What: After a pandemic pivot to e-commerce, many brands are back to working with third-party retailers, this time the terms are better.

Why it is important: More than two years since the pandemic kicked off an e-commerce revolution, many brands are now bolstering their wholesale distribution again.

Neiman Marcus, Saks Fifth Avenue and others have seen an uptick in foot traffic or brick-and-mortar sales in recent months. Brands are also giving the channel another look, seeing stores as an affordable alternative to online marketing.

But the brand-retailer relationship itself has transformed. After a turbulent 2020, both stores and the brands they stock are more open to collaboration and compromise. Emerging from the pandemic leaner and, in some cases, financially healthier, retailers are seeking out fresh brands to draw back customers, especially as some of the biggest luxury labels are focusing on direct sales. Neiman Marcus added more than 200 new brands to its roster this spring.

Brands are using newfound leverage to negotiate better terms. Nothing is off the table. Mara Hoffman, for instance, got rid of return-to-vendor agreements, where unsold merchandise is sent back to the brand, altogether in the past two years.

The relationship between vendor and brand has become much more collaborative, with both parties sharing marketing efforts as well as customer insights. In some cases, the business model has also evolved, shifting from traditional bulk orders to revenue sharing via concession or drop-shipping.

There’s been a move to better support vendors on marketing initiatives and events. Neiman Marcus’ SVP, general manager for brand partnerships and merchandising, oversees several divisions including women’s fine shoes and accessories, as well as fine apparel. He is also the head of brand partnerships, which means some brand-retailer collaborations are streamlined under one team. The event debuting an exclusive capsule collection, for instance, will be planned in tandem with the collection itself.

Brands are now more willing to experiment with different wholesale models, including concessions. The concession model allows brands to build out their own space within a larger retailer, with full control over what to sell and how to display the products. Rather than ordering in bulk up front, the retailer receives a percentage of each sale. It offers higher margins for the brand but requires more work. This is the predominant model in European department stores like Selfridges and Galeries Lafayette but has become more widespread in the US recently.

Even as brands beef up their wholesale channels again, the savviest are picky about who they choose. Beyond negotiating the best terms regarding discounting and sell-through rates, or how much a vendor needs to sell per collection without having to purchase products back from the retailer, sharing the same goals and approaches to driving sales is an important facet of any partnership, brand executives say.

Navigating the return of wholesale

What: Asia is the place to look at when it comes to huge malls at the heart of cities.

Why it is important: Malls do not replace the need, and crave, for public spaces addressing the whole population. Is that important enough to mark their end?

Asia is recognized to have transformed the shopping mall idea into something bigger than what was initially designed in the West, and now 8 out of the 10 biggest malls in the world are in Asia. They have historically marked a huge social, architectural and cultural break in the cities, often also intertwining with logistical hubs such as train stations.

The Economist argues that Asian malls have evolved into disconnected bubbles, all offering a standardized array of brands, retail, entertainment and eateries, but do not replace the need for public spaces, as they are not addressing the whole population, but only a selection of citizens who have the cash to enjoy such activities. Now that huge Asian malls are, just like in the US, loosing traffic in favor of online shopping, The Economist wonders if they are becoming also there endangered species.

Asian malls are no substitute for public spaces 

What: MITSloan reviews the conditions needed to implement a purpose which is at the same time bonding all teams together but also contributing to the business advance;

Why it is important: Hubert Joly has given some ideas about the importance of purpose in companies turnaround and transformations. However, the notion can be perceived a bit blurry, which is why the methodology proposed by MITSloan is interesting and based on actual research.

As seen during the chat with Hubert Joly, purpose can be a powerful driver in a company’s transformation and turnaround. It is not however a lever that can be pulled, and needs a shared commitment rooting into the organization’s identity, its role, the reasons why this role is meaningful. As research shows, purpose make a difference in organizations only when it changes the way people operate.

The MIT has developed a set of processes (the “Purpose Strength Framework”) in order to set up a clear process related to setting up a purpose and measuring its impact on the company.

The first step is to make sure that the purpose has power through a shared belief about the identity, meaning and the mission of the organization. To be authentic it must express what is felt is important in the organization. To be coherent it needs to be consistent with the day to day operations. Both conditions leads to integrity. Research shows that when all three criteria are present, employees are doubling their levels of motivation.

Once the purpose has been set, it needs to be communicated, shared and incorporated into operations. This goes through:

• Purpose knowledge: this is made by clarifying how business decisions are based on the corporate purpose. Any opportunity to communicate purpose and manifest it in the organization is a must, and must be visible. A medical equipment company designed its offices following its purpose to make it tangible and visible.
• Purpose internalization: every employee should be empowered to connect the purpose of the organization with their individual values. This is done through explicit processes, such as discovery games or workshops.
• Purpose contribution: it is critical to measure the impact of purpose on the organization. Some companies have set up scorecards helping, at the department level, to follow how purpose has been communicated, implemented and how it contributes to excellence.

Unlock the power of purpose 

What: Returns are an inherent part of the retailer’s life and there are some methods to make them an efficient growth lever.

Why it is important: Individualization and targeting the right profile might help to maximize the customers’ lifetime value while providing them with an optimal experience.

Returns are a necessary component of the consumer journey but this does not mean that they should be harmful to the retailer. However, it is often the case that return policies apply indiscriminately to all customers, independently from their history, relationship or even reason to return. The Robin Report argues that returns should be treated as a marketing channel to know more about customers and ultimately improve the relationship.

Not all returns are equal: there is a difference between the big spender, the customer who returns more than what she keeps, and the one who systematically returns the product after having worn it. All three might want to return the product 31 days after the purchase, and in some cases, sticking to the 30 days limit rule might prove more harmful on the long range than the sheer cost of the return, when it comes to nurturing the relationship with customer.

According to the Robin Report, the use of AI, engagement on the point of return, individualization of policies according to the customer and targeted incentives are easy ways to improve the profitability of the return and at the same time improve the customer lifetime value.

Returns are the next frontier 

What: An opinion paper on what to remember from the conclusions drawn during the pandemic.

Why it is important: As many IADS leaders know, trees do not grow to the skies by themselves, and trends pass. Online growth in times of pandemic when stores are closed do not imply that the online market share in purchases remains the same over time.

In a refreshing manner, the contributor reminds that the so-called 10 years of e-commerce acceleration acquired during the pandemic were probably not more than a mirage, just like the changes in category consumption and usage, such as the explosion of grocery home delivery.

Two years after the beginning of the pandemic, it appears that online spending is decreasing when stores are reopening, big ticket spendings are reduced to the profit of restaurants and clothing (which were hard hit during the Covid). All in all, the great acceleration might be more of one year or two, according to the contributor. We would not however that the Covid has been a blessing in disguise as it also acted as a strong organizational wake-up call for retail companies, something that can not be seen in the retail numbers from the US census bureau.

Retail: from the great acceleration to the great rebalancing 

What: Online retail with stores, or stores-based retail with a website? In any case, nowadays four-wall profitability fails to calculate the true value of brick-and-mortar locations.

Why it is important: The rapid growth of online shopping forced retailers to scale omnichannel operations very quickly and with a priority on service over cost. E-commerce accounted for 19.1% of total retail sales in 2021, up from 15.5% in 2019. In an AlixPartners survey of more than 100 retail executives, almost 80% said they expected their online penetration to increase in 2022 relative to 2021. Whether at 15% or 40% or more, every retailer must reassess its operating model in light of this expected growth as we have reached a tipping point.

Profitability has been challenged because most retailers were forced into making significant, expensive and immediate omnichannel improvements. Now, me-centric consumers are all-powerful and dictate the nature of their relationship with companies. This means that any retailer hoping to thrive must take a new perspective into its operating model – including processes, organization, and technology.

Being a digital-first retailer does not mean being a digital-only retailer. A digital-first retailer will never look at its stores the same. Every store belonging to a digital-first retailer is a node in the network with a completely different set of costs and benefits. These may include benefits from faster omnichannel delivery, rebuys of online returns, and the billboard effect of a physical location, among others.

