What: French government is proposing new bills targeting environmental impact of fast fashion

Why it is important: Such regulations in France could impact other EU countries in regards to environmental and and social issues in fast fashion

France's lower house of parliament has proposed a new bill targeting the environmental impact of fast fashion. The bill seeks to penalize textile companies for their climate impact by increasing fees per garment annually until 2030, making it more expensive for fast fashion companies to operate in France. Additionally, the bill includes measures such as banning advertising by fast fashion companies in the country and requiring apparel companies to provide information on product reuse, repair, recycling, and environmental impact on their websites and apps. This proposal aligns with other French laws aimed at addressing textile waste and promoting sustainability in the fashion industry. Similar initiatives are also emerging in the US, with California having passed the Garment Worker Protection Act in 2022 and other bills under consideration. Some observers suggest that France's fast fashion bill reflects efforts to protect its domestic fashion market from the competition posed by rapidly growing companies based in China.

The proposed fast fashion bill in France has sparked debate due to its ambiguous definition of fast fashion and potential legal implications. The bill aims to penalize companies based on the volume of garments they distribute, but the lack of clarity on defining fast fashion raises questions about its effectiveness and enforcement.

There are also legal concerns raised regarding the bill's potential violation of international trade laws if it prioritizes French industry over others. Additionally, the proposed ban on advertising fast fashion products is seen as extreme by some, potentially damaging companies heavily reliant on digital marketing like Shein and Temu.

Despite these criticisms, the bill reflects broader efforts in France and the EU to address environmental and social issues in the fashion industry. However, there are concerns that such gradual solutions may lead to unintended consequences and push companies to seek loopholes.

Looking ahead, there's uncertainty about the bill's impact and whether it will be replicated in other EU countries. The upcoming elections in France could influence policy direction, with some seeing the bill as a move to demonstrate sustainability leadership and support local brands committed to sustainable practices.

Does France’s anti-fast fashion bill have legs?

What: Investors are heavily funding AI startups tailored to the fashion industry.

Why it is important: This investment trend underscores the transformative potential of generative AI in fashion, offering innovative solutions for design, marketing, and consumer engagement, and heralding a new era of creativity and efficiency.

The surge in funding for AI startups, particularly those applying generative AI in fashion, reflects a broader shift towards industry-specific solutions. In 2023, over 400 AI companies secured more than USD 21 billion globally, marking a significant increase from USD 4.3 billion in 2022. High-profile investments in companies like OpenAI and Stability signal a growing investor interest in how AI can solve unique challenges within the fashion sector.

Startups such as Raspberry AI, Flock AI, and Blng.Ai are exploring ways to use AI for trend-driven design, on-model photography, and jewelry design, respectively, attracting significant seed funding and pilot brand partnerships. These initiatives aim to democratize design access, enhance marketing strategies, and improve consumer discovery and personalization, thereby addressing the industry's pressing challenges like unsold inventory and the need for greater design speed and variety.

Moreover, ventures like Mmerch, Glaze, and Kopia are pushing the boundaries by linking fashion to Web3, enhancing online shopping experiences, and offering virtual try-on capabilities. These developments underscore the potential of AI to revolutionize fashion through customization, efficiency, and an enriched customer experience, signaling a promising future for the integration of technology and style.

Here are the fashion problems AI can solve, according to investors

What: Coresight reviews the perspectives of AI in setting up prices.

Why it is important: Decision making tools is of optimal importance to set up prices properly in the age of AI.

The report discusses the impact of artificial intelligence on pricing strategies in the retail sector. Here are the key points:

1. Market Scale and Opportunity:

The global retail pricing optimization software market is expected to each $1.6 billion in 2024, growing at a CAGR of 16.5% between 2023 and 2028. The US holds the largest market share at 51.0% as of 2023.

1. Optimal Pricing Strategies Contribute to Success:

An optimal pricing strategy, which considers both internal and external factors, is crucial for business success. 99% of respondents in a survey stated that having an optimal pricing strategy is either "moderately" or "very" important to determining business success.

1. AI-Informed Pricing Decisions Are Prevalent Among Retailers: 92% of respondents in the survey use an AI-based pricing solution to inform their pricing decisions, and all respondents have benefited at least "slightly" from this solution.

1. Leveraging AI Can Be Cumbersome and Challenging:

Despite the prevalent use of AI in pricing strategies, companies face challenges in leveraging advanced AI-based pricing solutions. The three most widely cited challenges are a lack of integration with key complementary business functions, a lack of trust around AI models, and limited integration capabilities with company-wide solutions.

1. Integrated Business Functions and Real-Time Pricing Amplify AI-Based Pricing Benefits:

The survey revealed that only 41% of respondents have "fully integrated" their price planning strategies with complementary business functions. Real-time pricing also has huge growth potential, with only 56% of respondents currently using it.

1. Outlook on AI Usage and Investments Reveals Upbeat Retailer Sentiment: 97% of respondents plan to increase investments in AI-based pricing solutions in the coming year. The most influential differentiators for choosing an AI-based pricing solution are those that support retailers' integration goals.

The report concludes that retailers who can effectively leverage AI and machine learning in their pricing strategies will have a competitive advantage. Those slow to integrate these technologies risk losing customers to competitors and facing margin erosion.

The use of AI in dynamic pricing

What: Lord & Taylor, a once-iconic department store, has concluded its operations, shutting down both its brick-and-mortar stores in 2020 and its online presence by 2024. This marks the end of the retailer's long history of financial struggles, ownership changes, and the inability to keep pace with modern retail demands.

Why it is important: Lord & Taylor's closure symbolizes a significant shift in the retail landscape, highlighting the challenges traditional department stores face in an era dominated by digital shopping and fast-changing consumer preferences. The store's inability to adapt to digital trends and the impact of macroeconomic conditions underscore the critical need for retail innovation and flexibility.

Lord & Taylor, once a beacon of high fashion and American design talent, closed its storied Fifth Avenue flagship store in January 2019, with the rest of its locations following suit in 2020. The department store, founded in 1826, struggled for years with declining shopper traffic, outdated perceptions, and limited regional presence. Despite efforts to revitalize the brand, including a sale to the Saadia Group and an online relaunch in April 2021, the retailer was unable to overcome its financial difficulties. Legal issues with Saadia Group's lender, resulting from a default on a substantial loan, further complicated any potential recovery. The series of ownership changes—from the May Company to Federated, then to HBC, Le Tote, and finally Saadia Group—coupled with an unsuccessful attempt to merge subscription rental services and online investment, contributed to Lord & Taylor's eventual demise. The store's bankruptcy filing in August 2020 and subsequent liquidation marked the end of its journey, closing a chapter on what was once a premier destination for fashion-forward consumers.

Inside the demise Of Lord & Taylor 

What: the Economist reviews why AI is not poised to boost productivity in the immediately coming years.

Why is it important: Where does your company belong in its relationship to AI? window dressing, low-killed workers reskilling, or valuable employees enhancement?

The article discusses how businesses across sectors are starting to adopt AI tools like ChatGPT, but adoption remains low overall. As of February 2024, only about 5% of US firms were using AI, with the highest adoption in tech and information companies (17%) and lower levels in sectors like manufacturing (3%). Big tech firms like Microsoft, Google, and Amazon are seeing some revenue growth from AI offerings, but it still accounts for a small fraction of their cloud and services sales. For the tech stock boom to continue, these companies need businesses to start utilizing AI on a large scale. Most companies are still just piloting AI or only have limited use cases compared to full integration into operations. Common early experiments fit into three categories: rebranding digital efforts as "AI transformation", using AI for simple customer service chatbots and administrative tasks like data entry, and deploying tools aimed at high-value workers for functions like writing code and improving search. Challenges holding back further adoption include lack of internal skills, data too fragmented, legal and ethical concerns around data privacy and AI mistakes, and the current limitations of AI tools in terms of accuracy and capabilities. As examples, AI is helping some teams achieve 10-20% productivity gains in areas like software development. But issues like bugs in AI-written code can create other inefficiencies. Adoption is steadily increasing as companies build expertise and AI technology improves, but it will take time for measurable economy-wide productivity impacts.

How businesses are actually using generative AI

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Nick Greenspan, the UK Retail and Consumer Products practices partner at Bain & Company has deep expertise in the digital environment, thanks to 35 years of consulting experience with many of the UK's leading online businesses. His focus is on helping clients with corporate transformations, strategy and vision development, customer-led repositioning and operational improvement.

IADS invited Greenspan to address member CEOs to share his expert opinion about major factors from 2023 that will continue to influence the retail and consumer industries going forward. Greenspan addressed these times of uncertainty and offered a bit of direction to weather upcoming challenging times, offering a bit of a playbook on how to win the future of retail.

How to maintain optimism in the current environment

Greenspan opened the discussion by asking the room: “If there was one capability for your business that you could have to help you thrive in the next 2-5 years, what would that capability be?” The answers ranged from collaboration, a crystal ball into the future to being able to predict what comes next, unlocking data, being adaptable, and delivering service as a differentiator. While all these points are relevant and real issues that retailers are currently facing, Greenspan proposed to see them in a positive manner: in turbulent times, the market share fluctuates the most, meaning there are ways for businesses to differentiate themselves and stand out as opposed to times when the market is stable. Gains made during periods of turbulence have the potential to be maintained throughout the next cycle.

However, Greenspan was vocal on the fact that the focus should not solely be on cost reduction as it is a seductive but limited lever. Instead, he proposed some elements to weather the storm during volatile times.

3 elements needed for businesses to thrive in uncertainty.  

Since the pandemic, the trajectories of each market position have become very different from each other, with pressure currently very strong on both value-end (with many players being disrupted and customers stopping buying for fear of the future) and high-end (where a shift from visible consumption into quieter areas of investment is taking place) segments. For that reason, instead of considering recipes that will not be able to be adapted to each specific situation, businesses should focus on what they need to address current challenges. Retail leaders need to reflect on how strong their businesses are across three key elements and should focus on strengthening areas of weakness to enforce their adaptability in turbulent times.

Greenspan shared three fundamental elements that are crucial for businesses not just to survive, but to thrive amidst uncertainty:

• Prediction: Interpreting data and maintaining a realistic outlook on the future are deemed essential. While the unpredictable nature of the market poses challenges, retailer leaders are encouraged to equip their teams with tools and strategies that enable them to anticipate and respond to changes proactively.
• Resilience: Businesses are encouraged to strike a delicate balance between resilience and efficiency, as Greenspan states that "a perfectly resilient business is also perfectly bankrupt." This highlights the necessity for businesses to be both low-cost and efficient, ensuring their ability not only to withstand sudden shocks but also to recover swiftly.
• Adaptability: Continuous investment in adaptability and the streamlining of services are key components of a successful strategy. Executives are challenged to foster adaptability across the organization, constantly assessing and correcting the course as the external environment evolves.

As a strategic call to action, retail leaders are prompted to engage in self-reflection, evaluating the strength of their businesses across these three vital elements. This strategic approach, tailored to the specific needs and challenges of each business, becomes the cornerstone for thriving in an environment marked by constant change and uncertainty.

What was going on in 2023?

2023 was a tumultuous year with pressure coming from everywhere. The US economy slowed down, there were many signs of local fatigue in Europe, the Chinese economy has not recovered, and there continues to be a lot of post-globalisation and political risk with the wars and unrest. These things led to higher labour costs, increased energy prices, increased commodity prices, disrupted supply chains and incited fear in consumers, thus slowing the economy.

