What: In 2014, retail sales in Hong Kong declined for the first time in a decade as protesters took to the streets. Over the following years, tourist numbers dropped to record lows, with a particularly significant 14.2% drop pre-pandemic in 2019. Luxury brands, which have targeted tourist spending through multiple points of sale across the small but affluent Chinese territory, began to review their presence in the market. Then, Covid-19 hit. In 2020, retail sales declined 24.3%, while tourist arrivals plummeted 93.6% below 2019 levels. Many luxury brands closed stores, including Prada, Valentino, Tiffany & Co., Chow Tai Fook, Fendi and Louis Vuitton.

Why its important: With these prospects, domestic consumers (renowned for their spending power) have become the main focus for retailers. As local sentiment improves, boosted by vaccination rates, low Covid-19 cases and an easing of social restriction rules, a new energy is reinvigorating the market. Retail sales have been on an upward trend, year-on-year, since February 2021. Local demand cannot compensate for the loss of tourism spending (pre-pandemic, CBRE attributed one-third of Hong Kong’s total retail sales to Mainland tourists): when the borders reopen, will tourists come back?

Optimist experts are confident that Hong Kong will continue to represent an important luxury destination for Asian and Southeast Asian luxury consumers, who enjoy the tax-free shopping and the high-profile image of the city, complete with a well-rounded ecosystem of luxury. Short term still looks dismal, but six million people per year are expected to come to Hong Kong when borders reopen.

Oliver Tong, head of retail at JLL Hong Kong, sees “pretty good momentum” in the commercial real estate market. According to CBRE data, in Q2 2021 commercial rent prices increased 1.2% quarter over quarter, recording the first gains since Q2 2018, while high-street vacancies fell to the lowest figure since Q2 2020.

Other voices are more cautious. The Chinese government’s push to turn the tropical island of Hainan into a duty-free paradise is likely to divert some Chinese travellers away from Hong Kong.

While the wait continues for a loosening of the regulations for visiting Hong Kong, brands continue to focus on locals. CRM, loyalty programmes and in-store experiences are all high on the priority list for brands as they seek to maximise sales to locals. Lane Crawford highlights the need for highly personalised services and experiences. They include personal styling appointments in VIP suites, beauty concierge services and events around specific products or topics, such as watches or whiskey. During the pandemic, Lane Crawford put together personalised wardrobes and delivered them to customers' homes to try on styles and participate in Zoom styling sessions and livestream trunk shows.

Assortments have also changed to better respond to local taste. Social restrictions and working from home have caused a mini-boom in the home decoration segment. The hypebeast sector is strong: Hong Kong buyers are using Stockx to buy sought-after brands such as Bearbrick, Kaws and the Ikea and Daniel Arsham collaboration. In fashion, understated luxury labels ranging from Officine Generale to Margaret Howell are favourites among Hong Kongers. In footwear, niche sneaker labels such as Common Projects, Veja and Moonstar are popular. The trend is casual luxe.

Investment in cost-effective pop-ups continues. Brands that might have paid up to HKD 2 million (GBP 189,000) a month for a permanent store in Central and Tsim Sha Tsui can now enjoy deals of as little as HKD 300,000 (GBP 28,000) for a short-term pop-up. They have to invest some Capex, but the sales are great. Prada, which declined to renew the lease for its Hong Kong flagship in June 2020, launched a two-month pop-up at IFC Mall in January 2021. Similar moves have been made by Gucci, Burberry and Dior. Landlords have also divided large unoccupied spaces into smaller units, which are easier to fill.

Understanding luxury in Hong Kong

What: 4 actual examples of how AI is used across retail, spotted by the NRF

Why it is important: AI is a tool, not an outcome. It will not solve problems, but will significantly contribute to easing frictions or speeding up organisational learning processes.

Neiman Marcus uses AI to help sales associates into making additional suggestions completely related to the customers’ preferences, in a scalable way. This works through an AI-powered platform which records order attributes during every purchase (size, colour, pattern, brand…) and combines it with order history, in order to give back to the sales associate customer’s preferences, lifestyle and style preference.

The Yes uses AI to build a store around every user to avoid the one-size-fits-all approach. Thanks to machine learning, each customer will have a different experience during their visit and see a specific product offer.

Furniture brand Wayfair uses AI to ease customer’s searches thanks to a deepen product knowledge. In that manner, customers can find quickly and easily what they are looking for even if they are not able to describe it, and then visualize how the pieces of furniture would sit in their environment.

Amazon uses AI into supply-chain forecasting, demand planning, assortment, allocation and return optimizations. It also helps to define the most optimal packaging. Amazon hopes to reduce additional packaging usage to 15% of all orders within 2030.

AI’s role in retail

What: A sum up of the main trends from Spring-Summer 2022 fashion weeks.

Why it is important: From the main fashion trends to the top designers ranking, the report outlines the key facts of the season.

TAGWALK SPRING SUMMER 2022

What: A sum up of the main trends from Spring-Summer 2022 fashion weeks.

Why it is important: From the main fashion trends to the top designers ranking, the report outlines the key facts of the season.

Key takeaways from the report:

1. Paris was the most talked-about fashion week this season, followed by New York, Milan, and London, representing a major shift from last year,

1. Sheer was a top fabric in every city this season, reflecting the Lingerie Dressing trend, while Stripes were the top print trend across all fashion weeks,

1. Sequins, Satin, and Asymmetric Neck Dresses are amongst the key trends that emerged throughout SS 22 fashion weeks that are considered Fashion Bets for Summer ’22,

1. Orange Yellow and Thick Vertical Stripes are the Bold Bets from this fashion month, meaning they have a small magnitude but a moderately increasing growth rate,

1. Theatrics were at the center of accessory design for SS 22, with the main focus being on Maxi Bags, Platform Shoes, Train Details, Bag Layering and Thigh-high Boots, challenging the minimalistic shapes and volumes of the previous seasons.

Heuritech - SS22 FASHION WEEK REPORT

What: Radio frequency identification (RFID) technology is in the fashion spotlight as omnichannel and resale present new uses post-pandemic.

Why it is important: RFID technology is allowing retailers to reduce inventory count time, increase supply chain visibility to offer new omnichannel services, as well as for authentication of resold goods.

Covid has forced many retailers to rethink their strategies and how they engage with customers as well as how they extend their experience online and in stores.

Scotch & Soda is switching all inventory to RFID to be able to count inventory in a matter of seconds as well as gain visibility on its entire stock, whether it be online or offline. With the use of RFID scanners, the retailers can have a better understanding of its inventory, allowing new capabilities like ship-from-store, click-and-collect and in-store tracking.

RFID, near-field communication (NFC) and QR codes have been finding more use cases in the retail landscape. Retailers such as Mango, Adidas, Nike, Ebay, AZ Factory and Vestiatie Collective have all started enabling their items with these types of technologies.  Adding these ‘smart labels’ allows full supply chain visibility and enhanced customer experiences, but it can also be used beyond the point of sale. This can be used for product identification and validity in the resale market.

RFID: The tech shaking up fashion’s inventory load

PRINTABLE VERSION HERE

*Héroïne is a retail design agency dedicated to Client Experience. Thanks to their ROX™ method, they are able to program in-store experiences and develop unique design concepts. The company works with different industries, such as cosmetics, food, fashion, telephony...

The company created some of Clarins' Experience Ceremonies to support their strategic launches through their retail network in different key markets. They also collaborated with Armani for experiential pop-up stores, and with French jeweller Fred on their new retail experience. Héroïne also works with companies such as Estée Lauder, Orange, L’Oréal, Rémy Martin.

Héroïne was founded 2 years ago (3 months before Covid), with the strong belief that physical retail is not dead but has to reinvent itself through customer experience. While this trend is on every retailer’s lip, we tried to better understand how to make it work. To that end, Héroïne’s founders Rémi Le Druillenec (CEO) and Quentin Obadia (Creative Director and Strategist) have answered IADS’ questions.*

Good customer experience

IADS - How do you define good customer experience in 2021? What do you think is missing? Do you see a gap between customer’s expectations and what brands and retailers offer as a whole?

Héroïne - When it comes to defining good customer experience, the answer is simple and complex at the same time. Good experience should of course match with what customers are expecting from a store visit. It looks simple, but it implies that brands and retailers, not only know their customers’ expectations in terms of product, price point…, but also in terms of experience. As it’s relatively new, this is the complex part. And it’s a preliminary phase, before even starting to shape the customer experience.

There is sometimes a gap between retailers and customers’ expectations. Retailers want to develop experiences in order to directly sell their products or their services. But from a customer point of view, the experience is not necessarily about directly buying something, but more about discovery, feelings and emotions. Of course, at the end of the day retailers’ purpose is to sell. However, it’s important to help them change their mindset to become even more customer-centric, which is the very purpose of the customer experience.

If we think about stores (and especially flagship stores), they were designed as temples using a ‘top-down’ approach for many years. As a result, they have sometimes transformed into “brand ego trips”, in a way separating the brand from its customers. There is a lot of work to be done here. After Covid, brands and retailers are more and more aware that they have to really understand their clients, which differs whether they are in Paris, or in French secondary cities, in China or in the United States. Brands now try to adapt their stores and their offer, in a more ‘down-to-top’ way.

