Articles & Reports
The Vitra Session
The Vitra Session
The IADS attended the following Vitra Session on 11 March 2021 which considered the pros and cons of working from home or returning to the office at a time when even large companies are polarised on the issue, some abandoning physical offices altogether while others put in place incentives to lure employees back to the office. What we at IADS have called “hybrid working”, Vitra label “distributed work” and make the point that if this model represents the future, then it needs serious reflection, innovative organisation and clear communication.
Vitra Session, 11 March 2021 on “distributed work”
What: A one-and-a-half-hour event by Vitra about “distributed work”, working from home, remote work, shifts in office work …
Why it is important: All companies are having to adapt to new work patterns and expectations as a result of covid.
Distributed work
Approaches to remote work appear to be quite varied: at one extreme, companies are encouraging employees to work from home and are actively reducing their office space; at the other extreme, companies are insisting that employees return to the office as soon as possible. Arguments exist to defend either position, but the consensus would appear to favour a “hybrid” version, with elements of remote and office work.
Only 10% of New Yorkers are apparently back in their offices so employers are using nurseries, free cab rides etc. to entice people back.
The problem with hybrid work is that it may come with some inequalities which leave some people out. Some categories of workers have no choice.
For Vitra, the work environment will influence us, whether this is at the office or at home. Therefore, it is important to take the challenges of hybrid work seriously and find pragmatic solutions. For example, planning the week ahead can be more important than it used to be. Also the facilities at work and at home need to be carefully thought out. Trust is easier maintain face-to-face and may erode at a distance.
There is a paradigm shift: we need to value people for their work and not for the time they spend doing it. It also requires a shift in leadership to give the right tone which employees will follow.
A tripartite discussion between Antje van Dewitz, CEO of Vaude, Professor Gianpiero Petriglieri of INSEAD, and Nora Fehlman from Vitra came to the conclusion that distributed work requires a clear an specific set of rules. In general, offices have not been designed for collaboration. Tools used at work today have changed. Whereas existing teams may work satisfactorily at a distance, interdisciplinary work is more complicated: silos need to be broken down which means the office dynamic needs changing.
The manager plays a key role, perhaps more so than the architecture or the environment of work. But distributed work represents an opportunity to be clear on the advantages of work from home and the advantages of work in the office. It has also opened people up to digital transformation. For example, going home at 5pm does not mean that work stops at 5pm.
Several changes will probably remain after covid:
- Communication is key. It should be regular. This will last after a return to “normal”.
- The importance of the role model, in particular in leadership.
- Consciously orchestrating work patters, such as harmonising home and work balance.
The authors of The Decision Book, Mikael Krogerus and Roman Tschaeppeler explored what has changed in decision making with covid. When we have no access to comparable data and the impact of a decision is important, then we make what they call “hard choices” which have no definitive answer. In a remote setting with little contact with others, we are alone and those decisions become harder. While the consideration of risk is fairly well-known, under conditions of uncertainty we confront situations known as “black swans” such as Pearl Harbour or 9/11.
read also: leading teams digitally
Gill Parker and Colin Macgadie of BDG architecture and design used their experience to explore some of the lessons of covid for the creativity of a dispersed team. Lessons involve:
- More listening
- Less travel although face-to-face remains indispensable
- Fluid and flexible teams, a characteristic which may last after the pandemic
read also: can a dispersed team be creative?
Professor Gianpiero Petriglieri of INSEAD drew lessons from the session as a whole:
- Retention of employees and loyalty is not a question of rewards or money but, importantly, it is the promise of learning. Can this be retained in a remote context?
- We need to keep a broad focus on productivity and learning. This requires people to remain connected.
read also: Cultivating culture without the office ground
Vitra offered its own perspective through an e-paper on distributed work
read also: The e-paper about the future of shared spaces
Department stores selling books and culture
Department stores selling books and culture
Department stores today rarely offer books, music, films and other “cultural” goods. These have reverted to specialists, chains and online retailers. However, the chains have consolidated and are doing less well; and the digital retailers appear to have peaked, while smaller, local booksellers are gaining in popularity. Is it possible that department stores could once again find a place for these goods in their local offer which has gained in popularity during the covid pandemic?
In the beginning was the word
One of the earliest US department stores, Marshall Field’s in Chicago, was famous for its customer service (“give the lady what she wants”), its revolving credit and for the use of escalators. But in terms of assortment, it was notable among other things for its legendary book department which introduced the idea of “book signing”. Its book department is now long gone (the store trades as Macy’s) as indeed book departments in so many department stores have disappeared.
These book departments were often paired with music (vinyls, cassettes, CDs) and films (VHS, DVDs) which have undergone such a revolution, both technological and commercial, that they quickly became the exclusive domain of specialist retailers which have now more or less completely gone digital.
But what happened to books? Department stores were the victims first of the growth of specialised
r6675_9_booksellers_that_have_closed_for_good_across_the_years_business_insider.pdf
. These included in the US, Bookstop (1982) acquired by Barnes and Noble; Borders Books (1971) taken over by Kmart and eventually liquidated in 2011; Crown Books (1977) liquidated in 2001; Waldenbooks (1962) merged by Kmart with Borders and liquidated in 2011; B Dalton founded by Dayton Hudson department stores (1966) acquired by Barnes and Noble in 1987 and operated until liquidation of the last 50 stores in 2109.
In the UK, a similar growth and consolidation movement was taking place with Dillon’s, Ottakar’s, Books Etc (part of Borders), and the 115-year-old Foyles gradually becoming part of Waterstone’s.
“You’ve got mail”
This growth of book chains was portrayed in the 1998 movie You’ve got Mail about the giant book chain threatening the local bookstore business. According to Experian, the number of UK bookshops fell between 2005 and 2012 from 4000 to 1878.
However, neither of the two book giants Barnes and Noble nor Waterstones is currently finding life easy, not least because of the entry onto the market of Amazon, starting slowly in 1994 to digitise the book business first through online selling of paper books, then through digital book sales.
While the sale of e-books was growing, that of physical books continued to fall, for example from from
r6677_9_rise_of_e-books_results_in_50_of_bookshops_closing_down___the_drum.pdf
. However, others claim that the decline of bookshops has now significantly slowed, and furthermore, that the number of independent bookshops grew by 35%
https://www.iads.org/files/pmedia/public/r6676_9_why_the_number_of_independent_bookstore...pdf
r6676_9_why_the_number_of_independent_bookstore...pdf
. E-book sales have recently been fairly static and subscription services modelled on Netflix or Pandora have struggled while the resilience of paper books have proved a boon to independent booksellers
https://www.iads.org/files/pmedia/public/r6678_9_the_plot_twist__e-book_sales_slip_and_...pdf
r6678_9_the_plot_twist__e-book_sales_slip_and_...pdf
. E-book titles have been declining generally, including for example Italy where they fell by 5.4% in 2019 after falls of 17.2% and 15.9% the two previous years.
