What: Digitally native brands will continue to adapt and evolve in 2021

Why it is important: even though online retail accelerated with the Covid-19 crisis, making DTC brands uniquely positioned to weather the disruptions in retail, they will continue to evolve and reshape for the long-term

Retail Dive looks at the DTC space and decipher height trends that will shape this business model in 2021. Trends include:

• More traditional retailers enter the DTC arena: With less foot traffic in physical stores, retailers took inspiration from DTC brands on how to approach tech-savvy consumers.
• Digitally native brands see the value in physical retail: over the years, DNVBs realised that in order to scale their businesses and succeed in the industry, they need to enter brick and mortar in some capacity.
• DTC brands extend their category reach: As top brands lose market share in certain categories, DTC companies have the opportunity to expand their product offerings (to respond to the demand for casual and self-care products for example)
• Tech-savvy consumers will be drawn to DTC brands: While consumers spend less time in malls and more on their mobile, DTC brands have opportunities to appeal to a new demographic and retain the ones they already have.
• Securing funding could be easier, at least for some: The pandemic also impacted how investors view the retail space and how they think about DTCs. E-commerce is projected to post a 32.4% increase compared with 2020. Therefore DTC brands and tech companies are well-positioned to receive funding from investors
• Exit strategies get more complex: Once brands grow, they begin eyeing their next move. Some brands have pursued acquisitions by larger retailers while other brands have chosen initial public offerings. A new popular option is going public by way of special purpose acquisition companies (SPACs).
• Leadership turns to retail vets as founders step back: As popular DTC brands scale much larger than their startup days, founders have taken a step back, and retail veterans have moved into C-suite roles.  The shift of founders away from the day-to-day of their brands isn't likely to end, as successful DTC brands continue to expand and recruit leadership that can help them reach the next growth stage.
• Brands will continue to struggle with profitability: Media costs came down during the pandemic, but the solution is temporary and brands need to continue to look for ways to mitigate the high costs of acquiring customers online. In order to eventually turn a profit, brands will need to continue finding solutions to attract consumers and bring marketing costs down.

8 DTC trends to watch in 2021

Related items:

• How DTC brands will approach physical retail in 2021
• One big way Direct-to-Consumer retail is changing

What: Customers are moving out, and retailers are adapting

Why it is important: New experiences and services are the solution, not new stores

In the US, mall operators are following the new consuming and housing habits, and predict a rise of suburban malls, taking precedence over city centres. However, retail specialists such as Robert Burke object that simply relocating or opening new stores will not be the right answer for new consuming trends. Footfall metrics are obsolete in a world where traffic is less important than customer retention. Experience, digitisation, meaning and seamless integration in every-day life will be key for retailers to stand out of the crowd, and avoid being commoditised, a risk taken by big box or strip malls today.

Social experience will be the real currency in the future, and retailers need to adapt to this new reality.

Retail Reorients as Shoppers Migrate

What: Visa examines the consequences of Brexit on intra-European travel once the Covid-19 restrictions are lifted.

Why it is important: While Europe is a privileged destination for UK citizens, the centrality of Heathrow Airport might also impact continental Europe as a destination for non-EU tourists.

Visa has started to anticipate the consequences of Brexit on European tourism. While the new regulations will obviously impact English tourists (9 out of 10 destinations for UK travellers are in Europe), it will also have an economic consequence as they represented in 2016 a total value of EUR 37 billion in spending (for some countries, this is far from being a detail: in Spain, English tourists represent 23% of total entrants).

However, in addition to that, the new frictions at the Anglo-European border might also have a consequence on international tourism: as Heathrow Airport was the most internationally connected hub for the last 3 years, the difficulties of entering Continental Europe from England (no fast track, need of documents…) might lead to a loss of appeal of multi-country visits to Europe (which for Asian tourists, in particular, is important).

Global Economic Insights Jan 2021

What: Covid has played havoc with established fashion supply chains.

Why it is important: The supply chain landscape is shifting both geographically and in terms of adapting to an agile, digital, demand-driven model.

With the uncertainty and disruption in retail during the last year of covid pandemic, retailers have been rushing to adjust their businesses with dramatic consequences for the supply chains which sustain retail. By last July, about 400 manufacturing firms representing 150 000 jobs had suspended operations in Cambodia. In Bangladesh, the world’s second biggest garment exporter after China, 348 factories closed between March and April 2020, according to its manufacturers and exporters’ association. A recent survey of suppliers found that orders for the current season were down 30 percent compared to last year. On top of that, the rise of fast, online-only fashion companies is shifting the manufacturers’ business model, with a premium on agile, digital production. As the article puts it, “we are changing from a supply chain to a demand chain”.

In fashion's global supply chain, a ruthless race to the bottom

What: BOF lists pieces of advice to DTC brands to properly address their wholesale strategy in 2021.

Why it is important: Department stores tick all the boxes to be attractive to DTC brands and renew their portfolio, contributing to increasing their level of attractivity toward customers.

According to BOF, DTC brands should aim to directly operate 50 to 80% of their business, in order to maximize their margin, by using the proper online marketing tools. However, getting there is expensive, which makes wholesale partnerships more attractive than ever.

BOF reminds that, although online-only retailers have replaced department stores in brands’ minds, the latter still has an important part to play, due to their stores’ network, sales associates’ quality, customers base and relationship. The more outstanding experiences department stores will develop, the more qualitative their clientele will remain, and therefore, the more attractive they will be too hot DTC brands.

DTC vs Wholesale Striking the Right Balance

What: a reflexion by Harvard Business Review on the new working trends, as remote work will allow for us to potentially work from anywhere in the world

Why it is important: remote working has been forced by the pandemic and is here to stay beyond the Covid-19 crisis. Employers and employees should learn how to make the most out of it.