At the same time, retailers were being hit heavily by inflation which increases operational costs and costs of goods sold, while also resulting in the pullback of customer spending. In most markets, no one has the experience of dealing with hyperinflation. So how can department stores equip themselves to prepare for this unknown territory going forward? For starters, it would be wise to ask department store players that are used to operating under such conditions such as Falabella in Chile or Beco in Venezuela. While no one has the innate instincts to handle inflation, a conversation with a business that is used to operating in such conditions could help other players understand what it is like to have inflation as a factor in the business as a whole. Retail businesses can no longer use like-for-likes as a reference in an inflationary environment and they need to be able to adapt and understand their business in different terms as this KPI is no longer relevant. Prediction is all about educating teams on what happens in an inflationary environment, especially as Greenspan predicts 2024 to be tougher than 2023.

The key themes for 2024 and beyond

Some interesting trends need to be considered by retail leaders in the 2 to 5-year scope and forecast in order to be predictable, resilient and adaptable.

Growing, elevating, and having a fluid customer base as new generations gain prevalence

Gen Z and Alpha, expanding at a rate three times faster than other generations, wield significant influence. Notably, Gen Z initiates luxury purchases as early as age 15, while older generations (age 70 and up) tend to stop buying luxury goods after a certain age. The younger generations are opting for online channels over traditional retailers such as department stores and showcasing loyalty driven by promotions rather than brand affiliations. Amidst these shifts, there's a strategic imperative for department stores to engage with luxury brands as department stores can offer a broader set of customers that are cross-shopping brands. Department stores also occupy the best locations in cities, giving a broader physical reach than luxury brands typically have. The challenge lies in avoiding the precarious middle ground (as seen by Debenhams or House of Fraser) and instead, fostering collaborations that extend the luxury brand's influence to offer a win-win partnership to capture the wallet share of these younger customers.

Products and experiences of desire

To cultivate irresistible products and elevate customer experiences, there is an imperative for department stores to triple down on creating immersive environments. However, a challenge arises as the investment in reserving physical space for experience tends to decrease sales per square foot opportunities, making it seemingly counterintuitive to remove products for the sake of theatrics and experience. Despite this paradox, not embracing experiential elements could make a store irrelevant in the ever-evolving retail landscape.

Striking the delicate balance between bringing theatre to retail spaces and maintaining optimal product presentation is crucial for sustained relevance. A strategic approach involves implementing a multi-channel proposition and arming sales assistants with the tools to help customers connect emotionally with the products. It's not an either-or situation; understanding customer behaviour is key to success. Take, for instance, Harrods' black card customers who, despite spending GBP100,000 annually, derive satisfaction from a seemingly irrational GBP20 rebate. Recognizing such idiosyncrasies is imperative for ensuring customer contentment. Additionally, ensuring seamless inventory management is essential to offer the right product, even if it's not physically present in the store. The focus is on driving exceptional experiences for VICs and creating an aura of exclusivity.

Next gen customer connection

In the same vein as upping products and experiences, there is a need to meet customers where they are. Brands are going DTC and using apps like WhatsApp to sell, thus cutting off retailers such as department stores. This means that department stores need to find similar ways to interact and engage with their customers with a focus on product and differentiation in order to stand out and survive as future consumers’ expectations evolve.

Delivering on the sustainability imperative

In the realm of sustainability, consumers continue to express a heightened concern, particularly regarding the removal of plastics. Despite a recent pullback in positioning sustainability as a primary differentiator—attributed to the prevailing political environment where humanitarian issues take precedence over environmental considerations—retailers face a delicate balancing act. The risks associated with discontinuing investments in sustainability initiatives are significant, potentially leading to a massive backlash from both customers and employees. This dynamic landscape is further complicated by changing consumer behaviours, such as the intentional shift towards buying less fashion or opting for second-hand alternatives. Initially, data did not align with vocalized intentions, as consumers expressing sustainability concerns continued purchasing from fast fashion retailers. However, recent trends indicate a growing alignment between consumer behaviours and their stated values.

To address this shift, many department stores are strategically introducing more circular products, with watches and jewellery proving to be more successful in this sustainable business model than clothing. The inclusion of sustainability and circular products not only opens a dialogue with customers but also presents an opportunity to explore these environmentally conscious offerings. While the demand for such products may be less than vocalized, positioning recycled items as limited and exclusive products creates a unique value proposition. Consumer scepticism towards certifications and labels remains, yet there is a clear desire for narratives surrounding second-hand products.

Tech-enhanced value chain

In navigating the evolving retail landscape of 2023 and beyond, the strategic investment in technology and data emerges as a cornerstone for success. Recognizing the significance of maintaining customer relationships in these unique market conditions, retailers are compelled to revisit foundational principles. While the current market climate differs significantly from the past, there is a renewed focus on core fundamentals, such as prioritizing the product and its shelf presence.

Simultaneously, safeguarding the front-line staff has become paramount—a critical yet often overlooked element in recent years. Amidst this backdrop, Artificial Intelligence (AI) stands out as a powerful enabler, offering retailers the means to decipher vast datasets for tailored customer experiences. The key application of AI lies in its ability to facilitate rapid changes in the retail experience. The imperative is not to pursue perfection but to engage in a process of iterative testing. AI's transformative potential extends beyond customer interactions to reinventing and optimizing supply chains and internal operations. The strategic decision for retailers involves weighing the extent to which they engage in these advancements independently versus awaiting plug-and-play systems from major suppliers. While certain aspects, such as accounting AI automation, may be outsourced to industry giants like SAP, there's a compelling case for retailers to internally pilot and build customer experience solutions.

Conclusion: Navigating a retail business across unknown waters

In navigating the complex landscape of retail's future, strategic insights from Greenspan underscore crucial imperatives. The trifecta of prediction, resilience, and adaptability emerges as paramount for business survival and prosperity. Reviewing 2023's challenges—from economic slowdowns to inflation pressures—these all called for a response from retail leaders, while many have never faced such obstacles before. Looking forward to 2024 and beyond, there are persistent themes of change that emphasize the imperative for department stores to engage with changing consumer demographics, prioritize experiential retail, embrace sustainability, and leverage technology for a resilient future. In essence, the roadmap provided advocates for a dynamic, customer-centric, and tech-enhanced approach as the cornerstone for success in the ever-evolving retail landscape.

Credits: IADS (Mary Jane Shea)

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Introduction: companies are far from done with digital transformation and now comes AI

For over a year, gen AI has been on everyone’s lips. Boards are pressing their CEOs to have a strategy for incorporating AI in the business even as many executives still don’t know where to start. The IADS organised a conference with Bain & OpenAI as early as July 2023 to explore the topic. In any case, 90% of commercial leaders expect to utilize gen AI solutions “often” over the next 2 years. They are cautious though, and are most enthusiastic about use cases in the early stages of the customer journey including lead identification, marketing optimization, and personalized outreach.

This article delves into AI developments that have the potential to impact and improve retailers’ operations, in order to define a non-exhaustive list of existing use cases already implemented. In CRM and marketing, gen AI helps to better target audiences and shift towards ultra-personalization. The impact of conversation tools has already been visible in copywriting and chatbot developments as AI has been influential in boosting creativity. When it comes to sales functions, AI tools have the power to increase sales thanks to better and tailored customer experiences. In terms of supply chains, AI has not been fully developed, but there is a lot of potential. Finally, AI has already impacted HR practices.

Gen AI for CRM and marketing: advancing towards ultra personalization

Enhanced audience targeting

Gen AI can combine and analyse large amounts of data (demographics, customer data and market trends) to identify additional audience segments which may have been overlooked in existing customer data. Gen AI can significantly reduce the time spent researching and creating these unique audience segments. Without knowing every detail about these segments, gen AI tools can automatically propose tailored content such as social media posts. Then, marketing (collaborating with sales) can use gen AI to create sales campaigns to reach prospects. This requires efficient data management: a comprehensive and aggregated dataset is needed (such as an operational data lake pulling in various sources) to train a gen AI model that can generate new audience segments and content.

Transitioning from personalisation to hyper-personalisation

Initially, personalization was limited to traditional market segmentation like gender, age and income. With AI, personalization has become more sophisticated, allowing retailers to understand and anticipate customer preferences more precisely and create tailored experiences able to foster loyalty. In that regard, AI technologies including deep learning and machine learning (ML) are used to analyze structured and unstructured data to create a complete view of each customer. Alix Partners sees the most significant AI potential in combining gen AI with ML to identify high-potential customers (based on customer lifetime value) and determine which ones are likely to make additional purchases. Together, ML can analyse complex data to identify patterns while gen AI can generate new content. This approach paves the way for real-time, highly personalized omnichannel experiences. For example, companies like Stitch Fix (online personal stylist) use gen AI to interpret customer feedback for product recommendations. The next step for companies is to transition from reactive to proactive personalization, providing 100% individualized content across channels. Here, the challenge will be about ensuring ethical data usage while protecting customer consent, privacy and security. Customers are increasingly expecting personalised experiences and relationships with their favourite retailers: as discussed during the IADS Operations Meeting dedicated to Chief Customer Officers in November 2023, the best way is to be as transparent as possible with customers and explain why and how their data will be used to help them get what they want.

AI conversation tools provide solutions for copywriting and chatbot

Gen AI’s capacity for producing natural-sounding language makes writing one of the tasks it’s wellsuited for. In addition to ChatGPT, start-ups like Jasper and Hypotenuse offer new tools. Jasper scales up marketing content like blog articles, social media posts, sales emails and website copy. By providing a few keywords, Hypotenuse users will instantly turn them into full-length articles and marketing content. On their side, tech providers such as Shopify, Salesforce and Amazon are adding gen AI copy options to their platforms to help companies streamline the writing of everything from marketing emails to product descriptions. In that regard, during the 2023 IADS Operations Meeting dedicated to Chief Customer Officers, El Corte Inglés noticed that AI product description is sometimes better than when done by people. While human oversight is needed, AI copywriting tools can already automate laborious and mundane work.

AI-powered chatbots (especially useful for platforms with a vast inventory) can enhance the shopping experience by understanding and responding to natural language and offering tailored product suggestions. Importantly, they create an iterative experience in which shoppers can respond to the results with feedback or additional questions, guiding the bot towards what they want. However, bots face limitations in providing accurate product suggestions and require a deep understanding of the retailer's inventory. Also, BoF made tests in spring 2023 and found that bots' replies can sound automated. So far, the best solution is to complement traditional search with a gen AI assistance.

A larger goal for many fashion players is to use customer data to personalise chatbot’s responses. The bot could use the data to offer specific sizes based on a customer’s preferences, for example. It’s an ambitious goal, though, and requires brands and retailers to have their customer data at hand and to be able to map it to their inventory. Google research showed that 46% of organisations think gen AI can address shopper enquiries with interactive responses beyond just product recommendations. Also, 43% want to use it to analyse emotional sentiments in customer feedback. When it comes to IADS members, Galeries Lafayette and Manor are currently fine-tuning their chatbots.