Engage with GenZ

IADS - What do you think are GenZ's expectations in terms of customer experience?

Héroïne - As the first generation to be born and raised with smartphones, they discovered the world through internet. It means that digital has to be fully integrated in every step of the customer journey. It still happens that we meet with brands showing us their ‘experience zone’ consisting of a big screen or an iPad! The experience should both live through smartphones and in store. Most of all, such customers are expecting a full integration of the real life into the virtual life, the real life being augmented by the virtual life. In that perspective, all the digital assets should offer the possibility to continue the experience after the in-store visit, to ultimately lead to a purchase.

It’s even more difficult to track GenZ customers as they might not buy in store, physical retail being just a touch point among others. They might come in store, share pictures with friends first, then on social media, etc…, and eventually buy online…, or go back in store. In such circumstances, we not only have to measure the quality and efficiency of the experience, but also track how this experience influenced the purchase.

Develop and measure customer experience

IADS - How should a retailer proceed if they want to transform selling spaces into experiential spaces? What method are you using?

Héroïne - The method we use is based on the evaluation of 5 pillars, which are reflecting what a store is made of:

1. The Immersion: it covers all that is linked to the DNA of the brand including store concept, retail design.
2. The Usage: how the brand helps customers understand what's inside the store, the customer flow, where they can find everything. It includes signage and also tools helping customers try products.
3. The Services: they are both transactional (alteration, delivery, payment…) and relational (interactions with sales associates, small gifting…).
4. The Proof: retail is the place for the proof as you can see and try products.
5. The Sharing: the store becomes a media and facilitates the experience sharing, from good lighting for Instagram posts to challenges to engage with communities.

Once the evaluation is done, we can then work on 3 to 7 personas which are the results of our observations through the pillars, analysis of the environment, interviews of sales associates, ethnologic studies…). Such personas are adapted to each store’s specific needs. Then we build the experience which has to be seamless and not overlooked as “plugged” into the store.

IADS - You’re using a new KPI to measure results: the ROX (Return On eXperience)? How does it work? Is it easily adopted by retail organisations, or do you see resistance? How do you overcome that?

Héroïne - Once the customer experience is on, we will evaluate each pillar again to know the ROX. There are ways to overcome retailers’ resistance. For instance, when it comes to the Sharing pillar, we will measure the hashtag success on Instagram, showing the success of the experience, if it’s easily sharable and if the store is becoming a media. For the Usage pillar, we will for instance observe and measure the “breaking of flow” corresponding to the moments when the sales associate leaves the customer alone. The audit can also be done on a regular basis to measure evolution.

The results we see are different from one brand to another. They share a common trend though: the sustainability question, which is relating to the Proof pillar and have to become part of each customer experience. The Service pillar, as it involves individuals, usually raises questions. The store staff needs training especially given they are more and more having to multitask. As the Service pillar involves the intervention of different departments from marketing to sales, it sometimes reflects issues in the brand organisation, such as for companies organised in silos.

IADS - Services are more and more mixing with experience: how do you articulate both?

Héroïne - Services, as they are an extension of the Proof, are important to create long-term in-store relationships that can also be measured (think about product repair). Services also demonstrate how the brand speaks to customers, besides just selling products. In that regard, Rimowa New York’s experiential store featuring a passport picture service, is a great example as it elevates the brand from luggage selling to a travel experience.

IADS - The customer journey now accounts for 6 touchpoints (instead on 2 touchpoints 15 years ago): what is the role of the customer experience here and how do you use data?

Héroïne - Like glue, experience brings consistency to all these touchpoints, links them together (ad campaign, digital, brick & mortar…) and pushes customers to engage with the brand.

Since many brands don’t have data (or they have data but don’t know how to use it), store staff remains a great source of information, especially to really know who the actual customers are.

Current trends

IADS - In your book ‘Le Magasin est-il mort’ (translating to ‘Is the Store dead?’) coming out today (13 October 2021), you identify 5 innovation trends : What are they? What has Covid changed forever? Please share from the customer point of view and from the brand/retailer point of view.

Héroïne - The 5 trends we identified that existed before Covid, but the crisis has also emphasized:

1. Social retail: social media defining new journeys and touchpoints in store.
2. Conscious retail: more sustainability is key, especially in-store.
3. Humanized retail: the need to connect with people is more important than ever. How to reach clients with mobile stores rather than opening huge flagship stores which have been the answer to retailers’ questions for many years.
4. Automatized retail: access 24/7 to products in a fast way.
5. Virtual retail: how to create a virtual store offering a specific experience and not just replicating a brick & mortar store.

We are convinced about the future of retail, that’s what we wanted to demonstrate in the book as well as showing how we work. But knowing we can do almost everything from our couch, a trip to any store should be worth it and most of all, a place where people can connect and live experiences.

Contact: Rémi Le Druillenec

remi@heroine.paris

+33 6 11 38 40 49

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Credits: IADS (Christine Montard)

What: McKinsey’s take on how to create the ideal framework for a large existing company willing to innovate.

Why it is important: While taken one by one the 8 essential attributes selected by McKinsey seem obvious, their combination is extremely difficult to achieve, and the examples brought by McKinsey show that this internal ‘operating system’ is the most difficult to build for a CEO.

Well-established companies are handicapped when it comes to innovation, since there is more inertia than in start-ups, and less ability to think outside of the existing business best practices. McKinsey studied 300 companies to understand the key elements to consider when it comes to large companies.

They found out that 8 essential attributes need to be present to allow a company to perform in innovation: the aspire, choose, discover, evolve, accelerate, scale, extend and mobilize attributes. The first 4 are strategic and creative in nature, and the next 4 deal with deliverability of innovation repeatedly over time and with enough value:

• Aspire: going beyond words, the innovation target needs to be quantified and clearly communicated. Quantified objectives are then cascaded down in business units and managers are encouraged to reach them through the appropriate incentive programme.
• Choose: innovation is inherently risky and getting the most from a portfolio of initiatives is more about managing risk than eliminating it. Therefore the goal should be to launch as many projects as possible, ideally more than the ones that the company will be ultimately able to finance, and then forcing itself to kill the less promising ones.
• Discover: this iterative process needs to be fed through the collision of solutions brought to each of these topics: a valuable problem to solve, a technology that enables a solution and a business  model that generates money.
• Evolve: most big companies are reluctant to risk tampering with their core business until it’s visibly under threat, risking to be too late then. A way to foster evolution in parallel to the regular business can be created through dedicated funding vehicles for new businesses, for instance, with pilot projects and experiments away from the core business.
• Accelerate: large companies are always at risk to see their own structure encouraged to slow down the pace of innovation or its approval. This is the reason why projects must be handled by the right type of manager with the right powers (the ability to say yes rather than no), the ability to encourage cross collaboration, and the possibility to launch a testing phase quickly. The earlier results come in, the easier the organisation conversion can be achieved.
• Scale: evaluating the scale of operations and the ability to deal with it needs to be done at the very beginning. The option of scaling up over time can be a death sentence. One must be ready to success.
• Extend: innovation can be co-designed and shared. External partners, often seen as useful for sourcing new ideas and insights, can also contribute to innovation by sharing their prototyping and production capabilities, for instance. External network quality and level of trust is key.
• Mobilize: there is no silver bullet for an optimal innovative organisation, but there are best practices to promote internal collaboration, learning and experimentation.

While there is not a magic formula for success, McKinsey points out that these 8 essential attributes are correlated to it, as an overall ‘operating system’.

The eight essentials of innovation

What: Though Primark looks as if its in the same trade as its budget rivals, beneath the seams, its business model couldd not be more different.

Why its important: The store's strategy has its limitations, especially with respect to new growth, but for now it is proving to be effective.

The Economist has looked at the case of Primark, the low-price fashion chain with over 380 stores across several countries, owned by Associated British Foods, a huge conglomerate, part of the Weston family empire. At first glance Primark looks like its rivals H&M or Zara.

However, whereas the latter have embraced speed (emblems of “fast fashion”) and moved aggressively online to follow their customers, Primark has stuck to the “stack-it-high-sell-it-cheap” approach which it adopted at its foundation over 50 years ago. Nor has it moved online. It argues that customers would prefer to be less cutting-edge if they can make big savings.This approach penalised the company during Covid lockdowns when it is estimated it lost some £3 bn in sales. However, it is making up for it now with the familiar queues outside its stores.

The fundamental aspect of its approach is to keep costs very low: sourcing is mainly from low-wage countries such as Bangladesh. It uses the same factories as global brands but is willing to be placed in fashion’s off-peak periods when factories are glad of the business. Primark was unwilling to go online because of the costs. It has practically no marketing costs and runs no promotions. Thus, although gross margins at 41% are lower than rivals’, EBIT is in line with the industry standard of 12%.

How Primark makes money selling $3

What: IADS conducted research on Amazon, Walmart, Macy’s Group, and HBC Group to get an overall understanding on how these major retailers are approaching various CSR/ESG commitments and initiatives.

Why it is important: IADS members can use this analysis as a way to gather new ideas or to benchmark personal efforts.