The article looks at the possibilities and benefits brought by remote working such as reducing or eliminating real estate costs, or even hiring and using talent globally. But it also looks at  concerns which include how to: communicate across time zones, share knowledge that isn’t yet codified, socialize virtually and prevent professional isolation, protect client data, and avoid slacking.

Our Work-from-Anywhere Future

What:  A White Paper on suppliers’ data management and its consequences on retailers organisation

Why it is important: PIM and OMS are essential to manage the post-pandemic world where omnichannel becomes the norm. In order to gain efficiency, these new systems need to be backed by the right human organisation.

Data is the new oil, but it is not limited to customers’ data, on the contrary. Suppliers are also generating a significant portion of data that is now essential to retailers, to optimise their selling process. This means that technical adaptation is required: Excel spreadsheets are no longer the norm when department stores need to deal with 30% more products available on the market every year, including 20% new product attributes, due to 16% new brands arriving with their own vision and differentiating point. Accenture and Alkemiks (who attended the IADS Digital Retail meeting in 2019) review what is at stake, what are the new tools needed, but also the new human structure (page 35 and beyond). From roles to processes and KPIs, the human structuration is key to make sure that implementing PIMs or OMSs will not only help sell better, but more efficiently in terms of costs.

White paper: SUPPLIER RELATIONS 3.0 - TRANSFORMING YOUR BUSINESS TO MEET NEW CUSTOMER NEEDS

Related item:

• IADS Digital Meeting, 2019

What: Fixing business rates is key to helping the industry survive

Why it is important: Hundreds of small town centres are at risk

In truth, there was overcapacity on the high street even before Covid-19 accelerated the shift to online shopping. Many retailers had failed to keep up with the changing shopping habits of young consumers and were unable to compete with innovative online-only rivals.

Irrespective of the reasons behind particular company failures, there are wider repercussions for Britain’s towns and high streets that cannot be ignored. Analysis by the Centre for Retail Research estimates that more than 15 700 shops closed last year, resulting in some 176 700 retail job losses. At stake is not just the future of international fashion destinations such as London’s Oxford Street, home to recently collapsed Topshop’s flagship store and a vast Debenhams outlet. Such shops acted as high-street anchors across the country, attracting local trade and footfall. Their demise puts the future of hundreds of small town centres at risk.

UK government must play its part in slowing the retail collapse to give time to a post-Covid transition to the high-street of the future. There is no reason why non-food, bricks-and-mortar retail should die. One area where the government should act immediately is to reform the business rates system (property tax). The 12-month business rates holiday, introduced in March last year after the pandemic first struck, needs to be extended further.

Retail has a place on the high street of the future

What: IADS’ Partner GDR quarterly report on innovation in retail.

Why it is important: a series of retail examples gathered by GDR from all segments and categories.

GDR identifies 4 trends this quarter: Carbon as a currency, Re-store, Driven by digital, and The wellness stretch.

Carbon as a currency: a new carbon-neutral positioning as a key differentiator for brands and retailers. How so?

• By informing / incentivizing customers (via providing the carbon impact on receipts, pricing the goods according to their CO2 emissions, offering to customers a subscription to an eco-friendly initiative, or even buying and reselling products when customers are finished with them).
• By designing products differently (diamonds made from atmospheric CO2, waterless shower gel sold in a one year’s supply packaging, traceable jeans),
• By rethinking the brand experience (allowing customers to pay for parking with their extra electricity, selling goods in bulk, proposing circular experiences).

Re-store is a GDR portmanteau word related to all new initiatives designed to reinvent retail:

• Think of the store as a hub thought for customers (a studio for their live streaming, a place for them to exchange and share advice),
• Make the store available 24/7 from everywhere (virtual stores and experiences, allowing BOPI), or increase the store experience via VR consultants and help,
• Customize the experience (made to measure cosmetics and fragrances, try and decide service in e-commerce),
• Be at the heart of the local community, for a reason (ideology, social approach, recycling capabilities).

The examples collected by GDR in digital all have one aim, increase the time spent online and offline:

• Shoppable virtual events, shoppable emails,
• Virtual games collaborations, virtual travel experiences,
• Virtual products for social media (digital only make up),
• Delivery of trending products on social media (dishes from Tiktok).

The Wellness Stretch takes its name from the new segments this category is encompassing, including new products and services:

• Mental workout, meditation, anti stress support,
• Mindfulness applied to everyday products (toothbrush, Lego, toilets),
• Aromatherapy household,
• Products thought to improve your health (bras detecting breast cancer, mood boosting sunglasses.

GIR 77

What: some keys from economics professors to navigate through remote working

Why it is important: remote work has surprised us all rapidly in spring 2020 when almost the entire planet was forced to stay home to stop the spread of the virus, forcing both employers and employees to shift from office work to home work overnight.

The article highlights two important concerns to take into account when making the assessment of this experience: fist people were started working remotely suddenly and without being prepared; second a temporary shift to working from home may be very different from a permanent change

The article also looks at the different industry and mentions which ones are most suited for remote working; and does the same exercises with countries.

Making a good job of remote work

What: Asia and Russia are opening to second-hand buying

Why is it important: by 2029, resale might become a bigger business than fast fashion.

According to analytics firm GlobalData, fashion resale is growing 21 times faster than sales of new clothes and will reach USD 36 billion by 2024. If trends continue, resale will be a bigger business than fast fashion by 2029 and it will include Asia for sure.

Aside from Japan and South Korea where vintage market is quite developed, the rest of Asia used to be reluctant to buy second-hand apparel. Until now. In China for instance, where pre-owned items account for just 3% of the luxury market, resale has struggled for cultural reasons (bad luck, hygiene). Newness was also a cherished characteristic among the newly affluent.