AI can boost creativity

It’s not a magic wand, but AI can support fashion design

Tools like DALL-E 2 and Midjourney have made it easier to create fashion content through generative AI. Whether it’s for branding purposes or to truly create design variations, some brands are already leveraging generative AI for product design. It provides designers an easy way to design countless variations of a piece of cloth, mixing inspirations to see what the outcome might look like. It does come with challenges. AI-generated designs still need manual edits and integrating the process into existing workflows can be difficult because it doesn’t consider real-world factors like fabrics and construction. Designs still generally require manual editing with separate software (for example to change a colour). Despite companies working on 3D gen AI, images are two-dimensional for now: the design only shows the front of an item, leaving the designer to create the rest of the garment. Finally, AI can produce concepts that are difficult or impossible to construct, making it impossible to translate them into finished products. Finally, intellectual property issues exist with AI-generated designs. Nonetheless, gen AI can represent a powerful tool to boost creativity which could help Private Labels design teams for example.

Generating unprecedented visual content

Visual content has emerged as another promising use of gen AI for fashion brands and retailers, which are under constant pressure to renew visuals for marketing, social media and e-commerce. Gen AI has the potential to provide more creative freedom and shorten production timelines as scouting locations, finding models and styling them are no longer necessary. For instance, Casablanca fashion brand used AI to produce stylized ad images, demonstrating AI's potential to revolutionize content creation. As AI-generated images are rapidly developing, Galeries Lafayette created amazing AI interpretations of its famous cupola. Besides unlocking additional creativity, using AI can offer cost savings and creative flexibility but may also impact traditional roles in image production. Also, there are potential sustainability benefits since AI eliminates the need to travel to shooting locations and reduces waste (multiple samples and sets discarded after use). Recent Google research shows that 39% of the surveyed organisations use gen AI to empower creative retail teams to curate bespoke images and creative content for campaigns and editorial placements.

To what extent can AI help develop sales?

AI to enhance customer experience and sales…

With its ability to analyse customer behaviour and preferences, gen AI can assist with hyper-personalized follow-up emails at scale. When thinking about clienteling, it can also act as a virtual assistant for each sales associate, offering tailored recommendations, a warm welcome to new customers, and reminders and feedback, which can each result in higher conversion rates. As a potential sale progresses with a customer, gen AI can provide real-time guidance and predictive insights based on an analysis of historical transaction data. Finally, AI can boost sales performance by automating mundane sales activities, allowing sales associates to spend more time with customers and leads (while reducing the cost to serve). The potential applications of gen AI and ML extend further, including matching customers with relevant sales associates. The integration of these technologies can significantly enhance outcomes, making it a promising investment for retail businesses. Some companies that are empowering this process are BSPK, Clientela, and FindMine.

As announced during CES and NRF in January 2024, Walmart's strategy is going big on AI with many different use cases proposed, showing the width of potential applications. One of the initiatives aims at making sure people’s refrigerators are always stocked. Using the example of a party a customer would throw for the Super Bowl, Walmart explained their AI-powered app will show everything people might need instead of having them search for chips, drinks or a new large-screen TV. Also, as explained during the third IADS CEO quarterly exchange of 2023,https://www.iads.org/web/iads/5747-iads-ceo-meeting-3.php Cyrille Vincey (Partner, Advanced Analytics and Retail practice, Bain & Co) explained how AI helps Carrefour in developing sales. For example, online shoppers can ask the chatbot for ideas for meals for a family of 4 for a week. In response, the chatbot provides recipes and translates them into a bucket list, and ultimately into a full basket. On its side, El Corte Inglés just launched an online ChatGPT personal shopper giving fashion advice and able to increase the conversion rate and hopefully the basket size. Overall, it has been an excellent learning experience, and the first results are promising.

… And reduce returns by solving fit issues 

Amazon Fashion has introduced new AI-driven features to address the fit problem in fashion e-commerce. The new tool aims to reduce returns and improve the overall shopping experience. The personalized size recommendations algorithm evaluates sizing relationships between brands, reviews, and customer fit preferences to recommend the best-fitting size. The AI-generated fit review summarizes customer feedback, helping shoppers make informed decisions about sizing. Also, Amazon has improved its size charts using AI to enhance accuracy and consistency, making them easier to follow and potentially addressing the variability in sizing systems across styles and brands.

AI-driven startup solutions addressing fit issues are developing quickly. 3DLook, a guest speaker during the 2023 IADS Operations Meeting dedicated to CIOs and CTOs explained how they help brands such as Bershka increase revenue and cut costs related to fit and sizing problems. AI and 3D engines deliver advanced body measuring technology for more intelligent fit experiences.

From forecasting demand to sustainability, AI has not fully transformed supply chains yet

Why do companies struggle with using AI for supply chains?

Companies have struggled to use AI to address fundamental supply chain challenges. Supply chain management is complex as it requires the participation of several functions (including procurement, manufacturing, logistics and sales) and sub-functions (such as demand planning, inventory planning and scheduling). Besides, organizational structures and incentive systems motivate employees to optimize the performance of their own function or subfunction rather than the end-to-end supply chain.

Companies often try to improve their supply chain performance by adding more people to a function. But the problem is typically a lack of knowledge, which cannot be solved simply by creating larger teams. High-potential performers often do not regard supply chain management as a preferred long-term career path and move to other functions after only 2 or 3 years. Because of the high turnover, institutional knowledge ends up dispersed across the company or escapes the company altogether.

The root cause lies not with technology but with how and where companies are applying it. Probably because they consider it is too risky, companies have not pursued the more valuable application of using AI to make recurring decisions by recognizing patterns in big data that humans cannot see.

It is too soon to rely on AI to predict what shoppers will buy

There are challenges in using AI to predict what shoppers will buy. Experts are cautious, emphasizing that the emotional nature of fashion purchases represents a significant hurdle. AI should be seen more as a support tool for experienced merchandisers rather than a replacement for human expertise. AI-driven services, such as in-season reorders and pricing optimization, are gaining traction though. Yet, brands are sceptic about AI-powered demand forecasting even though leveraging ML can provide more accurate predictions and allow inventory optimization by analyzing historic demand, supply data and trends. Although AI has the potential to provide more precise forecasts than historical methods by considering a multitude of variables, concerns remain about its readiness to entirely replace human decision-making.

Supply chain automation

Modern supply chain automation is not possible without AI. AI gives supply chain automation technologies such as digital workers, warehouse robots, autonomous vehicles, etc, the ability to perform repetitive, error-prone tasks automatically. Thanks to AI, automation can be fulfilled in the back office (document processing), logistics (companies like Amazon are investing in autonomous trucks), warehouse management (Ocado), quality checks and inventory management (thanks to AI-enabled computer vision systems).

Improving sustainability

Sustainability is a growing concern for supply chain managers since most of an organization’s indirect emissions are produced through its supply chain. AI can help improve supply chain operations to make them more sustainable. AI-powered tools can help optimize transportation routes by considering factors such as traffic, road closures, and weather to reduce the number of miles travelled. For instance, DHL uses AI to optimize vehicle routes and reduce fuel consumption, resulting in lower emissions and improved sustainability. Since AI-powered forecasts should help maintain optimal inventory levels, carbon emissions attached to storage and movement of excess inventory could be reduced.

Supporting functions: financial forecasting and transforming HR

AI for financial forecasting

After marketing, financial forecasting is the second area where retail and CPG executives will invest in AI tools. Algorithms can analyse large amounts of financial data and generate forecasts based on historical trends, market fluctuations and other factors. AI financial forecasting can also be used for a variety of purposes, such as predicting stock prices, forecasting economic growth, identifying potential investment opportunities and make better decisions about inventory management or pricing strategies.

From recruitment to job performance and professional growth

There is a growing use of AI in crafting job postings, shortlisting candidates, matching applicants to job ads and personalising communication with applicants, but also in specialized tasks like predicting the candidates' future performance. Companies like Skims are using AI platforms like Dweet for recruiting, which shows promising results in broadening candidate searches. On its side, Eightfold AI's platform is designed to predict the future roles an employee might be good for.

In that regard, Gen AI can help identify career paths and opportunities for employees, hence facilitating a more personalized career development journey. It can be particularly beneficial in visualizing career trajectories and identifying potential role models within an organization. In the future, AI could assist in identifying candidates for promotions and better role placements, reducing talent attrition costs. Also, the technology can be used as a productivity aid in performance reviews. It can assist in creating initial drafts of reviews by synthesizing feedback from multiple sources, thus allowing managers to focus more on individual development and growth.

Overall, gen AI could streamline administrative tasks for HR to focus more on strategic aspects of talent management. The technology should be first used to improve decision-making and performance management.

Navigating bias in recruitment

However, the success of AI in recruitment still heavily relies on human oversight to address its limitations and potential biases. The technology aims to reduce biases in hiring, but its early development stage means it's not fully reliable yet. For now, experts say AI could even amplify existing biases related to age, gender, and race. AI is not advanced enough yet to completely replace human involvement in hiring. However, some tools aim to create a "positive bias" by focusing on desired skills rather than disqualifying candidates. Dweet's software, for instance, highlights candidates with relevant experience and doesn't penalize gaps in resumes or lower educational levels.

Conclusion: first comes a clear vision for AI

Looking ahead, the potential of Gen AI in retail and fashion is immense and still unfolding. But for now, top executives are admitting they're far from ready to deal with changes brought by generative AI, according to a new global survey by Deloitte's AI institute. The problems may only get worse. Executives who reported the most investment and knowledge in generative AI capabilities are the ones most worried about the technology's impact on their businesses. Only 1 in 5 executives believes their organization is "highly" or "very highly" prepared to address AI skills needs in their company. Only 47% say they are sufficiently educating employees about AI. The majority of executives said their organizations were focused on the tactical benefits of AI, such as improving efficiency and cost reduction, rather than using it to create new types of growth.

At successful companies, McKinsey found there is a clearly defined AI vision and strategy. Also, more than 20% of digital budgets are invested in AI technologies. Teams of data scientists are employed to run algorithms to inform rapid pricing strategy and optimize marketing and sales. Finally, strategists are looking to the future and outlining simple gen AI use cases. Such trailblazers are already realizing the potential of gen AI to elevate their operations. Players that invest in AI are seeing a revenue uplift of 3 to 15% and a sales ROI uplift of 10 to 20%.

While the application of gen AI in a retail business can seem overwhelming as it can fit into almost any piece of the business, the earlier that it is ‘plugged in’ is better as it only gets wiser with time and data. The time to jump in the AI train is now.

Credits: IADS (Christine Montard)

Printable version here

Annual Department Store Results 

Assessing the concrete and measurable outcomes of the crises since 2019 and analysing the continued recovery patterns witnessed in the 2022 fiscal year.

In May 2021, Dr. Christopher Knee launched the “IADS 100 Report”, a first-of-its-kind report gathering the financial data and figures of 100 department stores around the world. This global observatory was created in a time of turmoil to create a benchmark for global department store players.

Since the release of the first report in 2021, it has been proven to be a difficult task to find relevant and comparable data for 100 or more consistent department stores as many companies change hands in ownership, decide to go private, or don’t break out results by business unit. To clarify the definition of this report, we have decided to rename it to “The IADS Global Department Store Monitor” to reflect that we are consistently reviewing the landscape and updating it with any important and relevant information.

Another area of important clarification is around what results are being captured in the report. Fiscal years do not always line up with some companies finishing their year with the calendar year and others ending their fiscal year in June or July. The 2022 fiscal results for this monitor have been considered as any annual report that closes from the end of December 2022 to those that end in June 2023. To compare yearly results, this pattern has been followed for all previous year’s results as well. This baseline allows a level of consistency in the events that have occurred in the years covered to be able to draw conclusions.

The entire reason the IADS 100, now the IADS Global Department Store Monitor*, was launched was to address the various amounts of disruptions that followed the Covid-19 pandemic and after, as it seems that disruption is now a norm in the retail business. Even now at the beginning of 2024, the baseline of annual results is still being compared to 2019 figures.