The rebirth of independents
Waterstones, which appeared to be in deep trouble ten years ago, is reinventing itself under James Daunt of the ex-independent bookshop on Marylebone High Street in London, Daunt’s bookshop (now part of Waterstones). Elliott Management, Waterstone’s owner, agreed in 2019 to buy US Barnes and Noble in a $ 683 m deal. James Daunt will move to New York and attempt to work his magic on the 627 US stores at the same time as continuing to lead Waterstones. He claims that in the book trade, Amazon has probably reached the peak of its influence and that there are limits to the online experience.
One of his strategies at Waterstones’ 280 shops has been to devolve power to local managers particularly over purchasing. This contributes to a more efficient management of stock, reducing the costs and time involved in handling returns, books bulk ordered by head office with little regard for differences in regional reading habits.
One of the competitors which Barnes and Noble will be facing is, of course, Amazon itself whose 20 or so shops around the country are benefitting from the data that Amazon collects on the market. Publishers on their side are suffering under the brutal negotiating techniques of Amazon which is threatening publishing as it has already music and films. On the other hand, of course Amazon has opened the world of books and enabled publishers to reach a wider market.
The local offer for the local department store
Notable bookshops around the world include Daunt’s in London or Lello in Porto representing an almost caricatural but striking model of traditional bookshop architecture; The Strand in New York with its reported “18 miles of books” and its passion for everything written including banned books; Shakespeare and Co in Paris, the archetypal writers bookshop with its rich history of famous patrons (which is suffering badly during the current pandemic); Livreria Cultura in Sao Paolo serving as a spacious and comfortable meeting place in modern design style; Starfield in Seoul with its truly breath-taking height of bookshelves. All of these demonstrate the importance of branding, each one immediately recognisable in ways that the chains cannot match with their “cookie-cutter” formats, however innovative they may seem at first.
They also all know their customers and have made deliberate choices. A more recent version of this is the local focus of the kiosk formats emerging in Barcelona which cater to local customers and offer targeted press, magazines, coffee, and some seating.
Some department stores have not abandoned books. Indeed, Harrods entrusted its book department to Waterstones for 20 years until 2011 (when it switched to WHSmith). De Bijenkorf in Amsterdam has handed its book department over to AKO, part of Audex, in their words a partner who is able to target the Bijenkorf customer. In a similar vein, Manor in Switzerland has recently signed a partnership with French international Fnac group to provide books, audio, video and electronics. Fnac has the same deal in Andorra with Pyrenées department store. Printemps in Paris has a collaboration with the emblematic Gibert bookstore. The BHV store in Paris offers a book selection which is tailored to its customers, as does the Bon Marche. KaDeWe has a selection of books and art on the fifth floor, Selfridges offers a selection, while Ludwig Beck in Munich still offers books alongside its famous and very substantial music department.
Whether or not these examples are profitable, they may nevertheless constitute efforts at generating traffic, which department stores are sorely in need of currently. They might achieve this through the local appeal of their offer, through the theatrical experience they generate, and through the contribution to the value of the retail brand, just as the book department at Marshall Field did in its early days in Chicago.
So what about department stores
If, as seems to be the case, there is a continuing market for physical books (and perhaps other cultural goods), department stores might consider regenerating their offer to customers in some form or other.
The offer might be centred around convenience (guides, reference books, magazines…) which is what Harrods appears to be opting for with WHSmith rather than Waterstones; or it could consist of inviting a local notable shop to open a branch in the store just as so many have invited fashionable restaurant formats into the store.
This raises the question of whether the culture offer should be own-run, an arguably costly solution, or whether it could be entrusted to a specialist as has been the case in Bijenkorf.
Whatever is decided, a book or cultural goods offer opens the potential of a collateral offer of stationery, writing, cards which can all be personalised, and which potentially may be more profitable.
Some department stores see books and more as part of a “gift” offer such as the Galeries Lafayette “System Bookstore”, the design department at Rinascente, or local museum shops, for example. Some books are published quite explicitly as gifts or coffee-table books, and books in general as gifts are traditionally seen as less personal than jewellery, but they say more about the giver. Amazon has a category explicitly allowing purchasers to send books as gifts.
Finally, books and indeed other cultural goods need not be grouped in a specific department but may be scattered around the store to create a lifestyle feel, just as Selfridges may sell cookery books in one of its restaurants, or fashion books in various departments.
Credits: IADS (Dr Christopher Knee)
Sustainability series #4: Amfori
Sustainability series #4: Amfori
What: A global non-profit business association promoting open and sustainable trade.
Why is it important: The association empowers members with a network of producers and suppliers that are aware of the concerns department stores face and can simplify retail supply chain operations through audit standards.
In today’s world, organizations are held accountable not only by the government but even more so by consumers. It is becoming necessary for businesses, especially the fashion industry, to become transparent about the impacts that their supply chain has on workers and the environment and that they take responsibility for instances that happen in each part of the operation. Many businesses have turned to audits such as Amfori to create a channel of ethical transparency for all stakeholders.
What it is
Amfori was founded in 1977 as the Foreign Trade Association (FTA) to represent the foreign trade interests of European retailers, brands, and importers to European and international institutions.
Over the last 40 years, the company has rebranded and expanded its scope to social and environmental responsibilities to assure that goods sourced worldwide are coming from supply chains that respect workers and the environment. Amfori provides companies with a system to improve their social compliance within their supply chain on a global scale.
Amfori membership has grown in the past decade from 23 members in 2004 to over 2,451 in 2020. It has a combined annual turnover of over $1.5 trillion, making Amfori the largest social compliance initiative.
Vision 2030
In 2017, when Amfori celebrated its 40th anniversary, the association launched Vision 2030 which is a strategy to address the challenges that technological advancements and changes in political thinking could bring for sustainable trade. Vision 2030 is centered around 5 objectives: build the organization to be fit for the future, support the members through insight, expertise, and influence, inspire action around the world, grow high-performing people to become the leaders of a sustainable tomorrow, and prosper by contributing to the SDGs (Sustainable Development Goals) to increase human prosperity for all.
Through the guidance of the United Nations’ SDGs, the association hopes to make a social, environmental, and economic impact. Amfori promotes compliance and improvements within global supply chains leading to important discussions about social issues. The organization supports companies by increasing the supply chain visibility which helps address pressing environmental changes. Amfori’s objectives protect and improve international trade interests which is crucial to sustainable development, inclusive economic growth, and human prosperity.
How it works
The association offers three different products: Amfori BSCI, Amfori BEPI, and Amfori Advocacy. Through these product lines, Amfori hopes to enable businesses to succeed by providing world-class services and tools that allow them to trade openly and sustainably while helping shape the right policy environment for open and sustainable trade to flourish.
