits countries like India and Mexico. However, potential risks of derailing remain, and they include Middle East tensions, China-West conflicts, and Ukrainian instability impacting business confidence.

The Senior Managing Director at Blackstone, a real estate investment company, gave the point of view from an investor’s perspective:

• 2024 presents complex investment opportunities due to increasing tensions and changing balance sheets.
• Cash flow becomes king again as the gap between value/convenience and luxury widens. As a consequence, niche and speciality businesses will survive, but scale will be key to thrive.
• More public-to-private transactions and consolidations are expected for investors able to catch the right sign at the right moment: “You can’t wait for the all-clear sign”, as she concluded. That was echoed later on by the former CEO of Walmart International, Judith Mc Kenna, who explained that she had to divest 40bn$ when arriving (out of a total 130bn$) in order to re-invest in digital and customer experience, without having the certainty that this would pay off.

Finally, the Global Chief Commerce Officer at VML, a consumer research company, gave a perspective from the customer point of view:

• For VML, “the customer is the product” now, as they are all living in a digital, heavily influenced world.
• Physical stores remain important but need revamping to remain relevant in the digital age, given the growing acceptance of data exchange for personalization and the emphasis on experience and emotion in marketing.
• Brand values and purpose are more crucial than ever for success.

But what is retail anyway? A fresh perspective

Giuseppe Stigliano, writer, researcher, professor of Retail Marketing innovation, and CEO of Spring Studios, proposed opening the session by reflecting on what retail stands for nowadays. It can be tempting to consider that the job remains the same… even though the context has radically changed.

From the academic perspective, “Retail is where goods are sold directly to customers (B2C), in small quantities, for non-business use and serve as the final step in the supply chain.” The traditional image of retail could be a supermarket alley. But when the future of retail is considered, it could very well be a customer wearing AR goggles while shopping in-store, meaning a very different image from this traditional perception.

This raises the question of the experience that customers have while shopping in-store: they rush to get groceries but also expect to have an experience such as discussing with a wine expert when they choose a bottle. How can retailers combine these contradictory demands?

In addition, retail encompasses a wide range of formats and channels (brick-and-mortar, online marketplaces, mobile shopping platforms), but something is broken due to new consumer trends such as B2Cization (customers bypassing retailers), C2C business (including second-hand through platforms such as Vinted), or their often conflicting expectations for experiences, speed, and efficiency.

In short: retail has to adapt, but the solutions found so far (going phygital) are not adapted and do not work. Omnichannel isn’t relevant enough as it is often not achievable. Besides the physical and the digital dimensions, virtual is now a third dimension (like buying a Balenciaga sweater in a Fortnite video game).

This is why Stiglilano suggested a new definition of retail: “retail is the curation and sale of a diverse assortment of goods and services to end consumers.”. From there, 5 key ideas need to be considered:

• Anyone capable of engaging with the final consumer should be considered a retailer. Retailing requires retailers to fulfil essential functions, because everybody can be a retailer.
• There is no one-size-fits-all approach, as the ideal customer experience is, by definition, a relative concept. Retailers should build on their experience and be ambitious, knowing that they don’t have all the answers.
• Developing effective use cases with emerging GPTs, such as GenAI and Blockchain, is necessary to win the customer. Either we understand, or we end up with digital Darwinism.
• Processing data to understand the role of each touchpoint along the 3DCJ (physical, digital, virtual) and optimising the right channel mix is the only way to thrive in a post-digital world. Once they understand what they can effectively manage, retailers should focus on optimisation and be ‘opti-channel’ rather than omnichannel retailers. *IADS Note: ‘Opti-channel’ could be considered a new blanket word for retail operations and an easy marketing concept, but it describes how IADS members currently work. Through the IADS Operations Meeting dedicated to the Omnichannel Business, we can see how IADS members are becoming opti-channel retailers as they work on optimising services (such as Click & Collect and BOPIS) instead of willing to invest in all omnichannel services, which would be ineffective.*
• Employees and customers seek purposeful corporate behaviour that resonates across organisational culture, product nature, and customer experience.

How can retailers embrace the paradigm shift? We come from a world where we think we need to build extremely strong foundations to secure our future. Stigliano recommends moving to a Lego brick world mindset, which can allow retailers to adapt (like changing the size and colour of the bricks when needed). Foundations are not everything retailers need; adaptation is key.

How to win the new generation customers…

This talk mostly tackled the thorny question of reaching younger generations without losing existing customers. To do this, retailers need to understand Gen Z and Alpha Generation value systems and not only offer them a transactional environment: the keys are about developing specific products addressed to specific communities, personalising products, and ways of self-expression.

For Mars Wrigley, the M&M’s example demonstrates how to offer experiences besides transactions. The company also taps into specific communities: for example, they developed the Respawn By 5 Gum brand. Infused with B vitamins and green tea extract, the brand is addressed to gamers willing to improve their accuracy and focus.

For Pepe Jeans, denim products are key, including new details, fabrics, and personalisation options. Developing content for social media is crucial: in that regard, they work with very young influencers.

At Claire’s, it is important to offer ways of self-expression to Gen Z and Alpha Generation. Customers produce their own content for Claire’s YouTube channel. They also built a Claire’s world in Roblox, where customers shop and give live feedback.

…in a time of mass distraction?

In today's era of information overload, retailers face the challenge of capturing consumers' limited attention in-store and online. To successfully connect in this age of mass distraction, retailers must focus on what is relevant and avoid overwhelming customers with excessive digital features.

With attention spans decreasing from 150 seconds to 46 seconds over 20 years, it is crucial for retailers to reduce clutter by resisting the urge to add too many screens. Instead, they should allocate clear and easy-to-find information at store entrances, freeing customers' minds to explore other products and potentially increase sales.

