What:  Remote working is here to stay, and has changed the relationship between white collar workers and their employers.

Why it is important:  All employers, whatever the size, have to adapt and review in depth the way they approach teamwork.

According to the Financial Times, as knowledge workers spent less time in the office, they might become less loyal and probably increasingly interested in time spent with friends and family.

With work from home, work becomes more transactional and less social in the name of efficiency. As a consequence, if employees spend less time together, their social ties, both between each other and with the employer, will weaken. Simply put, “works becomes less important in our lives”.

Forcing employees to come back full time in the office is not the solution, as this might result in massive resignations, but adaptation is needed.

Hybrid work weakens loyalty 

What:  A critical review of the BNPL situation and what is means for retailers.

Why it is important:  This is not the first negative article on BNPL, however retailers should be more worried on an over-dependence on this mean of payment for strategic reasons rather than for fear of the public opinion.

The article reports that the BNPL solutions have risen in the US, from $3bn in 2019 to $55bn last year. Analysts believe that the momentum is going to continue as this is becoming a favourite payment method for younger customers.

However the Robin Report questions the benefits for merchants as well as the long-term sustainability of the business model:

• BNPL operators charge merchants between 1,5% and 7%, with an average between 4 and 6%. Credit card fees charge on average roughly half of this, as well as debit transaction costs. This is due to the fact that in the case of BNPL, merchants cover a financing cost, whereas in the case of credit cards credit companies make money on the balance carried from month to month by customers,
• BNPL is said to reduce cart abandonment and encourage customers to make bigger purchases, leading to incremental sales. However, in reality, BNPL solutions, if they allow to make one given day a bigger expense, puts a weight on the coming weeks and the customer’s capability to buy something else during that period. In addition it seems to be difficult to confirm the BNPL solutions’ contribution to sales increase.

While there are questions on the morality of the business model, The Robin Report mentions that there is a risk that delinquency rates explode in the US now that the US government stimulus measures are not here anymore to support spending. For retailers, the good news is that they do not support this risk, and for them, it is all about not becoming depending on this new credit tool to drive sales for a question of controlling strategic risks.

Buy now pay later: the jury is out! 

What: The demands of the pandemic have challenged customer loyalty and increased the value of paid loyalty programs for companies that do them right.

Why is it important: McKinsey’s latest research on consumer outlook showed that 35% of United States consumers have tried a new brand since the pandemic began and 77% have also tried new shopping behaviors, including new channels, stores, and brands. The reasons for the extraordinary shift include product availability and price, and the trend stresses the broader challenge to traditional loyalty models and programs. The shift away from points-only loyalty programs was already well underway when the crisis hit. In this new concept, paid loyalty programs offer an attractive option for companies both to attract new customers and to shore up long-term customer value during a tectonic shift in consumer loyalty and preferences.

Members of paid loyalty programs are 60% more likely to spend more on the brand after subscribing, while free loyalty programs only increase that likelihood by 30%. Paid loyalty programs also drive higher purchase frequency, basket size, and brand affinity compared with free loyalty programs. Paying members are thus worth several times more than nonpaying members, even setting aside revenue from membership fees themselves.

Paid loyalty:

Paid loyalty programs can resemble traditional loyalty programs with just one small catch: a participation fee. Paid programs have a higher burden of proof to acquire customers, but they typically obtain higher customer value from those who sign up. When done right, paid loyalty elevates the overall consumer experience, delivering customized, high-value rewards and drawing the consumer into an exclusive community oriented around a shared brand promise or offer.

When paid loyalty makes sense:

Paid loyalty programs will suit some industries and business models more than others. Here are two business objectives that paid loyalty programs may help accomplish:

1. Funding premium rewards that are too expensive to offer more broadly: Some companies have responded by quietly paring back or devaluing their loyalty offerings, a solution that only serves to exacerbate the problem by leading consumers to engage less with the brand. On the other hand, some winning companies are shifting the loyalty paradigm itself by bolstering their offerings and charging customers an access fee to help fund more-expensive premium benefits. As an example, Lululemon’s paid program offers members free goods, exercise classes, and exclusive digital content as part of its $128 subscription fee. While Lululemon’s program is still being piloted in select cities as of 2020, the company has touted its early success. Lululemon CEO Calvin McDonald indicated that the program’s results have exceeded expectations in every pilot market to date.
2. Locking in customers in a highly fragmented or undifferentiated line of business: Some companies have responded by quietly paring back or devaluing their loyalty offerings, a solution that only serves to exacerbate the problem by leading consumers to engage less with the brand. On the other hand, some winning companies are shifting the loyalty paradigm itself by bolstering their offerings and charging customers an access fee to help fund more-expensive premium benefits. As an example, Lululemon’s paid program offers members free goods, exercise classes, and exclusive digital content as part of its $128 subscription fee. While Lululemon’s program is still being piloted in select cities as of 2020, the company has touted its early success. Lululemon CEO Calvin McDonald indicated that the program’s results have exceeded expectations in every pilot market to date.

In industries where multiple companies offer comparable products, and where environmental considerations, such as location or hours, may otherwise override brand preference, paid loyalty’s up-front pricing can help a company lock high-value customers into its ecosystem and reduce brand switching. For instance, the CVS CarePass program, which charges a $5 monthly fee, offers its members 20% off all CVS Health brand products in addition to premium services like free shipping and a 24/7 pharmacy helpline. Brands struggling to compete in a highly fragmented or undifferentiated market should consider paid loyalty as a means of acquiring consumers and creating an economic loyalty loop, where the paid features make it unfavorable to switch brands.

Getting paid loyalty right

Paid loyalty can suit several business needs, but the program must be designed with care to ensure value for both the brand and the paying customer. Based on consumer surveys and research into existing programs, we suggest there are three primary factors on which paid loyalty programs must deliver:

1. To drive sign-ups, benefits must clearly outweigh fees: Paid programs typically offer enticing benefits, but the sign-up fee can be a psychological barrier for some customers. If you’re going to charge, you must proactively demonstrate your value.
2. Retaining customers rely on offering more experiential advantages: Hard-value benefits like discounts and free products may hook consumers into the program, but they are not enough to retain them. Brands must use the membership fees to invest in exclusive offerings with more emotional resonance, such as access to personalized experiences or members-only content.
3. Keep engagement levels high: It is critical to win the subscriber early and continuously, offering benefits that can be used immediately upon sign-up and frequently thereafter. Retaining customers past the critical first renewal requires brands to adopt more nimble and everyday means of rewarding their members, as well as a robust marketing program to keep them engaged.

Brands that successfully execute the pivot to paid loyalty programs will open a new element of surprise and delight to their strongest customers. In a world where personalization is the frontier of consumer engagement, paid loyalty is a winning strategy.

Paid loyalty programs bring consumers back to brands

What: BNPL is becoming more and more popular at it is seen efficient, cheap and modern.

Why it is important: A quarter of UK adults and 35% of millennials who used BNPL missed payments and were charged interests. This phenomenon is generalizing and attracting the attention of regulators everywhere in the world.

An estimated £2.7 bn has been spent through buy now pay later solutions in the UK in 2020, and researchers mentions that the market have more than doubled in 2021. This solution, that allows to delay or split the cost of purchases without paying interest unless they miss a payment, is becoming more and more popular and quasi all brands propose this solution in the checkout options now.