Being a digital-first retailer also does not have to mean prioritizing one channel over another. Instead, it’s a shift in mindset that resets how the organization thinks about everything. In practice, this means changing conventional KPIs for every part of the business into digital-first benchmarks. For merchants and planners, this may mean taking customer acquisition and loyalty into account in assortment decisions. For the supply chain, it’s the difference between simply prioritizing cost per unit to including customer lifetime value in order management system algorithms.

This reassessment can be broken down into four broad but connected areas:

• Customer: How are you tracking and growing your most profitable customers and channels?
• Experience: Do you provide a meaningful, frictionless, and personalized experience at every touchpoint?
• Offering: Is your operating model designed to curate relevant products, pricing, and services to the consumer?
• Fulfillment: Are you maximizing your store network, distribution centers, and inventory placement for profitable digital growth?

Retailers should be prepared to rethink its operating model in a way that caters to how today’s customer typically first experiences a brand: digitally. While increased operational costs reflect an immediate need for correction, the risks of not meeting consumers where they’re going are much larger and can be much more detrimental.

Are you a digital-first retailer?

What: The metaverse is being promised as a place to increase fashion sustainability by reducing physical clothing samples or travel to experience a fashion show, but many have doubts as to if the metaverse is truly sustainable.

Why it is important: Many people assume that the metaverse and Web3 are free of any physical-world impact, but the energy consumption of cryptocurrencies and the blockchains that underpin the ecosystem is huge.

The metaverse’s problems are threefold: the fact that technologies are not automatically sustainable; the assumption that consumers will switch to digital goods, especially in fashion, while reducing their consumption of physical ones; and the diversion of resources away from solving problems like workers’ rights, inclusivity or textile-to-textile circularity.

In the end, when people go out on the streets, their clothing can’t be digital and must be physical. While digital products can replace some physical items, there is no proof that people who have disposable income to spend on digital clothes will stop buying real clothes. Some even see the metaverse as a distraction from the issues happening in the physical world.

Metaverse as a magic sustainability bullet? Think again, say experts

What: A snapshot of the situation of Luxury in the Middle East.

Why it is important: Younger, tech-savvy and looking for specific products helping them to define their identity: what is happening in Middle East when it comes to Luxury customers should be scrutinized by department stores worldwide.

The Middle East has been one of the regions in the world which probably suffered the less from Covid-19 as a whole. But this does not mean that the situation of the market has not gone through significant changes: oil prices have soared, VAT has been introduced in most the countries, and the region has been at the center of the world’s attention with Expo 2020 in Dubai and the Fifa World Cup 2022 in Qatar.

Vogue Business performed a study in partnership with Chalhoub to understand the main trends in the region when it comes to Luxury:

• The top 10 does not mention world -leading brands, such as Louis Vuitton, which suggests that Middle East customers have an appetite for variety and a wider range of brands (the top 5 is, in this order, Hermés, Givenchy, Coach, Dolce & Gabbana and Gucci) rather than the usual suspects. However, at the same time, the most performing categories are Shoes and hard luxury (jewellery, watches, bags) which is somehow contradictory.
• E-commerce has doubled in the region, lead by pure players including local ones (Farfetch, Ounass, Net & Porter), which all three capture 82% of the business. The UAE remains the center of attention for brands, even though investments in KSA are increasing.
• Omnichannel expectations are the same than in the rest of the world, however live interactions with sales advisors, be it in store or online, is more valued by Middle Eastern customers, suggesting that they are more tech-savvy than in other markets,
• Second-hand and resale are deemed valuable by customers, even though the market is still small (2%) compared with the world average (10%). Two specific elements are interesting: the study suggests that customers are more interested in selling their goods than buying pre-owned ones (which might echo an appetite for trade, but also contribute to a social posture), and re-sale is not all about mass products in the region, as luxury goods see their share of the business increase regularly,

According to Vogue Business, the market will represent $11bn in 2023, with a growth based on a market which remains on average young (especially thanks to the influx of KSA new customers). They will be increasingly looking for brands able to reflect their own identity, which, mixed with their low interest for local brands (11%) , implies that international brands will be increasingly encouraged to collaborate and issue market-specific collections in order to make the most of this opportunity.

The situation of Luxury in the Middle East 

What: Liganova shared a White Paper answering questions about the metaverse and sharing the fundamentals to a successful take-off for brands in the metaverse.

Why it is important: The metaverse is starting to materialise professionally with use cases and products. This paper helps brands understand how to move forward.

It is projected that 25% of people will spend at least one hour a day in the metaverse in 2026. The metaverse is not easy to grasp for definition, but one has been offered to help brands: The entirety of all multi-functional, immersive, and social virtual spaces. The problem is that the metaverse today is roughly at the stage where the internet was in the early 90s. Currently there are fragmented metaverses with limited users that are focused on gaming and for brands the best B2C offering is ‘digital twins’ of physical merchandise. But in the future the metaverse is predicted to offer a high level of interoperability with large numbers of simultaneous users, multifunctional use for work or leisure, and a fusion between the real world and the metaverse.

There are three related paradigms that can cause confusion. And while similar, they are not the same.

1. The metaverse: multifunctional virtual, social spaces
2. Extended reality: applications that bring together physical and digital elements
3. Web3: applications based on blockchains and smart contracts, and the communities emerging around them

As there is an increase in the number of platforms offering the metaverse, extended reality, and Web3, marketing professionals believe that it is important for companies to have real-time live 3D presence in these spaces. But it is still difficult to decipher if this trend is just a hype or if it will last and a true company strategy needs to be defined.

The key to understanding the metaverse is to have practical experience with it. Here are some tips:

1. Find out more about brand experiences on a Metaverse platform (Vans World in Roblox)
2. Test the Meta Quest 2 for one day (Oculus First Contact or Beat Saber)
3. Get to know people in a Metaverse platform using VR (VRCHat or RecRoom)
4. Visit blockchain-based platforms (Decentraland)
5. Set up a wallet and Discord and acquire a NFT (MetaMask or OpenSea)

Brands in the Metaverse

Brands are already being represented in the Metaverse, without their active involvement through engaged fans. But how can brands become more hands on? Some examples of events that have been hosted on metaverse platforms are a virtual fashion show held by Philipp Plein, a block party held by Warner Bros. Pictures, and an Ariana Grande concert in Fortnite. Brands can also amp up their spaces on metaverse platforms: Tommy Hilfiger Store in Decentraland, Vans World in Roblox, and BCG Gamma Office in The Sandbox.

Three key factors of success in the event and space design concepts in the Metaverse:

1. Don’t build a second real life: while the physical counterpart should be considered, this is the time to fully exploit the possibilities of the new medium and be creative.
2. Take inspiration from games: games continue to lead as the most successful application in the Metaverse.
3. Community beats location: look for partners, adapt to the local customs, and take a look at the mechanisms of success on the platform.

Metaverse of Metacurse?

PRINATBALE VERSION HERE

Introduction

In Europe alone, subscription models and paid memberships account for EUR 350 billion, dominated by information and technology (think Microsoft or Adobe software), as well as media and content (Netflix obviously). Consumer goods ‘only’ represent 15% of the total business.

According to a McKinsey study, consumers attached to paid membership programmes are 60% more likely to spend, compared with only 30% for free loyalty programs. Purchases are said to be more frequent and average baskets bigger, transforming paying members to extremely valuable customers. While the footprint of paid loyalty programmes still remains small, it has expanded with Covid. Why? Firstly, with stores closed, subscription services offered a convenient way to keep needed products on hand. But that’s not the only reason as offering the usual discounts and free delivery through a basic 3-level (bronze, silver, gold) free membership feels somehow basic to the consumers who find other ways to access such table-stake perks anyway.

With the war in Ukraine and Covid locking down a part of China, inflation is skyrocketing. As a result, consumers are forced to lower their discretionary spending, and they tend to discontinue their subscriptions whether it’s for Netflix or goods.