The analysis is based on CSR reports released from these retailers as well as from their sustainability webpages and press articles. Although the chart attached is not exhaustive, it pulls together major themes and ideas that these retailers are investing in and focusing on from a consumer, supplier, logistics and circularity standpoint.

The four retailers have been analyzed for activities and programmes regarding responsible production, responsible consumption, green digitalization, circular economy and climate change.

IADS Sustainability benchmark

PRINTABLE VERISON HERE

Organisation charts, while not a perfect picture of how companies operate, nevertheless provide some insights into how companies are shifting over time, how they are dealing with complexity, and also how companies differ in their perspectives and priorities. A sample of IADS members have shared organisation charts prompting some thoughts about department store structures.

Organisation charts: a reflection of complexity

Organisation charts are not an exact reflection of how companies work. Many business writers, sociologists and anthropologists have commented on what is missed by these charts such as the nature of the flow between the function boxes, pain points, and, perhaps most importantly, the reality of the roles and responsibilities as they are exercised in day-to-day business.

However, they still provide some insight into a company’s perception of itself, of formal internal power structures and rewards, and they allow comparisons to be made between companies at one moment in time as well as to visualise changes in companies over time.

The IADS has collected some members’ current org charts and has been able to draw some conclusions. We have also found charts dating back 5 years which highlight some major, sometimes surprising, changes over that period. What is clear above all is that organisation charts of department stores reflect the complexity of the business. Buying departments manage many different types of contracts with merchandise suppliers. The suppliers are constantly changing. The types of contracts are continuously being renegotiated. The Retail department is dealing in store with own staff, brands staff, demonstrators, part-time, seasonal, as well as with space rental, payments and security. The fact that many department store companies have been in existence for over 150 years means that almost all have accumulated layers of history piled upon each other, often not well adapted to current circumstances.

The C-team

A number of functions headed by a C-level leader answering directly to the CEO can be found in most of our sample of department stores and form the skeleton:

• Finance and Administration including accounting, controlling, planning, and often legal and procurement, which has recently had to deal with cash flow problems among other pandemic-related issues
• Buying and Merchandising covering the assortment from fashion to food with widely fluctuating sales patterns over the last 18 months
• Retail Sales or Operations in charge of the stores, facing questions of traffic, selling space and customer service and experience
• Marketing which is shifting at present and involves communication and media as well as customer data and experience
• Supply Chain and Logistics under the spotlight at the moment since it has had to deal with disruption at the same time as a reorientation of inventory and fulfilment issues
• IT covering company-wide tech architecture as well as payments, security and other systems serving the company, and which has been at the centre of considerable investment decisions and controversies
• HR playing several roles: an administrative one as well as a strategic one, a centralised one as well as a dispersed one around regions or stores, and which has also had to deal with staffing, costs and remote work in the pandemic
• Digital has now moved into a full functional role in its own right and more often than not has a seat on the management board, and covers at least ecommerce, omnichannel, marketplace and often more. Its leader is sometimes described as Chief Customer Officer
• Strategy, Transformation or Innovation has emerged in several companies as the seat of future orientation. In the 1930s, the IADS promoted the creation of “Research” departments in its members which would most closely approximate this function.
• Real Estate covers store planning, construction, maintenance, architecture and works, and development. It is more important if the company owns property, and is currently dealing in some cases with closing stores, and in other cases with designing and opening new ones.

Most but not all of these functional leaders will have a seat on the management board.

It should be noted that in some cases, strategy alone may not be the sole reason for the content or the importance of a function. Strong personalities may convincingly argue that different functions should be included under their remit. History also plays a significant role in how a company is structured at any one time.

Adaptive changes 5 years on

Probably the most striking shift over the last 5 years has been the emergence of ecommerce which has now resulted in a separate “digital” function in most companies. While 5 years ago, ecommerce would have been subsumed under another function, it has now almost universally acquired its own responsibilities and status. It may have moved out of Marketing (Manor), Finance (Palacio), Merchandising (Breuninger and Globus), or Distance Retailing if the company had an already existing mail order business (Stockmann).

As the newest department store function, it often brings together people with rare technical skills, and with considerable experience in different parts of business management, especially if they come from start-ups. Furthermore, the current “digital” departments often started as small projects which were only later integrated into the company.

Similarly, IT has emerged as a much more important and independent function servicing most areas of the business after being hidden within the Finance function in most cases (Galeries Lafayette, Palacio, Breuninger).

Several years ago, the Merchandising department in some companies decided to separate the buyers’ role from planning, resulting in the so-called “buyer-planner” organisation model (BPO). While this was adopted in several companies, some (such as Globus) decided later to reverse the decision and to return the planning function to buying.

Another company which grouped Purchasing, Operations (stores and logistics) and Marketing under one single Commercial department leader reporting to the CEO, has now pulled out the main merchandise categories as separate functions reporting directly to the CEO. One company appears to have done the exact opposite, moving from individual merchandise categories reporting directly to the CEO, towards a model with a merchandising leader covering all the merchandise categories (as well as marketing).

A company which had Supply Chain and Logistics reporting to Finance and Organisation, has now created a separate Supply Chain entity reporting to the CEO, although not part of the Executive Committee.

If a trend were to be identified over the last five years, it would probably be towards a somewhat less hierarchical structure as companies have had to deal with an increasing level of specialised skills. While there are exceptions to this, in general CEOs have had less of a buffer between themselves and specialist units in their structure, with whom there will have been in more direct communication. However, multiple divisions or functions within any organisation puts a premium on communication between them. Whether that is taking place is something an org chart will not reveal.

Various morphologies

While the skeleton remains more or less recognisable over time, the morphologies of department stores shift. The current shape of the department store can be described along several dimensions which characterise their functions.

The most centralised: In spite of recent changes brought about by ecommerce, some functions still benefit importantly from economies of scale. These are Finance & Administration, IT and Supply Chain/Logistics. These are functions which serve the whole organisation and which lose efficiency when fragmented. It is also these functions which are most likely to be outsourced. IT and Supply Chain also require large investments which need to be amortised across the company. While important to the future of retail, IT does not always get its own seat on the board as it is seen as a service to other departments and can be subsumed under Digital or Innovation for example (Palacio). However, IT is often the flattest organisation as it is the one where the most “agile” structure is operated.

The most dispersed: While Human Resources still has an important central function, many of the activities of HR are now performed locally in order to adapt to the specific needs of stores, regions, countries, or sometimes skills. Recently, perhaps because of its dispersed nature, HR has taken on the role of sustainability guardian (Galeries Lafayette, Manor).

The most confident: Merchandising and Retail Operations are still at the core of traditional retail activity (buying and selling). Members of each of these functions see themselves as key to the whole business, they produce the revenue and are part of what Geoffrey Moore has called the “productivity zone”. This aura of unassailability partly explains why there can be big variations among retailers in how they are organised: a buyer is a buyer no matter where they are placed in the chart. We also often hear about “natural selling skills”. However, this certainty applies less to the food category which is why it is almost always separated from the mainstream buying department.

In some companies, it has been deemed appropriate to include buying (as well as some other functions) under a flagship store division when it is felt that the flagship is unique (Food under Galeries Lafayette Haussmann, or Home under BHV/Marais). Companies might also choose to treat Outlets differently.

The merchandising department is of course only necessary in a wholy or partly wholesale model. Businesses that lease space will operate instead through a Leasing department operating alongside a Sales department (Sogo).

Visual merchandising can be seen as belonging in Retail Operations (Manor) or in Merchandising (Beco). The Merchandising department of Manor is unusual in that it includes also Marketing.

The most connected: The relatively recent Digital department is the one with the most direct impact on other areas of the company since it involves not only ecommerce and web design but also omnichannel relations with the traditional physical company, the marketplace (increasingly popular), customer experience and data, and even CRM and loyalty card (Breuninger). This department is often headed by a designated “Chief Customer Officer” which puts them in charge of some of the traditional marketing functions. In one, a “Chief Innovation Officer” will head IT, ecommerce, and logistics (Palacio).

The most contested: The Marketing department has been undergoing a revolution for some time. Indeed, an increasing part of its budget is getting redirected to online and social media. A part of its activity concerned with customer knowledge and data has now become so technical that it is better handled by a new breed of marketeers, data scientists and techies. In fact, the responsibilities of the traditional marketing department have sometimes been transferred to a Chief Customer Officer heading a digital department (described above). In one case, Marketing is the responsibility of the Chief Merchandising Officer (Manor); in another, the two are also combined but only at corporate level (Falabella).

The most autonomous: A small number of companies have instituted Strategy or Transformation departments devoted to strategic planning and projects. This area is probably the closest to one of the original goals of the IADS looking to the future on behalf of member companies. Such departments have the ear of the CEO and impact the company as a whole only when projects become reality or when they enter the “transformation zone” draining investment from other areas.

The IADS includes several members with international operations. These are often structured separately, especially if they are a mixture of owned, partly owned or franchised businesses. One member with a fully owned and operated international network is Falabella with department stores in three countries. This implies a “matrix” structure with a country head in charge of national operations as well as a divisional function head in charge of a function across all countries.