Retailers should also amplify the importance of products by giving customers what they want and remembering that human attention spans are limited. Embracing tangible and analogue elements within stores can capture consumer interest more effectively than an abundance of digital screens. For instance, one of the Adidas stores has a statue of the brand founder, and people pay true attention to it, touching it and taking pictures. This comes as a manifesto for physical stores, a proof that physical retail is far from being dead when well-executed.

What to expect from AI in retail?

AI has evolved from a budding technology to a transformative force, thanks to three key milestones: chips, hardware innovation, and data utilization. This powerful innovation is not mere hype. For instance, in 2008, Amazon was not prepared to go global due to numerous manual processes, isolated business operations, and insufficient focus on long-term customer experience, and AI could have provided strategic answers back then.

Since 2015, Google has been a pioneer in AI, recognizing the importance of unified data for efficiency. Gen AI offers numerous opportunities for increased conversion. Key initiatives that can boost KPIs and efficiency include:

• Content management: Improved product descriptions and conversational commerce can significantly impact conversion rates and customer loyalty.
• HR: AI can streamline the hiring process by analyzing resumes to find the best candidates.
• Procurement: AI can efficiently sift through contracts to extract vital information.

Achieving these goals requires building a solid platform for data and security.

At Decathlon, Gen AI focuses on enhancing customer experience, with visible innovations expected by 2025. AI will enable personalized product recommendations and provide guidance on sports practices. Offering hyper-contextual search and reassurance, Gen AI will help customers discover unknown products, which is valuable for retailers with extensive inventories.

It is key to recognize that developing Gen AI solutions should involve interdisciplinary teams, not just data scientists. Retailers must embrace a collaborative mindset between humans and machines to successfully organize AI developments.

The human factor: purpose, planet, profits… and communities

Thredup presented itself as a white knight when it comes to sustainability: approximately one-third of the items in a person's closet are worn regularly, while the never-worn rest holds value. As a consequence, ThredUp aims to revolutionize the second-hand market: circularity enables consumers to continue shopping in a very entertaining way. As such, ThredUp enhances customer engagement by offering an enjoyable experience: searching for specific items. Resale platforms present millions of unique products daily, unlike traditional retail. This encourages customers to return frequently and make purchases to avoid missing out on one-of-a-kind items.

Another way to look at the human factor is to talk about communities federated around a brand, or its purpose. REI, with its 23 million members, exemplifies successful community-building. The company supports grass-roots advocacy by educating people on engaging with officials for nature conservation efforts.

Interestingly, the sense of community and belonging developed post-Covid. For brands interested in harnessing such an approach, staying connected with communities requires ongoing dialogue through surveys that reveal customer preferences and opinions. This can lead to sometimes seemingly counter-intuitive consequences: some brands launched initiatives targeting specific communities, such as using unretouched photos in ad campaigns to increase engagement. A significant trend for community-focused brands is the concept of consequential strangers: customers seeking friendships through their association with a brand. Inclusivity, transparency, and authenticity are essential for appealing to Gen Z and Millennials, who often place more trust in influencers than the brands themselves.

4 points should be considered when building communities:

• Invest in company culture and ensure employees believe in the mission. This internal commitment will be evident to customers in the external brand culture.
• Develop emotional connections by meeting people where they are and increasing convenience.
• Incorporate retail into mixed-use areas, like Washington DC's Union Market, which combines housing, hotels, entertainment, and retail spaces.
• Prioritize customer stories by staying informed about events outside store walls.
• Maintain focus on core strengths even when attracting new customers beyond original communities. For instance, Milani Cosmetics continues catering primarily to pigmented skin customers despite expanding its customer base.

A look at 3 retailers set in motion: Sephora, Printemps, Myer

Sephora’s CEO promoted the company by showcasing its results and values, as the leading global beauty retailer, operating 35 markets, 3,000 stores with 52,000 colleagues and selling 500 brands. Following a 10-year growth trajectory, 2023 results were very good with +50% vs. pre-Covid, growing twice as fast as the beauty market levels:

• North America +27%
• Europe +23%
• Middle East +28%
• South East Asia +27%
• Latin America +43%
• China +2%

For him, Sephora's success relies on four pillars:

• Product curation and differentiation through strong brand partnerships. Sephora transforms small businesses into leading brands and maintains a unique perspective on beauty. They also support smaller brands to meet the 50% pledge in the US, reflecting consumer diversity. Clean and Planet Aware labels demonstrate Sephora's commitment to responsible retailing.
• Exceptional in-store experiences using innovative tools like diagnosis and skin analysis technology to foster personal relationships with customers.
• Community-building by nurturing the largest beauty community, hosting special events like "Sephoria" for product discovery and testing. Initiatives extend beyond the loyalty program.
• Talent development in retail as a people-driven business. Sephora values inspiration and aims to fill 70% of roles internally. To continue attracting top talent, they've introduced new work practices, such as full weekends off.

Printemps CEO’s speech was a bit more of a presentation of the company to an audience which might lack general knowledge about it. The Printemps Group, which includes Printemps, Citadium, Place des Tendance e-tailer, and home e-tailer Made in Design, processes a transaction every 2 seconds.

The company began its transformation journey four years ago in response to COVID-induced online growth, decreased tourism and local traffic, and brands going direct. To adapt, Printemps implemented a new strategy to create a personal omnichannel department store experience. This included:

• Enhancing the wow factor by redesigning their visual identity with nature-inspired green and luxurious gold accents. They introduced 30 new concepts such as 'Le 7ème ciel' for luxury second-hand items, upcycling, circularity, and restaurants.
• Fostering an intimate atmosphere with welcoming staff, personal shoppers, and special attention to VICs who spend over 30,000 euros annually.
• Embracing omnichannel retail with a unified stock system, marketplace integration, in-store e-commerce features (communication tools, QR codes, and distant shopping studios), and an online store presence.
• Expanding internationally to reach customers worldwide and opening additional locations in Doha last year and New York in February 2025.