What does this say about the state of recovery? We are not out of the woods yet.

This report will attempt to detail some of the major changes across global retail markets and understand what a new turbulent normal could promise. Note: To make comparisons year over year, all exchange rates to Euros come from March 22, 2021, which was the date chosen during the initial IADS 100 release.*

Fiscal year 2022 to 2023: Navigating turbulence on the road to recovery

As retailers ventured into the new year, the challenges of the past two years continued to cast a long shadow, requiring an 'all hands on deck' response to manage the ongoing ripple effects of the Covid-19 pandemic. This period saw a combination of social and political unrest, supply chain disruptions, geopolitical conflicts, an energy crisis, and the looming threat of inflation. Despite the collective hope that 2022 would usher in a semblance of relief, the reality proved more complex.

The year unfolded against a backdrop of persistent global turmoil, including the invasion of Ukraine by Russia in February 2022, intensifying political unrest and reshaping the geopolitical landscape. Amidst these challenges, a significant demographic shift occurred, with India surpassing China as the world's most populous country in April 2023, adding another layer of complexity to the global economy and some foreshadowing as to what would occur in the future retail landscape.

However, amid the adversity, 2022 also brought forth exciting trends that promise opportunities for adaptation and growth. Advances in machine learning and AI (such as the public release of ChatGPT by OpenAI in November 2022) emerged as powerful tools for retailers to cut costs, build more efficiency and make strides toward sustainability goals. While governments continued to make progress on sustainability regulations and the demand for sustainable goods persisted among consumers, the prioritization of making progress on things such as Scope 3 emission tracking began to take a back seat as the world grappled with the sobering reality of the ongoing humanitarian crisis in Ukraine.

For department stores, the fiscal exercise in 2022 centered on a dual focus: generating revenue and gaining control over costs without compromising their core value proposition. In this intricate dance between economic recovery and global challenges, retailers found themselves navigating a terrain that demanded resilience, adaptability, and a strategic response to an evolving consumer landscape.

2022 results: the race to the 2019 starting line

Asia: an uneven playing field

In China, Rainbow (-1%), Wangfujing (-15%), Maoye (-22%), Parkson Retail Group (-23%), Wushang (-11%), Golden Eagle (-9%), and New World (-23%) all saw a slightly negative sales trend in 2022 compared to 2021. While some of these department store players saw positive results in the previous period between 2020 and 2021, not one has rebounded back to 2019 baseline figures. This could be explained by the continued “zero-Covid” restrictions that remained strictly in effect until November 2022 when Chinese citizens began to protest the lockdowns leading the government to eventually ease measures. In Hong Kong, Wing On (-8%) had similar results to those in China with a slight drop off from 2021 sales figures, still unable to return to 2019 results. It is also important to mention that Sogo (Lifestyle) went private in 2022, therefore there is no longer follow-up data on their results. In fiscal 2021, Sogo was operating higher than 2020 levels but still had quite a bit of recovery before meeting its 2019 baseline. Also, BHG’s 2022 results were not explicitly shared but saw strong recovery from 2019 results with 2020 at a +16% increase and 2021 at a +62.5% increase compared to 2019.

India, on the other hand, has become the country to watch in the retail world, especially as they have been able to pick up much of the market China has lost, and their results show their strength. Lifestyle (Landmark Group) (+46%) and Shopper’s Stop (+63%) both reported FY22 earnings that not only surpassed 2021 figures but also 2019 results.

Japanese department stores saw a range of results with H2O (+28%), Isetan Mitsukoshi (+11%), Tobu (+20%), Tokyu (+5%), and Kintetsu (+11%) reporting positive results from 2021 to 2022 while all remaining negative in comparison to 2019 figures with the exception of H2O (+4%) which had a slight uptick from 2019 results. Daimaru Matsuzakaya (-12%) and Marui (-5%) reported slight losses between 2021 results and 2022 results while Takashimaya (-49% due to closures and restructuring of some locations as well as reduced customer confidence with rising costs) and Sogo Seibu (-59% which has been struggling for years as more e-commerce players enter the market and with reduced store doors, Seven & I Holding company has now sold off the department store) showed much larger deficits each due to their unique situations.

The rest of Asia saw a variety of results. Matahari (+16%) in Indonesia reported a slight increase in turnover, this stays on its positive upward trend from 2021, but unfortunately still falls very short compared to 2019 results. In the Philippines, SM (+25%) and Robinson’s Retail (Rustan’s) (+61%) saw a healthy increase in results in 2022 with SM ultimately beating 2019 figures. In Korea, Hyundai (+40%) and Lotte (+12%) both reported an increased turnover in 2022 and in comparison to 2019, while Hanwha Galleria (-19%) reported a decrease in turnover in 2022. Finally, Odel (+12%) in Sri Lanka and Central Retail Corp (+21%) in Thailand both exceeded 2021 results.

To recap, with the goal being to outperform 2019 numbers, the only department stores in Asia that reported higher sales in 2022 than in 2019 are Lifestyle (Landmark Group) (+27%) and Shopper’s Stop (+16%) in India, H2O (+4%) in Japan, Hyundai (+128%) and Lotte (+3%) in Korea, SM (+4%) in the Philippines, Odel (+11%) in Sri Lanka, and Central Retail Corp (+6%) in Thailand.  Though the sample size is not all-encompassing, major players are included and it is very interesting to note that no players from China (that we can track) have been able to reach a 2019 rebound in 2022 suggesting that recovery in China might be a harder feat following all the disruptions from pandemic and lockdowns the retailers operating there have faced.

In Oceania, Myer beat 2019 results in 2022 with a +27% increase and also improved performance by +12% between 2021 and 2022. As for David Jones, the department store was sold by Woolworths therefore making 2022 figures unable to be retrieved, but the department store had surpassed 2019 levels in 2020 (+2%) before falling just below the 2019 baseline with a -3% fall between 2020 and 2021 results.

Europe: The 2022 recovery journey was both challenging and transformative

Across Europe, department stores in the sample all saw increased sales from 2021 to 2022. This includes Coop Group (+2%) and Jelmoli (+11%) in Switzerland, NK (+14%) in Sweden, El Corté Ingles (+8%) in Spain, Coin (+4%) in Italy, Stockmann (+10%) in Finland, and Kaubamaja (+13%) in Estonia. All of these retailers have also beaten 2019 benchmarks except for Coin (-33%), Stockmann (-17%) and El Corté Ingles (-6%).

The UK especially saw a lot of government and legal transition from a change of hand following the death of Queen Elizabeth II to the tumultuous change of 3 prime ministers in just three months from Boris Johnson to Liz Truss, who only lasted 45 days, to Rishi Sunak who now faces the task of steering the country through a recession with soaring inflation. Despite these changes, the Queen’s Platinum Jubilee at the beginning of 2022 and her funeral at the end of 2022, as well as the ease of travel restrictions, brought 2022 back to a strong year of tourism in the UK which in turn helped retailers recover.

Against this backdrop, UK department stores, including Marks & Spencer (+10%), John Lewis (+0.3%), Harrods (+192%), Selfridges Group (+29%), Fenwick (+31%), and Liberty (+42%), demonstrated positive growth between 2021 and 2022. Marks & Spencer (+17%), John Lewis (+2%), Fenwick (+13%), and Liberty (+25%) even surpassed 2019 figures, indicating a robust recovery. Although the fiscal year 2022 results for Fortnum & Mason and Harvey Nichols are undisclosed, Fortnum & Mason (+34%) had already exceeded 2019 levels in 2021, while Harvey Nichols (-29%) continued to grapple with recovery challenges.

To dive deeper into some of these UK department stores, Selfridges navigated a transition year in 2022 under new owners, Central Group and Signa, overcoming challenges such as increased debt, staff restructuring, and rising interest rates. Despite these hurdles, the department store experienced a turnover increase. Harrods staged a remarkable recovery, surpassing 2019 levels. The store's ability to operate throughout the fiscal year without closures and with fewer global travel restrictions contributed to its success. Fenwick returned to profits, driven by the sale of its New Bond Street store. The company's future strategy involves significant investment in digital platforms, recognizing them as a growth driver, and enhancing their physical stores, especially the Newcastle location. While all these achievements in 2022 are noteworthy and a great recovery back to 2019 benchmarks, fiscal 2023 and beyond will be a challenge of their own as the country undergoes inflation pressures and rising costs amidst changing consumer behaviours. UK department stores are encouraged to think ahead and invest in their future, which is what Fenwick is trying to do. But will it be enough?

Americas: a gradual push towards 2019 benchmarks

As opposed to the positive growth trend seen across the board from the Americas department store sample in 2021, 2022 results were less promising. Chilean retailers Falabella (-13%), Ripley (-8%), Cencosud Paris (-7%), and US retailers Kohl’s (-7%) and Macy’s Group (almost flat at -0.1%) all saw a downward trend in department store sales from 2021 to 2022. Alternatively, Mexican retailers El Palacio de Hierro (+23%) and Liverpool (+16%), Ecuadorian retailer De Prati (+15%), and US retailers Dillard’s (+6%) and Nordstrom (+5%) reported growth. Neiman Marcus did not share 2022 results but did state that the business in the fiscal year was ‘relatively’ flat compared to the previous year.

Those surpassing 2019 benchmarks included all of the sample minus Kohl’s (-9%), and coming in almost flat, but just below 2019 figures were Macy’s Group (-0.5%) and Nordstrom (-0.3%). The rest of the department stores in the Americas reported a recovery compared to 2019 with results as the following: Ripley (+32%), El Palacio de Hierro (+30%), Liverpool (+25%), De Prati (+14%), Dillard’s (+11%), Cencosud Paris (+10%), Falabella (+7%). Also, it is once again important to mention that Neiman Marcus’s results are unknown for this comparison.

Retailers in Latin America continue to face a political shift to the left that started in 2018 and which has continued to impact the political landscape in the region. Despite political changes, Latin American retailers are experienced in operating during inflationary periods, which is something the rest of the retail world is not used to doing. Thus, Latin American players may be able to weather the next few years better than other areas of the world. In 2022, countries like Chile saw a drop in total retail spending, a shift from the recovery in 2021 driven by increased consumption. The more cautious spending in 2022 was influenced by a reduced money supply, a new government, and a significant global and domestic inflation increase. While in Mexico sales growth in 2022 slowed compared to 2021 but remained positive thanks to surging consumer prices and top-line inflation. Across Latin America, e-commerce and digital channels are continuing to be developed while store redesigns are also being put at the forefront.

In the US, a major topic that continued to be addressed following the pandemic was around inventory and supply chain management with excess inventory and shifting customer behaviours. To address this inventory, US department stores had to heavily rely on discounting in 2022 which in turn impacted gross margins. Off-price retailers saw a lot of growth during the period, which made department stores rethink their business model and sizes of their physical stores allowing them to offer a smaller and more profitable footprint.