Unsurprisingly, structures become more complex with time. The youngest IADS member company founded in 2003 has adopted a structure with two joint Executive Directors overseeing 15 or so separate functions including Advertising separate from Marketing, Ecommerce separate from IT, Administration separate from Finance (Sogo HK).

Does structure follow strategy?

It is clear that, although the department store sample shows many common points in terms of basic organisation structures, there are also significant differences between companies which sometimes may point to different directions for the future. Organisation charts are not stable, and respond to strategic objectives, environmental and market conditions, technological changes and customer expectations, as well as to individual talents within the organisation.

Three key questions:

• How to achieve digital transformation?

There appears to be a trend towards a separate Digital department headed by a Chief Customer Officer. As well as the expected responsibilities related to ecommerce and the website, this role also includes omnichannel and therefore needs to play a strong cross-functional role. Is a separate department the best way to achieve this? While it underlines the importance of digital by putting the CCO on the Executive Committee, it does not guarantee that digital initiatives will be distributed across the organisation.

• Are we serious about sustainability?

In companies where sustainability is mentioned in the organisation charts, it is tucked away in the HR department. This might be the right move given that sustainability and CSR need to run across responsibilities such as merchandise, selling, relations with suppliers, maintenance and construction etc. and HR as we have seen is the most dispersed department. However, this is an area that has become highly specialised, which might well be coordinated through HR, but which requires very specific technical skills to achieve credibility with increasingly critical customers and pressure groups.

• What is special about flagships, outlets and food?

The answer is that these are three areas which do not fit comfortably within the standard skeleton structure outlined above.

Flagships sometimes have a distinct customer base such as tourists, which means they have to adapt their assortment, marketing, and indeed elements of the business model. At the same time, they carry a large proportion of the brand value of the company.

Outlets used to serve only as temporary channels to evacuate surplus merchandise. They have become a format in their own right, sometimes with their own website, and growing fast. They no longer sell only discounted stock but also include specially purchased goods. They operate on a slightly different business model.

Food has traditionally been recognised as a separate business from fashion or home and therefore featured in a special place in the organisation charts. Today, food is increasingly linked to wellness, to gifting, to luxury, and to consumption in many parts of the store. Should it be reassessed?

Conclusion: dealing with complexity

It would probably be a mistake to attach too much importance to companies’ organisation charts. Nevertheless, many uncertainties, hesitations and vacillations are revealed through an examination of these charts, and these may reveal present and future pain points. As BCG has pointed out, companies (and department stores in particular) need today more than ever to respond to the complexity of contradictory demands:

• Speed and reliability
• Innovation and efficiency
• Standardisation and customisation
• Global consistency and local reactivity

The answer has tended to be a proliferation of structures, responding to complexity by complicatedness. The confusion apparent in department store organisation charts comes from the complicated response to the complexity of the operation. In this sense an examination of organisation charts acts as an indicator (in the chemistry sense) of deeper problems or shifts which are probably as yet still unresolved.

Cross-functional activity, or the lack of it, is one such revelation. The different solutions to problems adopted by different companies is another which signal that companies are probably in transition mode. This is clearly the case with Digital and Marketing. We foresee that a high degree of uncertainty will be touching the Selling/Retail Operations area in the near future.

Credits: IADS (Dr Christopher Knee)

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There is so much more to come from RFID technology than we have experienced so far in the past few years. The technology and its implications have transformed rapidly, leading to more interesting use cases for the retail format. Unfortunately, the implementation of RFID can take a lot of time and money. So how can retailers make the most of it? Once implemented, what potential does RFID have for retailers and where can it lead?

What is RFID and how does it work?

Radio Frequency Identification (RFID) technology is a form of wireless communication, using radio waves to identify objects remotely. All RFID objects have their own unique tags for identification, and allow objects to communicate with each other through wavelengths.

To use the technology in stores and in warehouses, retailers will need both an RFID tag, which is usually embedded into the product or on price tags, as well as an RFID reader. Unlike traditional inventory tracking systems that require employees to “point and shoot” the item identifier, RFID readers can capture the information from a broader range, thus saving time when gathering inventory information.

The information captured from RFID readers can then be used to get an overview of the entire operations of the business, enabling companies to make informed decisions about their supply chain in real-time. Following the pandemic, RFID is being considered as an asset again as it can help solve a lot of the various logistics and inventory management issues that have arised throughout pressure tested supply chains.

A comeback for RFID in retail

RFID first became popular in 2003 when Walmart announced that all of its suppliers needed to have their pallets tagged with RFID in under two years. This forced adoption from the major retailer ended up leading to RFID’s demise when the project resulted in the realization that the costs, at the time, outweighed the benefits; and the project was deemed a failure in the retail industry.

According to IDTechEx, in 2019 only 10% of the addressable apparel market has RFID tags. But as omnichannel services increase use cases across retail, RFID has been given another fighting chance to prove its worth in the retail market. RFID technology links physical and digital stores, allowing a mostly accurate picture of where inventory is at any given moment.

In Mango’s new Barcelona flagship, the retailer can harness the technology to know where garments are at all times, whether that be in the dressing room or if they have left the store, allowing associates to make sure that items are available. But that use case is only the beginning, having RFID trackers attached to products and having readers placed throughout the store can also monitor and improve sales by informing retailers of their “hot” and “cold” zones of the stores that lead to the most and least sales. By understanding the store flow and the placement of products, retailers can create a unique customer journey based on what and where products are being sold.

As retailers spend more time and investment in RFID technology and its implementation, they are also trying to expand its use cases to be able to achieve the best ROI possible. RFID can be coupled with endless other technologies, such as the Internet of Things (physical devices that are embedded with technology and can be connected), to be able to offer more unique experiences to customers. According to Accenture, information captured from RFID technology can be used in collaboration with blockchain, supply chain analytics, self checkout, supporting omnichannel fulfillment, reducing stock outs, improving customer engagement with smart technology, and inventory tracking and visibility.

It will take time….

As RFID can offer real-time accuracy of almost 100%, the technology can be leveraged to improve customer experience associated with omnichannel services. The technology allows retailers to know where their stock is at any given moment, which also allows them to guarantee availability across all channels, whether that be in-store or online. The information can also be used to understand where products are located to reduce shipping costs, split shipments, and delivery times. Understanding the location of products empowers in-store pickup options. Levi’s, for example, reported 98% inventory accuracy in stores where RFID is fully operational with inventory counts only taking 20 minutes to conduct. This allows for multiple checks per day, making the real-time data more accurate and strengthens the omnichannel. Having accurate inventory visibility is a revenue factor as well as a customer service factor.

RFID tags and readers allow retailers to understand where their inventory is at all times, whether that is in the dressing room, on the wrong shelf, or in a warehouse. Some retailers like Ralph-Lauren, Rebecca Minkoff, and Puma have used the technology to install smart mirrors in dressing rooms that bring up product information and suggest other clothing items that are similar in style to the ones that the customer chose. This creates a personalized shopping experience while empowering the consumer with all the necessary information to make the best decision based on their wants and needs.

An RFID success story: the Prada example

Prada has gone all in with RFID implementation with 100% of products containing a microchip. This allows Prada to enable connectivity with consumers, not only in stores, but also throughout the life of the products. Embedded RFID brings more transparency to the overall lifecycle of the product, with information that can be used privately by the retailer and information that can be shared publicly with customers. For example, retailers can see when an item was received in a warehouse and the time it took for it to get to a store, and customers can gain visibility about how and where their specific product was made. Prada has even created an app where customers can scan the chips to access images and videos of their specific item moving through the supply chain and get to know the people that help create their goods.

RFID’s shortfalls and substitutions

RFID has the potential to be extremely useful, but implementing it can be time consuming and costly. There are equipment costs, installation costs, tag costs, software costs, ongoing license costs, maintenance costs, and integrator costs (if you use a third-party expert). This might be the reason why Rebecca Minkoff’s store stopped using smart mirrors, the cost of maintaining the service might have outweighed the benefits. And technology does not come without its hiccups. RFID is prone to two main issues: reader collision, when a signal from one RFID reader interferes with another, or tag collision, when there are too many tags and an RFID reader is overwhelmed with too many data transmissions.

One of the major shortfalls of RFID is that it is physical, and now there are a lot more advanced technologies that can cut out the pains associated with implementing hardware into each individual product. For example, computer vision might be a major competition for RFID. The Amazon Go convenience store that allows customers to pick up products and walk out of the store and be charged automatically without using a cash register was rumored to originally use RFID for its touchless checkout tech. But now the retailer uses a mix of RFID and computer vision, and is applying similar technology used in autonomous driving to retail. These technologies allow the inventory management system to identify the customer (via facial recognition, user ID, GPS, or through an app) and recognize which products are in their possession with the help of cameras, sensors, and microphones.

While RFIDs implications are very interesting, the cost and time it takes to implement every single tag into individualized products might make autonomous technologies more enticing for retailers. But even newer technologies like NFTs used by the Aura Blockchain Consortium can be combined with RFID tech to attach information to products, helping anti-counterfeit and loss prevention efforts. This makes the RFID initial investment even more so attractive.