After four years of transformation, Printemps exceeded pre-Covid levels. They doubled their Middle Eastern and Korean customer base, tripled the business from 30,000+ euro VICs, and achieved 9% of total revenue through e-commerce.

The Chief Customer Officer of Myer then took the stage to describe the company’s transformation journey. Myer, Australia's largest department store, has 56 stores, 20,000 employees, and a AUD $3.4 billion turnover.

Before the COVID-19 pandemic, Myer faced a challenging situation with a AUD $107 million debt, struggling e-commerce, loss of core customers, and a weak balance sheet. As early as 2018, Myer developed a plan to drive transformation by resetting its values and vision to prioritize the customer. The “Customer First Plan” focused on five key areas:

• Accelerating online capability and leveraging multi-channel opportunities
• Achieving factory-to-customer excellence
• Transforming in-store experiences
• Refocusing product offerings
• Rationalizing property and overheads

Myer implemented a more balanced merchandise strategy that relied less on seasonal fashion and more on deeper brand partnerships and inventory control. This led to a 26% reduction in core ranges since Fall 2019 and 35% growth from major brand partners during the same period. Over 400 new branded shop-in-shop concepts were introduced across stores, resulting in a better-balanced category portfolio.

To enhance team capabilities, Myer invested in transforming sales associates into tech-savvy, well-informed team members who could focus more on customers and less on administrative tasks. They introduced the M-Metrics app for analytics and customer feedback, which was sent directly to team members' phones. This investment in technology improved in-store customer satisfaction by 23% and increased sales associates' time spent helping customers by 20%.

Myer also built omnichannel capabilities by investing in their supply chain and launching a new national distribution center with world-class automation technology. This led to a 163% growth in online sales. Now, 59% of customers browse online before shopping in-store, making the online platform Myer's largest shop window. Multi-channel customers spend 2.6 times more than those shopping only in-store.

Finally, Myer worked on their CRM to re-engage with customers more effectively.

By altering value perceptions and increasing reward frequency, they developed a wider loyalty and points ecosystem through partnerships with third parties. Enhanced analytics and AI capabilities facilitated personalization, resulting in 36 million customers in their loyalty network. Moreover, they revamped their PR, offering unique events and experiences to attract customers.

Productivity improvements and strategic space reductions of 14.1% contributed to a 12% increase in in-store sales productivity. Additionally, over AUD $210 million was invested in store environment and infrastructure upgrades.

The future of department stores: an IADS interview of Harrods and Galeries Lafayette

The interview tackled the current department stores’ challenges and the most important topics for the future.

• How to cope with brands going direct? Harrods and Galeries Lafayette consider themselves houses of brands. Harrods creates iconic shop-in-shops comparable to free-standing and flagship stores, while Galeries Lafayette positions itself as a brand offering the best in fashion, luxury, beauty, and food.
• What do they do with data? Harrods employs large CRM and data science teams. However, the real difference lies in the customer experience. As customers return to stores post-COVID, Galeries Lafayette adapts to become an omnichannel retailer with the best assortment.
• What does omnichannel mean? Harrods prioritizes ultra-wealthy customers before targeting local or international ones. Personas are identified, and communication is tailored for long-term relationships. Galeries Lafayette caters to both tourists and locals seeking the best in fashion. Customers often research online before visiting the store, proving omnichannel is not solely transaction-based.
• What is the big elephant in the board meeting room these days? At Harrods, the focus is on providing exquisite services and ensuring staff possess excellent product knowledge. Customer centricity and NPS are vital for both Harrods and Galeries Lafayette. Staying updated on trends like sustainability and wellness is also essential.
• What about international development? Both stores represent their cities and beyond. Harrods has outposts in Shanghai to connect with wealthy local customers. Galeries Lafayette began international expansion over 100 years ago, accelerating growth in China 20 years ago, with plans to open more stores directly next year (also expanding into India through a franchisee partner). This development communicates their brand to customers worldwide.

Both CEOs concluded with pieces of advice for other retailers: Harrods recommends investing in data scientists, CRM, and customer-facing IT innovations. For Galeries Lafayette, being customer-centric is key.

Interesting quotes

Judith Mc Kenna, Former CEO Walmart International: “If in a team you have 2 people who think the same, you have one person in excess in your team”.

The World Retail Congress 2024 highlighted that despite the digital transformation, the physical store remains a cornerstone of the retail industry. More than ever, successful retailers are those who blend digital prowess with the tangible, sensory experiences only possible in physical spaces. This congress showcased the innovative ways stores are being revamped to create immersive, personalised experiences that attract and retain customers. The future of retail involves a strategic interplay between online efficiency and the experiential richness of brick-and-mortar stores. Physical retail isn't just surviving; it's evolving to fulfill new roles in community building, experiential marketing, and as a touchpoint for deepening consumer relationships in an increasingly digital world.

Credits: IADS (Selvane Mohandas du Ménil)

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The IADS recently attended a webinar hosted by Bain & Company covering the topic of ‘Monetizing sustainability – Navigating ESG pricing’ where the relationship between profit and sustainability was discussed. As we have covered in our previous IADS Exclusive on how retailers can turn sustainability regulations into opportunities, sustainability directives are here to stay and will only become stricter, but this should not stop retailers from finding ways to make such changes a win-win situation. In the same vein, the IADS also recently studied the key takeaways from Adam Werbach’s book ‘Strategy for Sustainability’ which explores how businesses can integrate sustainability principles into their strategies to create long-term value. Building on the principles and ideas discussed by Bain & Company and in the book by Werbach, we explore some of these ways to build a positive and profitable groundwork for retail businesses while keeping sustainability topics at the heart of the company, which in these days, is key to survival.