However, FT ponders if such a growth is not a danger for the younger and more vulnerable customers, who might be drawn to spend more than they can afford, especially given the lack of credit checks. They might not be even realizing that they are taking on debt, and do not consider the prospect of missing payments (which is the case: a third of millennials who have used BNPL have been charged with late fees, and a quarter of the UK adults).

Everywhere in the world, regulators are scrutinizing this market: a consultation has been launched in the UK, the US has requested BNPL players to provide them with information on, their business practices, for instance. Advertising BNPL service might also become more and more difficult in the coming months.

Concerns over the Buy Now Pay Later boom 

What: Coresight’s estimates for the US department stores market in 2022.

Why it is important: More concentrated, less fashionable, more oriented towards cosmetics and home, and, above all: digitized (50% of sales achieved online). This might suggest also that US department stores might have to rethink their relationship to luxury brands.

Coresight estimates that the US department store market will decline in 2022, after a strong rebound during 2021 due to a revenge shopping effect (sales +26,6% vs. 2020), leading to a -9% performance in 2022 compared to 2019, and an excepted -16,1% in 2025, for a total market size of $80,2 billion. Leaders are Kohl’s, Macy’s and Nordstrom, representing a consolidated market share of 75% of total market, for an estimated $58,6 billion, -3,7% compared to 2019.

E-commerce is the core topic, as it is expected that it will represent 39,6% of overall sales and explains why Coresight mentions that this is the “next frontier” for department stores. The challenge is all about maintaining physical store sales and growing online sales at the same time. For Kohl’s, online sales represented 28,3% in 2021 and expects to achieve 40% in 2023. For Macy’s, e-commerce represented 36% in 2021, and for Nordstrom, 50%. Coresight estimates that the total e-commerce penetration for department stores shall reach 40% in 2022.

Also, Coresight expects the apparel category to become less important, and paving the way to Beauty, home and toys.

The 3 strategic themes they have identified are the following:

• Virtual selling: using virtual tools (chat, virtual consultations, livestreaming) to engage with customers and increase ecommerce sales. For instance, Nordstrom introduced a virtual chat function which allows to customize product recommendations, and launched a livestream platform, followed by Macy’s.
• Category expansion:  new categories are expanding since apparel is getting more difficult to operate (due to a mix of sociological changes, new customer demand, but also new relationship paradigm with brands). Beauty ($7,2 bn sales at Macy’s in 2020, $1.3 bn sales at Nordstrom), Home and Toys are the new categories to watch, and new initiatives have already been sparked: Kohl’s partnering with Sephora, Macy’s with Toy”R”us, and Nordstrom expanding in the pet category.
• More efficient supply chains, with a specific attention to the fulfilment process (using stores to fulfill orders, last mile, self pick-up and self returns).

An overview of the US Department stores market 

What: Days are gone when a pinball machine was enough to attract top talents. Now a sound strategy is needed to stand out on the market.

Why it is important: Department Stores suffer from both a poor image of the retail industry and the belief that their often historical and respected name is sufficient to attract talents.

Employer branding is increasingly important in a world where talent is becoming scarce and potential applicants have choice (all the more that retail is perceived as less appealing than other industries, such as tech, for instance). It is not about perks now perceived as gadgets, such as pinballs or juice bars, but a real strategy based on 3 pillars:

• Reputation: which is fostered through social media. Reputation can be evaluated by applicants according to the three Cs: Career catalyst (will I move my career forward by working here?), Culture (work environment), Citizenship (impact on the community and society at large).
• Proposition: what is the “give and get” that applicants will receive? Transparency and honesty here is central as overpromising might be damaging to the employer brand. For instance, Tesla suffers from a bad perception of the employer brand among its former employees, who make it known.
• Experience: the employee experience is extremely valuable and solidifies (or not) reputation. It is somehow a one-way process, however: if the employer brand is sitting at the top, top candidates might overlook a poor experience, but in the case of a poor brand, even the best-in-class experience will not  help to recruit the best talents. The employee experience is directly dependent on the ability to deliver an Employee Value Proposition as expected.

Employer branding does not rely on gadget decisions, on but on a matured strategy helping to stand out in a competitive environment.

Make your employer brand stand out in the talent marketplace 

What: Customer lifestyles are drastically evolving and the pandemic continues to influence customer purchasing priorities and penetration in the omnichannel environment, which is affecting assortment mix and demand at each location.

Why it is important: This is creating new challenges for retail operations, including a particular demand for agile merchandise planning and supply-chain processes. These activities require frequent decisions on product assortment, store, and floor-space allocations. Such decisions are not new but they are now occurring outside of typical planning cycles and with less data to guide them.

Retailers are redefining their customer strategy, promise, and journeys based on an accelerated omnichannel environment in a disrupted retail industry. They are rationalising their assortment profiles and principles by channel, analysing their online and bricks-and-mortar ranges, and ordering allocations and product space by location.

The Work From Home phenomenon

Remote working created spikes in demand for product categories and high demand in new locations, with no historical data or trends to help prepare for this change. While the trend of working from home is expected to continue, the spikes in sales and locations have eased and retailers have established new buying patterns – but the volatile environment still exists, as the impacts of the pandemic are constantly changing.

Having adjusted for the impacts of working from home and a migration away from city centres, retailers are establishing their competitive advantage by focusing on customer experience strategies. Managing omnichannel complexities is how retailers will deliver on their customer promise and expectations.

The complex shift to omnichannel

With the online business rising, retailers will reshape their online product profiles and reconsider their store footprint for products and categories. It is predicted that, by 2024, up to 10 per cent of floor space will be repurposed in department stores as the shift to omnichannel continues.

Retailers are finding omnichannel fulfilment complex. Merchants must adapt their allocation and replenishment models to support total demand, rather than basing them on sales units by location. The challenge for retailers is to adjust allocation for efficient and profitable fulfilment through the most appropriate methods, to prevent unbalanced inventory by store.

Customers’ evolving expectations

Click-and-collect and curbside pick-up are now terms widely used in homes. Home delivery has increased, with the parcel carrier acting as an extension of the retailer. Leading retailers are establishing a competitive advantage by responding with agility in their operations and re-emphasising their customer-first approach across the entire organisation. This requires the whole business to buy into a seamless, end-to-end customer-centric view.

The supply chain and last mile delivery are playing a key part in the customer journey and the after-purchase experience is important, too. This creates an added complexity for the omnichannel promise to the customer.

Retail’s new range: The evolution of merchandise planning

What: In the customers’ eyes, fast deliveries might be less important than possibility to choose the delivery date and time slot.

Why it is important: Fast and ultra-fast deliveries are costly and put organisations on strain. If it appears that this attribute is not even that important, compared to other options, to customers, this learning might bring some fresh air to department stores and help them to focalise on the quality of the delivery, not its speed.

The Covid-19 pandemic modified the way customers shop, as in 2020, online buying accounted for 18% of worldwide retail sales, from 9% in 2018. This has naturally led all retailers worldwide to rethink their omnichannel strategy and make sure they are efficient in terms of speed of delivery. This, of course, severely impacts their financial structure as fast delivery is a costly feature which needs to be integrated in a price structure which has not changed from the customers’ point of view.

MITSloan helped a grocer to make proper choices about inventory location in order to minimize time between placement of online order and its receipt. When questioning the very basis, i.e. the assumption that the delivery needed to be fast, the study showed that customers have different approaches when it comes to choosing between having to pay for delivery speed, delivery precision or delivery day choice.