However, resale platforms have emerged around the world in recent years and are raising funds to fuel their expansion. Chinese luxury fashion resale platform Plum has brought in around USD 50 million in venture capital. Worth noting, a UBS survey of luxury consumers published last year found 72% of respondents had increased their purchases in the online resale market, up from 31% in 2018.

Indonesian fashion resale platform Tinkerlust, has around 180 000 monthly users and has introduced them to sustainability on its social networks by engaging influencers: an effective strategy in Southeast Asian markets where word of mouth is highly trusted.

In Singapore, The Fashion Pulpit, a store dedicated to fashion item exchanges has opened 3 years ago and is becoming profitable. Its founder’s ambition is for fashion lovers to think about swapping before buying something new. An annual fee equivalent to USD 450 will allow customers to benefit from unlimited exchanges.

A spokesperson for Vestiaire Collective, which has over 10 million members worldwide, said that while its core markets are currently Western Europe, USA, Australia, Hong Kong and Singapore, it’s strongly focused on growing its business in Southeast Asia, Malaysia and Eastern Europe.

While younger Asian customers are embracing second-hand as their values are evolving, local companies will still have to nurture a nascent market and tailor their offering to shoppers.

The Key to Asia’s Resale Market

Singapour, temple du consumérisme, se laisse tenter par les échanges de vêtements

What: Dealing with e-commerce returns has become critical for retailers

Why it is important: the fastest-growing channel, e-commerce, is also the less profitable per se (for now) and its profitability is even further hampered by returns. If not properly treated, this topic could be very well the cause of more casualties on the retail scene.

The NRF reports that in the US, USD 428 billion in merchandise at retail value were returned in 2020, an increase of +23% vs. 2019. This increase is logically explained by the pandemic, stay at home instructions, an extension of maximum delay to return products from 30 to 90 days and forced at-home-try-on attitude from customers, unable to go to stores. In addition to impacting P&L, it also leads to overuse of space: CBRE estimates that the additional warehouse space needed to accommodate the returns in the next 5 years will equate to 40 million square metres.

This is why SDC reminds a few simple rules about the way to deal with this potentially explosive situation:

• Integrate the return process into a true omnichannel approach, at the structural core of the retailer’s organisation, and allow customers to return goods to many different points (Note: this is exactly this year’s IADS Academy topic).
• Clearly explain to the customer the consequences of returning products in terms of environmental impact, to share the responsibility and the efforts,
• Consider alternative ways to sell returned products, such as second-hand channels (see for instance Galeries Lafayette’s partnership with Vestiaire Collective)

The Way Forward with E-Commerce Returns 

What: the latest initiatives to reduce cardboard boxes use

Why it is important: a growing number of companies have ideas about how to reduce packaging waste

According to Pitney Bowes (a shipping services company), global parcel volumes topped 100 billion in 2019 for the first time and surged in 2020.

A growing number of start-ups and brands want to take the cardboard box out of the equation entirely. Here are the latest initiatives that are trying to wean consumers off single-use packaging.

• Olive (shopolive.com)

The company was founded by Nate Faust, who previously co-founded Jet.com in 2014 before it was sold to Walmart in 2016.

The platform launching 17 February 2021, will deliver orders from different brands (such as Adidas, Anthropologie, Everlane, Ray-Ban, Goop, Free People, Hugo Boss, Sam Edelman, Stuart Weitzman, ThirdLove, Veronica Beard, Ugg Australia and Vince) in soft and sturdy reusable crates. Customers can return them by leaving outside their front door for the postal service to collect. The totes arrive as weekly shipments (twice weekly in New York), allowing Olive to consolidate orders from multiple retailers at its warehouses.

Olive hasn’t actually eliminated cardboard boxes from its shipping process yet. When a customer places an order, the brand first ships the item to the start-up’s warehouses in the same packaging that would have gone to homes, and only then are products put into their totes. Faust said as volumes rise with individual retailers, in the next three or four months, it will become cost-effective for Olive to start shipping totes directly to brands, meeting the start-up’s goal of eliminating single-use packaging.

• Asket (Swedish menswear brand)

The brand spent a year redesigning nearly every aspect of its packaging, from the thickness of its cardboard to the size of its return instruction cards. It swapped out plastic garment bags for a greener alternative even though it would slow down garment handling in factories and warehouses.

• Repack (Finnish company)

The company offers customers a choice: receive their items in the usual disposable box, or pay a few dollars extra to swap in a mailer designed to be shipped back for a few dozen more trips through the post. The mailers are plastic, as are Olive’s, but their boosters say by using them again and again they save far more packaging from the landfill than they create.

• Boox

The brand of e-book readers is testing various incentives to convince recipients of its boxes to return them, including discounts on subsequent purchases and donations to local schools or charities.

• Amazon

The company has repeatedly tightened packaging rules for sellers on its marketplace to consolidate items in fewer, smaller boxes, and has even installed machines in some warehouses that create form-fitting packaging for items as they roll down the conveyor belt. Whether the goal was to reduce shipping costs, save the planet, or both, the end result, according to the company, was to use the equivalent of 1.5 billion fewer boxes since 2015.

Consumers have spent two decades stuffing the packaging from online orders in the trash. Convincing them to think about boxes, paper and plastic bags is a struggle and there’s a price to pay: so far additional costs or slower deliveries.

The Start-Ups That Want to Solve Fashion’s Packaging Problem _ BoF Professional, News & Analysis 

Olive, New E-commerce Platform, Consolidates Packages Into Weekly Delivery

What: Airbnb’s perspectives on the US market for 2021

Why it is important: no more intercontinental tourism, but regional tourism will surge.