A fully transparent supply chain

The greatest struggles and roadblocks of RFID are quantifying its cost, identifying the right suppliers and partners, and having the ability to train employees. It takes a long time to pilot and implement, but with the right use case, the benefits will pay off in the long run. Once retailers decide to invest, they will need to push through the difficult change management stage to realize the potential and very beneficial ROIs associated with the technology. A successful transformation will require the whole organization’s cooperation.

When it comes to gaining visibility on supply chain operations overall, software companies like Avery Dennison, Kinaxis, E2Open, OracleEPM, and Anaplan offer added insight to inventory management and should also be considered, no matter where you get your data from, to reduce risks and cut costs. These tools can optimize the supply chain and add an extra layer of visibility through what-if simulations from RFID data, giving retailers the control and foresight when unexpected circumstances, like a global pandemic, may arise.

Whether RFID is right for your organization or not will need to be determined for each individual use case, understanding the time and costs that are associated with a calculated ROI. For organizations that have already invested, it could be an exciting time to couple the data output with new software and services to gain more from your initial investment. For organizations that have not yet invested but are considering such a solution, it might be wise to evaluate other emerging innovations as well to ensure the right fit for your strategy and needs.

Credits: IADS (Mary Jane Shea)

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In America and Europe, retail is a major employer, especially for women and young people. Retailers are the largest private-sector employers in America with 32 million workers, and a staggering 2.4 million retail jobs were lost in March and April 2020. In Europe, about one in six workers have retail or wholesale jobs. Whereas they have never been easy, with low wages, permanent pressure over turnover, chronic understaffing, no weekends…, retail jobs have become risky positions pushing workers further away from stores.

At the same time, such jobs have drastically changed, and not in a good way according to the staff fleeing from stores. In a survey done by RWRC (a marketing agency working exclusively in retail) in December 2020, 75% of the 500 British store associates involved think that their job became more complex since Covid. In the United States, a recent survey by retail operation platform Zipline says 42% of retail workers are either considering or planning to leave retail post-pandemic. Some moved to distribution centres, but this is not a solid option especially given warehouses are far from cities, and jobs are more physically demanding which might not be suitable for women.

At this point of the year in 2021, retailers are facing a real staff shortage putting at risk a much-anticipated business rebound. Government support plans and the fear of catching Covid while working may be of some influence on the current state of labour. Also contributing to the transformation of retail staff becoming a rare breed in the United States, fashion retailers are hiring sales associates at a rapid pace unseen in the last decade. But that doesn’t explain the whole labour issue. What’s happening to retail staff? What should be done to make retail attractive again?

The retail days of yore are over

Not long ago, if you were a sales associate, your responsibility was to sell stuff in store, period. Those were simpler times. Nowadays, and with Covid putting more pressure on business and more expectations on retail staff, anxiety has increased while responsibilities were dramatically shifting, and higher flexibility was required to adapt to unprecedented conditions.

It has become an understatement to say that retail is not only about selling things anymore, and so are retail jobs with store staff transforming to multitasking employees. Now they have to be able to sell both physically and distantly, prepare and ship orders, organise kerbside pickups, become tech-savvy, be brand ambassadors through social media (or “mini-marketers” as Marc Metrick recently said about Saks sales associates), provide experiences to customers, and learn wider and wider marketplace product catalogues. Worse, retailers being in a very difficult position, an additional compensation is not always part of the equation. And in the end, due to Covid closures and massive digitalisation, jobs are truly at risk and sales commissions are vanishing. To a certain extent, sales associates find themselves stuck between fighting to increase the company’s turnover (as well as their own revenue) and defending their sales commissions against the online business, accused of taking away sales that associates judge to be theirs.

Overcoming resistance to digital…

Changes are massive and not everyone wants to (or can) adjust to such transformations. Facing online competition, brick-and-mortar retailers, along with their staff, have to adapt. The crucial and human relationship between sales associates and key customers is becoming digital. Even though they were used to texting their clients, store staff had to adopt additional tools such as WhatsApp, Instagram and WeChat.

Now retailers, especially in the fashion area, are adding clienteling software on top of existing tools. For instance, Neiman Marcus acquired Stylyze, a software making outfit recommendations based on what customers have looked at or purchased. That’s great, but such a tool heavily relies on data and less on sales associate skills, which might be demeaning for some. Anyway, two months after the technology was rolled out and integrated into NM Connect (the digital software staff uses to communicate with customers), it resulted in USD 60 million in incremental sales. In order to handle relational shopping operations, Magasin du Nord also successfully launched a digital communication solution with Clientela.

… And rethinking incentives

The first thing coming to mind when thinking about attracting employees is money. While retail jobs are often low paid, it is a long process to increase salaries mostly because there is no turning back. Walmart and Target entered such a process before Covid. With the pandemic, Target doubled down on its investment in the workforce by giving out bonuses six times in a row since April 2020. Last May, sportswear brand Under Armour did the same by increasing its minimum wage in the United States from USD 10 an hour to USD 15, hoping to fill some 3,000 available positions in stores and warehouses. Kohl’s also recently rewarded loyalty by giving USD 100 to USD 400 bonuses for store and distribution centre employees staying on long-term. Some American retailers also offered immediate sign-on bonuses.

As increasing wages is becoming a broader trend, retailers also have to adjust their commission schemes if they want to overcome resistance to e-commerce and make digitalisation a success. Fighting resistance is crucial and sales associates have to embrace digitalisation as part of their job. In regards to such evolution, El Corte Inglés has set a successful policy to involve store staff and make its 2-hour delivery really work. During the IADS Merchandising Meeting dedicated to Cosmetics & Beauty, they explained that orders, placed online, are prepared in-store, and employees preparing them receive a bonus while commissions on sales are assigned to the store.

During the 2021 third IADS CEO Quarterly Exchange, Fnac-Darty CEO Enrique Martinez explained the store’s incentive strategy. E-commerce was considered as the enemy among store staff. But thanks to a new scheme integrating digital sales, store associates are now seeing them as a financial opportunity. With incentives on sales usually representing 10% to 15% of their pay check, sales associates are now benefiting from the same incentives as soon as the store is involved in some way in the selling process, whether it’s the inventory, the delivery or the salesclerk being part of the operation. One question remains though: should sales happening 100% online be integrated into the store metrics? For sure, such integration would reinforce staff loyalty.

Reinventing working conditions

But money is not the only way. Improving working conditions can be of some help. Even though working from home has not been a picnic, it has allowed many people to keep their job through the pandemic and onward. As the world is expecting other major disruptions in the future, retail jobs will be impacted again, and this is not very enticing. Even though some people benefited from government or company support, what they really want is a steady job and not feeling at risk about their position. This is raising the question of how retail working conditions could evolve to both be able to manage disruption and retain employees. Since everything is digitalising, including sales, some retail staff could work from home, offering them both more security in their job and possibly better working conditions at a time when some stores very existence is questioned.

Madison Reed, an American hair salon chain, paved the way in that sense. When salons had to shut down last year, the company decided to keep its 100 hair colourists and to launch online ‘colour parties’ where they would act as virtual consultants helping women colouring their hair at home. It was a huge success in terms of revenue but also in terms of employee loyalty. A year later, and even with salons reopening, the party is still going on and it seems it’s a permanent change for the company workers. Eighteen new colourists have been hired since then to meet the increasing demand.

Another example is coming from Apple. Called “Retail Flex”, a bunch of retail employees will test a hybrid in-store and at-home working model for 6 months. These workers will deal with online sales, customer service and technical support, moving between their store and their home depending on where the customers demand is. Paychecks will be the same whether working in-store or from home, and internet expenses, as well as office equipment, will be partially supported by Apple.

Training and promoting

The rapidly changing retail ecosystem is requiring additional skills that sales associates don’t necessarily have. So, they need to be trained to feel comfortable and efficient doing their job. While younger workers might need more knowledge about products and selling technics, seasoned sales associates (who are usually taking care of the top customers) might need a little help on the technology side. But in any case, training is a tricky question for retailers. Considered more an expense than an investment, they are often reluctant to spend money on expensive and questionable training programmes. Especially on retail staff whose turnover rate is usually high: in the United States alone, the annual turnover rate among part-time store employees was 76% in 2019, according to Korn Ferry.

Obviously, training on product knowledge is highly necessary as a lack of it is repellent to customers. Employees at Trader Joe’s supermarkets, for example, are expected to taste products. It prevents them from boredom and most importantly, they can answer questions about what they sell. This kind of effort contributes to why Trader Joe’s is in the top 5% of similar-sized companies for employee retention, according to Comparably, which rates company cultures. Another example is coming from Sephora where the training programme includes tailored development plans, a “Daily Dose” of training, and free classes at Sephora University.

“The retail workforce is almost more important than in pre-pandemic days,” said Ron Thurston, vice president of stores at Intermix. “These are the people with the most knowledge of your brand, the customers and product feedback.” Despite such enthusiasm, it’s a well-known fact that retail employees are rarely considered to climb the company ladder and have access to better positions. Thurston adds: “At Intermix, every employee sits down with a manager on a quarterly basis to discuss career goals, create individual development plans, and share any open headquarter roles that may be available.” If really enforced, such HR policy can allow companies to develop employee knowledge and perspectives, really identify people with strong potential and ultimately increase loyalty.