The methodology was based on the past sales analysis of a grocery chain, comparing what was ordered, the available home delivery time shown to the customer and the slot finally selected. It showed that Speed is not the only or the main criteria for choice. Indeed, customers value the time slot precision (duration of the delivery time window) as well as the day choice (availability of times slots across days of the week).

On average, a customer is willing to wait 10.8 hour longer for a delivery if the time window is an hour shorter, and 7.5 hour longer is the delivery can be received on a preferred day of the week. It also goes with the order value and basket size: customers with large baskets are willing to pay more to improve delivery by one hour, for instance.

Now that panic-buying, induced by the pandemic, is over, retailers needs to analysis the data and understand the delivery attributes that drive loyalty and repeat purchase, instead of trying to align with bigger players which might not either have the right approach.

Online shoppers don’t always care about faster delivery 

What: An essay on the reasons why adding healthcare centres in retail spaces might be relevant in the post-covid world.

Why it is important: Some IADS members have already made some significant steps into this direction, such as El Corte Inglés.

Healthcare is viewed by the author as one of the few activities where in-person will remain relevant, even when it is possible to have appointments and therapy online. This is the reason why several retailers in the US focused on health, such as CVS (expanding a retail concept dedicated to primary care), Walgreens or Walmart.

In addition, this creates additional opportunities:

-    Veterinary services are also relevant in a world where many customers own a pet,

-    Such spaces could also be leased by medtech startups, eager to test and try their concept in real conditions.

It should be no surprise that Selfridges is launching its own array of wellness services this trimester.

Healthcare might be as asset for retail spaces 

What:  Department Stores are increasingly upping the game in terms of restaurant quality, to become top destinations.

Why it is important:  It is not about simply allowing customers to spend more time in the store, but really to add to the appeal of the store by including a high level restaurant designed as part of the store experience (and desirability) itself.

Several major department stores are taking fine dining to the next level by opening restaurants right in the middle of the store, between brands, such as Adesse, the new vegan restaurant at Selfridges. It is not about reverting to old dining halls, but to contribute to an elevated experience for a store seen as a ‘social place’. This is also the reason why a branch of Pizza Pilgrims opened in the store (with the dough produced on site) or a new Starck-designed restaurant at Saks Fifth Avenue, Palette at Bergdorf Goodman, or the whole food offer at Harrods, which tends to become less a grocery space than a collection of elevated restaurants.

The goal is to become a “global dining destination”, which presents the advantage to also be extremely appealing for local customers.

Could fine dining be the future of department stores? 

What: Virtual fitting rooms have been positioned so that retailers can boost online sales and lower returns, but they have largely failed to gain meaningful traction.

Why is it important: Tech companies, retailers, and investors are optimistic about AR and AI-powered fit-tech because of pandemic-induced shifts in habits, technological development, and brands’ desire to differentiate themselves. But in order to take, brands and retailers need to think about how to make these virtual fitting rooms more exciting and an experiential proposition for their consumers.

As long as e-commerce has existed, the consumer frustration with finding the right fit has as well. Tech companies have promised virtual sizing solutions to boost sales and reduce returns and now, companies can produce more integrated, all-in-one fit recommendation and visualisation experiences, said Cathcart. Priorly, 3DLook separated out its fit-and-sizing and its virtual dressing platforms. To embed itself further into the consumers’ discovery on social media, and desire to show off clothes on the site, it will launch a new plug-in that lets users share their try-ons across social media.

The challenges with implementing virtual fitting rooms are still the high costs and low adoption rates. Virtual garments are difficult to render and fit is subjective. A lack of data surrounding fit preferences for different materials and styles often means brands will have to strategise where they put the tech first, such as initially offering it only for their most popular items or most loyal customers as a sort of test to gather data and improve results.

To change habits and convince consumers to adopt the tech in the long-term, retailers will have think of creative ways and offer consumers something more than a discount in terms of experience need to think about creating extra experiences surrounding them. For example, an in-the-metaverse gamified experience, or something that replicates the feeling of entering a dressing room.

How to inspire consumers to use virtual fitting rooms?

PRINTABLE VERSION HERE

Gen Z customers, the new Holy Grail

Today, Gen Z favoured brands are highly addictive and successful due to their interesting offer, convenience, affordability, and seamlessness. But as these players focus in on finding a service that sets them apart, it makes it difficult for more traditional retail formats, like department stores, to stay relevant in the eyes of young shoppers. In fact, retailers can no longer only focus on an interesting offer, they must now offer perfect logistics, seem sustainable, and provide a unique experience. How should retailers respond to these incumbent brands as they change the DNA of the retail business? What exactly does it take to generate an interesting offer and experience for this next generation of shoppers?

A look into hot Gen Z brands: not everything is perfect, despite generational claims

It is important to have a look at three popular Gen Z brands and how they are appealing and winning over young shoppers. As sustainability has been noted as an important factor that impacts Gen Z’s decision making, it is worth noting that some brands are successful despite their level of sustainability. Taking into account how sustainable they are, we can label these brands as the good (Deciem), the bad (H&M), and the ugly (Shein).

The good: Deciem

First, it is worth looking at a popular retailer among Gen Z shoppers, the Canadian beauty brand, Deciem, which has gained a cult following on TikTok for their skincare line, The Ordinary. The reason that it has become such a hit is because it is affordable and offers tried and true ingredients. Deciem has taken the approach of taking basic ingredients and offering them at a fair price, in a space that is typically overpriced with mark-ups.

On top of their successful products, the skincare retailer has also challenged shopping trends that promote overconsumption, such as Black Friday. In 2020 they shut down their stores and websites during the entire Black Friday weekend. And in 2021 they allowed stores to remain open, but did not offer any products to be available to encourage connections over transactions. This year, they even offered a sales event online called “SLOWvember” for the entire month of November, rather than a flash sale, to allow customers the necessary time to think before they buy. This is exactly the rebel stance that Gen Z shoppers are looking for in a company.

The bad: H&M 

Then we have H&M, a prime example of a fast-fashion player that is seriously playing to Gen Z’s accelerated sustainability awareness. Shockingly, H&M was named the most transparent brand in the 2020 Fashion Transparency Index, but how can this be? H&M’s business model is known to be the epitome of fast fashion, using materials that don’t last and that are not recyclable, thus contributing loads of textile waste to landfills each day. In this context, transparency simply means that H&M has disclosed credible and comparable data about their supply chains, business practices, and the impacts these practices have on their workers, communities, and the environment. However, being transparent does not make H&M sustainable in the least bit. They are still a fast fashion brand that is exploiting cheap labour leading to the fast turnover of merchandise with large profit margins.

Nevertheless, H&M has been making efforts to be more sustainable, or so it seems. As sustainability is trending among younger shoppers, H&M has made ‘circularity’ the centre of their recent ad campaign, introducing their new collection that is made with ‘cutting-edge recycled and recyclable materials.’ The retailer also set up a recycling program within its stores and launched a resale site. H&M claims that they hope to use only recycled and sustainably sourced materials by 2030, but they have a long road ahead. H&M’s production rate is only second to Zara’s, selling roughly three billion garments a year! H&M is a major GenZ retailer because they can check off the “sustainable” box while at the same time delivering affordable fashion trends to help young shoppers achieve their unique “look.”