The Amfori BSCI (Business Social Compliance Initiative) platform provides a single place for all supply chain performance information which helps members make decisions about suppliers and measure improvements. It aims to improve social performance in the increasingly complex global supply chains. An audit to ensure compliance involves a thorough on-site assessment of supplier facilities by professional social auditors which are executed every two years. Though Amfori BSCI does not provide a formal certificate, the factory profiles and audit results are kept in a database that members can use to make decisions on which suppliers to use.
The Amfori BEPI (Business Environmental Performance Initiative) platform provides data on environmental performance in supplying factories and farms worldwide. BEPI provides a practical framework that can support all product sectors in all countries to reduce their environmental impact, business risks, and costs through improved environmental practices. While no certification is awarded, the BEPI process is designed to give members a fair representation of their international supply chain performance and allow producers to improve their performance. With the help of a professional environmental consultant, the producer is coached on the production areas that need to be improved.
The Amfori Advocacy offering helps members shape a political, legal, and social landscape where they can drive equitable trade and advance human prosperity. The advocacy team works with a range of stakeholders to ensure trade is responsible, sustainable, and benefits everyone involved. Advocacy helps members satisfy customers’ expectations while helping them maintain their competitive edge. The service provides members with a network of local representatives, country-specific information, political, social, and legal insights, and expertise to be able to make informed decisions.
Why is it important
Amfori provides department stores with a database of producers and suppliers that accept and assume principles of ethical commitment. When the supply chain for retail is coming from various countries with differing labor laws and operational regulations, it can be hard to perform the proper due diligence of each region while meeting the demands of the consumer. Through Amfori, department stores can feel at ease by choosing to partner with providers that are connected through the same responsible vision towards the future of retail.
Amfori is attempting to address the chaos and unnecessary duplication of auditing efforts by providing a common code of conduct and a single implementation system. This will enable all companies that source products from various regions to collectively solve complex labor problems in the retail supply chain. As Amfori compliance is recognized by all participants, manufacturers do not need to repeat the inspection thus reducing workload and management overhead.
Amfori has a better understanding of the issues that department stores face and has even backed the Fashion Industry Charter Communique. This initiative is focused on driving the fashion industry to net-zero Greenhouse Gas Emissions by 2050. The Communique calls for cross-sector collaboration within the fashion industry and focuses on the role policy environments play in accelerating climate action both in fashion production and consumption countries. Members recognize that current business models are insufficient and support the adoption of systematic changes to achieve the goals of the Paris Agreement. The members are trying to make the fashion industry a model for other sectors to follow. Any company that is professionally engaged in the fashion sector can sign the letter of commitment to join in on the initiative.
Limits and Criticism
In September 2019, the Clean Clothes Campaign criticized the social audit industry in a report alleging that it prioritizes brands’ reputations and profits and fails to meet its mission of protecting workers’ safety and improving working conditions in global garment supply chains. The organization claims that there were auditing failures in the deadly 2012 Ali Enterprises factory fire in Pakistan and the 2013 Rana Plaza factory collapse in Bangladesh. In both situations, there were Amfori audits done by the testing service provider, TÜV Rheinland, that deemed the facilities safe just weeks or months before the incidents. In the report, German retailer, Adler, confirms that Amfori BSCI members rely on the database to make supplier decisions and that Adler had accepted products from a factory in Rana Plaza because the factory was able to prove BSCI compliance.
Though TÜV Rheinland remains on the approved list of Amfori’s audit vendors, in Amfori’s 2020 Year in Review report, they announced the Audit Assurance Programme as a priority in 2021, which is meant to implement trust and quality back into the audits.
The best choice for European department stores
Amfori’s members come from 45 different countries with 89% of the members having their headquarters in Europe. The majority of the members are importers which represent 66% of the members, with brands and retailers following at 19% and 11% respectively. The two major sectors of members are general merchandising and garment and textiles. Therefore, Amfori can benefit department stores in Europe by sharing best practices and market knowledge around sustainability and social responsibility.
Amfori has also helped members navigate the global pandemic by releasing a report called “Responsible Purchasing Practices in times of COVID-19” to help guide its members through the tough situations that lie ahead.
Though the Amfori audit may not replace other certifications, it reduces the chaos associated with sustainability standards by connecting the garment industry. Through its various members, initiatives, and involvement, Amfori might be the best option for European department stores to focus their efforts concerning sustainability standards.
Credits: IADS (Mary Jane Shea)
Rethinking the sales teams’ roles
Rethinking the sales teams’ roles
What: A “co-branded” training between Target and Apple to guarantee the right level of service
Why it is important: Target is opening 17 Apple locations in its stores and does not want to take any risk on the level of service provided: 8 customers out of 10 would switch merchants due to poor service, according to Business News Daily.
This is the reason why they provide special trainings to employees, in partnership with Apple. The author argues that this kind of partnership in training, while increasing the value of knowledge transferred to sales team, also increases chances of sales conversion and employee retention. He goes further by suggesting that trainings should not be brand-specific, taking example on Trader Joe’s, which trains its staff to perform all store tasks without specializing on one aspect. As a consequence, employees feel committed and involved.
This approach will be much needed in the future, as customers tend to be more and more informed thanks to the Internet, and expect more specialised interactions with employees who, on the other hand, will also be expected to be multitasking.
Target, The 'Apple Experience' And Training
Mint FW21 Women’s Fashion report
Mint FW21 Women’s Fashion report
What: Mint report for the Women’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.
US department stores are at a crossroads
US department stores are at a crossroads
What: A post-pandemic playbook for department stores.
Why is it important: While winning online, stores will have to become entertainment destinations, using technology and localisation to their advantage.
In the future, department stores will have to recapture the entertainment approach they once had, retail consultant Andrew Smith of Think Uncommon thinks. He points to Showfields, a retail startup launched in 2019 that acts as a showcase for smaller, mostly direct-to-consumer brands. Showfields offers space to create mini stores-within-a-store in an environment built around entertainment and theatrics. When bricks-and-mortar retail reopened after shutdowns, Showfields responded by introducing a Magic Wand app, which combined in-person contactless shopping with an enriched online experience and the chance to book an interactive tour.
Camp is another retail concept: it’s a toy store aiming at the whole family, which not only sells products but also holds workshops, and refreshes its product assortment along with themes, much as Showfields does.
Among department stores, Smith cites Nordstrom Local stores as an example of a goal that isn’t solely about revenue on the sales floor: these 3 000 sqm sites focus on services like personal stylists, pop-up displays of brand collaborations and an omnichannel returns centre that accepts packages from both Nordstrom and its rivals. Bigger brands should also embrace service-focused, smaller format sites: since retail vacancies are expected to rise, it’s the ideal time to affordably experiment with new formats like that.
Speciality boutique Intermix has seen success with another approach. It has created “days out” for regular customers, where women are invited to come with a few friends to a suite at a local luxury hotel. The experience isn’t just about shopping: there are lunch and spa treatments, while a sales associate will showcase an edited assortment of new items to try on and purchase.