Airbnb carried a study on US travellers’ intentions for 2021. The result: regional tourism will increase, all the more that customers are eager to be allowed to travel again: only 21% of American tourists plan to travel overseas, the rest look at domestic or local destinations. 55% report to be interested in taking a trip within driving distance. In parallel, potential tourists for 2021 are younger (55% are under 50 years old) and wealthier (3/4 of customers earning more than USD 100,000 plan to travel).

The consequences:

• Mass seasonal tourism is going to be less important than what it used to be, and the variety of “popular” destination will be wider: more hits, less blockbusters,
• The travellers’ flow will be spread more evenly during the year, as local or domestic trips imply a greater flexibility (all the more in the work from home context).

This, in addition to the fact that business travel is unlikely to return to its pre-pandemic levels, leads Airbnb into focusing on regional holidays and experiences.

Airbnb Sees Regional Travel Boom in 2021, Less ‘Mass Travel’ 

What: the Mint report for the Men’s FW21 season

Why it is important: Discover Mint’s analysis of trends seen on the (often digital) runway for this unusual FW21 season

Mint Group, an agency representing the likes of Saks Fifth Avenue, Nordstrom, David Jones or the Real Real, and partner of IADS, shares its FW21 report for Men’s Fashion.

Mint Trends - Mens FW21

What: A new payment method with increasingly growing important.

Why it is important: BNPL scheme are a strong lever to increase the average basket value.

The penetration of digital capabilities into payment methods, coupled with customers eager to have flexibility in their cash management, explains the rise of Buy Now, Pay Later solutions, according to WWD. The article argues that BNPL schemes allow customers to increase the value of their basket, either by complementing their purchase (with an item that they would not have afforded to buy otherwise) or the will to consume less, but better (assuming that quality is correlated to price tag value). It is also a way for pandemic-hit customers to keep on buying in spite of a temporary difficult situation. Transparency and seamless integration in the buying journey are also cited as key drivers for this solution to grow.

IADS note: interestingly, this type of solution has been developed initially in countries where the economic situation forced retailers to find creative solutions to fuel consumption, such as Mexico, where El Palacio de Hierro already has quite an expertise on this topic.

The Growing Allure of Buy Now, Pay Later

What: IT is becoming ever more central to retail operations.

Why it is important: IT appears to be shifting from a service to more operational role with responsibility for results.

Gartner has published a report on the top priorities for IT in 2021. One of the main findings is that IT in businesses will be experiencing a more urgent imperative to generate more business value and approaches to information. This will be the case at all levels in IT roles. Furthermore, as business partners get used to technologies, IT leaders will need more sophistication in their partnerships and collaboration. Specific issues also arise with the covid pandemic and its consequences: one is the crucial role played by the function in allowing business continuity; another, on the other hand, is the increased risk to security with working from home which generally falls within the scope of IT. The increased use of data in business will mean, according to the report, that “by 2024, 25% of … CIOs will be held accountable for digital business operational results, effectively becoming ‘COO by proxy’”.

See full report by Gartner below:

Top Priorities for IT: Leadership Vision for 2021

What:  A report exploring what is at stake when it comes to pricing managed by AI.

Why it is important: Dynamic pricing is key to leverage profitability in an ever competitive market, and all IADS members experiences lowered profitability in 2020 due to promotions and, in some cases, price wars. Using AI in that field is an example of digitalisation applied to the back-office, helping earning additional points of productivity. Two interesting business cases illustrate that point.

Retail Week produced a report in December 2020 based on its key learnings from UK customers: 42% think that their income was reduced during the Covid-19 peak crisis, and 27% remain concerned that it will be still the case in one year. No wonder that for 46% of them, price and free delivery were key elements in their purchase decision for Christmas, and that with the expansion of digital, they will use even more Internet to compare prices, at the expense of physically visiting stores (44% plan to visit always or often a store after the pandemic, vs. 77% before).

Perception of unfair pricing also impact the willingness to stay loyal to a store. Interestingly, most of the UK retailers remain laggards when it comes to automation in that field: 40% manually input prices, 43% manually operate promotions and 57% manually operate markdowns. AI allows to connect the dots between demand in real-time, cost of acquisition and market situation. There are 2 examples in the study:

• Albert Heijn in the Netherland, which shows on electronic tags original price, real-time calculation of discounted price and the date of expiry of the offer (especially adapted to fresh goods taking into account their expiry date),
• Carrefour Brasil, which is using AI to become a pricing leader instead of following the market, by automating its pricing structure in 10 stores across 10 to 15 categories during 6 months, leading to gains in margins and profits at same level of sales.

how AI will win the price war

Keeping markets under a close watch, IADS has gathered innovative concepts related to key topics such as sustainability, local retail and community, and multichannel experiences.

Discover the selection of our second retail review below:

PRINTABLE VERSION HERE

![2021 Retail Review #2 green pea

Green Pea, Turin

A mixed-use centre gathering under one roof fashion, food, culture and leisure with one common motive: sustainability. The project is carried out by Oscar Farinetti, the business man who created famous food chain Eataly.