Macy’s Group has tested this type of footprint revamp with smaller format stores but is still trying to find the right physical store mix by expanding their Market by Macy’s and Bloomies concepts (this is a major strategy going forward for the business) while in parallel closing underperforming stores, exiting failing centres, and improving store experiences. Finding the right balance between making physical stores profitable and reacting to the deceleration of digital channels impacted the business in 2022. Nordstrom is showing similar results to Macy’s when comparing 2022 to 2019 and has also expanded its smaller format concept (Nordstrom Local) but it is their discounted store (Nordstrom Rack) that is a solid investment as they produce returns that exceed the cost of capital in a short period. This is why Nordstrom has carried out the expansion of Nordstrom Rack in 2023 and will continue the growth of locations in 2024. So why is it that Macy’s and Nordstrom are reporting losses in 2022 and compared to 2019 while Dillard’s, which has not begun to offer smaller local formats, has reported growth in 2022 and against 2019 baselines? Could this mean that Macy’s and Nordstrom just need some time to figure out the right store mix? Or does Dillard’s have some kind of secret to beating 2019 baselines that the other US department store chains have not figured out?

What to expect from the 2023 fiscal year and beyond

A major trend seen from fiscal year 2022 and which has continued into 2023 has been the number of department stores that are either changing hands, going private or in talks of such a change. In Asia, Japan’s Seven & I Holdings decided to sell Sogo & Seibu in mid-2023 to Fortress Investment Group, while Hong Kong’s Sogo (Lifestyle) announced it would be going private at the end of 2022. In Europe, France’s Galeries Lafayette Group sold BHV Marais in early 2023, and Sweden’s Ahlens was sold by Axel Johnson to Ayad Al-Saffar. At the end of 2022, South Africa’s Woolworths sold Australia’s David Jones unit to a private equity fund. In the US, Kohl’s was being put under pressure by shareholders in 2022 to sell as they were not meeting profit expectations and Macy’s reportedly received a USD 5.8 billion buyout offer in December 2023 to go private. All of these changes and moves to go private can be attributed to the fact that operating in a public market in these times is very difficult, and going private allows companies to have more freedom and access to levers to make faster changes which can in turn offer a narrowed focus on reshaping the business for the new market conditions.

The global landscape has become increasingly intricate both geopolitically, with escalating conflicts such as those involving Israel and Ukraine, and economically, contributing to sustained challenges in supply chains. The ongoing escalation in global transport and energy costs is further fuelling inflation across various regions. This inflationary trend is expected to persist and exert continued influence on business outcomes. As consumers exercise caution and restrain from making non-essential purchases, there is a potential for fiscal 2023 performance to be adversely affected compared to 2022. In response to such economic uncertainties, private label products are gaining traction as a viable alternative, perceived as a cost-saving measure.

New markets are emerging, especially India, as the country has been able to capitalize on the loss of Chinese business due to the country’s late release of Covid restrictions. India’s retail scene is growing with a surge of retail square meters increasing by +46% in 2023. Luxury department stores such as Galeries Lafayette announced expansion into India in 2023 and now Walmart is importing more goods to the US from India and reducing its reliance upon China.

When it comes to consumer behaviours and shopping trends, department stores across the world have to better understand how to manage their inventory and services across their omnichannel. Covid brought on major investments and developments into e-commerce platforms and online sales hit record highs. But now consumers want to come back to physical stores and have in-store experiences, but the traditional large formats are not what they are looking for. This has encouraged department stores to test smaller formats and off-mall locations. As department stores work out the right mix between online sales and the sweet spot of physical retail sizes and concepts, profitability will be a key indicator of decision-making going forward.

Speaking of profitability, in the coming years, retailers will pivot their attention towards achieving heightened profitability and efficiency. The accessibility of AI technology is reaching unprecedented levels, prompting retailers to reassess which facets of their business can benefit from more efficient AI integration. Just as the pandemic reshaped consumer behaviour, retailers must now respond adeptly by reintroducing customers to stores, offering products and services that align with their evolving demands. Amidst economic pressures, these challenges become even more intense, requiring strategic innovation and adaptability.

IADS Note

While department store diversity can be a strength, it also makes comparisons difficult. It is clear, for example, that data concerning revenue, profits, selling space etc. will often not be available from privately held companies. If the IADS obtains such data privately and confidentially, we will not publish it.

Credits: IADS (Mary Jane Shea)

What: Visa explores what makes the Gen Z a very specific set of new customers.

Why it is important: are you familiar with the concept of “split-budgeting”? They are.

Gen Z is emerging as a significant consumer group with a "split-brain budgeting" approach, balancing savings with splurges, often with an eco-conscious mindset. Their unique financial behaviors include a reluctance to use traditional credit, a preference for AI interactions, and an inclination towards transactions on social media platforms. Understanding and adapting to Gen Z's preferences, such as integrating AI and social media into transactional channels and emphasizing sustainable practices, can help businesses tap into this growing market segment effectively.

Visa: unlocking Gen Z’s mindset

What: The Robin Report issues a list of 10 retailers worth watching by US players.

Why it is important: While most of the retail innovation is reputed to take place in the US, it is not so often that they look abroad for inspiration.

The article highlights ten global retailers poised for growth in 2024, ranging from Brazil's Magazine Luiza and South Africa's Woolworths to China's Miniso. These companies, identified as either market leaders or disruptors, are expected to leverage favorable economic conditions, including potentially lower U.S. interest rates, to expand their reach and influence. Each retailer, unique in its strategy and market focus, represents a diverse aspect of global retail innovation and customer engagement.
The list of quoted retailers is Magazine Luisa, Woolworths, Albert Heijn, WHSmith, Zalando, Dmart, Mercado Libre, Wesfarmers, Jumia, Miniso.

Report: 10 global retailers to watch in 2024

Printable version here

What skills will we need in the future and how to attract those talents?

The IADS Academy programme, a 28-year-old tailor-made mentoring workshop open only to our members’ high potentials, promotes cooperation and future orientation. Over the years, the IADS Academy has trained 180+ executives from 28 companies in 21 countries, some of whom reached top positions in member and non-member companies (for IADS member companies alone, 4 CEOs). The following is an attempt to report all insights the Academy group considered and worked on during the journey to their final presentation shown to the IADS member CEOs.

Table of contents

Transverse skills are key to enabling technical skills

Technical skills are more important than ever and impact organisations

Skills: moving from curriculum vitae to curriculum personae?

First IADS Academy take: company culture and leadership are the foundations

Company culture: psychological safety and leadership

Leadership: strength-based management, communication and mentoring

Second IADS Academy take: a different approach to recruitment and retention

Employer branding requires the same tactics as for loyalty programmes

Recruiting outside but also inside the company

Development and succession planning to build tomorrow’s talent

Third IADS Academy take: fostering flexibility

Differentiating bonuses, incentives, benefits and perks

Developing flexibility in location and hours to offer a better work-life balance

Introduction: the only constant in this world is change

First, department stores were renowned for their disruptive business model, then for their ability to adapt to the countless changes happening since their inception. Their heritage, skills and strong ability to build strategies and master plans have been the recipe for success but the rapidity and magnitude of changes have escalated in the past years making uncertainty and volatility CEOs' top concerns (followed by talent, inflation, managing stakeholders and supply chain).

Change is everywhere, outside and inside of companies. While VUCA (Volatile, Uncertain, Complex, Ambiguous) could illustrate what happened in the past years, it seems it is now too weak of a word to express CEOs’ top concerns. In that regard, BANI (Brittle, Anxious, Non-linear, Incomprehensible) has replaced VUCA. To navigate in such a world, companies need a new set of skills. Threats and change also come from inside companies and 71% of CEOs said labour shortage is their biggest existential threat. It is a consequence of COVID-19 but also of the difficult adaptation to the generational tipping point, with Gen Y and Z already accounting for 50% of the labour market in 2020 (and to account for 70% in 2025). Companies now understand how their approach to work is different from the previous generations. However, a new approach to talent management has not been implemented yet.

Today, companies face a paradigm shift: not only are technical skills more important than ever, but transverse skills are key to making the most of them. It means that companies might be moving from curriculum vitae to curriculum personae when considering talent. When it comes to attracting and retaining talent, there are interesting common practices in the retail industry, but the IADS Academy offers its own take: company culture and leadership are the foundations of everything, and the group proposed a different approach to recruitment and retention.

Transverse skills are key to enabling technical skills

Technical skills are more important than ever and impact organisations 

Whether it’s about legacy or new jobs, technical skills are critical to the department store business. For instance, the sales associate job now requires working with new and digital tools. Also, the department store business model is increasingly complicated and requires more data, business intelligence and project management skills. On their side, logistics functions are becoming more customer-centric with the rise of e-commerce and product returns, also requiring new technical skills.

New jobs have entered the department store business and play a strategic role in today’s organisation. Data functions are no longer about 1 or 2 people in the organization as the data topic has grown both in size and complexity to provide relevant information for analysis and decision-making in all departments. In that regard, data is sometimes still limited to some key users and usage. To change this, retailers are currently building single data platforms: this requires investments obviously, but also high technical skills.

E-commerce functions also grew and require highly skilled teams. While department stores are on the right track to compete with pure players, e-commerce is de-prioritized today and the question of "where should e-commerce sit in the organization?" has not been cracked yet. This impacts both the organisation and the talent pool. Some retailers such as Galeries Lafayette split e-commerce functions between IT and marketing: it is an interesting approach but the risk is that decisions are based on IT capabilities rather than on business needs. Besides, this organisational model doesn’t answer the question of "P&L ownership". On its side, Magasin du Nord considers e-commerce as a store but it needs to get closer to the physical stores to create a true omnichannel business. Finally, Manor’s e-commerce is under the Chief Digital Officer who is a ComEx member so e-commerce and the omnichannel business are priorities.

Tech and IT functions are still too centralized making it difficult to have quick wins. A more hybrid model between external and internal resources as well as a more decentralized approach could help. Interesting initiatives such as Galeries Lafayette’s "low code/no code" programme enable non-IT employees to develop their own tools using very basic code and foster quicker innovation. Also, many IT organisations such as Manor’s are currently reorganizing using agile methods.

Finally, CSR transformation represents additional pressure. Prioritised by top management and high on companies’ strategic agendas, the topic is truly technical and tough regulations impact the entire organization. CSR requires specialized profiles to build up new capabilities.

Skills: moving from curriculum vitae to curriculum personae?  

The macro trends are paving the way to a different approach to skills. Consider the sales associate role again. It now requires a true omnichannel mindset, an open mind to working with new and digital tools, the curiosity of knowing what is happening online and even the will to encourage online shopping. Besides, the rise of online shopping and the impact of COVID-19 have had an important impact on physical shopping with customers expecting more than just transactions. Also, retail-tainment is now a common practice among retailers which means front-line workers should envision the entire shopping experience, be able to offer more than just selling products and participate in in-store events. The consequence is an increase in personalisation and relationship-building with customers.

Also, skills last less than before as jobs are changing at a faster pace. CVs, which recruiters spend an average of 10 seconds on anyway, are less relevant and precise than before. So, a paradigm shift is needed: moving from relying on the traditional hard and soft skills to considering technical and transverse skills instead. Transverse skills are increasingly considered as the only ones helping employees in navigating a BANI world. As stated by the Academy cohort, soft skills used to be the icing on the cake. Now transverse skills are a fair part of the cake.

While technical skills are (and will remain) key, transverse skills will make a true difference in making the most of the technical skills. The Academy group listed the following key transverse skills: teamwork, strategic vision, adaptability to change, communication, emotional intelligence, time management, resilience, critical thinking and empathy. While they can be perceived as hard to define and detect, transverse skills can be evaluated through personality tests. Department stores are increasingly considering transverse skills. For instance, Galeries Lafayette launched a toolkit mapping 12 behavioural skills to achieve performance at an individual or a group level. The goal is to have a common language: it helps describe professional expectations and develop competencies and careers. This toolkit can be used throughout a career (recruitment, evaluation, career development) and for all types of jobs. The 12 behavioural skills have already been added to the yearly review for some cohorts. The next steps are to continue to develop this tool for recruitment, in all yearly reviews and career development.