But still, brands and retailers need to pimp their loyalty programmes, and paid membership remains an option to consider for funding more interesting and exclusive perks that customers agree to pay for as soon as programmes match their expectations. Firstly, customers want high benefits that balances out or exceeds the fee amounts. Secondly, they want benefits that can be used immediately and as frequently as possible. Finally, with everything else in retail right now, they want experiences. Illustrating such expectations and following up with last year’s Exclusive about subscription retail, the IADS gathered the latest initiatives in paid membership.

Higher benefits

Pret A Manger has a subscription service and it’s not new: customers pay a EUR 20 fee per month and can benefit from up to 5 beverages per day. Whereas it’s unlikely that all subscribers will extensively use their 5 beverages every day, the perks of the programme are way higher than the fees. It shows that attracting new members comes with strong benefits clearly outweighing fees. In fact, consumers expect to receive at least a 150% return in perks when compared to the subscription fee. As a result, brands and retailers considering a paid program must make their value extremely visible.

In US pharmacy retail, the CVS CarePass programme charges a USD 5 monthly fee and offers its members 20% off on all CVS Health brand products in addition to services like free shipping and a 24/7 pharmacy helpline. Knowing the high price point of drugs in the US, the discount rate is really appealing compared to the reasonable monthly fee.

Some recent initiatives like renting fashion are a great push to the subscription business. In the luxury department store area, the Japanese group owning Daimaru-Matsuzakaya launched in March 2021 a new subscription-based rental service to try to escape the traditional inventory-based business model. The new service allows customers to rent up to 3 high-end women’s clothing items from brands such as Marni or See by Chloé, for a monthly fee of approximately USD 103. Fees are rather low when compared to the cost of 3 items from premium or luxury brands. While acquiring more loyal customers, the department store hopes to achieve a USD 55 million turnover by 2026 thanks to a projected 30,000 customer base.

Whereas it’s too soon to know if such a business can be profitable in itself, it will be interesting to check if the Financial Times is right: in an article from September 2021, they argue that the subscription model works best for higher priced-items. Anyway, it seems like a win-win deal: for the department store, it’s about increasing customer loyalty while reducing inventory. On the customer’s side, it represents a new access to luxury products, and an answer to sustainability concerns.

Now and always

Customers want to use their membership perks immediately upon sign-up, and very frequently: 50% of cancellations occur within the first year of membership. In that case, the main reason is that they are not using the benefits enough to justify the membership fees.

Walmart launched a membership programme in September 2020 primarily designed to compete with Amazon, the ultimate champion when it comes to immediacy and recurrent usage. Walmart+ members pay a USD 98 annual fee and are offered perks like an app allowing them to skip the checkout line, unlimited free deliveries with no minimum, member-only game console releases, up to 85% off on prescription drugs, discounts on gas, and special promotions and events. Also, at a time when customers were afraid of potential product shortages, they have enjoyed a true competitive advantage: early access to the 2021 Black Friday deals. Now accounting for 32 million members, Walmart+ can boast about amazing statistics: Cowen analysts estimate 12 million US households have a Walmart+ membership and 69.6% use it at least once a week. Members currently account for about 13% to 14% of the total Walmart.com business.

On the brand side, On Running sports shoes released a running shoe monthly subscription in April 2021. Dedicated to serious and frequent runners, they pay GBP 25 per month to subscribe (rent) their pair. When the shoes are worn-out, the customer can stop the subscription or request a new pair. Once it arrives, customer can send their old shoes back to On Running, who takes care of recycling, an additional perk answering customers’ environmental concerns.

In fashion, Ralph Lauren launched a rental subscription service in March 2021, a first for a luxury brand. The service aims to be a new channel for customers to engage with the brand. Starting at USD 125 per month, subscribers can access a constantly renewed range of clothing. Members curate their own online closet before receiving their shipment. Once they are done with the clothes, they can choose to either send them back and have them replaced by new styles or purchase them at exclusive member prices. On top of creating loyalty, the ‘Lauren Look’ is also a great opportunity to generate direct customer feedback and gain a better understanding of their expectations. As for On Running, the initiative also answers the growing consumer concerns about overconsumption.

Still, offering discounts remains a mandatory perk. In that perspective, Vasquiat is an interesting alternative free membership model when it comes to immediate discounts. Founded by Spanish influencer Blanca Miro, Vasquiat is defining itself as “the marketplace for discovering the most exciting emerging brands in the world.” What’s more important is that they “disrupt the traditional model by creating a new category: the discounted pre-order.” Vasquiat’s members can pre-order styles from the next season's collections at up to 40% off. The sooner they buy, the less they pay, reversing the usual end-of-season discount model. Then, the closer the collections are to their official release date, the smaller the discount is, until eventually reaching the full retail price.

Experience and emotion

Even though they remain table-stake perks, free delivery and discounts are not enough to lure and retain customers for paid membership programmes. Consumers are looking for differentiation. In that sense, they are expecting exclusive offerings, personalized and more emotional experiences, or member-only content.

In that perspective, Volvo launched a new car dealership concept inspired by clubhouses in 2021. Opening first in Amsterdam (now available in 6 other cities across Northern Europe), Lynk & Co is more than just a car dealership. The club house is the promotional face for a hybrid SUV that members can rent starting at EUR 500 per month (including insurance and maintenance service). The brand's strategy is simple: focus on car sharing through a subscription system (which is especially relevant in a city like Amsterdam where people don’t need a car on a full-time basis), and attract new customers through the services offered by the clubhouse. It includes a lounge area with a bar to host DJ sets, exhibitions, as well as workshops, film screenings, etc… These events are of course reserved to members who feel nurtured with the emotion of being part of an exclusive club.

In an attempt to compete with Amazon, Best Buy launched a USD 199.99 membership programme in April 2021, designed to basically offer great customer service. Among various perks (such as free 2-day deliveries, up to 24 months of product protection, dedicated phone teams, extended 60-day return and exchange window), the 24/7/365 tech support and product installation in particular offer a security sentiment and a safe product experience to members. The membership, called ‘Totaltech’, also includes ‘My Best Buy’ programme perks (including reward points and exclusive deals).

Food is highly about experience and emotion. Shinsegae department store in Korea came up with an interesting initiative: a fresh fruit subscription service which has proved very popular since its inception in April 2021. As part of the “VIP Gold” loyalty program, customers can subscribe to the service for a monthly fee of approximately USD 194 and they have a selection of seasonal fruits delivered to their door on a weekly basis. Tips on how to store and eat the fruits are also included as part of the package. This new service follows up the launch of a bread subscription service: subscribers can pick up bread in store every day for a monthly fee of approximately USD 42. Shinsegae’s goal is obvious and clear: “attract people to the store, which could lead to the purchase of other products.”

When it comes to paid memberships, the wholesale club model in groceries is also a true lever to loyalty. But it can do more: it can help create a sense of belonging, which will give customers more reasons to visit and push them to significantly increase their purchases. It’s the case with Store X supermarkets (a division of Alibaba in China). With its USD 40 yearly membership, Store X targets a group of young, affluent, digitally savvy shoppers expecting to be treated differently, and willing to spend more for better services and shopping experiences. The first Store X opened in Shanghai at the end of 2020 and became profitable within two months.

Conclusion

So far department stores are sticking to free membership through their loyalty programmes, but they have been revamping them for a few years now. A few months ago, Harvey Nichols in the UK did so with a 5-level ‘classic’ programme where money spent equals reward points. Depending on the level customers will reach, points are converted into benefits revolving around discounts and (more interesting than in other programmes) experiences appealing to many different customer groups: 10% off food & wine, bars & restaurants and beauty & grooming, 15% off fashion vouchers, double points booster, free drink in store, ‘kids eat free’, pamper hamper, birthday gift, dining or beauty school experience, wine or crafty beer box.