More on Green Pea

![2021 Retail Review #2 nike unite

Nike Unite

The latest concept from the sports retailer, focusing on the physical and digital shopping experience for local customers. Throughout the space, the store highlights its staff, local partnerships and the story of the community by including local landmarks and hometown athletes; it is designed in such a way that the local residents feel represented.

more on nike unite

![2021 Retail Review #2 orefici 11

OREFICI 11, Milan

U.S. retail group VF Corp has opened a multi-brand space in Milan featuring three brands from the group’ portfolio: Timberland, Napapijri, and The North Face. The space successfully mixes physical and digital experiences, showcasing new ways to do retail in the covid world.

more on orefici 11

![2021 Retail Review #2 moncler

Moncler, Paris

The luxury winterwear brand opened it biggest store worldwide on the avenue des Champs-Elysées in Paris. The store has been imagined like a Parisian flat, with a corridor leading to several rooms, and was designed using noble material such as marble, wooden floor and moulding ceilings.

more on moncler

![2021 Retail Review #2 foot locker

Foot Locker Community Power Store, Vancouver

A concept dubbed Community Power Store debuted in 2019, that expands to Canada. The three-floor retail experience includes an activation space where events can be hosted for the local community with key brand partners.

more on Foot Locker Community Power store

![2021 Retail Review #2 alhambra

Alhambra, Berlin

It is a multi-concept space where local brands and artists showcase their work. The store provides a full-service amplification kit for emerging brands by offering a space, a built-in social media campaign, impressive staging, as well as professional salespersons and event managers. The space will open during spring 2021.

more on alhambra

PRINTABLE LINK HERE

Space productivity is, by essence, a hot topic for Department Stores, but the year 2020 literally made it incandescent: in a Covid-19 world where customers are afraid of germs and crowds, how do you make sure they come at all to your store, and, more importantly, come back? Also, in a context when rental, resale and other circular initiatives are being increasingly successful among customers jaded with owning “things”, how do you cope with simply selling products? Some industries found a way to break away from the one-off selling model, and by doing so found out that it also allowed them to increase both their margin and customers’ loyalty. Subscription retail is now expanding across several sectors, and might very well be an option for department stores not only to enlarge their services range, but also pocket extra bucks by doing so, while maximizing their existing assets and structures.

What: The subscription retail model across the industry

Why is it important: it could very well be an option for department stores

Introduction – from selling service to renting content, the example of Netflix

Netflix was founded in 1998 with a seemingly simple idea: a mail service of physical copies of movies & shows to be selected from a website. Apart from convenience, its specific angles were:

• Value for money: an unlimited plan with a fixed monthly fee,
• Selection: an advanced recommendation engine focused only on available copies, diverting the demand from only newly released movies, and increasing immediate customer satisfaction.

With the combination of both angles, Netflix became able to orientate subscribers’ choices, therefore freeing itself from the studios’ power. With time, it acquired a good understanding of its subscribers’ tastes, which led to overriding studios and producing its own content.  When you know what your customers want, why would you share the margin?

They pivoted from renting a movie (whatever its support) to renting a service (entertainment through stories designed exactly according to the customers’ expectations). On top of this, the low monthly fee, perceived as a bargain by the customer, has great chances to become a permanent part of the household economy precisely due to its low price.

How does this relate to department stores? As of today, they sell a product, with the hope that the store name, experience, or service quality, will lead customers to return, just like when Netflix used to send DVDs. At the same time, department stores have a great customer knowledge (in terms of tastes and behaviour offline and sometimes online), and for most of them, manage a content, be it via a “unique” & “curated” selection, or, more prosaically, via their private labels, in a similar way to Netflix’s own productions.

In the hope to systematise customers’ trips to department stores, is there a way to use existing assets, i.e. customer knowledge & content creation, in a pivotal way such as Netflix? Is “subscription retail” an option to increase sales and productivity? What can we learn from other markets and channels?

Subscription retail as a paying members’ club

A first form of subscription retail embraces the notion of exclusive member’s clubs, accessible with a fee. This enhances the club’s perceived value while financing the exclusive services provided (in theory). For instance, when applying to Prime, Amazon customers buy the ability to know exactly when they will receive their order, shipped for free. With this system, even if it is reported to be unprofitable, Amazon significantly increases its 150m Prime members’ loyalty. As an additional free perk, they also get access to Amazon Video and Music, which helps Amazon to improve its algorithms.

Another example is the REI Co-op membership programme. Not only do members have access to exclusive events, sales, limited-edition members-only products, lowered rental fees and specific activities, but they also receive an annual dividend on REI’s profits. The customer is buying a creed: it is possible to share values and beliefs (REI advocates for topics such as sustainability, etc..), be part of an entrepreneurial adventure (many customers

https://www.iads.org/files/pmedia/public/r6560_9_reis_crunchy_business_model_is_crushing_retail_competitors___news__analysis___bof.pdf

r6560_9_reis_crunchy_business_model_is_crushing_retail_competitors___news__analysis___bof.pdf

) and receive dividends for loyalty. REI operates 165 stores across the US and distributed to its 19 m members USD 211 m dividends in 2020.

This model is ideal to capture customers, feed their loyalty (as another example, Retail Restoration Hardware in the US proposes a club with a USD 100 yearly fee: 95% of its turnover is made through members) and generate additional revenue: in 2020, the Amazon Prime program is estimated to have generated a revenue of USD 6,57 6.57 bn.

Is it possible to adapt this model to department stores?

• Membership programmes with qualifying amount spent already exist – it would be difficult to pivot to an upfront payment model,

https://www.iads.org/files/pmedia/public/r6561_9_tokyo_club_a_new_way_to_shop_-_the_new_york_times.pdf

r6561_9_tokyo_club_a_new_way_to_shop_-_the_new_york_times.pdf

) and this would come on top of digital investments or stores refurbishment, a non-credible option in 2021.

• Execution must be perfect, which is why Target dropped its "subscribe and save"service after 7 years, due to poor execution and lack of appeal for customers.

H&M has recently launched a new brand, Singular Society, with a membership fee model (EUR 9.95 a month) which gives access to collections sold at cost price. H&M claims to try a new business model, relying on the monthly subscription to make a living and not the product margin. However, from the department store point of view, this option is somehow radical, and will also require a significant investment to build the brand equity necessary to be appealing to customers, not to mention that it is currently not applicable to the existing businesses.