On its side, with highly specialized profiles, Magasin du Nord is looking for a data-driven mindset, leadership skills, creativity and diplomatic skills to be able to work together with other departments. El Palacio de Hierro focuses on the eagerness to learn, to self-train and to share knowledge, on the ability to quickly learn technologies, to foster change, to simplify processes and to analyse data and prioritize through it. Adaptability, open-mindedness, emotional intelligence, and being result-oriented are also considered key skills. Willingness to learn is also listed by Sogo. On its side, Manor defined 3 broad types of skills:

• Professional skills: digital skills, data-driven decision-making, ownership, entrepreneurship, and problem-solving skills.
• Social skills: interdisciplinary collaboration and communication skills.
• Personal skills: emotional intelligence, creativity, courage, risk tolerance, team spirit, self-responsibility and agility.

First IADS Academy take: company culture and leadership are the foundations

Department stores as well as many other industries recently witnessed a dramatic shift in recruitment: it is not about ‘Tell me why we should hire you?’ anymore but about ‘Tell me why I should work for your company?’. Companies have to meet new and unprecedented demands which requires a rethink of the way they look for, find, attract and retain talent. The Academy cohort reviewed some common practices and offered their own take.

Company culture: psychological safety and leadership 

By using the famous quote by Peter Drucker “culture eats strategy for breakfast”, the Academy group strongly highlighted company culture as the most important foundation. Lack of company culture represents one of the main reasons for employee disengagement. When asked “If you could make one change at your current employer to make it a great place to work, what would it be?”, 41% of respondents say engagement or culture. The topic is far more important than pay and benefits (28%) and wellbeing (16%). Post-pandemic, company culture increasingly means that companies should build psychological safety and a culture based on trust instead of fear, allowing employees to share ideas, raise concerns and even make mistakes. The Academy group found out that Maslow’s Hierarchy of Needs also applies to employee engagement: feeling safe and having all the tools to work is the mandatory basis for higher levels of engagement. Besides, $600 bn a year is lost on employee turnover. In contrast, companies offering high psychological safety experience many benefits: a 27% reduction in turnover, 76% more engagement, 50% more productivity, 74% less stress, and 57% workers more likely to collaborate.

The Academy group made clear that culture is everyone’s responsibility, and not only the CEO’s. They set the tone and embody the company culture. They also should increase interaction with the employees which will contribute to showing them they work in a safe environment. CEOs are not alone. As mentioned by The Art of Leadership Studio, a guest speaker during the Academy programme, 70% of the variance in team engagement is down to the team manager. Managers have a pivotal role in conveying culture to the employee base so that they feel empowered, included and engaged. Changing the culture is difficult but some initiatives can work their magic: conducting regular engagement surveys can serve as the base for a more efficient attraction and retention strategy. CEOs should be ready to face the results and to allocate resources for action. Companies should be transparent about the reasons why surveys are conducted. Action plans should be built with HR and management teams, and then communicated using marketing tools. Then new initiatives will be incorporated internally and also benefit the employer branding.

Leadership: strength-based management, communication and mentoring 

Leadership has tremendously evolved since the manufacturing economy where the manager served to increase productivity. The service and then the tech economy brought a new breed of managers: the leader, who was supposed to increase commitment, retain and engage. Post-pandemic leaders become people leaders and are here to infuse empathy.

To double down on this change of role, companies should develop a culture of feedback. Four out of 10 workers are actively disengaged when they get little or no feedback. 82% of employees appreciate positive and negative feedback. 43% of highly engaged employees receive feedback at least once a week as opposed to 18% of low engagement employees. Recognition is also part of the feedback culture and requires taking a moment to recognize a good job. This doesn’t cost and helps to create loyalty and trust. It implies the development of strength-based management instead of assessing feedback and development plans solely based on weaknesses.

Being a great leader also means interacting and communicating with employees. In that regard, IADS members have developed best practices. Manor has regular “CEO Connect” events where the CEO explains the strategy and does a transparent Q&A with employees and hybrid town hall meetings with various departments. There is also an open-door policy for ComEx members and leaders. At El Palacio de Hierro, “Talking with Juan Carlos” sessions are regularly organised. Breuninger makes a weekly 60-second video available where the CEO discusses a specific topic. Finally, Galeries Lafayette’s CEO kicks off every year with a video available to all employees. The Academy also stressed the importance for CEOs to get closer to the teams by visiting stores more often or having informal lunch breaks with employees as Magasin du Nord’s CEO is doing daily.

As stated by Quadra Consultants, a guest speaker during the Academy programme, mentoring can also be a powerful tool. As an individual guidance method, mentoring can help achieve personal or professional success. On the contrary to coaching, mentoring typically involves a long-term, informal relationship and is focused on sharing knowledge, skills, and experience. It also aims to provide emotional support and guidance. The benefits of mentoring are wide-ranging. From leadership mentoring to personal development and employee retention, the benefits to the mentee are self-confidence, self-awareness, job satisfaction, aspiration, and the likelihood of promotion. Besides, 89% of those who have been mentored will also mentor in turn, and so will contribute to this cycle of learning and development in the organisation. There are also many positive benefits for those doing the mentoring. Studies have shown an increase in self-confidence, communication skills, job satisfaction and loyalty to their company. Harvard Business Review conducted a study researching the positive effects mentoring can have on the mentors themselves and found that people who served as mentors experienced lower levels of anxiety and described their jobs as more meaningful than those who did not mentor. Also, mentors play a pivotal role in leadership development. They provide guidance, support, and valuable insights, helping mentees navigate the complexities of leadership. Through sharing experiences, facilitating networking opportunities, and holding mentees accountable, mentors contribute to the personal and professional growth and empowerment of aspiring leaders.

Second IADS Academy take: a different approach to recruitment and retention

Employer branding requires the same tactics as for loyalty programmes 

To be an attractive employer, companies have to understand employee needs and wishes when it comes to their job and work environment. In theory, the employer brand is considered one of the most critical aspects of getting the right talent. But in reality, the Academy group realised there are little to no strategies and measures in place. Employer branding might seem obvious as a combination of internal factors (such as what it’s like to work for the company, benefits and evolution potential), and external factors (such as the brand identity and purpose). Department stores are masters at attracting and retaining customers with improved loyalty programmes but don’t apply the same tactics with talents. Today, the responsibility of employer branding falls into HR alone. The Academy group came up with an interesting idea of both HR and marketing departments working together on building true employer branding: marketing skills and techniques and HR knowledge (and a budget) would serve the company's recruitment needs.

Recruiting outside but also inside the company  

Recruiting is expensive in terms of time and money. Companies also lose knowledge when employees resign, not to mention stress for the manager losing a team member without having visibility on when someone will take over. Regularly conducting casual interviews through social media proved to be efficient in building a potential employee base, anticipating needs and getting to know candidates better. In that regard, Magasin du Nord’s recruiting team is spending 20% of their time informally approaching potential candidates. Candidates like this individual approach: instead of HR trying to fit them into a job ad, the discussion is more about their ideas, dreams and career paths for the future. As a result, 30% of recruitments are made this way. For now, the casual interviews happen on LinkedIn: collaborating with the marketing department could allow the HR team to reach out to candidates on TikTok or Instagram in the future. Today, the best candidate for a job might be the one with a great Instagram profile and a poor resume.

Also, getting closer to schools and universities provides significant results, not to mention building employer branding. In that regard, fashion companies are creating their own college environments by partnering with existing schools to create tailored programmes and train students to match their organisations’ needs. In the ‘80s and ‘90s, department stores like Bloomingdales, Sears and Macy’s were known for their executive and merchandising training programmes teaching the basics of operations, product development and retail strategy, as well as soft skills like effective communication, organisation and multi-tasking. Such courses, which could last up to 18 months, also helped participants gain an awareness of the value and longevity of a retail career. Macy’s current CEO, Jeff Gennette, graduated from Macy’s executive training programme in the 1980s. Over the past decades, many of these programmes have fallen, often a victim of cost-cutting. However, many companies have instead relied on fashion and retail programmes at universities to supply new talent.

Early 2023, SMCP (Sandro, Maje, Claudie Pierlot) launched the SMCP Retail Lab. It is a year-long programme built in partnership with Ema Sup Paris school and IFM (Institut Français de la Mode) to train selected participants on clienteling, live streaming and styling. It aimed to boost recruitment by making the sales associate role more exciting and modern. At the end of the year, participants receive a certification and are offered opportunities to work in the group’s brand stores. In the US, the Capri Holdings Foundation for the Advancement of Diversity in Fashion8, (the group is the home of Versace, Jimmy Choo and Michael Kors), sponsored a 5-week footwear and accessories masterclass at Pensole Lewis College of Business and Design and paid for the students’ room and board. At the end of the course, the company offered internships.

Recruiting inside the company should also be developed, but do managers know their own employees to start with? It seems they don’t, or at least don’t know them enough to identify potential talent and specific skills. Several existing tools assessing behavioural, personality and leadership styles can help companies close the gap: HOGAN, PDA or DISC to name a few. Companies can also do internal surveys to learn more about their employees. This is what El Palacio de Hierro recently put in place, starting with the executive level. Also, retailers usually welcome interns and students working short time. They could become a key resource as they are probably studying disciplines of some interest to department stores. The Academy group suggested department stores build a plan to identify what interns and students study and create a lasting relationship to potentially onboard them later on.

Employees come and go. When we see a customer buys less and might leave us, we will send an attractive offer and try to reactivate them. Why don’t we systematically keep in touch with people leaving companies? Those people will go work at competitors and gain great knowledge, so it is just a smart move to try to keep them close to us. Of course, some managers already offer to keep in touch, but it is not done systematically. It requires to be conceptualised. The answer proposed by the Academy is building a company alumni group. Investing in an HR platform would be necessary for such a venture. The group advocated for a yearly alumni informal reunion with the CEO where recruiting deals for the future could be made.

Development and succession planning to build tomorrow’s talent 

First, companies have to make sure that all employees have access to the same information regarding development and careers in their company. Most HR systems can be complex (SuccessFactors, Workday for instance9) and some of them require a desktop to access. All job descriptions should be accessible and easy to find for all deskless employees, but also for the next generation of talents, the interns and students working part-time.

Second, transparency in succession planning should also offer interesting results if planned. Examples of employees recruited for short-term contracts, staying in the company and evolving to higher positions exist (there were 2 out of 8 Academy participants that had this experience at their respective department stores), and they could be numerous if companies have better succession plans.

Third IADS Academy take: fostering flexibility

Differentiating bonuses, incentives, benefits and perks 

Gone are the days when simply focusing on compensation was enough to keep most of the workforce satisfied. Money still counts as shown in the Career Builders 2022 survey listing the top 4 motivators for job-seeking applicants: providing a higher salary, flexible schedule, better benefits, and the ability to work remotely.

While bonuses and incentives are usually defined by job groups and hierarchy levels, department stores tend to have a generalist approach to other benefits and perks. A solution tackled by the Academy group during the programme would be to consider different levels:

• Common perks for the entire company: salary range, common variable incentive scheme based on profit-sharing, employee discount, parental leave policy for instance.
• Perks based on job specificities and competition: performance-based variable scheme, organisation of working hours, work-from-home policies, etc.
• Perks based on individual needs with options to choose from: flexible working hours and work shifts, possibility to change the days off, 4-day planning, childcare solutions, training programmes, medical insurance, etc.