Bain & Company: How investments in sustainable initiatives can convert into financial value

To give an overview of the current landscape, Bain & Company shared in their ‘Navigating ESG’ webinar that it is clear many industries and geographies are moving at different paces in terms of Environmental, Social, and Governance (ESG) initiatives. Nevertheless, these topics have become central to boardroom discussions, with 90% of S&P 500 companies publishing sustainability reports. The projected annual expenditure on Green Capex for this decade is estimated at USD 6 trillion, with approximately 50% of new product launches embracing sustainability goals. This trend is further amplified by increasing media coverage and heightened consumer awareness. At this point, companies have not yet fully linked their sustainability efforts to a return on investment, as they are primarily driven by regulatory and corporate objectives. Today, there is quite a debate on whether ESG is truly being addressed fully to encompass the “E” (Environment), “S” (Social), and “G” (Governance), thus blending the 3 concepts is distracting and not always productive. Nevertheless, the next step, and major challenge, is to translate these sustainability initiatives into commercial success, which will require a lot of dedication and effort.

The benefits and risks of tackling ESG pricing 

If retailers can master ESG pricing and take advantage of green business models, although it is a complex exercise, they will be able to unlock significant benefits. The landscape offers promising prospects, such as the ability to command price premiums from a sourcing perspective and enhance margins through the emergence of new profit pools. Additionally, adapting to the evolving demands across the value chain presents vast opportunities for market share expansion and value capture. Launching new markets and products that are in line with ESG initiatives also provides a platform for brands to distinguish themselves and secure a competitive edge.

Conversely, the stakes of mismanaging ESG products and services are high. Overlooking emerging value trends could forfeit potential market gains while misjudging the market entry timing could close the opportunity window. Furthermore, exploiting these trends with too keen an eye on opportunism could tarnish a brand's reputation and compromise its success, underlining the delicate balance between seizing opportunities and navigating the risks associated with ESG initiatives.

Navigating ESG market opportunities effectively requires a multifaceted approach 

Bain & Company broke down the navigation of ESG pricing into 4 key guidelines.

Firstly, it is essential to have a clear understanding of the value at stake to guide prioritization, resourcing, focus and ensure that the overall sustainability strategy is in line with delivery and monetization. This includes being intentional when setting up new ventures especially in terms of the number of resources allocated, what they will focus on, and understanding the levers to be pulled whether that involves tapping into a new market or holding out for more premium offers or customers. In terms of customers, it is essential to understand the factors that push their willingness to pay and the problems the initiative helps the customer address. Supply and demand dynamics play a large role in success as well and it is important to understand if there will be enough green supply (resources) to carry out the initiative. Finally, it is important to understand the minimum margin requirement, meaning the target ROI and effective floor price, and the relationship this demand has on current products, wallet share, or loyalty.

Secondly, it is important to recognize that ESG triggers span across the value chain, with the intersection of costs incurred and value generated not always aligning. This means businesses not only need to understand their customers’ needs, but also their customers’ customers, and eventually the end consumer. This means that ESG pressures can come from a variety of places either from consumers changing opinions and driving pressures upstream, it can also come from regulations that bring more stringent practices, or it can come from a revolutionary technology change. Some examples of companies acting on these pressures are Coca-Cola announcing plans to use more recycled materials due a response to consumer demand, BMW sourcing aluminium from manufacturers exclusively using electricity obtained from solar power to meet their internal sustainability goals, or Rio Tinto investing in renewable energy and low carbon technologies to decarbonize their mining operations due to goals to meet both regulatory compliance and their internal sustainability objectives. Such internal sustainability objectives are important to get just right because efforts to go above and beyond, as seen with Walmart's Project Gigaton, will in turn have an impact on customer perception of the brand. The key to being successful in this stage is to ensure that the business is agile enough to act on these pressures quickly to clearly address the market demands, no matter which area the pressure is stemming from.

Thirdly, is it necessary to comprehend the currencies of value to accurately identify target segments and relevant propositions. Customer segments will vary in their willingness to pay across value attributes. When articulating the value proposition of an ESG initiative, it is important to understand the contributions that will resonate with customers. This can be addressed by asking questions such as: how can we help our customers drive value from ESG? and how can we help our customers deliver on their sustainability agenda? These questions cover tangible attributes such as helping customers drive growth or generate premiums from an improved ESG value proposition and improving their risk profile by helping them avoid greenwashing. The questions also address intangible values like helping customers attract and retain motivated talent due to stronger commitments to ESG or helping customers strengthen their ESG claims around their brand and helping them improve their market positioning. Such questions can also address sustainability value by helping customers deliver on their ESG and time-critical targets as well as offering more cost-effective pathways to achieve goals.

Finally, it is about playing the long game and ensuring pricing is established within the strategic context of sustainable offerings, carefully navigating supply and demand curves to achieve optimal outcomes. When defining the value proposition, it is important to focus on differentiation and going beyond regulatory requirements to drive bold change and address the industry’s main challenges to set the company to be an outlier versus the competition. The business needs to decide which areas it wants to be considered ‘compliant’, ‘proactive’, or ‘leading the market’ compared to the competition which helps protect the business from downside risks. These initiatives are more about laying a foundational ESG groundwork and might bring less tangible added value out of the ESG offering, but such changes will lead to longer success in terms of brand recognition.