While it would be very costly for department stores to design perks and experiences worth a paid membership, the model needs to be considered anyway (and despite the recent subscription model setbacks), especially if focusing on big spenders that are not really impacted by inflation and who are always expecting additional reasons to visit stores. In that sense, the Soho House business is a model to look at as experiences are part of the equation: at Bloomingdale’s, the Loyalist programme has been redesigned to include a new shopper segment, the ones spending more than USD 15,000 per year. Representing less than 1% of the customer base and mostly women in their forties, these ‘Top Of The List Unlocked’ status members receive elevated benefits such as a 2-star Michelin cooking class at the Baccarat hotel, and even have a private Instagram account to reserve the latest designer styles.

Credits: IADS (Christine Montard)

PRINTABLE VERSION HERE

*Best Buy is one of the most recognized examples of successful company turnarounds in the past decades. In 2012, the company was ailing, sales were declining (although the company was not yet in the red) and a sense of common purpose was missing within the teams. The turnaround was not executed via a purely financial approach, cutting costs and increasing profitability, but took another standpoint, betting on the human side of each and every employee to reinject meaning and will to achieve something bigger than them, together.

The ongoing digitization of department store companies involves integrating new and very different teams, reinventing the jobs of the existing ones, and finding a common motivating purpose for all of them. In that sense, there are some similarities between what Best Buy went through and what IADS members are currently trying to achieve. This is the reason why we invited Mr Hubert Joly, CEO of Best Buy from 2012 to 2019, to share with us his experience and retrospective understanding of what he achieved during his tenure.*

Introduction

Hubert Joly, a graduate of HEC Paris (business school) and Sciences Po (political sciences school), is a senior lecturer at the Harvard Business School and the former Chairman and Chief Executive Officer of Best Buy from 2012 to 2019. Before this experience, he has held various CEO positions at Vivendi and Carlson Companies, after having been partner at McKinsey for 13 years. Under his leadership at Best Buy, the share value rose from $20 to $70, the company had 5 uninterrupted years of growth and the online share of the business doubled, reaching 17% of the total sales for a turnover of $6.5bn (post-pandemic, online sales  have tripled, and represent 40% of the business). He was also instrumental in redesigning the management team structure, by helping the Board of Directors increase the proportion of female leaders. He has been ranked as one of the top 100 CEOs in the world by the Harvard Business Review, top 30 CEOs in the world by Barron’s, and top 10 CEOs in the US by Glassdoor. Hubert Joly released his book, “The Heart of Business – Leadership Principles for the Next Era of Capitalism”  in 2021, which was sent to IADS members prior to the exchange.

Interview

IADS - When you took over Best Buy, things looked bleak – tell us what it was like and why you accepted this position?

HJ – In 2012, everyone thought Best Buy was going to die in a context where brick & mortar retailers were considered dinosaurs. In addition, I did not have any background in retail at the time. However, after making my due diligence, interviewing Best Buy alumni and employees, and making my own mystery shopping visits, I understood two things:

• Customers needed Best Buy: they wanted to touch, feel, see, and experience the products,
• Vendors needed BB, as it was a great way for them to showcase their R&D investments.

I also realized that all of Best Buy’s problems were self-inflicted: incoherent pricing, poor customer experience, and deteriorating infrastructures (stores). This meant that it was possible to have a grip on these problems, and fix them.

IADS – You have turned around the company in a few years. What do you think was key to this success while so many others in the retail industry tried and failed?

HJ – There were actually two phases to turn around the company and generate growth.

The first phase, “Renew Blue”, was all about the turnaround itself. We are not talking about strategy or vision here, but pure execution: we were fixing what was broken. We pinpointed all the issues and addressed them one by one: matching Amazon prices, investing in customer experience, offering better shipping experience including next-day delivery, investing in stores or partnering with vendors…

This is what we did. The “how” part is more interesting though! The usual recipe involves cutting costs, especially reducing the headcount. In our case, this would have meant closing stores, when a lot of them were profitable. We preferred to have a human-centric approach. This meant two things:

• Listen to the frontliners and see what was wrong. I spent the first week on the job visiting stores and talking to teams, to understand what was going on. All I had to do was to listen and make sure they had the right answers and tools from the leading teams.
• Create positive energy within teams by showing them that they are placed at the centre and listened to.

For me, headcount reduction was really the last resort, I preferred to focus on reducing non-salary expenses (for instance, finding ways to reduce the rate of TVs being broken during handling!),

The second phase, “Building the New Blue”, was launched once we knew the foundations of the company were solid again. We reflected together and defined what company we wanted to be, and how to accelerate our growth. This can only be done by pursuing a noble purpose and putting people at the centre. That’s my idea of leadership.

IADS – To what extent the turnaround was a 100% human adventure, or a human adventure supported by systems? How did you manage this transition from an infrastructural point of view?

HJ – In electronic consumer goods, 90% of the shopping decisions involve a digital touchpoint at some stage, or even start digitally, so of course, emphasising digital solutions was the long-run approach. Every meeting I led always started by discussing e-commerce and digital, and we increased investments in the website. But systems are human-powered, and decisions must be made by someone, so we also invested in employee tools to adopt agile ways of working and spread a digital mindset within the company. That was a true asset for Best Buy during Covid-19 and allowed us to easily transition to contactless pickups and other solutions when stores were closed.

IADS – How did you prioritise the adoption of solutions and make decisions on investments?

HJ – The two phases were different.

The first phase was about eliminating pain points, understanding what was not working and fixing it. For us, that was the search engine, which we redesigned. Then, we worked down the list of remaining pain points and prioritised them by how important they are to the customer journey and business impacts.

In the second phase, the lens was different. We had defined our purpose: enrich people’s lives through technology, and that meant that we were not anymore only addressing tech fans, but also people who needed help with tech. That meant pivoting on several angles: from B to B, to B to C, from being a retailer to something else. Partnering with vendors was key, as they understood that it could be beneficial for them too, and that helped co-fund the needed investments in stores and systems.

IADS – You diversified your leadership team, the board – why did you feel it was important and how did you do it?

HJ – Simply put: I do not think we could have done anything without diversifying the teams. How do you want to address the world if your teams do not reflect its diversity, from a gender, ethnic, background or education perspective? Leaders need to create an environment where they can leverage diverse team members. For example, in Chicago, if your sales team doesn't speak Polish then you might not sell much. Same thing in Orlando for Portuguese, to address Brazilian customers.

For me, diversity is a business imperative. As leaders, we know how to sell business problems: how to attract, develop, and retain customers. These same methods need to be applied to employee retention and attraction. If there is not enough diversity represented within the organisation, you need to understand why it is not drawing these types of profiles, because that is putting you at risk.

IADS – How did you trickle down the changes until the base of the pyramid? How did you share, in a concrete manner, your Noble Purpose with frontliners?

HJ – It did not trickle down. Many companies have worked on defining a purpose.  But let’s be honest: a company’s purpose is corporate speech that doesn’t mean much to frontline workers. Frontline workers need motivation, not corporate speeches. And motivation comes from within, it is intrinsic.

This is what I call the “human magic”. I give you an example: in 2018 a young boy came in with a broken dinosaur toy. He didn't want a new one, he wanted a cure for his dinosaur. Two employees understood what was happening and they started a ‘surgical procedure’ to make the dinosaur feel better. In reality the toy was swapped with a new one, but the boy believed that it was still his original toy and was happy to have it repaired. To be honest, I can’t teach employees how to “cure” a dinosaur, and I do not know about KPIs measuring the number of cured dinosaurs per quarter. So, these employees did that just out of pure motivation. They wanted to make customers happy.

Once again, the “how” is key: how do you make sure that all your employees share the same approach? Not by having a top-down Power Point presentation. Our strategy was to be an inspiring friend to customers, but also to ourselves. So, one day, we closed all our stores on a Saturday morning, and broke the teams into small groups, asking each employee to share their own story and a story of an inspiring friend. Everyone understood, independently of their hierarchical level, that the others were more than employees or co-workers: they were human beings with their complexity. They realised that they needed to treat each other and the customers as human beings and as inspiring friends, rather than walking wallets.