Such differentiation could be an answer to applicants’ needs while limiting the investments implied by the systematic enforcement of benefits and perks. Differentiated benefits and perks could evolve with the employee lifecycle (for instance switching from childcare benefit to another benefit when it is not needed anymore). The Academy group didn’t keep this idea as part of their final answer to the CEO's question, but this could represent some ‘food for thought’ for companies to truly assess what they should offer employees depending on who they are and what they do. There are risks attached to this idea as it questions equality, and it might be difficult to apply in some countries. But this would certainly enhance fairness and equity. Besides increasing personal and professional satisfaction, matching benefits to employee needs could help attract candidates. Finally, matching needs with various benefits and perks would be remembered and could enhance the company's reputation.

Developing flexibility in location and hours to offer a better work-life balance 

Flexible schedule and ability to work remotely are part of the 4 motivators for job-seeking applicants. However, communication and learning can be partially lost with remote working. In response, companies need to rethink what should be done in terms of team building. What are offices for in a post-pandemic world? Companies should offer reasons for the employees to come to the office. Social aspects are key as employees are looking for collaboration, friendly interactions with colleagues (workplace relationships account for 39% of employees' job satisfaction) and the commute should be as short as possible. This implies investments for companies as the workplace now competes with home and other locations. But with work-from-home and flex-office (shared desks), office space can be reduced resulting in saved costs.

Companies are increasingly giving access to amenities inside and out (cafés, bars, restaurants, gyms, etc.). The new workplace should be designed to allow "me time" (phone calls, etc.) and "we time" (meetings, collaboration, fun). Companies must invest in engaging, user-friendly and smart technologies to support flexible work: laptops and video conference devices in meeting rooms for hybrid meetings. There should be a clear differentiation between the tasks done in the office or at home and the home-office ratio should be flexible. Working in the office should be favoured to exchange with other stakeholders, ideation, solution finding, workshops, meetings and lunch dates. Work-from-home should be more to work on or answer emails and participate in virtual calls or webinars. Finally, days in the office should be occasions for social gatherings and mingling. In that regard, Magasin du Nord emphasizes Friday drinks and office parties for instance.

Manor is a fair example of the efforts put into making the office attractive. They created a dedicated collaboration zone called "Atelier" for collaborative work and spontaneous encounters. They offer a cafeteria with a barista for coffee breaks. They have regular company lunches and celebrations (successes, farewells, etc.). Flexibility is a matter of work-life balance and has different meanings from one region to another. Uniqlo is a pioneer in the Asian market as they offer 2 days off per week to front workers. On its side, Breuninger is quite advanced and offers the “B Abroad” programme: assuming that it is feasible, employees can work 30 days per year from abroad (European countries).

There has always been a gap between front and back employees. However, the Academy group also mentioned the importance of flexibility for store employees. Term-time working offers different shift models to choose from. Mothers can work during the time kids are in school (e.g. female pilots at EasyJet and Marks & Spencer). Companies could also offer different work stints in different stores to reduce commutes. Home office could also be offered to store administrative roles. Job sharing could be proposed to moms after maternity leave like Marks & Spencer is doing. Finally, sales associates could also work from home if they are equipped with a cell phone and a clienteling tool.

Conclusion: a paradigm shift is necessary

When it comes to skills and talent, department stores are undergoing a significant transformation. Companies are now recognizing the importance of a holistic approach to talent management, valuing skills that encompass both technical proficiency and interpersonal capabilities. This evolution is not just about adapting to the changing market demands. It's about reshaping the workforce to be more agile, innovative, and responsive. The integration of new technologies and e-commerce, along with a heightened focus on CSR and sustainability, further highlights the need for a diverse skill set in employees. The IADS Academy underscored leadership and company culture as pivotal elements in driving this transformation. The emphasis on psychological safety, employee engagement, and a strength-based approach to management signifies a shift towards a more inclusive and supportive work environment. Moreover, the new recruitment and retention strategies highlighted by the IADS Academy, such as building strong employer branding and fostering a flexible work culture, are essential in attracting and retaining the best talents. These strategies not only cater to the immediate needs of the workforce but also anticipate future trends, ensuring that department stores remain competitive and relevant.

Finally, the IADS Academy recommend focusing on transverse skills to change the talent management approach, evaluate company culture with engagement surveys and reassess flexibility models. Bringing HR and marketing teams together is also seen as a game-changer in recruitment. Efficiency in talent management comes with the development of casual interviews, an increased focus on interns and part-time workers and an open door to alumni.

Credits: IADS (Christine Montard)

What: The HBR suggests a new methodology for CEOs to avoid being swamped with real-time crisis management of all kinds
Why it is important:  On average, CEOs spend 36% of their time in reactive mode, responding to unfolding events.

The article "Leaders Must React" by Nitin Nohria discusses a framework for responding to unforeseen events in leadership. The framework is illustrated through four categories of events: normal noise, clarion calls, whisper warnings, and siren songs. The theoretical concepts are connected to real-world examples of companies:

1. Normal Noise: Small issues likely to remain small. Leaders should avoid getting personally engaged and trust their organizations to handle these routine matters. An example provided is minor incidents like budget deviations or routine fluctuations in stock prices, which do not require the leader's intervention.

2. Clarion Calls: Significant issues likely to remain significant. These events demand concentrated CEO action and involvement due to their potential impact on operations and reputation. Examples include crises like catastrophic product failures or major macroeconomic events. Companies like Volkswagen, BP, Cambridge Analytica, and Boeing faced clarion call moments that required immediate and focused leadership responses.

3. Whisper Warnings: Small issues that might become significant. Leaders need to nip these potential problems in the bud before they escalate. Examples include emerging competitors, murmurs of employee dissatisfaction, or operational inefficiencies that could grow into major concerns. Failure to address whisper warnings early can lead to significant consequences, as seen in cases like Firestone tires on Ford Explorer SUVs and cultural crises at Uber.

4. Siren Songs: Significant issues that are likely to diminish over time. Leaders should avoid overreacting to these initially significant events that may lose urgency over time. Examples include Apple's "Antennagate," Microsoft's Vista operating system launch, and Starbucks' "Race Together" campaign. These situations may generate headlines but do not necessarily have a lasting impact on company performance.

By connecting these categories with real-world examples like those mentioned above, leaders can better understand how to respond effectively to unforeseen events in the business world based on the nature and potential impact of each situation.

A new time-management framework for CEOs

What: The resurgence of interest in brick-and-mortar stores among younger consumers has highlighted the importance of physical retail spaces not just as brand showcases but as essential revenue generators.

Why it is important: With escalating costs in rent, construction, and labor, it's crucial for retailers to optimize their storefront operations to ensure profitability. This involves strategic location selection, accurate sales forecasting, employee retention, and inventory management tailored to the local clientele.

The retail landscape has evolved significantly, with a shift back towards the value of physical stores amidst the digital shopping era. This case study, "The Art and Science of Retail Store Success," delves into the complexities of running a successful retail store in today's market. Initially, innovative concepts like inventory-free stores seemed promising, but practical challenges and changing market dynamics have necessitated a return to more traditional retail models that prioritize profitability.

Key insights from the case study include the necessity for retailers to be discerning during the leasing process, the importance of conducting thorough due diligence to accurately forecast sales, and the need to prioritize employee retention to foster long-term customer relationships. Additionally, the case study emphasizes the significance of managing inventory with precision and allowing stores the autonomy to adapt to their specific local markets.

Examples from various retailers, ranging from mass market brands like Uniqlo and Primark to luxury sellers like Elyse Walker, illustrate the diverse strategies employed to achieve retail success. The case study underscores that the most effective stores strike a balance between the art of creating an engaging shopping experience and the science of operational efficiency and financial management.

Case Study - The art and science of retail store success

Case Study PDF

What: Coresight reviews the pain points in retail organisations and how digitalization might be a solution.

Why it is important: according to them, AI might be the best tool possible to detect unexpected costs and deal with them.

The document, "Navigating Digital Transformation: Optimizing Retail Operations Amid Margin Pressure," discusses how global retailers are leveraging advanced software and technologies to address challenges related to cost and margin pressures. It emphasizes the importance of data-driven strategies, the integration of AI and ML for cost management, and the necessity of digital transformation to enhance operational efficiencies and customer experiences. The report outlines the critical role of technology in addressing issues like demand volatility, staffing challenges, and the complexities of margin management in a fluctuating economic landscape.

Report on the optimization of Retail Operations Amid Margin Pressure through digitalisation

What: This case study explores how Tapestry, parent company of Coach, Kate Spade, and Stuart Weitzman, leverages customer data, including both quantitative transaction histories and qualitative insights, to deepen customer understanding and drive business success.

Why it is important: In a retail landscape where collecting data is common but often underutilized, Tapestry's approach stands out for its comprehensive use of data to inform product development, marketing, and overall business strategies. This focus on understanding customers not just by their purchasing behaviors but also their beliefs and attitudes enables Tapestry to connect emotionally with its audience, a critical advantage in attracting and retaining consumers, especially among younger generations.

Tapestry's emphasis on customer data underpins its growth plan, incorporating not only traditional data sources but also immersive research methods to gain a holistic view of its consumers. This strategy has been instrumental in navigating market challenges, attracting new customers, particularly from Gen-Z, and supporting successful product launches like the Tabby handbag. While Tapestry has seen positive results, particularly with the Coach brand, challenges remain in extending this success to its other brands, Kate Spade and Stuart Weitzman, which have seen sales declines. Despite these hurdles, Tapestry's leadership remains committed to a data-centric approach, believing it to be essential for future achievements and setting a precedent for how brands can leverage customer data to foster deeper connections and drive business results.

Case Study- How to turn data into meaningful customer connections

Case Study PDF

What: The article discusses the challenges and decline faced by luxury department stores, focusing on the struggles of Swiss retailers Jelmoli and Globus, and the collapse of René Benko’s Signa Group. It highlights the broader issues within the luxury department store sector, including changing consumer behaviors and the unsustainable business models of these once-iconic institutions.

Why it is important: The decline of luxury department stores like Jelmoli and Globus, set against the backdrop of Zurich's wealth, signals a significant shift in the retail landscape. This trend underscores the difficulties of maintaining a luxury retail business in modern times, where even the wealthiest cities are seeing such stores falter. The collapse of Signa Group, which bet heavily on the luxury department store model, further exemplifies the challenges of adapting to the evolving retail environment. The article suggests that the luxury department store, a pioneer of modern consumption, may struggle to survive amidst the rise of online shopping and changing consumer preferences, raising questions about the future viability of this retail format.

Jelmoli is set to close its doors, transitioning into a mixed-use space, while Globus grapples with declining sales despite its prestigious status. This situation is emblematic of the broader challenges confronting luxury department stores worldwide, exacerbated by the collapse of the Signa Group, which had invested heavily in revamping and rebranding traditional department stores into luxury shopping destinations.

The narrative suggests that the allure of luxury and the infusion of substantial capital were insufficient to mask the inherent flaws in the business model of luxury department stores. Despite occupying prime real estate and attempting to transform shopping into an extravagant experience, these stores have struggled to adapt to the digital age, where consumers increasingly favor online shopping and direct purchases from brand boutiques.