By far the biggest, error among bricks-and-mortar retailers has been their attempts to mimic the online experience. “A store that just puts up a bunch of screens and thinks that makes it feel more digital? That’s exactly not the reason you walk in,” says Yamner Green of The Yes shopping app, “It’s only when you make them completely different that you start to win.” Moreover, technology isn’t innately innovative; rather, it can enhance the in-person experience when smartly deployed.
Pre-bankruptcy, Neiman Marcus planned to streamline clienteling by swapping sales associates for a cutting-edge CRM platform, a fundamental misunderstanding of how to deploy tech in a revenue-boosting way. But the right partnership with startups can help a retailer expand into new areas. Hero, which works with Intermix, allows retailers to replace centralised customer service centres with in-store associates who can video-chat with buyers. Sweden-based Bambuser is another notable startup. It focuses entirely on video shopping, whether via live events or one on one with a personal shopper; the average add to cart click rate is 20%.
These services aim to better coordinate online and in-store services, so they can work together more seamlessly, allowing each to emphasise their strengths. It’s a cautionary reminder for Saks as it separates its two channels into rival businesses, a move that Think Uncommon’s Andrew Smith believes is risky at best.
NB: Showfields will be a guest speaker at IADS “New Business Models” Cross-Functional meeting on 26 April 2021.
Post-pandemic playbook - Reviving US department stores
Related items:
- Instore experience: the case of Showfields
- Saks stores and e-commerce to split into separate companies
- Nordstrom launches livestream shopping programme
How far can Shopify move from being a tool to becoming a network?
How far can Shopify move from being a tool to becoming a network?
What: Shopify success illustrates 3 trends in tech and ecommerce
Why it is important: can Shopify story inspire department stores to build a different selling approach?
Shopify’s 2020 results report that consumers spent a total of USD 120 billion on its platform, almost exactly double the figure from 2019. This is an impressive story of the recent acceleration of ecommerce, but it’s interesting because it illustrates three important trends in tech and ecommerce.
1: “No-one can compete with Amazon”
Shopify isn’t competing directly, but it challenges Amazon at a very basic point of leverage by doing something different, but relevant. In markets with strong network effects or winner-takes-most effects, it’s very hard to displace a new incumbent directly, but pretty common to address an underlying customer need in another way. So, Amazon thinks about Shopify, because they change what the businesses might be, and offer your customers a different way to solve their problem.
2: “Wasn’t this already solved?”
Shopify found a way to solve things that an engineer would have told you were already solved. Part of today’s explosion of ecommerce is that these businesses come from people who are product people and not technologists. Shopify unlocks ecommerce for far more people, and there are a lot more opportunities to take a ‘solved’ problem and make it more accessible, and so reach 10x more people. Now a lot of people are trying to make something that’s easier again - a step easier than Shopify, Squarespace or Wix.
On the other hand, half of the Shopify story is actually big companies - Heinz, or Unilever. Why are they on Shopify? Mostly because they want to go direct.
3: Going direct
Shopify is riding a wave of both consumers and brands becoming ready to go direct. We have an explosion of new consumer ‘direct’ brands using the internet as their first channel. In parallel, there are giant consumer brands that have always been B2B businesses and that are now want trying to go direct as well, partly to compete with those new brands and partly to create some tension against Amazon and Walmart.
That meets a wave of new companies building tools to power ecommerce. Part of the story is that anyone can use the same tools now, meaning that giant companies, perhaps, can get access to the same tools as startups.
For most of these companies, selling online isn’t ‘technology’ - it’s retailing, but with a new channel that needs new tools. The tools have to be good but most of the questions are retail and brand questions. The interesting question for Shopify is how far it can move from being a tool to becoming a network, and to become part of retail. And so (to close the loop), the idea that all of this will be swallowed by Amazon makes about as much sense as the idea that all physical retail would get swallowed by Walmart, not because of software but because of retail. So perhaps software isn’t eating retail - retail is eating software.
Exemplifying the physical stores new roles
Exemplifying the physical stores new roles
What: a comprehensive review of the various new roles physical stores hold today in the Covid-19 world
Why it is important: a compilation by GDR UK with a wide variety of examples which allow having clear, concrete ideas in mind.
GDR UK, a, intelligence company based in the UK dedicated to retail trends, is, just like IADS, a true advocate of the continued relevance of physical stores, provided they adapt to the new customers’ usages and behaviours. They recently released 2 articles gathering a wide variety of examples of stores, already operating, which take on their new roles.
When it comes to e-commerce, stores can come as an ideal complement, helping with various elements such as brand expression, or logistics. They can serve as:
- Showrooms for customers, as shown by MAC in NY, or Farfetch’s Community Galleries,
- On-demand fulfilment centres, as illustrated by IADS members, Lush, Walmart,
- Dark stores, especially in groceries (Whole Food, Amazon, Cajoo).
Interestingly, many digital innovations were also developed to emphasize the notion of physical space, as illustrated by shoppable real-life stores, such as Dior in Paris, Ikea in China.
Going further, stores are also reinventing themselves, to provide an improved experience to customers, justifying that they come to the premises:
- Either by proposing never seen before, not available online experiences, such as H&M with the Loop recycling machine, or Freitag’s personalisation workshops,
- Or by rethinking the purpose of the physical store itself, such as Starbucks transforming itself into a half-café, half-shared office.
The goal is to make sure the physical space is convenient and understood as a community centre, where customers can come as citizens and vice versa.
Discover all examples with links in the 2 links below.
The C-Series 6 How Covid-19 is changing the role of physical stores
C-Series 7 How Covid-19 is changing the role of physical stores, Part 2
The new breed of retailers’ private labels
The new breed of retailers’ private labels
What: Private labels were unexpectedly fortified by the Covid-19 crisis.
Why it is important: Following the meeting we held on Private Labels in January 2021, some of the lessons learnt and pieces of advice displayed by Alix Partners echo our conclusion.
Given the fact that, usually, private labels sell in store, 2020 should have seen their share of business decreasing significantly in a newly digital world. However, Alix Partners points out the fact that digitalisation goes along with knowing the customer better, which, for some retailers, allowed them to not only optimise their private label business, but increase it.
It is worth reminding that private labels can represent a significant portion of the business: USD 2 billion for Target (with 4 brands), a fourth of the turnover for Costco, or more than EUR 300 million for El Corte Inglés.
Alix Partners identifies 3 key success factors for the private label business:
- Customers insights should be injected into all steps of product development processes. This should be eased by the access retailers have to their own customers’ data through their various payment and loyalty schemes,
- Make sure the assortment completes in the best way possible the national brands offer,
- Define the operating model according to the targets: maybe historical processes (especially in production) might have become outdated when compared to the actual objectives of the brand
The BoF Sustainability Index
The BoF Sustainability Index
What: introduction of the BoF Sustainability Index which tracks fashion's progress towards urgent environmental and social transformation.
Why it is important: an attempt to measure and standardize fashion brands’ progress in their commitments to operate more responsibly.