Also: training is important, but it does not work if you return to a poisonous environment. Top-down scientific management approaches don’t work. Bottom-up and inside-out approaches should be prioritised. Here are the ingredients that worked for us:

• Allow every employee to connect to what drives them and connects them to their work,
• Create an environment where there are genuine human connections and where people feel seen.
• Allow for autonomous work.
• Offer a learning environment with individualised weekly coaching.
• Provide psychological safety.

We need to move away from the model where the leader is seen as the superhero who knows everything. Today’s leaders should show signs of authenticity, vulnerability, empathy, humility, and humanity!

Conclusion

**IADS – What is your view on retail after the pandemic? Where are we?

HJ –** 10 years ago, the debate was all about the dichotomy between online and brick-and-mortar. That is not the case anymore. For me, the dichotomy is now between great and mediocre retailers, and their purpose.

Purpose is an intersection of what the world needs, what you are uniquely good at, what you are passionate about, and how you can make money. The crucial question retailers should have to ask themselves to be successful is to know if they would be missed, and why, if they did not exist. Retail is being completely reinvented around purpose, people, and great execution.

To conclude, I remember my conversation with Tim Cook in 2012 about the bad press Best Buy had then. He told me to focus on doing my things and being successful, without minding the press. Department stores are in the same situation today. Keeping the focus is key.

I would also add that I believe that we, as business leaders, have a huge role to play in the society. We cannot predict the business environment or the future, but we can decide what kind of leader we want to be and how we want to contribute to the world. I have 3 guiding ideas:

• Having a purpose,
• Being clear on my principles - key ideas we have about how we want to lead and drive the business,
• Doing our best- we control what we do and how we lead our teams

Credits: IADS (Selvane Mohandas du Ménil)

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Nordstrom announced on the 1st of March the launch of their own Retail Media Network (RMN) with the “Nordstrom Media Network” initiative. Trade marketing and side advertising revenues from brands are not new to retailers. So why is this piece of news interesting for department store companies? Let’s look at the US grocery market to draw some learnings.

What are we talking about?

Retail Media Network (RMN) is a vehicle for retailers to market to brands with individualized advertisements to customers at a chosen point of interaction with the retailer’s ecosystem. The concept is not new: “traditional” retail media, which includes product sampling, in-store displays and featured placements in catalogues, initially focused on increasing shopper engagement and sales for the benefit of the retailer, which was often asking brands to pay to have their products shown at or near the point of sales, to increase the likelihood of a sale.

However, the concept significantly evolved in 2021 with the digital acceleration as an answer to some of the challenges created by the Covid-19 pandemic, for the following reasons:

• Brands, when going direct due to the pandemic, realised that their marketing initiatives could lead to a waste of investments: with no option to sell their products (both their wholesale and retail networks were closed) brands had to digitize fast, and quickly realized that they could create a direct relationship with customers without having to rely on retailers. However, they also realized that the advertising and marketing investments needed for such a strategy, especially online, were quite heavy and also posed questions in terms of ROI offered by the existing providers.
• Retailers were in need of compensating the Covid-19-induced margin loss:  they found themselves with traffic-building brands going direct to customers and leaving their premises, while also witnessing their margins shrinking, due to several factors, either structural (cost of free shipping, price-related competition from massive online pure players, investments in sustainability as requested by customers or regulation) or contextual (inflation, rising logistics and raw material costs due to the 2021 supply chain bottleneck, worsened by the 2022 Ukrainian-Russian war). As a consequence, they were eager to create new streams of revenue.
• A natural opportunity arose from this context: Retailers also digitized (or increased their digital competencies) and realized that, with the knowledge of their own customers they were able to amass (shopping habits, buying patterns, all collected from both online and offline points of contact), they could create such new stream by monetizing this first-party data to brands, who in turn saw an opportunity to improve the ROI of their marketing and communication investments.

Why did it start in the US grocery market?

Pre-pandemic, Food & Beverage and Consumer Pre-packaged Goods brands were struggling to grow in a saturated market (grocery brands’ average growth in the US in 2018 was +1.9% and average profit growth was +3.2% p.a. over the last 10 years). In terms of advertising, they were also lacking both connection and understanding of their customers (Dunhumbby evaluates that the top 10 brands spent $800m on advertising in 2021, with a cumulated customer database 90% smaller than their retailers’ ones) leading to a low ROI on advertising and communication investments.

The future was also looking bleak, as Google plans to remove cookies in 2023, which will prevent advertisers to implement audience targeting on 99% of Chrome users (2/3 of worldwide internet users). In a world where it is expected that post-Covid, the shifts in terms of grocery spending might stay, especially in terms of online buying (9% of the total UK grocery market in 2020, +54% in growth in the US the same year), that means that they would have to spend more, for the same result than before.

Benefits for all

In parallel, retailers, looking at the precedent set by Amazon (77% of the US-based CPG brands work advertise on Amazon, generating a total revenue for Amazon of $21.33 bn in 2020 and $31 bn in 2021), saw an 80%-like margin offered by retail media a welcome lifebuoy as their margins, structurally slim, were even weaker due to the massive increase of online sales during the pandemic (coming on top of the pandemic related costs themselves, in terms of payroll, benefits, incentives…).

This was a match! Brands saw in this new proposal the possibility to create highly-specific and objective-based campaigns around real shoppers and not personae, using a variety of touchpoints, and being able to measure the contribution to sales of the marketing investment made. Retailers recognized a possibility at the same time to create a new source of revenue but also a way to improve and reinforce relationships with key brands.

Benefits of Retail Media (Emarketer, Coresight)

![Coresight exclusive

![coresight exclusive 2

The Retail Media Network market value is estimated by Emarketer at $31.49 bn in the US only, and forecasted at $41.37bn in 2022, $50bn in 2025 (20% of the total digital ad spend). The worldwide market is estimated for 2022 at $50bn by Forrester and $100bn by Boston Consulting Group.

Now, most of the major US grocers (but not only) have or are venturing into Retail Media Networks activities: Albertsons, Best Buy, Carrefour, Dollar Tree, Gopuff, Lowe’s, Kroger, Sainsbury, Target, Tesco, Walgreens or Walmart. They all use the size of their loyalty program membership to push forward opportunities sold to interested advertising brands.

This trend is extending to the department stores world, as Macy’s and Nordstrom now also operate in this field (respectively from 2020 and 2022).

A use case example: Mondelez and Carrefour

Mondelez realized that, while pre-pandemic they were focusing on children and teenager biscuit brands, representing 68% of their online sales, the Covid-19 crisis favored the online emergence of a new category of customers, aged over 55 and sensitive to other products. These new customers represented half of the 2.8bn new households using Carrefour’s drive-thru offering in 2020 (quite an opportunity!).

Mondelez teamed up with Criteo (a Carrefour partner) to ensure the campaign visibility throughout the whole buying process: promotions on e-shelves and dedicated locations, targeting by keywords or context of the aisle visited by the relevant e-shopper (for instance, having their products visible when customers were using ‘coffee’ or ‘hot drinks’ as keywords).

As a result, they had a Return on Ad Spent exceeding 3 (1€ spent led to 3€ earnt in sales), with a 30 to 40% higher visibility when compared to the former target, and a conversion rate 14% higher than for customers who were not exposed to the campaign.

Is that the perfect opportunity for department stores?

When looking at the numbers published by the various players (additional revenue of $1.55b in 2021 for Walmart and $105m for Macy’s) one could conclude that this new business is a silver bullet for department stores looking to generate new streams of revenue.

However, McKinsey identifies 3 main risks with the implementation of a retail media network:

• Brand’s allocations to retail media networks can cannibalize the funds that they would normally allocate to trade marketing, which would in the end go exactly in a reverse direction in terms of the retailer-brand relationship than where a good retail media relationship strategy is supposed to lead./nbsp]
• A shift in the business relationship: retailers become clients to brands, which also would have serious consequences in terms of retailers’ organisation and their team’s self-perception (including the loss of a sense of purpose),
• Lack of core capabilities to properly meet CPG brands’ needs and maximize their spending.