Enforcing creative measures

Knowing a part of the retail staff has switched to other jobs during the pandemic, there are additional measures that can be taken to attract workers back. For instance, Vashi, a British jewellery company, decided to offer perks to store employees: they are entitled to a pension plan, 29 days of annual leave, free gym membership, life insurance, access to an online physician and prescription service and a mental health counsel. Such measures come at a price but who wouldn’t join? Kohl’s, when recently hoping to hire 5,000 associates, made publicity about some competitive edges such as flexible schedules, and an immediate 15% Kohl’s associate discount.

To be in step with younger employees, retailers are being innovative in areas some wouldn’t think of. Korean department store Hyundai has completely revamped its reporting system to better collaborate with Millennial and GenZ staff. Accounting for 80% of its workforce, their habits and expectations had to be taken into consideration by lifting bureaucracy burden as well as simplifying and digitalising reporting tools. Employees are now simply sending notes through a messenger app.

***

Covid pushed retail workers to reflect on the meaning of their jobs. While communication between each level was off, or in jeopardy during lockdowns, deep questions probably arose such as engagement versus wages, work direction, career opportunities, and empowerment. Such topics are usually missing in the normal work routine, and with Covid, some jobs lost their meaning and value to the very eyes of the ones involved. Besides improving pay checks or working conditions, companies should add significance and direction to the retail they are rebuilding. More and more people want to be proud of the place they are working in and feel they are part of something exciting and bigger than them. As they  picture themselves as part of a community in their daily lives, they want to relate to a company culture. Will retail be up to it?

Credits: IADS (Christine Montard)

What: Fashion and beauty companies are betting on livestreaming to engage their communities and generate sales revenue.

Why it is important: Livestreaming could become a major strategy for retailers looking to connect with consumers, but retailers need to create a proper strategy to see what works for them.

Super-apps like WeChat and TikTok have become very popular among consumers. Livestreaming took off five years ago in China, and now most social media platforms have fully integrated livestream functionality.

Forrester projects that China’s livestreaming industry will be worth USD 239 billion this year and have a growth rate of 27% through 2025. And according to Coresight Research, the U.S. livestreaming industry is expected to reach USD 11 billion this year.

Livestreaming brands to create a dialogue between the brand and their customers. Through real-time feedback and seamless check-out integrations, livestreaming can offer a lot to retailers looking to connect with their audience.

Numerous retailers have started to tap into livestreaming, but few have developed a playbook for this medium and how it fits in with their overall strategy. Fashion and beauty brands need to consider the right platform, scheduling broadcasts, and assembling an in-house team to make sure livestreaming creates value for the brands.

How Brands Can Make It Work

What:  The pandemic has already changed the role and perspectives of city centres. Many questions now remain on the permanence of such changes

Why it is important:  Historical department stores are often located in hypercentres. Should city centres change in terms of economic activity or demographics, they will have to adapt in terms of strategy, services and products. We have already seen within IADS members faring better in regions than in their historical flagships.

Capital cities used to have a central role in all major economies. For instance, the total daily salary bill for anyone working in central London was twice what it was in other boroughs in 2000, while on the 2000 – 2020 period jobs grew 40% in central Sydney than in the rest of the region.

However the pandemic has reverse the narrative and some research tries to quantify the changes (Survival of the city, Edward Glaeser, David Cutler, Harvard University Press, 2021) and, above all, to know if this is a permanent change or not.

Some data allow to have an idea of what is going on:

• In America, Britain, France and Japan, mobility in capital cities is now substantially lower than in the rest of the countries,
• Restaurant bookings are 9% lower in Toronto when compared to the pre-pandemic levels, while Canada is +8%,
• An estimated fifth of San Franciscan workers actually go to city centres offices.

What appears from the research is that as a whole, economic activity, instead of remaining overly super concentrated like it use to be, is now spreading more evenly outwards from the centre. This explains the paradox of rural areas not seeming to go through a population boom in parallel, of the fact that suburban stores are faring better than urban stores.

On the long-term, this has 2 consequences:

• Less workers and tourists in city centres would mean less employment for low-income and service workers (baristas, taxi drivers), who would then be facing the option of loosing their revenue if they stay in a lower traffic area, or relocate to more active regions, often in suburban ones,
• Less concentration might impact productivity and innovation, as remote working does not allow for the same kind of serendipity than having different competences and approaches concentrated in a same physical space.

The Economist talks about the notion of “cracked egg” with the central part now spreading like an egg in a pan. The pandemic will probably not destroy cities, but it is already changing them, with a higher probability that city centres will become more attractive for residents and local businesses, while larger companies will have every incentive to relocate in more vibrant regions.

The new economics of global cities 

What: Retailers are opening new locations at their fastest pace in years as shoppers visit stores again in numbers rivaling 2019 levels.

Why it is important: As foot traffic increases in stores, retailers that want to expand physical locations should consider the proper type of store and location first.

Placer.ai, a research firm that tracks foot traffic, estimates that overall, apparel stores saw 5.4 percent more foot traffic in the third week of August compared to the same period in 2019, even as Covid-19 cases surged in the US.

It is not sure if this increase will be sustained, or if it will fall off as shoppers spend their stimulus checks and extra money that they were not able to use on holidays and travel due to the pandemic.

Digital newcomers are driving much of the physical retail revival. In their filings to go public, Allbirds and Warby Parker pointed to retail expansion as key to their plans to scale, with stores both driving revenue and building brand awareness.

During the epidemic, however, several established fashion businesses reexamined their physical retail strategy. Often, this means shutting stores that aren't successful and creating new ones with e-commerce features like curbside pickup and virtual styling, as well as experimenting with novel formats like smaller locations or shop-in-shops.

Brands must consider two major things: the right store and the best location.

• The right store: Simply building a store isn't enough to maintain current retail success. Whether it's having localized store features or offering in-store pickup, brands must provide a compelling and easy experience for shoppers.
• The best locations: It is important for retailers to implement the appropriate regional strategy. Different markets are rebounding at different rates, which retailers should keep in mind when considering expansion. According to Cushman & Wakefield's Scardina, the American Sun Belt area, which is the country's southernmost region, is surpassing recovery in big cities like New York and San Francisco.

Will the Brick-and-Mortar Boom Last

What: An opinion article trying to figure out why Amazon is entering an ailing industry

Why it is important: This unprecedented venture is all about data and logistics, however, the question will be how radical Amazon will approach the construction of a new store knowing in advance its customer.

When Amazon announced that it was considering opening department stores locations, many analysts were baffled: why a USD 1,7 trillion e-commerce business would join an industry where it is estimated that by 2025, there would be 100,000 fewer stores in the US?

According to Forbes, the answer to that question does not lie in the assortment, nor in Amazon’s ability to differentiate from ither existing retailers. As Greg Petro, the author, states, Amazon is a logistics and tech company, and therefore uses the store as another interface made available to its customers to keep on servicing them in the most efficient manner possible.

The competitive advantage that Amazon has over, for instance, Walmart, is that it is literally building from scratch a store knowing already anything that needs to be known about its customers. It might therefore fuel innovation on the point of sales and the way it is operated. The author questions however Amazon’s ability to rethink from scratch the whole model, or only to improve it on the edge.

Amazon’s Department Store Disruption If You Can Beat Them... Why Join Them

What: An opinion paper which sums up the issues department stores are facing and the potential solutions they have to look at

Why it is important:  The bottomline (efficient operations, beautiful stores, good assortment) does not compensate the most important, the purpose, which is not anymore just a marketing trick but a true tool to express to both customers and employees the point of difference between the department store company and competitors (including online) and the reason why its clientele should feel, and be, different, from the others.

Forbes reminds us that, even through the pandemic has hit hard the retail industry at large, making no exception of the department stores, the latter were already in a difficult position prior to the Covid-19 outbreak, due to 3 major issues they are trying to solve:

• A declining overall market share: in the UK, 83% of department stores space has closed down in the last 5 years, from 467 department stores to 79 today, and in the US department stores revenue as a while declined -3,7% in 2021 Q2, after a -16,7% decrease in 2020. Delta variant, issues on the supply chain and weather events might increase that projected decline within the end of the year,
• Even though this argument is not valid for all markets, department stores are also suffering from the issues of malls. Now that customers look for digital first solutions, department stores are struggling to attract DNVB brands, unless they have the possibility to switch to new models such as Neighborhood Goods or Showfields (knowing that few companies have the luxury to start everything from scratch again),
• The innovations set in place by the companies are necessary, but might not be on the needed scale given the amount of issues they have to face. While the article hails Nordstrom for their Nordstrom local initiative for instance, it also points out incoherent behaviours such as Dillard’s which bought back stock following its Q2 results.

According to the author, department stores companies should look at 3 key elements when rethinking their strategy:

• What do they stand for in a digital age when “having the best assortment” or “guaranteeing the best quality or price” is not enough. In other words, what is the purpose of these companies (this relates to the lated Doug Stephen’s book we reviewed here.
• What kind of partnership can be set up with brands, to make sure that a viable ecosystem is co-built together,
• To what extent stores should be attractions in themselves, giving customers a valid reason to come in?