The Index is meant to benchmark the sustainability policies and practices of the fifteen largest public fashion companies by annual revenue in 2019 in the luxury, high street, and sportswear verticals. It focuses on data to note progress that has been made, identify shortcomings, and lay out a clear framework for future advancements. The Index uses 338 different metrics to assess companies’ progress towards 16 time-bound targets within six categories: transparency, emissions, water and chemicals, materials, workers’ rights, and waste.
The aim of this index is to create a transparent and trusted benchmark to track clearly defined, measurable progress towards achieving sustainability goals in the fashion industry.
BoF Sustainability Index Report
Can DTC brands really answer to customer needs?
Can DTC brands really answer to customer needs?
What: They should not forget about the key ‘speed, cost, and convenience’ values customers are looking for.
Why is it important: Traditional retailers have an opportunity to leverage their perceived reliability to their advantage to attract and keep customers.
At the start of 2020, DTC brands were poised to win the hearts (and wallets) of consumers – but after a year of immense uncertainty, they have not been able to successfully keep their end of the bargain. As the pandemic continues to dictate the future, online marketplaces, traditional retailers and branded manufacturers have an opportunity to leverage their perceived reliability to their advantage to attract and keep customers.
When e-commerce became the only option for many shoppers this year, brands and retailers were offered the chance to shift their operations online at a huge scale. For some, this switch was a massive success, and retailers were able to learn from the brands already excelling, to the point where 30% of Americans now see no difference in the experience between buying online from a DTC company versus a traditional retailer.
As supply chains have been heavily impacted by the e-commerce surge, customers want what they've always wanted – fast shipping, seamless experiences and a decent price point. As DTC brands fight to remain relevant and deliver on these promises, experienced branded manufacturers have been far more capable of addressing these needs.
This unpredictability have given significant advantages to companies considered the most reliable. For 57% of Americans, that title of "most reliable" fell to marketplaces like Amazon or Walmart, followed by traditional retailers. DTC brands have fallen behind with only 7% of Americans finding that DTC brands were most reliable over the past six months.
While DTC have been pushing for innovative creative sales models and influencer endorsements, these strategies may be distracting from the key value that shoppers want from the brands they frequent. So, these DTC brands should now remember the three key differentiators that shoppers are looking for: speed, cost, and convenience.
Coming out of the pandemic, we'll see that the winners will be the branded manufacturers and retailers who have the experience and capital to re-invent themselves for changing consumers. Customers will be looking for trust and stability and digitally native brands will either earn their place in the hierarchy or be left behind as yesterday's shiny objects.
NB: the article was initially sponsored by Scalefast.
The blurred lines of retail, and what comes next
Stores still matter when it comes to online groceries
Stores still matter when it comes to online groceries
What: J Sainsbury plans to close its London online fulfilment centre
Why it is important: what will happen to grocery boosted sales when the world goes back to normal?
Even as grocery sales soared, J Sainsbury, the UK’s second largest grocer, plans to close its London online fulfilment centre and redeploy most of the 650 employees to supermarkets.
As economies reopen, grocers face renewed competition from restaurants. Consultants Bain predict that US supermarkets could give back half of the 10% total sales growth they experienced in 2020. “The boundary is blurring between grocery and food service. What matters is not the market share in groceries but in food. Covid has given groceries a few years of reprieve and boosted sales. But when the world goes back to normal, how do they keep that surge?” asks Marc-André Kamel, leader of Bain’s global retail group.
This puts the onus on supermarkets to make their revenue more profitable. Grocery is a low-margin business and the dynamics online are even worse because customers don’t pay the full cost of picking and delivery. Bain estimates companies lose between 7 and 15% on every order, depending of their fulfilment system.
The most cost-effective method involves smaller, automated warehouses, often attached to a store. That explains Sainsbury’s plans to cut delivery distances and share staff and inventory costs. This strategy is at play in China, where Alibaba’s Freshippo builds physical grocery stores that are optimised for delivery. In the US, Walmart is testing ways to use its stores to compete better with Amazon. Even the UK’s Ocado, which pioneered automated delivery warehouses, now opens “mini” and “micro” fulfilment centres that could fit inside an existing store.
On the delivery end, some chains are trying to drive down costs by outsourcing to third-party shoppers via apps such as Instacart. Others urge customers to order goods online and pick them up kerbside.
But none of this addresses the other challenge of online shopping. Apps cannot replicate a physical visitor’s ability to scan a shelf, make substitutions and, crucially, discover things they didn’t know they wanted. That makes shoppers unhappy: only 13 to 16% who tried online grocery in France, Italy and Germany last year were “very satisfied”, a McKinsey survey found.
It also limits grocers’ ability to attract the promotional spending and rebates from suppliers that are a key part of supermarket economics. Here lies the opportunity. Online shopping generates far more specific data about who is buying what than loyalty cards. This can be used to reshape supplier relationships and improve stock management for stores as well as warehouses. Neil Saunders of research firm GlobalData estimates that 20% of items generate 80% of sales. Localised data could save space and cut food waste, making it easier to earn rebates, promote items and offer samples.
Stores still matter when it comes to online groceries
Tech is everywhere, but the important questions are somewhere else
Tech is everywhere, but the important questions are somewhere else
What: A thought on the impact of tech in retail
Why it is important: Benedict Evans emphasizes the fact that tech will not change retail, some fundamentals will remain the same for all retailers, we are just too early in the process to have the full picture.
Benedict Evans releases every week a newsletter on Tech and its involvement in any sector or activity, including retail. This week, he reviews the music, books, cinema and TV industries, and how they were disrupted by tech, to try to anticipate what will happen in the retail sector. Interestingly, his take is that, once the dust settles, people will realize, as it has been the case for these industries with their own problematics, that questions that matter will be retail questions, not tech questions. In his own words, ‘doing online properly is both necessary and hard, but your success will be determined by retailing questions’. Walmart grew thanks to trucks and cars but was not build by car people from Detroit. In the same manner, retailers will be the ones re-inventing retail in the future, not Silicon Valley.
Thoughts on Amazon’s private labels business
Thoughts on Amazon’s private labels business
What: A new take on Amazon’s private labels business by a Tech specialist
Why it is important: Ben Evans wonders why Amazon’s private labels business is demonized: this activity is simply a staple in the retail business, and Amazon is not even the best at it.
Benedict Evans releases every week a newsletter on Tech and its involvement in any sector or activity, including retail. This week, he explores the reasons why Amazon is criticised for its private label business, all the more that this has been a basic activity from retailers since the beginning. He reminds that the job consists of knowing what customers want, or miss, and supply them with specially designed products at the right price.
Be it Amazon or a brick & mortar retailer, the job has been the same for the last 130 years. Interestingly, private labels represent only 1-2% of total turnover at Amazon, a lower share than other retailers, which leads Benedict Evans to wonder if Amazon is actually scrutinized according to different standards than other retailers, simply because it is currently disrupting the market, the same way department stores, Target, Macy’s or Sears did in their own times.