Should all department store companies follow the lead of Nordstrom and launch their own retail media network initiative? While such a venture might be helpful and full of promises, CEOs need to remember that, while many of their companies are already major advertisers, retail media network initiatives require a completely different set of tools and skills to excel at it:

• Ability to provide advertisers access with a clean customer database (size does not matter, but its quality, and the number of active customers do),
• Closed-loop measurement and the ability to fine-tune the offer in real time according to the ever-evolving data privacy regulations are also key for the long-term,
• The behind-the-scene tech is also, of course, crucial, both in terms of reach (operations on multiple locations and channels) and scalability.

In reality, RMNs are a very interesting perk which could contribute to improving companies’ profitability, but such an implementation is neither easy nor painless: just like the topics of digital transformation and sustainability, we are witnessing here an additional layer of (optional) disruption which will require new teams, new systems and additional investments (see Dr Christopher Knee’s comments on how to respond to disruption here) at a moment when CEOs have many other options when it comes to put their organisations’ focus and allocate resources.

Credits: IADS (Selvane Mohandas du Ménil)

Check out the retail review in pictures here

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*The IADS visited Rome for the World Retail Congress early in May and took the occasion to visit La Rinascente and Coin Excelsior, among others, for a store review and an innovation spotting session.

To what extent has the Covid-19 pandemic forced local department stores to evolve, in the same way that Paris, Madrid, London or Milan had to follow suit? Has Rome, which is usually lagging behind the economical capital of the country, managed to take that opportunity to upgrade its department store scene?*

La Rinascente

La Rinascente, a former IADS member from 1959 to 2008, takes its origins as early as 1865 with the Bocconi brothers opening a clothing store in Milan, soon followed by branches in Rome, Genoa, Trieste, Palermo and Turin, under the name Alle Città d’Italia. When purchased in 1917, the new owner, Senator Borletti, asked the Italian poet Gabriele D’Annunzio to find a new name, and he came up with La Rinascente, reflecting its rebirth and new approach: a “democratic” approach to luxury appealing to high and middle-income classes./nbsp]

The company teamed up with UPIM in 1928 (as well as Jelmoli in Switzerland which remained a business partner until 1965) and increased its retail footprint across Italy in terms of store numbers (5 La Rinascente, 150 UPIM stores, and 105 supermarkets at its heyday in 1970) and partnerships or acquisition (JC Penney Italia, Auchan..) until it split in 2005. La Rinascente s.p.a. was then created and later purchased by Central Retail Corporation in 2011.

The group now operates 9 stores in Italy, including 2 in Rome (of which the Via del Tritone store opened in 2017), the Turin location opened in 2019 and the Florence location opened in 2020, each different and designed to be destinations by themselves. The latest public information about its total turnover is €800m in 2019, and the 2020 performance is estimated at -30 to -40% of that number. E-commerce has also been launched in the wake of the pandemic in 2020.

The IADS visited the Via del Tritone store in Rome. It opened in 2017 after 11 years and a total investment of €200 mn. It spans over 8 floors including a 2-floors terrace at the top, with an unusual floor plan:

• Exhibition area in the basement,
• Luxury accessories at the entrance on the ground floor,
• Cosmetics on +1,
• Women’s and Men’s fashion on +2 and +3,
• Shoes and contemporary accessories on +4,
• Home goods and food on +5 and access to the terrace.

Initially planned to open in 2012, the delays were due to the findings of major archeologic treasures, that are now on display in the basement of the store: the remains of a Roman aqueduct. This is the reason why La Rinascente decided to take advantage of that to set up its exhibition area there (usually used for commercial popups rather than cultural shows). At the time of the visit, an immersive and very well-executed pop-up dedicated to vintage design was on display.

What is striking in the building structure (apart from the fact that it also incorporates the remains of the Palazetto, a building from the early ‘900s) is the cavedio (a courtyard) which acts as a well of light and spans across the whole height of the building from the ground floor to the top floor. As a consequence, even though this is an invitation to go from one floor to another, circulation can feel somehow a bit cramped as each floor is organized with this empty volume in its middle. It also allows to embrace almost the totality of the department in one glance, but this can also be a drawback too, as there is almost no possibility to surprise customers with the pleasure of discovering something that was not seen when arriving on the floor. As a consequence, visibility is key for brands, and they are all rivaling to make sure they can be spotted from the escalators or the floors, leading sometimes to an overwhelming feeling.

The execution of the food floor and the access to the terrace is extremely well done: all products are presented in a manner which makes them very attractive, and one must say that the terrace is among one of the best available in the city (and advertised as such in Roman hotels to tourists).

For anyone with the habit of larger and probably more traditionally-structure department stores, the feeling left after the visit is the one of a well-executed store, with a very good array of brands, but somehow with a difficult circulation and an offer which is hard to read. This is mainly because of the dual structure: a ground floor and an underground which are easy to navigate and quite clear, while the top floors, which are all organised around the light well, propose an entirely different experience, navigation and product offer reading.

Coin Excelsior

Coin was founded in 1916 in the Venice region and evolved into various formats until becoming a department store per se in 1957 in Trieste, in a former Ohler department store location. It then expanded across the country and now operates 39 stores of various formats, including the Coin Excelsior one which is more upmarket than the traditional Coin stores (mixing the Coin brand name with Excelsior, a concept store owned by the group and specialized in high-end fashion). The group also owns OVS (midmarket apparel department stores) and UPIM, which was bought following its split with La Rinascente in 2010.

The IADS visited the Coin Excelsior located in via Cola di Rienzo, a “contemporary department store” which opened in 2014 with an investment of €8mn and spans over 3 floors and 4.300 square meters.

Although during the visit it was clear that the store reflected its age (on this positioning, 8 years seem a lot), one must say that the way it is structured and merchandised is quite surprising, with a few interesting innovations.

First of all, this is, like El Corte Inglés and other IADS members, a department store which includes a supermarket in its basement, even though it is quite small. What was striking however was the use of technology in a simple way and with clear incentives for the customers:

• Cash desks are fully automated, with a steward navigating to help customers. Payment points are very visible and designed in a way that they come naturally as a conclusion to the shopping journey (allowing to clearly define a navigation direction, which is quite useful in the Covid-19 context).
• An app, heavily advertised on-site, also allows an evaluation of the savings made by proposing to compare the prices.

Even though the supermarket zone is small, it allows to draw a certain type of customer in the store and connect it to the neighboring populations.

Rather surprisingly, upon exiting the supermarket, customers have to cross a food zone where they have the option to either eat on site or pick up their meal. They have no other possibility than crossing it to go to the rest of the basement, which mixes Home & Decor, kids’ fashion, lingerie and toys. For each category, the set up is well executed (end even very immersive in the case of the Home & Decor offer, sold under the Coin Case private label name), but the transition between them is quite abrupt and even disorientating.

Similarly to the basement, the ground floor mixes different categories:

• Cosmetics and perfume with the usual suspect brands, all displayed with their own branding in light shop in shop structures,
• Jewellery, including a Tiffany’s store which has a separate entrance on the street in addition to the in-store connection,
• Lifestyle, with Nespresso and Dyson, both of them with significant spaces and which are, according to Coin, quite successful both in terms of driving traffic and sales. Coin is increasingly entering partnerships (similarly to Manor and others) to expand its offer and access new customer bases,
• Jewellery and leather goods, with low and mid-market brands,
• A “Lifestyle hub” which includes tech, gadgets and even electrical cars. The name of this zone is not properly displayed and can be somehow confusing, which is all the more surprising that Coin advertises it as its new experiential showroom / concept store / space of discovery designed to attract a younger clientele (this new space has been launched in nationwide Coin Excelsior stores as a new concept in 2021).