The ugly: Shein

The global pandemic led to the emergence and acceleration of purely digital players such as the Chinese fast-fashion retailer, Shein. Shein has revolutionised the fast-fashion world. In fact, we are no longer speaking of fast fashion, but of ultra-fast fashion. It has changed the retail landscape by offering Gen-Z shoppers infinite amounts of items that are all exceedingly cheap and can be delivered within 6-8 working days. In order to satisfy young shoppers' desires to have a wide range of choices and to stay trendy, Shein launches 30,000 new products per week and knows how to identify market trends faster than any of its competitors. Shein has grown in success through social media accounts such as TikTok which encourages a constant stream of marketing efforts to be able to influence shoppers. In fact, Shein offers major discounts on the most sought-after pieces discovered through influencers. The Shein obsession is causing issues for other retailers, almost as Amazon has done, by offering a fully digital service, and providing very cheap fashion articles with super rapid fulfilment.

According to Benedict Evan’s end of year presentation, Shein is now the largest US fast-fashion retailer. Other retailers, not only fast-fashion brands, are unable to compete with such services while being able to conduct a profitable business. Shein is taking over Gen Z shoppers as they offer affordable trendy styles, advertise to them through everyday social apps, while offering speedy delivery. But with Shein, the sustainability piece is definitely missing.

What are the “dinosaurs” (department stores) doing on their side to attract Gen Z?

Department stores are not staying idle in front of this new competition. They are working on offering Gen Z a wider range of sustainable fashion brands that are affordable at the same time. Galeries Lafayette and Printemps have both taken a firm step forward in the sustainability space. Printemps has showcased a circular fashion floor, including a vintage department where customers can sell secondhand items in exchange for store credit. Galeries Lafayette unveiled an entire (RE)STORE floor with both responsible and affordable brands, exploring recycling and upcycling offers, mainly intended to appeal to all of Gen Z’s desires. The space also features a second-hand corner, as well as a vintage department where customers can resell items, showcasing the different facets of implementing sustainability.

Organising such floors and services brings in these young shoppers to explore an area that feels more familiar to them, versus the overwhelmingly pricey offerings on other floors. Gen Z is no stranger to thrifting their clothes and taking the time to dig out a treasure. As much as they like instant gratification, they are also willing to take the time to search for something unique. Thrifting is in fact an affordable and sustainable alternative to fast-fashion and fits the expectations of Gen Z’s price point very well. As trends have a tendency to go full circle, thrifting is an interesting way for Gen Z to obtain a new look, checking both boxes of affordable and sustainable. Creating dedicated spaces for young shoppers with curated products and services is the perfect way to appeal to the experiences that Gen Z shoppers value when visiting a store.

As Gen Z shoppers are interested in achieving certain luxury looks for a lower cost, another innovative concept is the upcoming launch of Nordstrom’s “See You Tomorrow” shop, a luxury brand resale service. Nordstrom’s approach will be novel in the fact that they will be using lightly used and returned inventory that can’t be sold as new any longer. The items will be cleaned and repaired if needed before being added to the new shop. This service is a natural fit for Nordstrom as they have a very relaxed return policy, therefore this new offer will allow the retailer to reduce their overstock as well as achieve better margins on unsold or returned items. It will also allow Nordstrom to attract a new type of customer, probably younger, as the price points will be more affordable for luxury goods. Similarly, we noticed the same trend at Tech for Retail with re-commerce solutions that can help retailers set up plug-and-play resale shops that will attract new shoppers while giving the retailer a piece of the second-hand margin and maintaining control of branding in the resale market.

An upgraded offer is not enough: to be competitive, department stores must re-engineer several fields of operations

For a more behind the scenes example that is virtuous, yet could entice Gen Z’s luxury appeal at the same time, Farfetch recently launched a pre-order service that partners with brands to allow customers to order looks four weeks in advance which will then be produced based on the number of orders. This initiative will reduce the amount of inventory and waste created by the industry by cutting out any excess products, which is appealing to retailers as the management of inventory is streamlined and brands can get insights on which products might be the best sellers to prepare for re-orders sooner than usual.

Let’s not forget that all these examples are only possible if you have a great supply chain. If retailers want to compete with ‘the ugly’ players such as Shein or Amazon, they will need to be able to have complete control of their logistics arm. El Corte Inglés understood this threat and has already diversified their business through the creation of a logistics subsidiary that will compete against DHL and FedEx and allows them complete autonomy in this area and will be one of the major axes of growth for the retailer in the coming years. Young shoppers want to be served quickly with free delivery and returns as a prerequisite. In order to compete nowadays, the logistics side of the business needs to be efficient.

In order to stay relevant with Gen Z shoppers, department stores need to learn from Gen Z favoured brands such as Deciem, H&M, and Shein as they each give something more than just an interesting offer. Essentially, department stores will need to rethink their working model with add ons such as seamless logistics, a focus on incorporating sustainability at the core of the business through offers such as resale, and creating a space for young shoppers to feel ‘at home’, curated specifically to their wants and needs.

These operational add ons that work behind the scenes will create the environment and experience that Gen Z shoppers demand. Without such changes, department stores will be easily left in the dust by young consumers, especially as new and trending brands start to offer and specialise these kinds of services and experiences. It is important for retailers to understand that there will be a necessary evolution to the basics of the business if there will be any hope of keeping fickle Gen Z shoppers interested in their brand and products.

It is clear that department stores are having to tackle trends that Gen Z players have imposed. Gen Z themselves are having to find a balance between affordability and sustainability while trying to obtain luxury items to achieve a certain look. In order to offer such a balance, retailers will need to think outside the box for new initiatives that could potentially lead to new margin opportunities, attracting different and new types of customers, while fighting against industry issues such as overconsumption at the same time.

Credits: IADS (Mary Jane Shea)

What: Coresight reviews with SAP the options at hand to increase profitability on returns, which are usually dragging P&Ls down.

Why it is important:  There are several options which imply to distanciate from the  mainstream  options proposed, among others, by the market leaders who have the possibility to sustain the losses incurred by these options. This requires at the same time a strong branding and a real added value proposal to be accepted by final customers.

According to the NRF, retail returns in the US represented $761 billion in 2021, or 16.6% of total retail sales in the country, to be compared to 10.6% in 2020. This increase is mainly due to the increase of e-commerce, which contributes to increasing the return average since its own rate sits at 20,8% of total e-commerce sales.

For Coresight, retail returns affect consumer sentiment and loyalty as return policies are now scrutinized by customers before shopping (and, in some cases, customers are asking for a sustainable policy, which raises the costs). In order to remain profitable, several options are at the retailers’ hand:

• Disallow returns, such as offering discounts in exchange of keeping the product
• Offer returnless refunds, (these options are optimal when the cost of shipping, repackaging and restocking the item exceed the sale price of said item),
• Bundle returns to reduce costs and enhance sustainability (often by enticing customers to bring back the product to physical points),

Of course, the best method to prevent returns is to use data from previous returns to make the proper analysis and identify reasons for returns (manufacturing issue, ordering and merchandising issue, etc…).

How to seize the opportunities in retail returns 

What: Automated warehouses are no longer nice to have, but crucial on the long range.

Why it is important: Bots will help dealing with demand spikes and limit the need of additional workforce (and the related costs), however companies should not expect to take down human costs in warehouses as the generalisation of robots will lead to the appearance of new jobs, which will be probably better paid than today.