If the paying fee is seemingly not an option, what else can be learnt from other industries?

From Saas to subscription boxes

Tech companies were the first to deploy subscription models: rather than selling a software, prone to copies and hacks, why not diffuse it on a free basis, allow trials, and then propose only a subscription? This is what Adobe successfully did in the past years, transitioning from a software catalogue sold on a one-shot basis to a monthly fee granting access to selected plans, to the point of generating 86% of their revenue in 2018. Microsoft, as documented in the IADS article on disruption, achieved more than half of their turnover following the same path.

How can this be applied to physical products?

Subscription boxes are an answer. Varying in costs and frequency, the types of promises are the same across categories: discover with a relative low risk and cost new products (Birchbox), ease customer’s life by automatically reordering, especially in Fashion (Stitchfix), or save money (The Dollar Shaving Club). McKinsey values the US Box market alone at USD 12 to 15 bn.

Surprise customers with an exciting offer: the box business is a savoir-faire mastered by retailers. This is why larger brands and retailers also launched boxes: Urban Outfitter with Nuuly, Macy’s and Bloomingdale’s with beauty boxes (based on a discovery and low price claim) or Nike with the Nike Adventure Club (targeting kids).

However, it requires building from scratch a new activity (from product sourcing to community building and animation, through logistics and invoicing) which is difficult for department stores at a moment when they look to increase the productivity of their existing assets.

Another option could be to add a layer of recurring revenue to an already existing activity: the ‘rundle’.

Ready to rundle?

The term was coined after ”recurring revenue” and ”bundle”, by Stern School of Business professor Scott Galloway. Three types of bundles have proven valuable on the long run:

• A bundle of different products increases its value through the perceived discount,
• A pack including a less popular product is a way to get rid of worst sellers,
• A pack including a new product is a way to have customers try while mitigating risks.

Coupling this approach with a recurring revenue model is efficient, thanks to the perceived low monthly fee (liberating customers from the urge to use the rundle at its maximum: only 18% of gym club members hit the club consistently, translating into a significant revenue / cost of acquisition ratio improvement on the long run for the gym company).

The Amazon Prime Video and Music addition is a perfect example of rundle based on introducing a new product coupled to best seller (free delivery). Apple TV new move to bundle Apple Music, Icloud, Care, Pay… is, on the contrary, a good example of rundling in a single offer a seemingly good value-for-money proposition, looking more interesting than cumulating the various services without the package.

Have we seen an equivalent model in retail? For Christmas 2020, Westfield London has opened popups with Christmas trees, decoration and tableware bundles available to rent for the period of Christmas, to be returned within 10 January. Going further, Ikea has announced a recurring revenue model, which is based on renting furniture. However, after a 1.5 year-long teaser, the service is still nowhere to be found on internet, including on the Swedish website. John Lewis, on their side, have announced a similar furniture rental model through a partnership with Fat Llama. Interestingly enough, this partnership is nowhere visible on the John Lewis website, and not even consistently advertised as a John Lewis offer on the Fat Llama website.

Innovating and limiting risks

Subscription is not equal to renting or leasing:

• A renting/leasing solution involves a down payment, usually not refundable. A subscription down payment is smaller and fully refundable,
• A renting/leasing model has a fixed contract, not the subscription model,
• A renting/leasing model involves penalties if the offer is modified, not the subscription model.

This is why subscription model for cars (Carro), rundle hotels offers (such as Citizen M, proposing a credit of 29 nights at EUR 50 to be used in whatever location of the chain), or even shoes subscriptions by On Running shoes are so disruptive: they are literally non committing, cheap and highly addictive.

Perhaps a way for department stores to explore rundles without taking too many risks would be in F&B, enticing customers to come spend time. As an example, the Pret a Manger initiative proposes, for GBP 20 a month, up to 5 coffees a day, in a non-committing, auto-renewable contract. By following a similar initiative from Panera (coffee subscription for USD 8,99), they exceeded their sales target on the first day by a factor of 5. The catch? The customers cost of acquisition is the production cost of an Espresso. If the rate of active customers is the same as the one for gym clubs, then, the department store is creating recurring revenue even when customers are not active. When they are active, the job is to make sure they buy additional products, just like how Monoprix seems to have built its Place Publique in their new store, with a very efficient merchandising approach.

Space productivity is a crucial topic for department stores. Questions about stores’ ROI and KPI are on everybody’s lips, and the topics of many IADS meetings (IADS Space Productivity Meeting). There is space for new ideas that do not require significant capex and investments other than the courage of proposing smart new options to customers.

Credits: IADS (Selvane Mohandas)

Read also

• IADS Exclusive: Monoprix: what makes a popular store?
• IADS Exclusive: Responding to disruption
• Bain&Company – the Future of retail: winning models for a new era, 2020
• The Rise Of The Rundle: A New Trend For Subscription-Based Services

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With the pandemic, the past year brought its share of new initiatives and the year ahead is going to be no different. Retailers in the world, which endured many weeks of closure in 2020 (up to 30% of total opening time) and are still threatened by further lockdowns in 2021, had to reinvent themselves to reach out to customers directly in their homes.

Remote shopping played a significant part in retailers’ survival via new or upgraded digital tools, such as virtual stores. This new channel provides a more inviting shopping experience than a simple ecommerce and safer than physical shopping. For instance, on a webstore the customer scrolls and browses through a series of pages showing one article next to the other. By contrast, a virtual store is an immersive experience supported by interactive elements allowing customers to actually be in the store; which these are sometimes a perfect replica of the physical spaces. Customers navigate the store and see the products on the shelves, almost as if they were in the physical space. It is a mix between a webstore and a virtual reality experience.