Make sure hybrid work is productive work
Make sure hybrid work is productive work
What: MIT article by London Business School’s Lynda Gratton on how we can be productive working in and out of the office
Why it is important: Answers worries about how we may lose productivity, creativity, and engagement in the new work structure.
We are often experimenting with new working patterns caused by the pandemic: distance working and office working. It is causing a lot of confusion with leaders designing hybrid ways of collaborating that have few precedents. How much flexibility should there be? What strategies are most effective? The author lays out a view of hybrid workplaces and describes four emerging principles: use office space to amplify cooperation; make working from home a source of energy; take advantage of asynchronous time to boost focus; and use synchronised time for tasks that require coordination.
Mit four principles to ensure hybrid work is productive work
Will post-pandemic retail be online or offline?
Will post-pandemic retail be online or offline?
What: Some retail executives believe offline sales will slowly start to surge again.
Why is it important: In the third quarter of 2020, online sales in China increased by 27% , while offline sales declined by 4%.
Not everyone believes that this consumer shift will push online shopping ahead of offline over the long run. In fact, some retail executives believe offline sales will slowly start to surge again. Therefore, consumption patterns in 2021 will change again, and new opportunities and movements will shape the collective identity.
Online
CNBC reports that Alibaba and JD.com set new records during the 2020 Singles Day shopping event by hitting around USD 115 billion in sales online. Companies that want to take advantage of the O2O trend should invest in visual recognition algorithms, AR-powered gamification software to boost customer loyalty and engagement, artificial intelligence (AI) chatbots that respond to customer inquiries, and data analytics systems to assist with personalized purchasing recommendations.
Physical
Luxury buyers expect businesses to integrate more health and safety measures. Agile retailers have responded to this shift by incorporating innovative technologies, such as contactless kerbside pickup, indoor positioning system technology, AI-enabled, smart-shopping carts, and radio frequency identification (RFID) technology, which helps with product tagging.
However, the vast majority of offline retailers still need to adopt efficient, consumer-centric services, such as buying-online-and-picking-up-in-store (BOPIS) services, partnerships with super-apps, like WeChat and Alipay, and technologies that boost the omnichannel experience across all platforms.
Alibaba-owned department store Intime and Japanese multinational personal care company Shiseido are training their sales consultants to use livestreaming, boosting their in-store marketing efforts. “We need to merge online and offline to get people to buy more,” said Shiseido’s CEO, Masahiko Uotani, in an interview.
Showroom models
For many businesses, the showroom model has been perfectly suited for the post-COVID-19 environment. Pop-up stores bring in higher engagement, are 80% less expensive than traditional stores on average, and represent a safer option than conventional stores.
Unsurprisingly, China is already using new technologies to enhance the showroom model and promote pop-up shopping experiences. “This match made in heaven between Chinese consumer culture and the pop-up phenomenon is one of the reasons why pop-up stores have been on the rise in China,” said Storefront CMO Stephanie Kidder. “In fact, the compound annual growth rate of pop-up retailing has exceeded 100% since 2015, and estimations tell us that by 2020, over 3 000 pop-up stores will have been launched in China.”
Will Post-Pandemic Retail Be Online Or Offline
The NRF release its 2021 top 50 worldwide retailers
The NRF release its 2021 top 50 worldwide retailers
What: The traditional NRF annual ranking of the most impactful retailers in the world
Why it is important: Sales are not anymore the only criteria for this ranking, all the more in such a bumpy year as 2020 was. The NRF and Kantar decided to implement a new system highlighting new forms of retail. The result? Walmart is still number one in the world, but is now clearly challenged by digital players (Amazon, Alibaba).
In 2020, retailers were clearly separated between the one already equipped to sell by distance before the pandemic closed cities, and the others. As a result, looking only at revenue might not be enough to assess the power of global retailers now. Kantar and the NRF decided to include other metrics (omnichannel capabilities, retail alliances, marketplaces, international position) to determine the top 50 most impactful retailers in the world. The ranking assessing the notion of influence is therefore disconnected from the pure sales numbers.
Winners in the top 10 are clearly confirming that digital has become a must have in 2020, unless you are a discounter:
- Walmart remains number one with a revenue of USD 519 bn (from 510 last year)
- Amazon remains number 2 with a revenue of USD 280,52 bn (from 232.88 last year)
- Schwartz group remains number 3 with a revenue of USD 133.89 bn (from 123.25 last year)
- Aldi jumps from 8th to 4th place with USD 116.06 bn (LY 91.90)
- Ali Baba goes from 4th to 5th position but increases turnover with USD 71.99 bn (LY 56.15)
- Costco also loses a seat, from 5th to 6th, but also increases turnover from USD 149.35 bn to 163.22
- Ahold Delhaize goes from 6th to 7th seat, and increases turnover from USD 74.29 bn to 78.17 bn
- JD.com enters the top 10 with a total turnover of USD 82.86 bn
Retailers relying on physical locations only took a hit
- Carrefour goes from 7th to 8th with a decrease from USD 89.81 bn to 82.60 bn
- Ikea stays at the 9th position, with a decrease from USD 48.73 bn to 45.18 bn
- Auchan fell from 10th to 12th position, with a turnover falling from USD 60.22 bn to USD 51.27 bn.
See the whole Top 50 on the NRF website here
Who is the 'department store' now?
Who is the 'department store' now?
What: the pandemic accelerated our acceptance of everything from kerbside pickup to virtual fitting rooms
Why is it important: anything that customers perceive as making their life easier will be here to stay.
Surviving retailers are now experimenting with new ways of doing business. They are streaming virtual shopping events and allowing consumers to book online consultations. They are doing away with traditional cashiers and rolling out contactless payment systems. They are using their stores as warehouses that deliver packages to customers directly. Some executives and consumers are confident these new approaches will stick.
Black Friday
They don’t expect a return to the Black Friday frenzy but prepare instead for big holiday promotions to start earlier and last longer. This doesn’t mean that holiday shipping delays will disappear. Executives said slower deliveries are still likely because they expect e-commerce spending to remain elevated even as the pandemic recedes.
Some malls will be back, with a new look
They do expect malls will make a comeback once the virus is under control even though a quarter of the US malls will close by 2023, according to Deborah Weinswig, chief executive of retail and technology research and advisory firm Coresight Research.
To survive, US malls need to make dramatic changes and borrow from what works elsewhere. Mall owners should invest in theme parks and other attractions to woo shoppers as in China where malls have become studios for live-stream shopping and other events.
Retailers will rely less on discounts
Discounting became less prevalent during the pandemic. Now some big retailers are more and more relying on data to sell more items at full price by personalizing promotions rather than offering broad deals to everyone. Macy’s, for instance, is tailoring its promotions based on a customer’s location and buying habits. “Showing the right products to the right people at the right time helps you discount less,” said John Strain, Gap’s chief digital and technology officer.