The Economist reviews the latest evolutions in terms of robotic warehouse equipment and their consequences. Even though robots allowed Amazon to weather the Covid-19 crisis and the hike in terms of delivery, there were not enough to prevent the company being forced to have temporary workers in addition to its fleet (leading to increased spending in pay in order to attract them). In other words, McKinsey mentions that “automation in warehousing is not longer just nice to have but an imperative for sustainable growth”.

As a corollary consequence, not only more machines are needed, but more specialized ones too, or responding to new specifications. For instance, Ocado has developed the 600 Series, almost entirely build with 3D-printed pieces, decreasing its overall cost of production and weight, thus increasing its battery time. 600 series units operate in closed areas, known as “hives” and their new fabrication method allows such hives to be built in weeks, not months, at a lower cost, paving the way for city centre local fulfilment units.

Amazon on its side is refining its historical Kiva robot and upgrading it to pack more goods and be more efficient in smaller fulfilment centres. Exotec, a competitor, has developed “Skypods”, robots able to crawl along 12m up the shelves, maximizing the space value. They already equip Carrefour, The Gap, and Uniqlo.

Of course, such robots are designed to work in close circuit. Whenever robots need to be working alongside humans, new specifications and new security measures are to be implemented, sometimes leading to less efficiency and increased cost.

According to The Economist, this is an ongoing revolution which will have significant consequences in terms of job opportunities, however this shall not be seen negatively, as, and previous evolutions in the industry showed it, this new industry will give birth to new skills needed and new jobs. For instance, once telephone switchboards got automated, all operator jobs disappeared, but in the long run the number of jobs in the telecom industry soared.

The bots taking over the warehouse 

What: Work from home creates new tensions that need to be taken into account by leaders in order to make them sustainable for all members of the team.

Why it is important: It is all about equality, showing example, and taking into account the differences, especially for the most vulnerable class of workers (women, mothers).

With the development of remote working, new usages appear, but also new tensions, that could be detrimental to the most vulnerable class of workers. The Harvard Business Review goes through 3 tensions created by the hybrid workplace and explores ways to overcome them.

Tension created by the opposition of working anytime vs. all the time: there is a difference between giving individuals the chance to work when they choose and imposing an expectation that they be available all the time. This can feel especially heavy to carry for women having to deal with family and work. In order to offer an alternative, leaders should offer the flexibility to choose when they work, but also making clear that there should be times when they’re offline (by limiting communications, or having company-wide no work times).

Tension created by the opposition between isolation and invasion: for many employees, the office brings connections with others, and offers the chance to interact. Trying to reproduce the connection online can give to some the feeling to be invaded. It is recommended to leaders to institute moments of exchanges about non work related topics, in order to share personal experience and reinforce the bond.

Tension created by the opposition between what is possible and what is preferred: corporate organisations tend to favour individuals able to work all the time, which comes as a conflict with the notion of working from home, which provide flexibility (especially for women). As a consequence, a flexibility bias  has developed pre-pandemic, making leaders feel that flexible positions were less interesting and inspirational than being all the time in the office. As a consequence, to combat this bias, it is key that organisations set the example, by avoiding having different systems among the teams.

How to deal with hybrid workplace-induced tensions 

What: A quarter of the population will be daily involved in the metaverse in 4 years’ time.

Why it is important: It is time for retailers to start looking at the metaverse, however not too heavily, as it is not clear yet on which platform investments should be made.

According to Gartner, 25% of people will spend at least one hour of shopping, entertaining, or education, in the metaverse by 2026. The consultancy company explains it by the fact that these activities, which are already taking place digitally, will be increasingly aggregated in a single platform, or a reduced number of them, thus giving de facto birth to the metaverse (which already exists by other criteria).

Because no single vendor will own the metaverse, Gartner expects it to have a virtual economy which will impact every business consumers interact with every day. It will also impact how work gets done, as better engagement, collaboration and connection is to be expected too. According to Gartner, 30% of companies will have products and services ready for the metaverse.

However, since the technology is nascent, Gartner cautions organisations about heavily investing in a specific metaverse, as it is still too early to know which investments will be viable in the long term.

![ARTICLE 25%

25% of people will spend at least an hour per day in the metaverse by 2026 

What: Coresight takes stock from what happens worldwide to draw learnings for the US market.

Why it is important: While the US is all about scale economies and reach, other department stores companies in the world take a more granular approach allowing them to keep a distinctive positioning and flavour on their market, which is increasingly not the case in the US.

Coresight reviews the strategies spotted everywhere in the world to draw conclusions and learnings for the US department stores (which lost an estimated 33,2% turnover in 2020 and 15,4% in 2021). Interestingly, there are no revolutionary conclusions, but concrete best-in-class examples, including from IADS members. The 5 conclusions Coresight draws are:

• Offer local services as this is ideal to increase local loyalty, by extending in-sort offerings to online services. Coresight cites Galeries Lafayette and the launch of Gourmet, the online food-delivery site, last November 2021,
• Expand into new services, including in non traditional retail services (healthcare, furniture rental), to attract a new customer base. For instance, Marks & Spencer announced the launch of optician services in 55 branches where customers will have access to services and consultations, in addition to products (including frames produced by Mars & Spencer as a private label). According to Coresight, satisfaction level is nearing 96%. John Lewis is also mentioned for the furniture rental service launched in 2021, in partnership with Fat Llama.
• Engage with customers through live selling, such as in China where live selling has helped to regain lost sales during Covid-19, and at the same time attracted new and younger customers. However, live selling is not the only solution as virtual services can also be interesting, as exemplified by John Lewis: virtual nursery appointments, virtual home design, virtual styling.
• Offer fast and free delivery, as exemplified by El Corte Inglés with their annual and unlimited subscription-based delivery service,
• Invest in the circular economy, with resale and rental services seen as must-have categories to be attractive to younger customers, and as exemplified, according to Coresight, by Harvey Nichols, Printemps and Selfridges.

![US DEPARTMENT STORES

What the US department stores can learn from the rest of the world 

PRINTABLE VERSION HERE

At a time when travel is continuously restricted for many of our members, the reopening of the US borders before Christmas, as well as the NRF event in January, to which the IADS attended, felt like the perfect occasion to prepare a special retail review to give you a glimpse of what’s happening in New York retail, including comments and pictures for your review.

Are brands still innovating in New York, the city once seen as the retail mecca? What are the most interesting stores to visit? While Covid has had a major effect on retail everywhere, what are the impacts of the pandemic in New York?

Great and immersive experiences

Fashion and beauty

Gucci in Soho, is an immersive and impressive store that comes off as ultra-luxe and ultra-cool at the same time. On the second-hand side of luxury, TheRealReal Soho store is also impressive, thanks to staff competence, product curation, and a feeling of being in a “real” luxury multi-brand store with perfect presentation. It seems the concept is a success as it was one of the most crowded locations, with people buying and not just browsing. Interestingly, the store staff focuses on inviting customers to sell their belongings more so than to return for another purchase. LVMH recently invested in Aimé Leon Dore, the new cool kids brand. The store, perfectly located in Nolita, includes a café and a terrace outside. The store is usually crowded, giving off a great impression, and looks like a mix between Ralph Lauren and rap lifestyle. On the beauty side, Ulta in the Upper East Side feels very bright compared to Sephora thanks to the all-white atmosphere. More importantly, the perception is more immersive than Sephora, as Ulta provides a full beauty appliances section and a beauty salon.