Three Things Department Stores Must Solve Now To Build Sustainable Growth

What: A paper about the necessity to anticipate the needed post-pandemic behavioural and operational changes and assume that this will not be the last one to occur.

Why it is important:  We anticipated as early as end of 2020 in our White Paper the need of planification from our members for such outbreaks : no one can assume that they will not reproduce. However, the IADS members collectively learnt a lot and might be in a better position next time such an unfortunate event takes place.

We are now looking at the end of the tunnel regarding the Covid-19 pandemic, even though some parts of the world are still struggling with the vaccination process and the Delta Variant. The most important lesson learnt has been that the “zero covid” policy does not work, as shown in Australia, New Zealand and even China. As a consequence, we are collectively preparing to learn how to live with an endemic virus, which will be probably a more persistence menace year after year than a regular seasonal flu.

As a consequence, and a challenge, we will have to learn how to adapt our work and leisure activities to this new normal, knowing that a total worldwide closure as experienced in 2020 will not be economically viable for any one a second time (for the US, the Covid-19 pandemic itself is estimated to bear a total cost of ISD 84 bn, to be compared to USD 40bn for all other regular annual diseases combined together).

The impacts are multiple, and challenging for businesses, public buildings, schools… as they all have now to deal with respiratory threats and address these challenges in their daily operations (be it structural, with a total renovation of their air filtering capabilities, or operational, with a more flexible approach to people insulation when needed and at first sight of suspicion).

Even with these deep changes, the virus will not be eradicated. As stated by the author, “our goal must be to weaken its punch so that it becomes a risk we adapt to”. However, this is the only way for the collectivities to be prepared for an y potential other outbreak, however unwanted they may be.

Retailers, please prepare for the next pandemic 

What: French Hypermarket operators are scrambling to propose new models to customers, in the hope to create new revenues and increase their margins.

Why it is important: the IADS is advocating such a model for its members as well, as we wrote in our Exclusive in January 21: it is a way to fidelize a customer base, to increase repeat traffic, while also making the most of the wide range of services and products that are available by definition in a department store. A subscription model does not have to equate with discounts, but with relevant and interesting services for the customers.

In  France, hypermarkets and supermarkets are eyeing at the subscription model to increase their revenues and margins. So far, only Casino had launched such a model, as early as 2019, which granted customers a 10% discount for 10 euros a month.

Following the examples from Walmart or Shinsegae, in August, Monoprix launched “Monopflix”, a service with which customers get a permanent 10% discount on all purchases and free delivery, against a monthly fee of 9.90 euros.

Carrefour is now taking also example by launching a 5.99 monthly subscription fee, which gives 15% discount on their private label products.

However, such offers, proposing only a discount against the subscription, might prove counterproductive in the future with customers considering lower prices as a basic expectation. This is why additional services should be integrated, such as what FNAC/Darty does with its subscription model, allowing a free repair service, or Decathlon with bike rentals.

Hypermarkets are going for subscription models 

What: An opinion piece on the renewed relationships between department stores and brands

Why it is important:  This topic is now recurrently coming back in CEO talks about their current preoccupations.

Doug Stephens, author of the books Reeingeering Retail (see our review here) and Resurrecting Retail (see our review here) argues that bad retailers will never runout of customers looking for a bargain. However, this might imply going through the fate of the now defunct JC Penney. For the others retailers, they have to face a new reality: they need to partner more with brands, now that these ones have the possibility to go directly to their customers, just like what Nike is doing these days.

Faithful to his creeds, Stephens mentions that, in order to do so, retailers need to make sure that they keep on having a specific community of clients, cemented by a set of cultural, entertainment, expertise and products values. But having this community is not enough anymore to retain brands, as they expect also more value in their relationship: shared market intelligence, co-ownership of the customer relationship, clear storytelling and controlled prices.

The Existential Question Facing Every Retailer Today Retail Prophet, Opinion 

What: An article rounding up what needs to be known about Buy Now Pay Later solutions and their risks

Why it is important:  Such services have massively expanded in the last years as they are extremely attractive to younger customers. However, they might be as well putting them at risks via a seemingly harmless way of accumulating debts, which might end up questioning the responsibility of the institutions, brands and retailers proposing such solutions in the midterm.

Buy Now Pay Later solutions (read the IADS exclusive on this topic) are gaining ground across the world, thanks to their massive adoption by Millenials and Gen Z customers. It allows to have access to a somewhat old-school credit, but in a new format, with less controls, and probably higher risks for customers.

Paying with instalments is not new as it appeared as early as 1840 from piano manufacturers. However, until BNPL, to have a credit, applicants needed a credit check, involving a credit card with the costs associated and some red tape to do. The difference here is that using a BNPL solution is as simple as a click on an app, all the more that the delayed payments are interest-free (the BNPL operator charges the seller instead of charging the buyer).

The article argues that BNPL solutions are dangerous, as the verifications methods are less important than in the case of traditional credit, putting final customers at risks of drowning into seemingly affordable and easy purchases, translated into hefty debts at the end. According to the Australian Securities and Investments Commission, 15% of BNPL users had to resort to a traditional loan to pay off their BNPL debts. All across the world, regulators are now turning their eyes to these services to evaluate how harmful they can be on the long range.

How Old-Style Buy Now, Pay Later Became Trendy ‘BNPL’ QuickTake 

What:  KPMG released its new holiday retail outlook report which projects sales 7% higher than last year.

Why it is important: Retailers see the upcoming holiday period as an opportunity to make sales despite the continued spread of the pandemic and the supply chain issues.

The report called “Merry and Bright” surveyed 114 U.S. retail executives across the country from companies of more than USD 500 in annual revenue and aims to reveal expectations for the 2021 shopping season. According to the report, retail executives expect that e-commerce sales will grow 35% compared to the year prior.

During the holiday season, executives will rely on the growing popularity of last-mile delivery options including buy online, pick up in-store, or BOPIS, curbside pickup and buy in-store with home delivery. They will also focus marketing efforts during this time, with a plan to spend 35% of their budget between Thanksgiving and New Year.

Meanwhile while retailers are positive about the upcoming holiday season, several issues with the potential to undermine sales expectations such as difficulties pertaining to shipping container capacity, port congestion, driver shortages and the Delta variant concerns pose a significant risk.

Retailers should begin addressing challenges now to prepare for what 's ahead by doubling down on digital, encouraging customers to purchase early, and emphasizing health and safety precautions.

Can Retailers Be Hopeful for the Holiday Season

What: The FT argues that the subscription model might be more efficient for pricier items, due to the distribution and communication costs impacting FMCG goods in such a model

Why it is important:  Department Stores consider subscription through the lens of Subscription boxes only, which is an entirely different activity and which can be extremely consuming in terms of workforce and time. However, there are alternative models that could prove interesting to them while contributing at the same time to the financial bottomline and repeat traffic.

IADS already wrote about subscription models as at the Association we are convinced that this is part of the small actions that could bring additional value and traffic to department stores (see Business Case #3). ING Data estimates that the total market in Europe represent EUR 350bn, of which 39% is related to information technology services and 34% to media and content services (Microsoft is a good example with its Office 365 subscription).

Consumer goods only represent today 15% and one of the most famous model is Nespresso with its coffee pods.

However, the article argues that the model works best for higher priced-items, since, one distribution, communication and customer retention costs are factored in, FMCG goods are not worth the hassle from a corporate point of view. For instance, some brands already propose mattresses on subscription, including the replacement of the product on a regular basis.

Subscriptions recurring revenue model best suited to expensive items

PRINTABLE LINK HERE

WATCH THE FULL INTERVIEW HERE

2020 has been an unprecedented year for all of us, and by the magnitude of changes it brought, it literally changed the world. By grounding the whole planet at home, it brought some space and time to reflect, especially when it came to examining changes in retail:

• Digitalisation and new purchasing habits,
• Work from home and the question of commuting,
• Notion of essential vs. non-essential goods.

*All our members, in addition to the obvious economical impact of the various closures they had to go through, witnessed significant changes in terms of how they were approaching their customers and their markets, leading to key changes both in their operating model and in their organisation.

We are launching a series of interviews with key innovative thinkers to understand the magnitude of the changes, and their views on how to deal with them. All organisations have proved their resilience and ability to cope with the emergency of the situation, however, it is a very human thing to tend to come back to habits whenever possible. What happened? How can we make the most of what we learnt and how can we make sure our organisations and thinking processes are durably impacted?*

Introduction: Jakob Sand from the BIG Group

For this session, we welcomed Jakob Sand, partner of the Bjarke Ingels Group (BIG).

BIG is a group of architects based in Copenhagen, New York, London, Barcelona and Shenzhen, founded in 2005 by Danish architect Bjarke Ingels. BIG got famous with innovative projects such as:

• Living units: “Mountain Dwelling” in Copenhagen (10,000 sqm of housing and 20,000 sqm of parking space with a  mountain theme), or the “8 Houses” project in Denmark,
• Public utility: Amager Resource Centre in Copenhagen, a waste to energy plant doubling with a ski slope,
• Corporate projects: The Google HQ in the US, Lego House in Copenhagen,
• Mixed-use buildings: The pyramid-shaped mixed-used building of Via 57 West in NY,
• Other projects: National Art Gallery in Nuuk, the Big U defence in lower Manhattan and many more (such as the Riverside project in NY),
• In retail, the group is known for having made the Galeries Lafayette Champs Elysées store.