A store is no longer a store
Stores morphed into Amazon-style fulfilment centres during the pandemic as retailers looked for places to pack online orders. One reason that won’t change once the economy reopens: It is cheaper. Target said it costs on average 40% less to ship orders that it fulfils from its stores, compared with the expense of shipping from its warehouses.
Major chains closed about 8,700 stores in 2020 after shuttering 9,800 in 2019, according to Coresight. Retailers will continue to purge underperforming locations while negotiating lower rents from landlords to make the remaining spaces more viable.
Kerbside business
Picking up everything a store’s kerbside became a regular habit for many consumers. Now there is no going back, retail executives and shoppers said. For consumers, it is about convenience.
Target estimates that it costs an average of 90% less when shoppers pick up their orders kerbside or in stores, compared with shipping from a warehouse. There is a downside though. Retailers lose out on impulse purchases when shoppers don’t come into stores. So expect to see more upselling kerbside, said Renee Harwood, a retail adviser to RingCentral Inc. When the employee delivers a package to the customer’s car, “he or she might say: ‘We have a matching jacket for that, would you like to see it?’”
Shopping will become a virtual reality
As e-commerce proliferates, the barriers separating physical and online shopping experiences will blur. Chains are adding virtual fitting rooms, hosting live-stream shopping events and allowing shoppers to make virtual appointments with sales associates and stylists.
Customers that want to surround themselves with a community when the shop can turn to Instagram and TikTok. More than one in three shoppers made a purchase on social media in the past year.
Covid-19 Rewrote the Rules of Shopping. What Is Next
First “Swappable Department Store” coming to New York City
First “Swappable Department Store” coming to New York City
What: Global Fashion Exchange to host a swapping exchange at Walker Hotel in TriBeCa
Why is it important: the event encourages swapping as a sustainable consumption behavior by incorporating new tech and a trendy venue
Global Fashion Exchange (GFX) is partnering with Walker Hotel in its newly opened TriBeCa location for its “SwapAteria” experience running April 22 to 30.
The experience is open to guests as well as the public to encourage swapping as a sustainable consumption behavior, a practice that is typically declassed to informal methods.
In each room known as a “swap closet,” there will be curated vintage collections and second-hand items from brands such as Gypsy Sport, Maison Murasaki, The Canvas, Now for Tomorrow, Carmen Gama, and Carolina Bedoya: Make Aneew, among others. But just because items have already had a first or even second life, does not mean that the value of the goods will be at risk. Many retailers know the value of the products they possess and hope to get their money’s worth in the exchange.
The activation is powered by a real-time tracking system called the SwapChain, a blockchain-enabled data source in collaboration between tech platform Lablaco and GFX that shows the history of each garment featured in the closets. SwapChain has allowed swapping to become more concrete and opened it up to be the potential next step after retail.
First “Swappable Department Store” coming to New York City
Is sustainable fashion really scalable?
Is sustainable fashion really scalable?
What: how to make circularity in fashion more than a wishful thinking?
Why it is important: Full circularity in the fashion industry is not yet within reach, especially for larger companies. There are however basic steps that could be already taken.
Fashion analysts predict that within 5 years, most products will be made of recycled or upcycled materials. This is extremely optimistic given the fact that, for now, 87% of the material used in fashion production is landfilled or incinerated. The whole system has to get through a reset, however, how to do so for larger companies (it is of course easier to start a completely new brand from scratch than to transform an existing structure from head to toe)?
The article reviews an option that is not often expressed: to pre-empt the resale market in order to capture garments and recycle them. The goal is to focus on their inner components, with two options from there: recycle them, or replace them in the recuperated garment by sustainable ones.
Even if fully circular fashion is still out of reach, this kind of step allows to move in the right direction.
Is Sustainable Fashion Really Scalable
Digital learnings from China
Digital learnings from China
What: Lessons learnt from the USD 66 billion livestreaming market in China
Why it is important: Livestreaming is not anymore a Chinese or an Asian specificity: all markets start to test it, among which several IADS members.
Alix Partners identifies as a key explaining factor of the high share of e-commerce in the retail sector in China (21% in 2019 to be compared to 11% in the US) shoppable livestreams. This industry is estimated to be worth USD 66 billion, with a 30% increase in terms of audience between March 2019 and June 2020.
Livestreams represent a mix of entertainment and retail, with influencers or employees showcasing products that can be shopped live from the watching screen itself. 3 key success factors are identified:
- Such shows must promote interactivity between the audience and the seller,
- They can be used for launching new products, provided they always involve some creativity in the way goods are showcased and sold,
- Make sure customer data is collected into simple, central dashboards that allow to make decisions on the spot and post-event, rather than look for non-actionable good-looking metrics.
Alix Partner learning lessons from digital in China
Who is the 'department store' now?
Who is the 'department store' now?
What: Target has become a department store in the traditional sense of the term
Why is it important: Big boxes and discounters have stolen share from department stores for years and now Target is stealing their merchandising playbook too
Target is reportedly to take over Macy’s space at the Water Tower Place shopping centre in Chicago. Before Macy's, that store was a Marshall Field's and some Chicagoans have never forgiven Macy's for its takeover of their beloved retailer. Now, the idea of replacing Macy's with a Target is creating buzz and controversy. And for some, urban Targets meet the needs of today's urbanites, the way the original wave of Chicago department stores, like Marshall Field, did in the 20th century. If Target was to take over Macy’s, it would be an illustration of how Target has usurped the traditional department store.
"Target has become a place where consumers go to discover new things," GlobalData Managing Director Neil Saunders said. "This used to be at the heart of what department stores were, merchants which brought a world of interesting products within easy reach of consumers." In their heyday, department stores were true emporiums, with varied merchandise. As they gave up sales in many categories, those departments usually filled up with more apparel, a highly lucrative market that now has its own problems.
Now many of the players that have taken share from department stores are adopting tactics from those old retailers such as carving up their spaces to facilitate browsing, taking down partitions, introducing vignettes, well place little breaks, etc... The retailer this month said it's dedicating a part of a USD 4 billion plan to remodel more stores. As part of a USD 7 billion overhaul of its stores and private labels launched four years ago, Target has disrupted its aisles to exhibit home goods and apparel so that shopping is easy and pleasant.
Pop-ups from third-party brands have also appeared not just back into department stores, but also at specialty big-boxes like Target. In recent months, were announced dedicated spaces for Apple, Ulta, Levi's or DTC like Casper. Disney has announced the closure of 60 stores in North America but has ramped up its shop-in-shop locations, including at Target.
As department store consolidation continued through the late 20th century and into the 21st, many department stores' private labels disappeared. Now mass merchants have discovered the power of private brands, which differentiate their merchandise from names that might be found anywhere and provide fatter margins.
Target has excelled at this. Steady introductions in the last five years have appeared throughout its assortment, from commodities like food and consumer products to more discretionary items like home goods, luggage and apparel. They've been lucrative: The company's new activewear line notched USD 1 billion in sales in its first year and is the 10th billion-dollar private brand in its portfolio.