Virtual stores can go from augmented reality try-on to a 3D digital space to navigate. They do not require any material other than a mobile phone, a tablet or a computer to be accessible, and a broadband Internet connection.

Why use virtual stores

As shown with ventures such as SKP-S and Showfields, experiential retail was booming before the health crisis, so in order to provide a similar experience with the pandemic-induced constraints, retailers had to find a way to do it differently, safely and remotely.

E-commerce has exploded with the pandemic. As stores were closed, retailers had no other options than to look for the customer in his home directly, through social media and webstores. Virtual stores complete this offer and bring another experience, different than the ones provided by the other channels.

The immersive experience allows customers to walk around the store in an immersive way, able to see and learn about the products, and potentially make a purchase. According to Obsess, a virtual stores designing company, “on average, customers spend almost as much time on one virtual store page as they do on all the pages in the rest of an e-commerce site combined. The more people engage, the more they purchase.”

Virtual stores have the capacity to recreate the being-in-physical-store experience by using features such as music, augmented-reality try-ons and interactions with experts. It is also a way to share more information about a brand, its heritage and its commitments that sometimes cannot be exhibited as much as they would like in a physical environment, due to lack of space for example.

Just like physical stores, virtual stores also have the possibility to adapt to the season and change scenery and features according to the time of the year, making them even more realistic. For instance, during the Holidays, some virtual stores were decorated with Christmas ornaments and played Christmas music.

It is difficult to measure the importance of virtual stores at the moment as the concept is recent, especially for the ones that emerged with the pandemic; and still remains a minor part of retail. It seems that it is a relevant option for retailers in fashion, beauty and home for example, for whom visual elements are important to secure a potential purchase (contrary to a grocery store). It is also another way to stay connected with the customers and the community, in addition to ensuring a social media presence.

There are several reasons a brand would use the virtual stores:

For Ralph Lauren, it was a way to introduce new customers to the brand’s retail experience even after physical stores re-opened. They recreated the Beverly Hills flagship store and added some music, to make the tour even more realistic. It is also linked directly to the webstore.

![Exclu - virtual stores ralph lauren

Via its virtual store, French beauty brand Clarins introduced the look planned for some new shops in 2021. Showcasing this new concept in the virtual store before physical stores is an opportunity to test it. The experience also offers interactive activities such as a skin diagnosis, virtual make-up testing and the possibility to book appointments with beauty experts. Plus, it highlights features such as an eco-bar filled with beauty water and oil, and points out at which physical stores customers can find it.

![Exclu - virtual stores clarins

Charlotte Tilbury’s avatar greets its customers on the eponymous brand’s recently-launched virtual store, in an attempt to bring humanity inside the digital experience. The store offers the possibility to book video consultations and the convenience of being able to save an item in the ”shopping basket” directly from the virtual store, without having to search for it on the e-shop.

![Exclu - virtual stores charlotte tilbury

It is a way to make their world accessible to everybody. During the first wave of lockdowns, Dior was one of the first retailers to introduce a virtual visit of its Champs-Elysées store in April 2020. The brand gave the possibility to customers to discover the store without visiting Paris. The virtual store is a replica of the physical space and is directly connected to the online store to encourage purchase. The biggest downside however is that it is definitely not convenient for a perfume store to be virtual when you cannot actually smell anything.

![Exclu - virtual stores dior

Recently opened OREFICI 11, the VF Corp. multi-brand concept in Milan, launched both the physical store and the flagship’s virtual tour at the same time. Opening a physical store in the current context is risky, and VF Corp is using the virtual tour of the store as a back-up in case Italy experiences further lockdowns. The tour does not allow for customers to purchase directly from the virtual store, which is not very convenient, but provides information on the store and on the brands’ engagements.

![Exclu - virtual stores orefici 11

One of the biggest strengths of the virtual stores is that they are accessible to anybody (within the limit of the national restrictions that are sometimes imposed). Physical flagships are generally located in capitals or big cities, preventing many customers from visiting them if they are not able to travel. The technology definitely comes as a complement to the webstore, as it acts as a point of entry to e-commerce. But no matter how convenient virtual stores may be, they cannot recreate the touch-and-feel of instore shopping, nor can the virtual assistant replace an actual store associate.

Virtual stores and department stores

So far it appears that virtual stores are a good options for brands, and biggest retailers have not gone for it yet. NYC-based Showfields rapidly set up virtual tours of the store, during which a store associate walks around the store while talking to the customer via a videocall. The experience is a bandage and a way to stay in touch with an audience, but cannot be truly compared to what other brands have done in terms of virtual experiences.

Virtual stores could be a one-time option for retailers, and department stores, to support the business or a time-limited event. That’s what John Lewis did by launching a virtual Christmas shop last fall. Just like for e-commerce websites, virtual store does not necessarily need to cover the full range of a department store. It seems unrealistic and not very user-friendly to virtualise a five or six-storey department store.

Instead, it could focus on one particular category such as home and lifestyle, which has been booming since the beginning of the pandemic; or advertise a special collection, collaboration, or event. It could also focus on a specific market which is what Lancôme did when launching a virtual pop-up exclusively for Singapore. For the ones who are known to be a destination, it could also be an efficient way to transfer to distant customers the look and feel even though they might not be able to travel or to enter the country (Harrods or Liberty could appear natural candidates to this move).

Conclusion

Virtual stores are not completely new, but they multiplied with the pandemic. The first attempts at virtual stores from a few years ago required customers to use particular equipment, such as augmented reality headsets. The new generation of virtual stores are accessible directly on mobile or on computer, making them more user-friendly and visible to more people.