Today, the group represents 600+ people with a holistic approach including all functions and disciplines.

Jakob Sand joined in 2011 as a partner, with previous experiences in Denmark and France with Dominique Perrault. He overviews projects at the global level.

Part 1: How to cope with innovation?

*IADS – Jakob, Bjarke Ingels has been named innovator of the year for architecture in 2011, and among the top 100 most influential people in 2016. Charismatic, known for his sense of humour, can you recall your first encounter with him and your feelings / thoughts at the time?*

Jakob Sand: We met in Paris as BIG had just won the Sorbonne University project, which was the first French project the group had to handle. I met with Bjarke very casually and we walked through the city as old friends, towards the university. It was not before we entered the building that we started to discuss this very project.

Bjarke is very easy to get along with, and what struck me was his curiosity: he was curious about my history and not worried at all about filling me in with the project and deadlines! Rem Koolhas, his former employer, once described him as “the only architect without angst”.

I think that his curiosity, fearlessness and positivity on how to tackle the problems brings us a lot of ideas and helps the group push the boundaries. This is probably why the BIG group has no specific signature style: although our buildings are certainly recognizable, they are all significantly different because when we start a project, we just do not know where we will land. He always challenges us to the maximum.

Combined with his talent, his curiosity helps us solve seemingly inextricable situations, by providing both a new approach and an almost scientific frame. Even in the most challenging moments, we are always confident that we will get somewhere. This specific methodology is probably one of our greatest points of differentiation on the market today.

Funnily enough, ten years later, this Sorbonne project in Paris is finally being built!

IADS – BIG is widely known for its innovative thinking process and ideas. How does that translate into the corporate culture? Any tips on best practices to onboard newcomers in innovative companies? Did you have to “unlearn” things?

JS: I did not have to “unlearn” as many of our projects are very classic, we just define our own approach. My previous experience was ideal when I joined, as Dominique Perrault is quite bold in his approach. Rather than unlearning, it is more about knowing history. As a good friend says: “the future starts in the past”. Even if our projects sound futuristics, they start somewhere, with references, studies and understanding of the context. It is just about making the right due diligences.

In terms of general organisation and our approach to innovation, even though Bjarke has his vision and methodology, we need to make it trickle down, not only between the 16 partners but at all levels in the 600+ staff. To achieve that, we empower everyone, in full transparency and sharing. There is no secret room where senior partners develop projects: from interns to the top level, we share information and updates on a weekly basis (let’s say it is a huge PDF sent on a weekly basis). This helps us save a significant amount of time.

Also, as many of the partners have started as interns in the company (I am an exception), the group culture is apparent at all levels. Everyone is encouraged to generate ideas, and any idea is welcome, wherever it comes from. There is no “we normally do like this” approach, but on the contrary, we are on a “what if” posture. This strongly contributes to talent retention, and this is how, for instance, we came to combine a bridge and an art gallery together in Norway in one of our projects (The Twist).

IADS- From a very practical point of view, how do you manage creativity within an international and multicultural organisation?

JS: We give responsibilities according to talent, not experience or time spent in the company. This empowers and motivates people. Some of our young talents can even feel overwhelmed with the level of responsibility they are given. But this is our way to foster talent and make them grow. Everybody is given the possibility to pitch their ideas, from interns to senior partners.

Regarding the weekly exchange, the PDF file is organically shared within the organisation. A comment from Bjarke goes to everybody, and vice versa. Of course, we are developing an app to make it more practical and optimized.

IADS- Has BIG Group gone through any kind of transformation due to the Covid-19 pandemic and if so, what and how where they dealt with?

JS: We were given 36 hours to “digitalize” the organisation, and make sure all employees could work from home. As architects, we already had the infrastructure needed to do so, as we deal with heavy files between offices across the world. For us, the change was not so much technical, but rather human: we were finally able to use tech to separate really important meetings, where you have to be physically present, to the other ones, where video conferences do the job.

While we knew technologies work and contribute to save time, we learnt the value of physical presence, which allowed us to review how we work, and when/where. This leads to a new balance, which is positive for all.

Part 2: BIG Group view on innovation in retail

IADS- Looking back: what did BIG learn with the Galeries Lafayette Champs Elysée store?

JS: We owe a lot to Galeries Lafayette for trusting us. They wanted us to bring in a fresh eye, and this is the reason why our partnership was so fruitful, as it mixed their experience and knowledge and our open approach, not taking anything for granted but on the contrary, raising “why not” questions.

I like to think of our approach as a “pragmatic utopia”: pragmatic because of course, the bottom line is to be economically sustainable and sell products, but also utopia because we believe cities can be improved. This is why we wanted to make a store which is also a destination, where you can go and stroll, in a seamless way with the urban environment. We wanted to create a physical space where you feel good and comfortable. For instance, the sneakers section is bigger than what you normally find, with a stunning architectural element creating the attraction. It is the same thing with the pinwheels moving around for watches or the giant moving belt for bags. We also created attractive glass displays on the second floor, which was a notoriously difficult floor for the previous owner.

Also, remember when I was mentioning the history? We discovered that this building used to be a bank, where customers could access a very luxurious vault in marble and precious stones. The fun part is that everything which was not visible by customers at the ground floor level was only covered with plaster, because why would you waste money on staff? We echoed this historical element by mixing a very luxurious marble and brass atrium and staircase with more contemporary white walls and a steel part, where you can find the perfumery today. This is a strong element of differentiation for the store.

We also decided to reveal the cupola, which has been masked by the former owner and created a meeting spot beneath it, like a plaza. This is what retail is about: being a natural spot where you meet your friends during a rainy day (but not only!).

IADS- What is the department store’s role for you in 2021? Should we consider it to be part of the “1% buildings” once mentioned by Bjarke as public buildings, such as churches, city halls and other public amenities? Or does it belong to something else?

JS: Put a store next to a public square. If people can sit in the public square, they will end up coming to the store. In other words, a department store needs to be a place to recharge, mingle, meet and spend time.

In the past, this was a corollary of the stores’ structures themselves: atriums were not here to be beautiful or a place to meet, but a very pragmatic way to have light come into the store and make products visible. People then appropriated these atriums as meeting places. With time, department stores wanted to maximize productivity by showing as many products as possible, closing spaces and creating floors. Thankfully we are at the end of this cycle and now visitors want space, place and a reason to come again.

I highly believe that the future of department stores is to be semi-public spaces, all the more that they are already enjoying key positions in cities. A department store is a natural part of the “1% buildings” where all senses are solicited to buy products, but not only. This is a clear competitive advantage over the internet!

It does not mean that there might not be fewer department stores, though! We are currently working on a project in Düsseldorf where one store is closed and the second one across the road kept, as they were both built in the pre-internet era. A funny point on this project: we decided to transform the road in front of the remaining store into a pedestrian area. Everybody was stressed, as “cars give energy in front of the store”. This is not the right approach: if you have passers-by, benches, trees… you will have probably much more qualified traffic for your store than cars passing by… usually cars do not come into stores!

IADS – What are your frustrations, if any, for retail? Can architecture solve all issues?

JS: No frustration on our end. Everything depends on the readiness of the retailer we are working with. Galeries Lafayette was forward-thinking, but for other projects we feel sometimes we are asked to design for the past, to stick to well-known recipes… Retailers know their part, and we are not here to teach them new tricks, but experimentation and new ideas are key to reinvent retail.

Architectural alchemy is about mixing ingredients: retail with leisure, entertainment.. a new function. For instance, for Google in California, we decided to gather almost 3,000 people on the same floor under the same roof, as we believe this reflects the new ways of working.

The toughest thing for architecture in retail is not the structure, but the mindset.

IADS - Retail is also about people – customers, but also and equally importantly sales teams. How do you take them into account in your projects?

JS: We all want meaning and purpose. This goes for any employee of any industry. The quality of offices can increase loyalty and even motivate employees to stay extra hours, thanks to a rooftop, a gym…

The topic of sustainability is particularly critical for the younger generation. We need to make them believe in and be proud of, the values promoted by the company. Our role, as architects, is to express that when they work in this particular building, they are part of a bigger plan (making a better city, a better planet…).

IADS – Is the store of the future a store at all?

JS: I am sure that a wholly virtual world is exciting. For me, the store of the future is physical! My 9-year-old who intensely uses her iPad and iPhone really enjoys going to stores to test, try and touch. We are human beings after all.

It is probable that we will see new experimentations with stores, in open air, on highways… why not?  it will be rethought in many ways, but I am confident department stores will remain relevant in the future.

They just need to keep on inventing and experimenting. For instance, we are working on an Opera house in Germany where we chose to show backstage mechanisms to spectators. A similar approach could be applied to department stores, where you could see the system fulfilling your orders in real-time, for instance.

Technologies are there. In Danish, design means “giving a form to something which does not have a form yet” or giving a form to the future. All IADS members have the possibility to define by themselves the form of their future, and that is pretty exciting!

Credits: IADS (Selvane Mohandas)