Sports goods 

Nike stores are all about experience. Nike studio was closed however, both Nike midtown House of Innovation and Flatiron locations were extremely crowded with waiting lines filled with local shoppers willing to buy full price goods. Overall, the staff was welcoming, polite and competent. At the REI store in Soho, although the impression is quite messy due to click & collect, the immersion feeling is very strong.

Tech and home goods

The Google store in Chelsea is also immersive and almost better than Apple in terms of experience and comfort. The organisation of their cabins to experience products is effective. Bed Bath & Beyond offers another kind of immersion, with a great revamping in the home goods area, including large and clear sections and alleys, easy circulation, a huge space allocated to cash registers and click & collect areas. It is great but one can wonder if the trimming process was a bit too radical as it seems there was less inventory and choice than before.

Kids

Camp store near Union Square is impressive with a playground located in a hidden location behind the counter. This store is also an inspiration in terms of VM in the kids’ sections. The “kid’s shopping” initiative where kids are given fictitious money to make purchases (with a set limit by parents, charged at the end) is very intelligent.

Other concepts

Because of its size, Neighborhood Goods in Chelsea is more of a concept store than a “department store”. The curation of local brands and price point is very effective, attracting the right customers and a nice coffee shop completes the offer. Shopify store in Soho is an interesting marketing space for the brand. The welcome and service are great however, retail is a real job: which includes maintaining stores in perfect condition, and this is not Shopify’s top competence.

Retail disappointments

Fashion

Kith store in Nolita is well merchandised and even though visitors were buying high price tags, the women’s selection is quite disappointing and overall the store is not impressive. In Soho, Galeria Melissa‘s immersive environment and window set up are impressive but the store was either closed or empty, with sales associates looking at her phones and standing in the middle of the entrance… The Webster was impossible to visit as it was partially closed most of the time. The surroundings look terrible and the building itself is under renovation.

Sports goods

On Running store in Nolita is attempting artificial “coolness” by asking customers to line up and wait for the next available sales associate… who are just chatting together in the back of the store. Once in the store, there are good display ideas (shoe storage drawers) and the number of people on the street wearing On Running shoes was quite impressive. Although greeted with a warm good welcome at the Allbirds store in Nolita, there was no real follow up once inside. Customer education on sustainability was visible, although nothing compared to what Green Pea in Torino does for instance.

Tech

B8ta “Retail as a service” store in Hudson Yards is a showroom demonstrating and selling tech and lifestyle brands. It may have an interesting business model and help people find novel items however, people in the store are more looking than buying, which questions the efficiency of such a concept./nbsp]

Another concept

Even with an interesting brand curation, Showfields was an odd experience. The store does not really reflect the missions the concept intends to represent (vegan, sustainable, women-led…), the sales associates were too pushy, the store was empty, the Magic Wand feature did not work and overall, the store lacks cleanliness.

What about department stores?

New Nordstrom Men’s and Women’s stores near Columbus Circle were by far the most impressive out of all of the visits. Their flexible format and fixtures allow them to change layouts throughout floors without taking a toll on brands’ presentation and desirability (though, sometimes a bit odd with luxury brands). During Christmas, there was a great gifting assortment and wrapping services. Overall, the product presentation was good during sales. In the Men’s store, the “floating” cash registers (right in the middle and designed more as stations, not booths) are interesting, as well as the way click /amp] collect is nicely displayed and even used as a feature visible from the outside. In the Women’s store, the ground floor is energetic, airy, and combines a great cosmetic section with the feeling of a concept store. The ground floor area dedicated to home products offers great product curation, which contributes to the concept store impression.

Nordstrom Local is conveniently located, well attended and had many customers at the time of the visit. The way the services are displayed and visible (as proof of competence) is interesting. The store also sells a very limited number of items (snacks, small items & accessories) though not enough to sustain the store itself. The staff was great and competent.

Saks Fifth Avenue’s ground floor is great and impressive, with the escalators going down to the fine jewellery section and overall, spacious, modern and bright. The rather simple idea of colourful escalator “wrapping” really inspires customers to visit the upper floors. Traffic was slow and SaksWorks on the last floor was closed. The Barney’s floor is a gimmick with no added value.

As usual, Bergdorf Goodman had great Christmas windows and displays, but the impression was not so positive. During Christmas they offered “presales”: customers were charged at the time and were to receive the product at a discounted price later. The 7th floor which used to feature stationery is now dedicated to BG merchandised products. The traffic is low, apart from the shoe floor.

Bloomingdales in the Upper East Side feels a bit old. Still, the store offered a gift-wrapping service with customised-printed gifting paper in partnership with Klarna. The new Men’s shoe floor is not revolutionary but nice, with brand corners and multi-brand areas organised by style/functions (sport and sneakers, casual and weekend, classic and work shoes). Service counters are emphasized.

Macy’s in Herald Square feels old and not well maintained (floor maps are not all correct), however it was overall busy. The home floor has been redesigned with a lifestyle approach. On the ground floor, there is an interesting mix of cosmetics, tech (including Apple) and light travel goods.

Is New York still worth a retail trip? While there are always interesting stores to visit, the city didn’t feel the same as before due to the lack of traffic and energy, even if it was a bit busier during the holidays. The impact of Covid on retail was felt in all areas. It was particularly visible on Broadway around Macy’s, with closed flagships (Victoria’s Secret and empty >500 sqm locations) and even more so in Soho, in the Mercer St. / Greene St. area where there are many “available” retail locations advertised. The slow traffic is both due to the heavy travel restrictions and to the local affluent consumers relocating in their secondary residences. For instance, it led Bergdorf Goodman to achieve a fair share of business by sending trucks every day with goods to the Hamptons and other locations in 2021.

Another common feeling from two separate visits was the impact of staff shortage (Macy’s advertises for recruitment on zones and screens normally dedicated to products) leading to a feeling of poor maintenance (Visual Merchandising, product visibility, overall maintenance and attention to details, even cleanliness) and poor customer service (among department stores only Nordstrom sales staff gave a sense of welcome and product-related competence). During Christmas week, there was a striking contrast between stores that were either fully closed (Mejuri in Nolita, Melissa Galeria in Soho), partially closed (The Webster, On Running) and the ones that were inaccessible due to long queues at the entrance (Louis Vuitton, Prada, Chanel, Nike…).

Credits: IADS (Christine Montard)

Check out the retail review in pictures here

Following a request sent by a member of the Association asking for more information on how other members were dealing with digital transformation from an organisational point of view, the IADS decided to dedicate its 2021 research to the topic by issuing the “Smarter department store organisations” White Paper. Through a review of department stores’ internal organisation evolution from 1928 to the current digital age, it appears that:

• Department stores have always been extremely complex structures since their inception,
• Adapting to an ever-changing context is part of their DNA. They have always adapted to successive market evolutions…
• …even though it often meant to answer complexity with new organisational layers and, ultimately, a more complex structure per se. Department stores answer to an increasingly complex world by an increased C-suite specialization and organisational inflation.

Also, it appears that aiming for a structural simplification will, this time, not be enough to fully adapt to the digital and sustainable age, which are both significantly challenging: it is all about re-engineering structures and processes with a new, more organic, approach. More radical changes might be needed in the mid-range to stay competitive.