But it has its limits: a video, and even very smart artificial intelligence, won’t measure up to a live interaction with an actual human being. Virtual stores also have a cost, in terms of development and design, and in terms of technology used to support the system. It also needs a team to make it work and requires a good bandwidth to be experienced.

The virtual store will not replace the physical space. However it comes as a short-term, much-needed support to the physical and online store during this pandemic; and the trend might last beyond the health crisis. The covid-19 virus might be defeated at some point, but it will have changed the world and many habits for ever. Who knows when we will be able to travel again, or walk inside a store without a mask and a regulated traffic flow. A customer may wonder why she would need to get on a car or bus to go a store to shop when she can do that conveniently from home. Furthermore, after the crisis a virtual store will continue to attract and serve the people that can’t go to the physical store. These experiences could take their real place in a brand’s business activity at the same level as the online store.

However, partner at consulting firm Bain & Co. Mikey Vu warns that all virtual stores won’t necessary be successful: "Not every virtual store will succeed. As more companies test the concept, they’ll need to better personalise the experience for visitors, make it easier to discover products and make it a fun experience."

Retail consultant Doug Stephens said: "With virtual reality technology, online shopping could look more like physical stores or completely different environments. […] For instance, if a retailer sells outdoor products, it could design an interactive website that looks like an outdoor environment."

Just like for the physical experience, retailers will have to distinguish themselves from the competition to stand out virtually.

Credits: IADS (Louise Ancora)

What: IADS’ partner Marc-André Kamel from Bain explains his views about the future of retail

Why it is important: He defined a set of models that help assess strategic opportunities

Bain identifies 7 types of retailers in the future, all with their strengths and weaknesses:

• Legacy laggards: once-mighty business struggling to adapt to market changes, with partnerships or M&A (merge and acquisition) as their only options.
• Unsustainable innovators: new business models which are extremely attractive, but which will never prove profitable in the future.
• Regional gems: retailers who lack absolute scale but with a strong local leadership.
• Hitchhikers: retailers able to detect trends and produce innovative proposals, but who need to partner with other companies as they lack critical mass to keep pace with must-have investments.
• Value champions: low-cost chains evangelical about passing on savings to their customers. Ability to reduce their cost of operation to remain profitable on the long range and not be put at risk by newcomers with a similar strategy.
• Scale fighters: reach a big enough size to bankroll their own omnichannel and data-analytics capabilities, in order to gain pre-eminence on given territories. Such a strategy can be achieved through M&A.
• Ecosystems: the strongest model for the future, becoming a place to browse, buy, read, chat, play and more. However, this implies fighting with the likes of Amazon or Alibaba.

Kamel also highlights that Gen Zs have a different consumption pattern than older generations and are more focused on sustainability and meaning, suggesting that in the long run there will be less of a rush for consumption. Retailers should also take that into consideration.

What Did 2020 Do to Retail

What: A study on how the retail jobs are changing and the consequences for retailers.

Why it is important: The actions empirically taken by IADS members during the first wave of lockdowns and documented in our own IADS White Paper are fully validated.

UK-based Kronos group, a provided of remote working and cloud solutions, conducted a research to understand to what extent the retail market changes impacted the related jobs: development of online, change of customer behaviour, questions about the role of the store. On top of that, employees’ expectations have also changed: more flexibility both in terms of time management and working location is now expected.

Kronos identifies 4 pillars of success to properly address the new market conditions:

• Protect the business means to protect customers, but also employees, as widely documented during the lockdowns by IADS members,
• Plan and execute efficiently to control costs and improve productivity, through new working methods (IA used in HR management at Falabella, new tools used by department stores during the pandemics to manage teams),
• Comply with evolving safety and employment legislation,
• Communicate effectively to improve the employee experience (which was illustrated during the lockdowns by the implementation of “covid teams” whose job was to diffuse the information and coordinate the actions as swift as possible).

NEW FUTURE OF WORK WHITE PAPER

What: a reflexion on why physical retail is still important, even for Digitally Native Vertical Brands (DNVBs)

Why it is important: with the store closures and the travels on hold all over the world, online sales have skyrocketed since the beginning of the pandemic. It has forced some major retail actor to find digital solutions to stay afloat, while it was easier for the Direct-To-Consumer (DTC) brands that are born online. However, pre-pandemic, many DTC were making their entry on the offline market. Retail Dive looks at how they might continue to explore physical retail after the pandemic

At first selling directly to the consumer online and cutting out the middleman was an opportunity for DTC brands to save costs and offer a unique experience. Now that this segment is crowded, marketing cost have duplicated in the race of attracting more customers. Going offline allow for DTC brands to reach another audience.

Generally DVNBs need less space to showcase their items, and they usually link the physical space to digital activations such as try-instore-order-online, following some sort of showroom model that allow them to show their products physically, without needing a huge space.

However, the downside to that is that customers can rarely walk away with a product the same day. Offering merchandise in stores also forces digitally natives to completely rethink their operating model and supply chains: shipping goods to a consumer's home is different than shipping goods from one physical locations to another  to manage the stocks in case one item is sold out somewhere for instance).

Also with the pandemic now local, suburban retail is exploding, as many consumers now work from home and remain in their immediate surroundings to shop. This will be new testing grounds for DTC brands, and pop-ups should be even more used in the small cities in the near future.

As the future is still pretty blurry for retail, it might not be too reassuring to DNVBs to plan an opening and negotiate with a landlord for a space. Therefore, partnerships with established retailers should continue to grow (think bedding brand Casper who already had a partnership with retailers including Target and who extended this partnership to Nordstrom in November 2020).

How DTC brands will approach physical retail in 2021

Related item:

• One big way Direct-to-Consumer retail is changing