The overall impression left on the ground floor is a profusion of brands expressing themselves on dedicated spaces, with an interesting (and surprising) curation and juxtaposition, but, just like this is the case in the basement, transitions between unrelated categories give the feeling that this spatial organization was made out of necessity rather than with a specific store planning vision in mind.

The first floor is dedicated to Women’s and Men’s Fashion, displayed both in shop-in-shops (including an impressive All Saints space) and in corners, and mainly in the mid-market segment. The Men’s section is displayed with floating furniture suggesting that the offer constantly evolves, while the Women’s one is structured with fixed fixtures. Also, the space and mezzanine allow giving a great view of the concept store part of the ground floor, as well as the Art Deco architecture of the building.

When leaving the building, the impression that is left is somehow confusing: there are many great ideas and brands or categories juxtapositions in the store, but ultimately it is difficult to identify who is the actual target customer or even the positioning of the store: while the Coin Casa, bakery on the basement or the fashion offer suggest that this is a store addressing a classical and middle-market customer, the Tiffany’s store at the entrance or the co-operated Dyson and Nespresso stores give the impression that Coin Excelsior is trying to stretch itself to the luxury category, and therefore trying to address all customers with one bait.

*Is Rome a Dolce Vita for department stores? While it has been an obviously historical touristic hotspot, when it comes to retail, Rome is more famous for its local and family-owned stores, rather than its department stores.

La Rinascente Via del Tritone, the second flagship of the company after the Milan store, addresses international luxury customers according to a robust playbook, but, due to the structural efforts it had to make to adapt to the city’s specificities (especially the archaeological treasures hidden in its soil), the result is somehow disappointing when compared to other players located in other cities, including Milan.

Coin Excelsior, on its side, displays many innovative concepts and initiatives, however, the store organization and difficulty to understand its positioning makes it a store that is difficult to understand.

It seems that, unlike in other European cities which took the opportunity of Covid-19 to work on their offer, positioning or brand perception, there is still some way to go for players in Rome in that perspective.*

Credits: IADS (Selvane Mohandas du Ménil)

What: For the Financial Times, the current situation in China is becoming increasingly threatening for luxury groups’ margins.

Why it is important: Luxury brands are decades-old partners of department stores across the world. Any change in their profit structure might impact upwards or downwards their relationship.

Due to Covid-19 pandemic and travel restrictions, Asian tourists luxury spending has shifted from Europe to Asia, and increased luxury brands’ profits. However, the FT argues that an overdependence on China, coupled with a less lucrative business now that retail prices are becoming comparable to Europe and the US, might put the industry at risk.

At the same time, the war in Ukraine means that the rebound in Europe is unlikely to be swift, leading analysts to wonder if the Chinese tourists, once borders reopen, will buy back in the same quantities that they used to do.

Finally, the greatest risk, according to the journalist, is China itself, with the long-term consequences of the lockdowns, the zero-Covid strategy, and how it might impact consumption, display of wealth, and even salaries.

Why the luxury market needs to hedge against China 

What: Even though offices remain now half-empty, the use of public transportation in London is surpassing the 2019 levels when it comes to entertainment.

Why it is important: Department Stores, which are located in the heart of the cities, need to adapt, with matching product offers and opening times. Aligning the office hour is no longer relevant, which raises some questions when it comes to being able to recruit a new generation of salespersons willing to work during different hours.

The Financial Times argues that, while remote working is here to stay, customers are also changing their habits to spend the same amount of time and money in cities than before, even though they are not commuting there for professional reasons. People are not willing to go back to cramped trains every morning and evening, but are perfectly willing to entertain themselves: morning rush hours in the underground have halved compared with prepandemic levels, but the number of people using the subway late in the evening is almost back to normal. The author argues that, while offices are half-empty, attendance to football matches and restaurants or pub bookings are now higher than in 2019.

This trend has been witnessed in many cities across the planet, showing that customers are slowly adapting and creating new consuming and commuting habits.

Death notices for the city are premature 

What: While the market is growing and customer demand is increasing, no player has yet found the magic formula guaranteeing profits and ROI.

Why it is important: Department stores have embraced BNPL as one of the available options on the market to provide customers with various payment options. They are paying a hefty amount for that on their sales, and the question to know whether this is justified or not remains.

Buy Now Pay Later is an industry that represents several billions across the planet, however, none of the industry’s major players (Klarna, Affirm, Afterpay, Zip) are profitable. In addition, they are facing raising concerns both from their customers (retailers who are wondering if the fee they pay justifies a sale that they would have probably done anyways) and authorities (worrying about the impact of debt on individuals).

BNPL solutions, which claim to reinvent credit, started to gain traction during the 2008 financial crisis, especially within the younger generation, and that traction increased during the 2020 pandemic. It is expected to represent a total market value of USD 438bn by 2025.

However, BPNL have to cover the cost of an ever-changing technology, employee retention and customer acquisition. Even though the market is growing and all players are accelerating, none of them have found a way to make operations profitable. Payment Dive believes that this situation is going to worsen as competition on this market is increasing and even coming from more traditional players such as credit card companies.

Buy Now, Pay Later: market players see their losses widening 

What: WGSN Beauty Live offered an outlook of the main consumer trends and ideas for the coming 2 years.

Why it is important: Further to the IADS Cosmetics & Beauty meeting held in March 2022, this event offers an interesting perspective on the future of the category.

WGSN Beauty Live

What:  The first tech edition of the annual State of Fashion report from the BOF.

Why it is important:  Digital transformation is a strategic step, but also comes with a complexity that leaders must apprehend. This report is quite helpful in having the broader perspective and understanding of what is going on.

The Business of Fashion takes stock on what is going on in fashion from the technological perspective, in a context of acceleration (brands are expected to invest 3 to 3.5% in technology in 2030, from 1,6 to 1,8% in 2021). It explores all the key technologies, ranging from AI, machine learning and big data, to blockchain, cloud computing, digital workflows, IoT, RFID, robots and zero trust security. It identifies 5 key trends to look at:

• Metaverse reality check: even though the Metaverse is still more hype than actual business, the BOF expects the market to soar and advises brands to decide where to engage and prepare for the long term by having a foot in the door. 5 dimensions can be used: digital assets (NFTs…), digital experiences, gamified experiences, platforms and virtual worlds.
• Hyper personalization: 71% of consumers expect brands to deliver personalized interactions and are frustrated that this does not happen. AI, big data management, cloud computing and customer data platforms are all here to increase brands’ capability to develop specific models, scale them and establish personalization as a core capacity.
• Connected stores: 60% of customers still want to shop in stores, post-pandemic. Stores remain central in the brand set up, however they have to be on par with the expected experience, especially in terms of technology. Cloud computing, last-mile optimization, RFID, stock optimization are all here to optimize operations and make sure that they are efficient, fast and at the lowest cost possible. The keyword here is to bridge online and offline, of course.
• End-to-end upgrades: integrated digital processes throughout organizations are the top area for digitization. The upsides are numerous: a potential 50% increase in speed to market, up to 8% rise in full-price sell through and up to a 20% decline in manufacturing costs. To achieve that, again, AI, ML, big data, cloud computing and digital workflow are all here to help calibrating instincts with analytics, prioritize journeys and focus on change management.
• Traceability first: Reducing emissions in the supply chain is critical, but can be complex when suppliers are indirect. A centralized system for metric calculation, data collection and supply chain traceability is therefore crucial, and this goes through big data, blockchain, product passports and RFID.

The state of Fashion, Technology edition 

What: Advanced personalisation techniques are setting a high bar for fashion brands, 71% of consumers expect personalised interactions with companies.

Why is it important: Declining brand loyalty among customers and increased competition for attention from social media platforms, along with tightening regulations and moves by Apple and Google to modify access to third-party data, are all impacting the ability of brands to connect with customers online. Now more than ever, personalisation can hold the key for brands to capture market share.