Organic reinvention has been an organisational feature central to department stores from their inception, helping them to deal with an increasingly complex world

“Department stores are decathletes”. This sentence encapsulates the challenges embedded at the core of any department store in the world: their model concentrates a vast array of complex activities, and, in these days of omnichannel competition and digital unbundling, they have to be good at every one of them. This permanent necessity has translated into constant adaptation and the acquisition or generation of new and appropriate competencies. While such transformations have been relatively invisible from the customers’ point of view, each new iteration has left its mark on companies’ organisations.

While organisation charts are not an exact reflection of how companies work, they provide insight into a company’s perception of itself, as well as its formal internal power structures. They also allow comparisons, and the tracking of change over time. This is why the IADS has put together snapshots of store organisations during 4 key dates: 1928, 1994, 2015 and 2021.

In 1928, when the IADS was created, department store structures were already extraordinarily complex, in order to address the number of categories and products sold (as seen in the Harrods example shown in the White Paper). In addition, all stakeholders were taken into consideration (customers, employees, partners, shareholders), leading to the juxtaposition of many activities and competencies. This created a fertile ground for a subsequent complexification: with time, the C-suite progressively increased according to managerial evolutions and technological progress, without significantly altering a template that became increasingly anachronistic. With time, organisations became costly, complicated and difficult to transform.

This became particularly visible after 1994, the year when Amazon was created. While a few companies foresaw the danger and followed suit by launching e-commerce ventures (Macy’s in 1997, Nordstrom in 1998 and John Lewis in 2001), the rest of the department stores were still trying to solve the space productivity equation through a highly centralised organisation at the buying level. Even though a few IADS members looked for other approaches, this struggle persists today, and partly explains why adapting to a digital, highly-fragmented and individualised world has taken so long for department stores.

The temptation to answer complexity with increased specialisation and organisational inflation

2015 is the year most iPhones were sold in volume to this day. It triggered the development of m-commerce, a complement to e-commerce, adding to the difficulties of those retailers who were struggling to keep up with customer behaviour changes and the end of the boomer generation majority. Despite this, organisations remained mostly unchanged, with 4 to 6 direct reports to the CEO, covering “traditional” areas of the activity (Finance, Merchandising/Buying, Real Estate, Operations/Sales, Marketing and HR). It is striking that digital capability (whatever its name: digital, e-commerce, omnichannel) was not considered as a strategic feature per se at the time, but was rather integrated into a broader department. This difficulty of acknowledging e-commerce from an organisational point of view is a reason why Galeries Lafayette already had a Chief Transformation Officer, a fairly unique position at the time when compared to the others, to address this challenge.

The Covid-19 pandemic and the total reset of the retail industry that took place in 2021 accelerated the need for department stores to change and rapidly acquire the new competencies needed to strive in an omnichannel world. It explains why they responded to the increased complexity of operations by increasing the number of direct reports to the CEO, with one company for example increasing from 11 reports in 2015 to 18 in 2021. This organisational inflation also reflects a lack of clarity about the meaning of “digital transformation”: the answer will be radically different if approached through each of its components (platforms, channels, technology, products…) rather than through a more holistic approach.

Does structure always follow strategy? The digital transformation case

Should organisations have an individual dedicated to digital change, or re-engineer their structure into a “digital mindset”? Examples from other industries (mass distribution with Carrefour, water supply with Suez Group, luxury with LVMH) suggest that a digital transformation officer position is easier to implement than totally resetting and transforming an often century-old structure. However, the scope of these new positions rarely includes resetting the organisation as a whole, and often consists merely of injecting technological innovations, only contributing to increased complexity or worse, the creation of an additional silo.

The fact that different solutions are adopted is a signal that companies are probably in transition mode. Each of them has to make defining choices, between transforming the organisation as a whole or solely focusing on the customer-facing structures, and between creating a dedicated position at the top, or seeking to digitally pivot the whole organisation (and if so, how).

Two IADS members have set up a new approach to this question in 2021, by addressing the problem from the customer-journey perspective. Both of these approaches are radically different. Breuninger delegates the power to change organisations at the store level, by creating a new position with increased prerogatives and possibilities to change operational methodologies. Falabella on another side has created a new position at the HQ level, whose role is to detect potentially interesting ideas from within the company and implement them in a test & learn process, allowing, when successful, the definition of a new customer journey.

These examples suggest that there is a middle way and a soft method to answer this question. It also confirms that there is room for organisational innovation within the existing frameworks.

Simplifying organisations is key, but may not be enough in the future

These marginal improvements might not be enough. The recent new appointments at the Macy’s board of directors, namely the CEO of The Michaels Companies and the president of Zipcar, both experienced in organisational transformation, shows that department stores are well aware of the difficulty. Historically, department store organisations have been responding to immediate problems, by trying to adapt to the current “iceberg”, perfectly aware that other ones were coming but, understandably, unable to dedicate the necessary resources to deal with all of them at the same time.

This never-ending race is impossible to win. Even though their margin structure has allowed them to avoid icebergs so far, the market-changing conditions are now putting department stores at risk of running out of possibilities if they do not manage to radically reinvent themselves. This radical reinvention requires courage and obstinacy from the leading teams, as it involves long-term vision (strategic planning), radical questioning (unbundling of century-old activities as we start to see across the industry), and the capability to change machine-like organisations into more organic social bodies.

Credits: IADS (Selvane Mohandas du Ménil)

IADS White Paper (English)

Livre blanc IADS (Français)

printable version here

Keeping markets under close watch, IADS collected new, pure streetwear and streetwear-oriented store concepts from retailers around the world. This series shows various themes, experiences and displays, illustrating the richness and diversity of the streetwear culture and aesthetics.

Check out how retailers are using innovation, colourful layouts and modern thinking to upgrade the customer's shopping experience.

Louis Vuitton, Tokyo

Leaving behind its usual classic looks, Louis Vuitton’s revamped store is embodying a  streetwear-oriented aesthetic. A dragon head in the window bears the initials ‘A’ and ‘N’, referencing men’s creative director Virgil Abloh and Nigo, guest collaborator and cult icon and founder of streetwear brand Human Made.

MORE ON Louise Vuitton, Tokyo

Off-White, Paris

Illustrating the luxury streetwear aesthetics, Off-White’s Parisian flagship store combines elegance with industrial rawness. A courtyard, a gallery and a market extending over three floors are gradually revealing Off-White’s diverse identity. On the third floor, the brand’s most iconic and beloved items, ranging from denim pieces to sneakers, are available to customers.

MORE ON Off-White, Paris

House of Vans, Mexico City

With its new Mexican store, Vans now offers an entire streetwear experience evolving around skateboard culture. The location houses a skatepark, a space dedicated to street skating, interactive workshops with artists and a gallery for rotating exhibitions. Visitors can also enjoy a movie theatre as well as Van’s kitchen, with some of Mexico’s best chefs.

More on House of Vans, Mexico City

Soldout Store, Seoul

The recently-established sneakers brand Soldout shows how physical retail and experience are key to the limited-edition sneakers market. Inspired by a winery, the space showcases a boutique and rare bottles of wine. The entire store consists of specialised spaces, including an examination room to check the sneaker’s authenticity, a packaging room, and a space to showcase the premium sneakers.