Monetization might be the goal, but it can’t be achieved without a long-term strategy 

Bain & Company’s presentation broke down the ways that ESG initiatives can help a company find the right opportunities and monetize their sustainability strategies, but it is not enough to stop there. ESG needs to be ingrained into every fibre of a business to make a long-term and lasting effect. This is why the strategies and principles of Adam Werbach’s “Strategy for Sustainability” book are also important to consider when building out a corporate ESG playbook.

Strategy for Sustainability: Building out a solid long-term corporate sustainability strategy

In his book “Strategy for Sustainability”, Werbach explores how businesses can integrate sustainability principles into their strategies to create long-term value. He emphasizes the importance of aligning business goals with environmental and social objectives, arguing that sustainability is not just about minimizing negative impacts but also about seizing opportunities for innovation and growth. Werbach emphasizes that sustainability is not just a moral imperative but also a smart business strategy.

By integrating sustainability principles into their operations, businesses can unlock a myriad of benefits. Firstly, they can achieve cost reduction through the implementation of energy efficiency measures, waste reduction strategies, and sustainable sourcing practices, ultimately leading to long-term savings. Secondly, by addressing environmental and social risks such as supply chain disruptions and reputational damage from environmental controversies, companies can effectively mitigate risks and safeguard their bottom line. Thirdly, as consumers increasingly prefer environmentally and socially responsible brands, demonstrating a commitment to sustainability can significantly enhance brand reputation and foster customer loyalty. Lastly, sustainability challenges can spur innovation, prompting companies to develop new products, services, and business models that are not only more resource-efficient but also environmentally friendly, driving continuous advancement within the industry.

Werbach encourages companies to consider going beyond compliance and being transformational organizations by embracing sustainability as a core value and fundamentally transforming their business models to create positive social and environmental impacts.  With this philosophy, sustainability should be integrated into all aspects of a business, rather than treated as a separate, siloed function. This integration involves embedding sustainability into the company's mission, vision, and values to ensure alignment with business goals, incorporating sustainability considerations into decision-making processes across departments, from product design and procurement to marketing and human resources, and engaging employees at all levels to foster a culture of sustainability and empower them to contribute to the company's sustainability efforts. The key idea is to ensure that all decisions are driven by long-term sustainability goals rather than simply trying to meet quarterly exercise expectations.

Introducing new analysis strategies to ensure sustainability is a foundational consideration 

In rethinking traditional analysis methods, Werbach advocates for a shift towards more dynamic strategies and away from slower frameworks such as SWOT (Strengths, Weaknesses, Opportunities, and Threats) and PESTLE (Political, Economic, Sociological, Technological, Legal and Environmental). Werbach focuses on two methodologies: STaR Mapping and TEN Cycle.

STaR Mapping focuses on Social, Technological, and Resource changes, and moves away from competitive analysis towards simple incremental steps, termed North Star Goals, that can be implemented across the organization. STaR Mapping aligns short-term objectives with long-term strategies, anticipates energy and commodity costs, addresses demographic shifts toward aging populations, and prepares for future changes.

The TEN Cycle method takes into account Transparency, Engagement, and Networking in a cyclical process aimed at revitalizing conditions for long-term prosperity and the achievement of North Star Goals. The TEN Cycle helps strategists for sustainability celebrate transparency, build from the inside out, demonstrate that people are the most important company asset, provide deep induction processes and long-term equity incentives for employees, stay highly networked to outside organizations and companies, and employ cyclical and constant actions.

Xerox: a use case using Star Mapping, North Star Goals, and TEN Cycle 

Werbach illustrates the practical application of STaR Mapping, North Star Goals, and the TEN Cycle through real-world examples. Once again, these strategies focus on internal changes rather than on competitive analysis, which has been illustrated with a couple of examples from Xerox, where leadership teams leveraged these strategies to innovate and build sustainable and profitable businesses with significant industry impacts:

In 1993, Xerox hired chemist Patty Calkins to drive change as the company sought to integrate eco-conscious design principles into its products and services. Against the backdrop of heightened environmental awareness, Calkins helped the company set an ambitious North Star Goal: to produce waste-free products in waste-free facilities, fostering waste-free offices for customers through offering remanufactured products and parts. This simple foundational change led to big impacts, activating a TEN Cycle: the development of the ISO 24700 standard ensuring the quality of office equipment with reused parts, the reduction of overall costs due to better quality parts that would last longer and could be interchanged between products and offering better products to consumers. It is estimated that Xerox saved several hundreds of millions of dollars through the copier remanufacturing program.  Such a change also made Xerox reputable as being a sustainability innovator and the company became active in associations working towards regulation and spent time educating customers on why sustainable businesses do not always need to be considered more expensive as they make products that are made to last, thus saving customers money in the long-term.

In 2021, Xerox faced substantial challenges, with a staggering USD 17 billion debt, operating losses of USD 237 million, and a substantial loss in stock market value. Under the leadership of CEO Anne Mulcahy, the company embraced its tradition of innovation and community service to chart a new course, grounded in the North Star concept. Mulcahy's strategic vision allowed Xerox to move away from only selling copiers to expanding their product offering- which significantly propelled the company, resulting in a USD 978 million gain by 2005. This foundational change also set the company up to develop the first plain paper copying machine and to establish the renowned Xerox Palo Alto Research Center (PARC), which played a pivotal role in the evolution of personal computing and laser printing, giving Xerox recognition as an innovator.