Offering hyper personalisation will require companies to reimagine how e-commerce operates. Search-based shopping is likely to shift to the individualised discovery of products and styles offered in the right size and fit. All customers will have a curated experience on their own versions of brand websites and marketplaces, from landing page to payment, akin to their experience on social media feeds. With this, companies will use personalisation technology to build experiences that drive customer engagement and, ultimately, loyalty.

Looking ahead in the luxury segment, hyper personalisation is set to also play out in physical stores. Store associates can leverage first-party data to provide customers with a unique experience no matter which store they enter, taking in-store clienteling to the next level.

Accelerating first-party data collection

Challenge: Changes to data privacy laws and restrictions on third-party data collection in various jurisdictions have rendered data management platforms and third-party cookies less relevant.

Solution: Brands need to maximise their first-party data collection to enable personalisation across platforms and channels.

Creating a 360-degree customer view

Challenge: When shopping for fashion, customers can generate a vast amount of data across channels and platforms, ranging from location data to website or app engagement time.

Solution: Brands need to establish a complete customer profile connected to a unique ID across data sources and channels. A customer data platform is needed to host all data assets and consolidate the customer view, as are rigorous data standardisation and cleaning processes.

Aligning the ‘human touch’ and AI

Challenge: Fashion customer behaviour can be difficult to predict, not least because of fashion’s rapid trend cycles and the low levels of repeat purchasing among individual shoppers.

Solution: Players need to develop advanced AI models, such as those that display products and photo styles best suited to the individual customer, or models that use advanced size and fit algorithms.

Scaling personalisation solutions

Challenge: A significant platform upgrade is required to deliver sophisticated, hyper-personalised e-commerce content, which is informed by thousands of data points and delivered across multiple channels with ultra-fast loading times.

Solution: A company’s portfolio of design and distribution tools needs to include content management systems that can standardise, centralise and distribute digital elements to support marketing alongside content delivery networks that help deliver thousands of unique landing and content pages.

Customer conversion costs are rising amid new privacy restrictions and limits on third-party data collection. Players can drive customer lifetime value by pushing beyond basic segmentation and ad hoc targeting to hyper-personalised shopping experiences across all touchpoints.

The opportunity in hyper-personalising shopping

What: A piece on the dramatic situation of UK and US shopping malls, and how mall owners are trying to change the situation.

Why it is important: The secret sauce for modern retail is to become a place to be, and not a place to purchase.

According to the FT, the high street in Croydon, south London, reflects the collapse of British retail, with the remains of former retail splendors: Grant’s, Allders, which disappeared in 2012, an empty shopping mall, Whitgift.

However, landlords and local councils are teaming up together to repurpose those spaces. The Whitgift shopping center is going through a significant revamp and redevelopment plan. This is highly needed, as the US and UK have been covered by huge malls including anchor department stores, a model which does not have sense anymore today and open up a circle of underinvestment.

The new plans (the FT interviewed the new CEO of Hammerson, Rita-Rose Gagné) imply to mix again retail together with homes, workspace, and leisure facilities. Lowering the weight of retail itself is also important, and this is the reason why Hammerson is implementing wellbeing and gym facilities, cultural and sports events, as well as last-mile logistics spaces. Food /amp] Beverage used to account for 5% of the retail mix in the 90s, it now represents 20%.

The Financial Times questions the remaining time to achieve such plans in a context when mall owners start to be a bit short of cash, and mentions that true regeneration can only be done hands in hands with city councils.

The rise, fall and rebirth of the shopping centre 

What: Commuting patterns are changing, which in turn pushes transportation authorities to change their approach.

Why it is important:  Being at the heart of cities, department stores need to carefully follow the decisions taken in terms of public transportation offering to local citizens and adapt: product offer, opening times, and capability to sell by distance.

A new subway line has opened in London, however, The Economist mentions that this might not be the biggest news when it comes to public transportation in London: since last September, usage of public transport has not changed, the metro is used at ¾ of its 2019 levels, and buses at four-fifths.

It seems that in England, customers have stopped using powered transport, especially during weekdays, suggesting that people are more reluctant to go to work than to go shopping or drinking (rush hour has declined most). This change of habit is not related to contamination fears: they feel safe, but simply do not wish to travel for work.

The ones who are fortunate enough not to have to travel for work (white collar workers) are deserting subways, while the ones that can not have to commute (buses).

As a consequence, some cities are adapting and scrapping plans to expand their urban travel networks or changing their timetables, potentially creating a vicious circle, which, by worsening the service, will convince even more people to change their travel habits.

The future of public transport in the UK 

What: Subscription models are facing an increasingly unfavorable context.

Why it is important: Some department stores have looked at this model to generate an additional revenue stream. However, the perks provided with subscription models need to be significant enough to make sure customers will not decided to cancel them out of necessity.

Subscription services boomed during the pandemic for obvious reasons: practicality of the format, curiosity, access to new products, and no-brainer approach. In addition, the government stimulus also helped this retail format to develop: prior to the pandemic, US customers had on average 1.5 subscription, and this number rose to 5 at the end of 2021, with an average USD 38 per subscription for an estimated total market size of USD 15bn.

However, analysts found out that 14% of customers are now intending to reduce their exposure to subscriptions, due to fears of the inflation, need to cut their budget, and concerns for the environment. This would affect the 3 existing models (replenishment, curation and access):

• Replenishment: customers might trade-down the premium products they receive at home to go back to stores buying the staple brands and save on overall costs,
• Curation: since the products sold with this approach as usually more discretionary, the pressure will also be  high to have them cancelled as non-essential products during a revenue crisis,
• Access: this might be the most resilient model as such retailers usually charge a lower fee.

Forbes believes that the reasons why subscription models were successful in the past few years (people had more disposable income, more free time and could not go to stores) have now disappeared and this calls for a reinvention of the model.

The Great Unsubscribe 

What: The Asian version of dollar stores is storming the world and opening new stores in many countries at a fast pace.

Why it is important: Competing on pricing is getting impossible as this breed of discounters is able to mix the appeal of low priced items with carefully designed products proposed in a desirable environment.

The Robin Report delves into Miniso and Daiso, the new dollar-shop concepts coming directly from Asia and which are storming Europe and the US.

Miniso is a Chinese venture relatively new to retail (2013) and has opened since its arrival in the Americas in 2017 110 stores (half in the US and half in Canada). In the US, even though it is still California-centric, it is looking to have a national footprint. Its strength lies in original and localized designs (products are designed by Finnish, Danish or Spanish creators and are localized through a clever use of local IP license holders). The variety of goods is impressive, with a focus on toys, houseware and home decor, featuring many Western well known brands. Miniso also dedicates 40% of the space in store to experiences, which is a strong differentiation factor from traditional US one dollar stores.

Daiso is a Japanese company, founded in 1977, which operates 2,300 stores in 24 countries, in addition to the 3,600 stores it operates in Japan. The product offering includes thousands of skus from apparel to food to home, and is a reminiscence of Muji, but on a budget. Most of products are private label, with the original label in Japanese and a minimal translation.

Both have limited e-commerce operations.

The Robin Report sees both as a serious threat for the existing US chains, Dollar Tree, Dollar General, Five Below or Family Dollar.

Do you know Miniso and Daiso? 

What: The Robin Report reviews the forces re-structuring the US market, post-pandemic.

Why it is important: Fewer malls, but more stores: it is all about experience, surprise and supporting the customer. One do needs to remember that in the US the retail footprint per capita is remarkably high, which means that the conclusions drawn in this article do not necessarily apply to other markets.

The Robin Report reviews the trends induced by the pandemic and their consequences i eight points: the physical store became more important than ever as shown by the decrease of the Macy’s store closure program or the decision of Warby Parker to open more stores, however this comes as a reflect for stores to be a center for services supporting online selling. The fact that remote working is here to stay means that online is inexorably gaining market shares (even though its growth has slowed down in 2022) leading to a new phenomenon: more stores, but in fewer malls.

The author forecasts that in the future, online will represent up to 70% of sales, which is a challenging figures we do not necessarily agree with.

Did the pandemic change retailing dramatically?