More on Soldout Store, Seoul

Supreme, Berlin

In Berlin’s hottest shopping neighbourhood, Mitte, Supreme offers a store with an industrial look as well as familiar elements, such as polished concrete flooring and a back wall plastered in iconography, all overlaid with skateboards. Furnishings are few and merely include clothing racks, a sales counter and a sculptural rock bench. The sound installation is a clear indication Supreme‘s new outpost isn’t only a transactional space.

more on Supreme, Berlin

Solebox, Barcelona

Barcelona’s new Solebox store offers a full range of streetwear products inside a market themed space filled with green plastic crates and boxes. The entire concept plays with the feeling of a grocery store with a fridge section displaying t-shirts and socks in the place of meat.

more on Solebox, Barcelona

What: Retail Dive looks at what has been successful for US department stores for the last year, and what remains to be fixed

Why it is important:  Although they mention the changes in terms of customer behaviour or channels, they do not seem to take into account a catch-up effect which has indeed helped all department store companies in the world in 2021, but which is also a true issue in terms of durability of this effect.

Retail Dive looks at the reasons why, in spite of a worldwide pandemic leading to a slump in tourism, some department store companies posted excellent results, both in terms of sales and traffic, in 2021 compared to 2019. Of course, this is due to the fact that these companies were forced to adapt and innovate, especially on the digital front where they were notoriously lagging, and results are paying off. However, Retail Dive also points out the remaining challenges that were evident before the pandemic and which are still unresolved:

• Traffic to malls is not recovering and department stores do not benefit anymore of being anchors in such locations. The pandemic has accelerated the decline of malls as retail locations, and some of them even turn away from department stores to generate a new kind of traffic based on experience or innovative retail formats.
• Consumers are spending less, as they realized that they could live with less, meaning that all of a sudden Walmart, Amazon, dollar stores and off price retailers are formidable competition for department stores,
• Channels keep shifting, which is an issue for department stores which built their USP on convenience, when online becomes the most convenient option possible,
• The pressure to spin off e-commerce is a distraction, under the pressure of activist investors. This is a short-term pay-off but ultimately destroys customer experience,

For Inside Retail, department stores are doing a turnaround, however the question is to what extent the turnaround is sufficient to guarantee their survival on the long run.

Can this year's department store recovery last

What: Whether it’s with restructurings, supply chain bottlenecks or Covid, retailers are in for another year of disruption.

Why it is important: Stores will return to prominence but must treat frontline workers better and develop strategies to entice consumers to shop amid rising prices and changing priorities. Rising inflation means retailers must develop creative ways to reduce discounting, like focusing on more product drops, and smaller, frequent inventory releases to drive traffic, obtain more customer insights and lower customer acquisition costs.

AlixPartners’ other predictions:

• Continuing buzz in mergers and acquisitions in the industry as retailers divest lower-priority assets to fund necessary investments in technology, data analytics and omnichannel offerings.
• Online assortments will grow and will become easier to navigate for consumers. To lower return rates, retailers will add more realistic virtual try-on technology. They will also continue to add new payment forms, including cryptocurrency, and focus on better privacy and security of customer data.
• Retailers need to think of store associates as more essential than ever and treat frontline employees as an asset, not a cost.
• Post-purchase services and return policies will become a competitive differentiator for online and omnichannel businesses.
• Livestreaming and other ways to connect with consumers will expand.
• Retailers must focus talent and investments on better understanding and improving supply chain processes.
• Retailers will streamline logistics, either through acquisition or partnering with third-party delivery companies.

Retailers continuing to seek more sustainable practices in sourcing and circular fashion economy.

AlixPartners on Retail 2022 

What: The sporting goods industry needs to evolve and adapt to five trends shaping the industry as health awareness increases, channels shift, and concerns rise concerning sustainability.

Why is it important: The sporting-goods industry has managed to reach pre-COVID-19 levels of growth through harsh economic circumstances.

2020 focused on consumer shifts, the digital leap and industry disruptions. In 2021 these trends accelerated and took interesting new turns. Athleisure gained further ground as people were working from home and created new attitudes towards traditional workwear. A new perspective on sports and general fitness developed and e-commerce thrived, as consumers shopped online even when lockdown measures eased. Digital forms of exercise and physical activity became more popular and created an array of possibilities for sporting-goods companies. Sustainability has also become more important than ever, with the COP26 Climate Change Conference emphasizing companies need to increase their efforts to decarbonize as they seek to differentiate their offerings.

In 2022 these trends continue, and other important trends are positioned to shape the sporting goods industry further. Not new to the industry but, five key themes reflect the current state of play.The implication is that many industry players must speedily adapt their business models. Each topic presents strategies that may support them in doing so.

Evolving attitudes and behaviors

Consumers will continue to be active. Younger generations and consumers in China, India, and the United States are generally more optimistic than older generations or consumers in other countries in terms of spending. Sporting goods is one of the categories they plan to splurge in, a positive indication that the 2021 tailwinds will continue in 2022—at least for industry players that stay on top of growing consumer expectations.

From social media to social commerce and digital ecosystems

Social media continues to be an effective platform for influencers and digital communities to create deep connections between consumers and commerce. Companies in 2021 able to streamline this connection between engagement and sales boosted profits significantly and built digital consumer-engagement ecosystems—spanning from the company’s website to its own app and retail stores—using the generated data to inform areas such as product development and demand planning. The social-media space continues to evolve: the use of livestreaming is well-established in Asia and expected to expand worldwide. Early adopters are trying to get a firm position in the “metaverse” arena, and others are expected to follow.

The sustainability imperative

The pandemic and COP26 have helped to accelerate awareness around sustainability, including a demand for more sustainable products. As consumers’ expectations increase, the bar to differentiate themselves is increasing quickly. Leading companies will focus even more on sustainable materials, circular business models, and helping consumers make choices that reflect their values.

The future of channels

Last year reinforced the importance of digital channels, even with physical stores reopening. Players are shifting towards offering direct-to-consumer (DTC) models, creating a stronger online presence, and consolidating their retail-partner model. New players will prioritize DTC and continue to focus on partnering with select retail partners. Meanwhile, retail stores will seek to establish a clear edge for brand names in order to keep them from leaving. Many players will repurpose physical locations as experience and service-driven elements of an omnichannel offering.

Solving the supply chain puzzle

Demand volatility, production bottlenecks, rising raw-material and transport costs, and organization chaos are causing turmoil in global supply chains. All the while, consumers continue to expect fast and convenient delivery. Players will need to review their supply chains strategically, so they are better prepared for an uncertain future.

Sporting goods 2022: The new normal is here 

What: The Robin Report argues that blanket discounts are counter-productive for retailers who should retain a part of the margin lost in such operations to reinvest it into a ‘marketing to one’ capability

Why it is important: The nature of the market and the game has changed, and recipes that were once taken for granted might prove limited today. In a world where shoppers are looking for purpose, durability and long-lasting quality, it is key for retailers to identify such desires customer by customer to propose them individualized deals and experiences.

According to Bluecore, a retail marketing technology firm, discounts and promotions are not the top purchasing driver for every shopper: although 57% of them say price has the greatest impact on their purchase decision, only 36% of shoppers say that discounts have the most impact on their purchasing. Instead, they value relevant product recommendations, timing of communications and engaging content.

The Robin Report stresses out the fact that, as a consequence, retailers are giving away a much-needed share of their margin for no real reason, as shoppers are more excited by getting good value (30%) than getting a good deal (25%). This also needs to be put in perspective with the new ongoing trend of shopping with a purpose and spending money on higher-quality, more durable goods. As a consequence, the Robin Report suggests avoiding blanket discounts and target to the maximum in order to share individualized offers based on customer preferences.

Here’s why retailers can stop all that discounting