Conclusion – A winning ESG playbook is all about the Domino Effect

The playing field of how businesses operate more sustainably and responsibly, especially in terms of ESG initiatives, might not ever have a set of official rules and guidelines to follow. Thanks to experts at Bain & Company and the advice taken in the examples shared in Werbach’s book, retail businesses do not have to act as guinea pigs and can follow the examples of many companies that have tried to innovate in the sustainability space.

What can be learned from these examples? There is a critical intersection between simplified long-term sustainability strategies that bring business value and profit in today’s business landscape while amplifying a company's culture and leading to strong relationships with employees and customers. There is also an advantage to being a first and influential actor, as seen with Xerox, that sets the stage for what a sustainable company looks like. By integrating sustainability principles into their strategies, businesses can achieve various benefits, including cost reduction, risk mitigation, enhanced brand reputation, and innovation. Overall, by embracing sustainability as a core value and integrating it into all aspects of their operations, companies can not only mitigate risks and comply with regulations, but also drive innovation, enhance competitiveness, and create long-term value for shareholders, stakeholders, and society as a whole.

IADS Note: To access the full Bain & Company webinar on ‘Monetizing sustainability – Navigating ESG pricing’, follow this link. You will need to input the passcode: !0J?Lp3D

Credits: IADS (Mary Jane Shea)

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The IADS attended the Global Peter Drucker Forum, an annual event organized in Vienna, Austria, last December. This event is an international management conference dedicated to the management philosophy of Peter Drucker, a management professor, writer, and consultant, often referred to as a “management guru”. The conferences held during the Forum aimed at making a reconciliation between pure research (systematically based on Peter Drucker’s findings) and practice, by having on-stage academics and executives.

While the whole session was dedicated to exploring the notion of “creative resilience” in an age of discontinuity, two specific talks raised our attention, as they challenged some notions that are taken for granted in business :

• Simplify to win,
• Plan a transformation process,
• Have the appropriate individuals carry this process.

What if the simplification process has become a poison for businesses in a world where uncertainty is everywhere and every day, at every level? What if the business transformation was not a process, but a never-ending moment, because its true nature is more psychological than measurable in actions? Finally, what if CEOs could not count on dedicated individuals to carry out a digital transformation process due to its very evanescent nature?

While we already reviewed these notions in our 2022 White Paper, “Smarter department store organizations”, by especially wondering if the structure had always followed strategy in the past for department stores, these two conferences gave an interesting angle that comes as an ideal complement to the conclusions we made at that time.

Introduction: Questioning Conventional Business Strategies

During a conference held at the Peter Drucker Forum in Vienna last December, Pierre Le Manh, CEO of the Project Management Institute (PMI), an HR consultancy company dedicated to upskilling and reskilling people, made a disconcerting remark: at the beginning of the COVID-19 pandemic, the whole market thought that PMI would go down, as their business entirely relied on discretionary budgets. Contrary to expectations, they did not. The surprising part comes from Le Manh’s candid admission that they performed much better than anticipated, but no one in the company, including himself, truly understood why or what factors contributed to their relative success over competitors.

Since his career was built on the fact of being an outsider (he was first appointed CEO at less than 30 years old, under the premise that “he did not have any clue about the business he was about to lead,” a trait seen as a strength by the then-president of CFL Holdings who recruited him), he proposed to review his inability to explain PMI’s success by questioning what leaders are usually taught, and what he did not do “by the book” when he joined.

In doing so, he challenged the long-term effectiveness of conventional business strategies: defining a value proposition, choosing a market, adapting the offer, focusing on specific customers, and optimizing the supply chain are all sound strategies… but what if this simplification also creates an organizational fragility? After all, the business tactics companies have been using for the past 20 years were adapted to a world where free money, safe real-time logistics, and the predictability of events were taken for granted, a world that no longer exists.

He also emphasized that natural ecosystems are extremely complex and based on millions of interactions that allow the environment to remain very resilient. In his opinion, this suggests that the simplification businesses often pursue might not be the wisest move in a world where resilience and the ability to face the unexpected are now vital.

This strong view against simplification in business, for the sake of ensuring resilience and the ability to absorb shocks (even though “simplified” processes such as Just in Time were initially described as the best way for organizations to absorb shocks), was later echoed in another conference dedicated to digital transformation.

Digital Transformation: More Than Flexibility

When asked about digital transformation and its ability to add flexibility to organizations, Lalit Karwa, the Head of Tata Consulting Services in Europe, was clear: the question is whether digital transformation adds enough flexibility. He stated that the answer was negative: given the changes the world is undergoing, the need for flexibility is now extreme, and expectations to reach that level are not realistic. Moreover, the notion of flexibility varies according to different perspectives, and the gap between decision-making and execution in digital transformation often leads to failure.

He emphasized that digital transformation is primarily a transformational process, with the “digital” aspect being just a component. The foundation relies heavily on people and processes, often overlooked in transformation efforts:

• 70% of transformations fail due to internal resistance: making a company more flexible often involves less flexibility at the individual level, creating friction,
• Placing people at the centre of a transformational process does not reduce complexity, on the contrary,
• Processes cannot also systematically be trimmed down or reviewed according to general principles. In the same way that Le Manh mentioned that playbooks might have to be reviewed, Karwa suggested that “inefficient processes in any given company were there for a reason, and leaders should empower their staff capable of tweaking these processes rather than replacing them with external elements.”

In summary, digital transformation is a complex process that, unfortunately for CEOs, cannot be simplified by creating an ad hoc department responsible for such a transition. As Karwa put it, “If one does business as usual and launches into digital transformation as a parallel process, it will fail. There is nothing in digital transformation that has a start and an end.”

Instead of top-down efforts, Karwa emphasized the need for bottom-up transformation approaches, mixed with a systematic revaluation of conventional business practices. He cautioned against relying on external experts (notably interesting as he leads a consultancy company) and emphasized that, for change to be successful, employees must be motivated, equipped, and empowered to redesign processes.