The article posits that the decline of such stores in Zurich, one of Europe's wealthiest cities, may herald a similar fate for luxury department stores globally. It questions the sustainability of high-end retail in the face of changing consumer behaviors, the convenience of online shopping, and the economic pressures of rising interest rates and reduced disposable income. The piece concludes by reflecting on the historical significance of luxury department stores as pioneers of modern retail, pondering their ability to withstand the current retail challenges.

The decline of the luxury department store

What: Luxury brands like Gucci, Mytheresa, and Tiffany & Co. are adopting sophisticated strategies to engage and retain the top 1% of earners, a demographic that drives a significant portion of luxury sales.

Why it is important: As the luxury market experiences a slowdown, attracting and maintaining the loyalty of very important clients (VICs) is crucial for brands aiming to sustain growth. These ultra-wealthy customers demand elevated, emotional, and experiential engagements, making the competition for their attention fierce.

The luxury sector has seen a boom in spending post-2020, largely propelled by the ultra-wealthy, who are less affected by economic uncertainties. With the broader market now slowing, luxury brands are focusing more on the top 1% of earners, implementing targeted strategies to win over and retain these very important clients (VICs). Gucci, Mytheresa, and Tiffany & Co. have each developed unique approaches to deepen relationships with these elite customers:

• Gucci has introduced by-appointment stores and private floors in flagship locations, offering personalized experiences and exclusive products to its most important clients.

• Mytheresa enhances client loyalty through a series of high-profile events and collaborations, providing unique experiences that go beyond what money can buy.

• Tiffany & Co. focuses on ultra-exclusive high-jewelry offerings with an emphasis on personalization, allowing clients to commission bespoke pieces and experience unparalleled service.

These strategies highlight the importance of creating personal connections and unforgettable experiences to foster loyalty among the ultra-wealthy. By focusing on emotional engagement and exclusivity, luxury brands can differentiate themselves in a competitive market and secure long-term relationships with their most valuable customers.

Case Study, how brands sell luxury to the 1% (Article)

Case Study PDF

What:  Coresight provides a panorama of how AI can enhance dynamic pricing.

Why it is important: Dynamic pricing is going to be paramount in the future for department stores in order to tailor-made their promotions to each and every customer.

The report "Precision Pricing in Retail: AI-Driven Pricing Decisions for 2024 and Beyond" by Coresight Research highlights the challenges in price setting in the current volatile macroeconomic environment. It emphasizes the importance of achieving precision in price planning and setting to attract and retain customers while ensuring profitability. The global retail pricing optimization software market is expected to reach $1.6 billion in 2024, growing at a CAGR of 16.5% between 2023 and 2028[1].

Key points from the report include:

• Increased Macroeconomic and Geopolitical Volatility: Economic volatility, exacerbated by events like the Covid-19 pandemic, inflation, and supply chain disruptions, heightens pricing challenges. Retailers need dynamic pricing strategies leveraging technologies like AI to adapt to shifting shopper needs[1].
• Complexity of Pricing as a Connected Business Function: Effective price planning depends on integrating merchandising functions like promotion management and demand forecasting across sales channels and store locations. Lack of mature integration across these functions can hinder optimal price planning[1].
• Role of AI in Precision Price Planning: AI and machine learning can address challenges such as rule-based pricing limitations, inaccurate inventory planning, and rising costs. Leveraging AI enables retailers to analyze vast amounts of data in real-time for better understanding of shopper preferences and demand patterns[1].
• Structured Approach to AI-Based Pricing: Retailers can benefit from AI-based pricing software by managing end-to-end pricing throughout the product lifecycle. Following a structured approach involving clear pricing strategy, data integration, overcoming operational silos, and technology integration across functions is crucial for successful implementation.

The report underscores that retailers adopting advanced pricing solutions with a long-term strategy will be better positioned to navigate market dynamics, enhance competitiveness, and drive profitability amidst increasing input costs and demand volatility.

How AI can enhance dynamic pricing

What: Macy's is undergoing another restructuring effort under new CEO Tony Spring amidst challenges from activist investors and declining relevance in the retail market.

Why it is important: The retailer's struggle to appeal to consumers, especially younger ones, and to differentiate itself in a competitive landscape highlights the broader challenges facing traditional department stores in adapting to changing consumer behaviors and the digital marketplace.

Tony Spring, the new CEO of Macy's, faces significant challenges as he steps into his role, including pressure from activist investors like Arkhouse Management, which has launched a proxy fight following Macy's rejection of a USD 5.8 billion take-private offer. Despite Macy's storied history and once-dominant position in the retail sector, the company has seen a decline in relevance, with revenue 15% lower than a decade ago and one of its lowest full-year net incomes in two decades.

Spring's restructuring plan, "A Bold New Chapter," aims to close 150 Macy's stores, expand the Bloomingdale's and Bluemercury chains, invest in smaller format stores, and sell off real estate holdings. However, critics argue that the plan lacks originality and fails to address the core issues of product appeal and competitive positioning. Macy's is caught between luxury retailers and discount chains, with leading brands increasingly selling directly to consumers. Additionally, its lucrative credit card business faces potential challenges from rising delinquency rates and regulatory changes.

The interest from potential buyers in Macy's is largely driven by the value of its real estate holdings, rather than a desire to revitalize its retail operations. Analysts estimate the value of Macy's property portfolio to be significantly higher than its market valuation, with the flagship Herald Square store being particularly valuable. However, selling real estate to go private could expose Macy's to rising rent payments and limit its ability to invest in its core business, as seen in the case of Sears' bankruptcy.

In summary, while Macy's rejection of the take-private offer may be justified, the new CEO has yet to present a convincing strategy to shareholders that addresses the fundamental challenges facing the retailer.

Macy's turnaround efforts: a challenging path ahead

What: This white paper explores the integration of generative artificial intelligence (gen AI) into the fashion industry, highlighting its potential to revolutionize various aspects of the sector, from design and product development to marketing and supply chain operations.

Why it is important: With gen AI poised to add up to $275 billion to the operating profits of the apparel, fashion, and luxury sectors, understanding how to effectively incorporate this technology into the workplace is crucial for businesses aiming to enhance productivity, creativity, and competitiveness.

Generative AI is rapidly becoming a transformative force within the fashion industry, offering unprecedented opportunities for innovation across the value chain. McKinsey & Company's research suggests that gen AI could significantly boost the operating profits of the fashion sector by enhancing functions such as marketing, design, and product development. Despite the high expectations, only a small fraction of fashion executives feel prepared to leverage gen AI effectively, pointing to a significant skills gap within the industry.

To bridge this gap, businesses must adapt their job requirements and invest in upskilling their workforce to include competencies in gen AI programs like Midjourney and ChatGPT. This shift necessitates a reevaluation of workplace culture and technical support systems to ensure employees can maximize the benefits of gen AI tools.

The white paper features insights from global experts, including Rhianna Cohen, Jessica Couch, Cyril Foiret, Holger Harreis, Carl-Axel Wahlström, and Dr. Katia Walsh, who discuss the implications of gen AI for creative processes, equity promotion, and operational optimization. They emphasize the need for a digitally competent workforce and a supportive work environment that fosters innovation and adapts to the evolving digital landscape.

In conclusion, the successful integration of gen AI into the fashion workplace requires a strategic approach that includes skill development, cultural adaptation, and the implementation of supportive technologies. By addressing these areas, fashion businesses can harness the full potential of gen AI to drive growth, enhance customer experiences, and maintain a competitive edge in the digital age.

White Paper: incorporating generative AI into the fashion workplace (Article)

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IADS White Paper - Retail Media

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

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

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

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

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

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

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

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

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

From trade marketing to retail media

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

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

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

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

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

Retail media encompasses many different realities today

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

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

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

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

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

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

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

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

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

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

A tentative panorama of RMNs across the board, beyond FMCGs

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Credits: IADS (Selvane Mohandas du Ménil)

What: Another use case is proposed by Too Good to Go, which dynamically prices their goods according to the limit date.

Why it is important: No major change  in the business model due to AI should be expected before 2025. But in the meantime, the proliferation of use cases should enable retailers to grasp a few productivity points.

Too Good To Go is advancing the fight against food waste through the application of AI technology. Their 'Platform' application aids food retailers in managing excess stock more efficiently. For them, traditional in-store methods for checking expiry dates and pricing are often labor-intensive and error-prone.
The application encompasses five modules, with a key feature being the digital checking of expiry dates. It utilizes algorithms to generate lists of products nearing expiration, thereby reducing the need for manual checks by employees. Moreover, it offers actionable insights, such as recommending specific discount levels, which are conveyed via handheld devices.
Additionally, the application not only facilitates the allocation of surplus food to Too Good To Go's surprise packs but also integrates with external donation platforms like Food Banks. This new tool is currently being piloted by French retailer Monoprix in 250 locations, illustrating its practical application in a large-scale retail environment.

Too Good to Go trials AI inventory management

Printable version here

Introducing the NRF Big Show

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

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

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

US specific:

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

International topics:

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

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

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

Monetizing personalization through retail media

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

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

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

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

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

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

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

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

Key Takeaways:

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

The great transition: redefining retail and modern commerce

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

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

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

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

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

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

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

Key Takeaways:

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

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

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

Inflation was a hotly discussed topic:

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

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

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

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

The conversation ended with his views for this new year:

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

Key takeaways:

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

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

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

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

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

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

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

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

Key Takeaways:

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

Interesting stores:

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

Wegmans, 770 Broadway

Petco, Union Square

Crate & Barrel, 881 Broadway

Credits: IADS (Selvane Mohandas du Ménil)

What: RFID is the half-century-old tech that retailers still see as novel

Why it is important: much more than logistical advantage, it might be a solution for retailers falling prey to retail theft.

At NRF’s Big Show, retail executives emphasized the crucial role of RFID (Radio Frequency Identification) technology in enhancing merchandise visibility and tackling retail shrink and theft.
Key Highlights:

1. 1. RFID’s Growing Importance: Macy’s VP Joe Coll highlighted RFID as the most significant innovation in the past 7-8 years for the company, enhancing insights on retail loss and theft.
   2. Enhanced Inventory Management: Levi’s Kirsten L'Orange noted RFID’s role in achieving unparalleled inventory accuracy, essential for successful omnichannel execution.
   3. Cost Efficiency: The cost of RFID tags has dropped significantly, making the technology more accessible for retailers.
   4. Widespread Adoption: According to Accenture, 93% of North American retailers use RFID in some capacity. Retailers are increasingly finding products arriving in stores already tagged with RFID.
   5. Theft and Loss Insights: RFID provides critical data on stolen items, improving loss prevention strategies.
   6. Retail Shrink Understanding: The technology is instrumental in comprehending the broader spectrum of retail shrink, including theft, accounting errors, and vendor fraud.
   7. Emerging Use Cases: Beyond theft prevention, RFID offers broader benefits like tracking singular item movement, impacting restocking decisions and sales.
   8. Vendor Interest: NRF showcased various RFID technology vendors, indicating the technology’s increasing prominence in retail.
   9. Integration into Manufacturing: Major retailers like Nike, H&M, and Lululemon are incorporating RFID into their manufacturing processes.
   10. Retailer Adoption and Interest: The use of RFID is expanding, with companies like Radar leveraging the technology for inventory tracking across numerous retail locations.
   Overall, RFID technology is becoming an integral part of modern retail, offering detailed insights into inventory management, loss prevention, and enhancing overall retail efficiency.

RFID is the hot decades-old technology being touted by retailers and vendors