He proposed a set of 6 rules to define the “new generation” digital transformation in organizations:

• The outcome should drive what gets prioritized,
• The outcome should be time-boxed,
• Uncertainty should be managed in new ways,
• Adoption should be planned at the design stage,
• Transformation should be an innovative process.
• Transformation should be carefully balanced in an equilibrated portfolio.

The outcome should drive what gets prioritized: 

Karwa explained that, for front-liners, respecting deadlines and budgets is paramount, and then they deal with “HQ’s eccentricities”. To ensure this group feels involved in the transformation efforts, the value proposition of such efforts should be clear, relevant, and valuable to them, and be the sole focus of management. Too often, transformation efforts culminate in grandiose plans that fail to connect with or engage the workforce.

The outcome should be timeboxed 

Karwa suggests that relevant teams (if not the entire company) should be tasked with realizing the value of their efforts within 120 days. Ninety days is too short a period, and 180 days too vague. Therefore, leaders involved in the effort should report and demonstrate results, ROI, and KPIs within this 120-day period.

Uncertainty should be managed in new ways 

It's impossible to act without checkpoints, which Karwa suggests implementing every two weeks. During these checkpoints, micro-decisions should be made according to market developments, user feedback, and general observations. These micro-decisions are intended to steer the project in real-time and mitigate the expensive commitments that will eventually need to be made.

Adoption by design 

Addressing the disconnection between decision-makers and those tasked with developing solutions, Karwa stressed the importance of empathy and humility. The transformation plan's solutions must be centered around people’s needs. In his words: "If no one uses your solution, why do you build it?"

The transformation should be infused with innovation 

The transformation process should be planned, designed, and developed with the objective of empowering the organization and providing it a competitive edge. In other words, innovation should be embedded in the transformational process to ensure the organization is not only equipped for today but also for tomorrow.

The transformation plan should be part of a larger perspective 

Karwa expressed his view that transformation initiatives should be part of a balanced portfolio, which plays at the same time offence and defence.

These last two points echo Le Manh’s views, who insists that businesses should allocate 70% of their resources to business as usual, 20% to innovating in known territory, and 10% to uncharted territory (a distribution rarely observed in real conditions, as per his own words).

While Le Manh advocates for CEOs to avoid oversimplification when developing a strategy and keep room for manoeuvring, Karwa goes further by stating that "innovation departments" are ineffective in driving company-wide transformation (as this opposes day-to-day business to innovation). Instead, he stresses the need for companies (and their cultures) to make innovation an everyday practice, rather than a periodic transformation. In other words, dismiss the notion of transformation as a plan with a beginning and an end, but instead, see it as a perpetual movement within the organization.

Karwa acknowledges that this vision is disconcerting, if not uncomfortable, but for him, this is the price to pay to be stronger. Le Manh goes further by reminding us that crises are opportunities for organizations to emerge not different but stronger. While this is now a widely accepted statement, he affirmed that companies today have no excuse not to be ready for unforeseen events, as developing alternative contingency plans is a critical and essential piece of work in a world where disruption becomes the norm.

Pierre Le Manh and Lalit Karwa’s viewpoints highlight the necessity of integrating resilience, innovation, and adaptability into the very fabric of organizational culture. This approach requires a shift in mindset, from viewing transformation as a finite project to understanding it as an ongoing, integral part of business evolution.

To broaden the subject and to resonate with the essence of their messages, a fitting reference from Peter Drucker, whose forum sparked these discussions, can be utilized. Drucker, a visionary in the field of management, famously said, “The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.” This quote encapsulates the core theme of the discourse presented by Le Manh and Karwa. It suggests that the key to thriving in today’s rapidly changing business landscape lies not in adhering to outdated models and strategies, but in developing an agile, forward-thinking approach that can adapt to new challenges and opportunities.

This idea prompts a broader reflection on the future of business leadership and strategy. As organizations navigate through an era of unprecedented change and complexity, the principles and strategies discussed by these leaders could serve as a guiding framework for others. It emphasizes the importance of understanding the evolving dynamics of the global market, the increasing interconnectivity of systems, and the unpredictable nature of future challenges. By embracing a mindset of continuous learning, innovation, and adaptability, businesses can not only survive but thrive in the face of uncertainty, turning potential crises into opportunities for growth and transformation.

Credits: IADS (Selvane Mohandas du Menil)

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In 2023, despite a promising start to the year, IADS members experienced a significant turning point in the retail market following the summer. This shift was further exacerbated by terrorist attacks in Israel in October 2023, leading to global economic concerns, particularly regarding inflation and growth in 2024. These apprehensions were evident during the IADS General Assembly in November, prompting IADS to invite The Coca-Cola Company to share their insights with IADS CEOs for 2024 and the FMCG (Fast Moving Consumer Goods) market.

The presentation was delivered by Nikos Koumettis, President of the Europe Operating Unit at Coca-Cola, and Rami Sabanegh, Vice President of Strategy at Coca-Cola Europe. Nikos Koumettis began his career in Marketing and Sales, working for Kraft Jacobs Suchard, Elgeka and Papastratos/Phillip Morris, and joined Coca-Cola in 2001 as General Manager for Greece and Cyprus. Since then, he has built a wealth of experience in several international roles. Similarly, Rami Sabanegh has an impressive list of credentials and uses his extensive knowledge of management consulting as a member of Coca-Cola’s European leadership team, where he leads business analysis, strategy, insights and strategic transformation for 40 countries. Together, they shared their expertise on the European customer landscape, macroeconomic factors, sustainability, technological shifts and their company's extensive reach, serving 500 million customers across a wide product range.

Introduction: Europe is a highly diverse and challenging space to operate in

The diversity and unique characteristics of Europe's market make it a difficult and exciting retail space to navigate for companies, including Coca-Cola. The European market, spanning 40 countries, including the 27-nation European Union, presents a diverse landscape with multiple currencies and a population of 600 million residing in 250 million households. This market's allure lies in its blend of developed and emerging economies, extending from Ukraine to Switzerland. However, despite the immense opportunity this presents, there are also challenges faced by retailers in this vast market presented by a few distinct features of European constituents and consumers.

Europe's population is on the verge of decline, even when immigration is considered, it is also a swiftly aging demographic with one in four Europeans aged over 60, and it features an increasing trend towards single or two-person urban households. These shifts hold significant implications for companies, including Coca-Cola, leading to evolved market strategies and the introduction of different types of product lines including zero-sugar and zero-caffeine products.

Such demographic changes should also be considered by department store businesses but are often overlooked by retail marketing departments. The evolving market, such as the ageing European consumer demographic, necessitates adjustments and adapting to the consumers’ needs. An example of such a change is the need to print larger product labels and price tags for ageing customers. As Europe continues to face macroeconomic crises and businesses must learn how to adapt to a ‘business as usual’ volatility, they need to think about how customers will respond and reallocate resources effectively to survive.

If the customer is ever evolving, who is the target audience?

Customers have undergone significant behavioural changes in response to various market forces, displaying both short-term and permanent shifts. In the short term, behaviours include down-trading, where consumers opt for discounters and private labels. The new generation of thrifty shoppers is showing reduced spending on non-essential FMCG products and a focus on finding the best deals. The more permanent changes that are here to stay include more planned purchases, reduced impulse buying, smaller but more frequent shopping trips, and an emphasis on value for money.

Coca-Cola is adapting dynamically to these shifts by developing fresh and healthier products, expanding retail partnerships, and implementing dynamic pricing strategies. Coca-Cola's revenue growth management methods involve offering various pack options at different price points per channel to address customer affordability and preferences toward value. The change in demand can be seen when analysing discrepancies in purchasing between regions and countries. The Classic Coca-Cola product is growing in Eastern countries, while in the West, growth mostly is driven by Coca-Cola Zero or low-calorie equivalents.

Another way Coca-Cola has shown its creative adaptability to a transformed consumer is with the offering of products in new formats such as its smaller 150mL cans to allow customers to still enjoy Classic Coca-Cola, but also control their calorie intake. These changes stress the importance of differentiation in terms of value for money, as middle-market brands face competition from discounters' private labels and premium products.

How macroeconomics push Coca-Cola to adjust its strategy

Europe is experiencing a transformation of trends that are reshaping consumer behaviours and business strategies, which are likely to extend to other markets in the future. These trends include a growing emphasis on health and wellness, with EU customers actively seeking mental and physical well-being. Coca-Cola acknowledges this trend's impact on customers and employees, addressing issues such as mental health support for staff.

Environmental concerns are also on the rise, with European consumers increasingly becoming more eco-conscious, prompting brands to adopt sustainable practices. It is also important to acknowledge that compliance with evolving government regulations is difficult as directives are still being set in place (noting that Brussels's demands for the European Union are stricter and more challenging compared to meeting the United Nations' expectations). Coca-Cola is actively addressing the evolving regulatory sustainability framework in Europe by keeping up with these directives and setting ambitious targets. These targets include giving back more water than they use, which they have already achieved, and focusing on increasing the scale of recyclable packaging use, with a target of 50% by 2030. CO2 emissions remain a challenge, and the company has committed to achieving Net Zero for bottlers by 2040, implying a substantial annual decrease of 8% which is a very ambitious goal.

Implementing digital strategies into marketing efforts

Technological shifts, including increased tech literacy and AI usage among consumers of all ages, are also changing how people consume and interact with brands. The company aims to have a visible presence where customers are investing in digital media and targeting the 18-28 age group to stay relevant and measure the effectiveness of their investments. Achieving relevance with young emerging consumers also includes shifts in Coca-Cola's talent acquisition. The company has an average age of 26-27 with a low turnover rate of 4%, meaning they value the company and tend to stay longer to grow with the company.

Coca-Cola's growing digital investments serve several strategic objectives, other than just appealing to a younger customer and talent base. These digital investments have a dual purpose: one aspect focuses on bringing the brand closer to customers, while the other aims to ensure the availability of appropriate digital platforms for various aspects like e-commerce.

Coca-Cola’s overarching vision is to replicate the brand's offline success in the online world, relying heavily on first-party data to understand customers and tailor offerings to them. Additionally, these investments are driven by the pursuit of measurable ROIs, a feature not readily available through traditional media channels.

Conclusion: An extreme need for adaptability

The insights presented by the Coca-Cola Company shed light on the multifaceted dynamics of the European market and the evolving behaviours of consumers that department stores should consider when developing marketing strategies and business models. The European market's diversity, ageing population, and changing household structures are factors influencing customer preferences, leading to short-term and permanent shifts in buying habits. These changes have been ignored by many marketing departments in favour of more traditional techniques, yet as pointed out by the Coca-Cola company, they are key to remaining relevant and innovative in an ever-changing consumer landscape. Coca-Cola’s insights highlighted the need for retailers in Europe and those operating across differing cities, regions, and countries to adapt to changing demographics, stay up to date on economic conditions, and respond to evolving consumer behaviours. Retailers should focus on offering value for money, addressing wellness and sustainability concerns, and leveraging digital marketing to remain competitive in this consistently dynamic market.

Credits: IADS (Mary Jane Shea)