"We saw this with J.C. Penney which, despite having the phenomenally successful Sephora shop-in-shop concept, failed to reignite its core business," Saunders said. "Sephora certainly drove traffic to JCP stores, but very few of those consumers were big spenders at J.C. Penney itself. In contrast, Target has a very strong underlying business so its partnerships are really icing on the cake. It is all very well having other brands and concepts come in, but retailers should also be innovating themselves. Target does, but many others do not."
Who's the 'department store' now
How European shoppers will buy groceries in the next normal?
How European shoppers will buy groceries in the next normal?
What: McKinsey’s survey about grocery consumption in France, UK, Germany, Italy and Spain
Why is it important: During the pandemic, consumers changed the way they shopped for groceries and some of these new habits will stick
After a surge in online buying, a muted return to stores
Not everyone has liked their online grocery shopping experience and even the most satisfied European customers say they view online grocery shopping as a temporary measure and plan to return to physical stores. The availability of delivery slots—so that consumers can order and receive groceries when they need them—will be critical to staying competitive.
With so much time at home, a focus on health—but also fun
Cooking and buying fresh products have been prevalent behaviours during the COVID-19 pandemic. Up to 85% in some countries report that a focus on healthy foods is a “very important” consideration in their weekly grocery shopping. The shift is particularly pronounced among (but not limited to) younger consumers.
The offerings from retailers and CPG companies will need to evolve as well. That might mean helping customers find inspiration for healthy and fun meals that they can make from scratch.
Value critical for price-sensitive consumers
About 25% of survey respondents report that their personal finances have been negatively affected by the COVID-19 crisis. At the same time, consumers are expected to further reduce their spending on all categories except groceries—where they expected to spend more, with a net intent of +4%.
Price will continue to take priority over proximity when choosing a store, especially in households facing economic pressure. We may thus see a shake-up among grocery players as they battle for consumer loyalty. For retailers, that means that now is a critical time to invest in retaining their newly gained customers.
Gains by big brands—may not stick
COVID-19 pandemic has revived some large brands. In the first months of lockdowns, surveyed consumers in most European countries said they preferred well-known brands versus trying new, smaller brands. Availability was clearly a major reason as large CPG companies were able to keep up with demand, while smaller players struggled to make products available.
Over time, small brands are expected to return to their previous growth trajectory. Our survey results show that brand authenticity and provenance are increasingly important to consumers, and that will likely benefit the small brands.
A stronger sense of purpose
While healthy food is still the main priority for surveyed consumers’ grocery shopping, they are also conscious of the values and purpose of the brands they are buying. Early evidence suggests that the importance of social responsibility has accelerated for consumers. Survey respondents report strong intent to support local stores and brands that demonstrate care and concern for their staff and that use and promote sustainable solutions.
How European shoppers will buy groceries in the next normal
Business Case #5: Macy’s & Nordstrom abandon new concepts
Business Case #5: Macy’s & Nordstrom abandon new concepts
Two significant US department store groups, Macy’s and Nordstrom, acquired small innovative formats, respectively Story and Jeffrey, and abandoned them in 2020, perhaps not entirely because of the Covid pandemic. What explains their failure to use these opportunities, and what lessons can be learnt by department stores searching for a new lease of life?
Even before the pandemic,
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involving substantial cost savings, the closing of over 125 stores and the cutting of up to 4000 jobs. CEO Jeff Genette said: “We know we will be a smaller company in the foreseeable future”. These measures went hand in hand with a new strategy called “new North Star” meant to turn around the country’s largest department store group. Among those leaving the company since the pandemic is
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, who arrived when
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in 2018 and created a post just for her called “brand experience officer”. At the time the move seemed to usher in an era of reinvention for the department store group, together with the investment in start-up b8ta.
The same year 2020 saw
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, which Nordstrom had acquired in 2005. Jeffrey’s success, particularly in the Meatpacking District which contributed in no small part to the gentrification of that area of Manhattan, was seen at the time as an effort on the part of the upscale department store to renew itself and help modernise its fashion appeal. After the Nordstrom acquisition, Kalinsky worked in a variety of executive roles at the department store company while still running Jeffrey in New York, Atlanta and Palo Alto. It has now been announced that the stand-alone stores would also close (as well as 16 full-line department stores).
Two examples of well-established department stores acquiring successful and innovative concepts, as well as acquiring the founders’ expertise, in an avowed effort to rejuvenate the department store concept, then abandoning the project (admittedly in a covid year) with little to show for it. Why does it appear to be so difficult for a traditional department store to learn from a radically different but very successful retail format?
Who is Jeffrey?
The Nordstrom connection with Jeffrey is perhaps the least surprising of the two: indeed, department stores, especially higher-end ones, are expected to offer curated assortments, the latest in new fashion brands. This was exactly what Jeffrey Kalinsky had built his reputation on for many years before Nordstrom got interested. In a similar vein, the Maria Luisa space in the Printemps department store in Paris was intended to offer customers the same fashion know-how and selection that the boutique founded in the 1980s became known for. If viewed as a shop-in-shop offering a specific assortment, then Jeffrey and Maria Luisa could conceivably exist simply as another outlet for the concept alongside the boutiques. An example of such a strategy would be that of 10 Corso Como which was looking for expansion possibilities and trialled openings in department stores such as SKP or Lotte and is able to retain independence and flexibility.
However, this was clearly not the case with Jeffrey at Nordstrom since he joined the company and served in several roles, ostensibly to train or influence existing buyers to up the game of the company as a whole in terms of brands and assortment at the very least. He maintained his credibility not by opening a concept in the store but by continuing to operate the Jeffrey stores separately.
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. For several years, this category has been underperforming in department stores. It was perhaps to strengthen this category that the store took on the Jeffrey fashion icon. It should be remembered also that Nordstrom had been planning to open in New York for some time, where Jeffrey had made such a splash among the fashionistas. The Jeffrey image could do no harm to the Nordstrom brand. It was the apparel offer in the full-line stores which needed attention, since the Nordstrom Rack outlets have been performing better.
A good Story
The Story connection with Macy’s is more recent since it was acquired in 2018. Story was a single store operation which attracted much media attention since its launch in 2011. The founder was frequently invited to explain the concept, a constantly changing store and offer according to the “story” of the moment like a gallery whose aim is just as much to sell experience as it is to sell products. The narrative-driven retail concept shop is intended to bring to life an editorial approach around themes such as colour, for example.
Here again, the image advantage derived from this acquisition by Macy’s placed the latter firmly in the camp of department stores seeking to “reinvent” themselves. It also invited founder Rachel Shechtman to join Macy’s as “brand experience officer” signalling its commitment to bringing a fresh perspective to the department store and to retail. Macy’s had been in need of a fresh approach for some time since its uniqueness had been diluted and indeed drowned by its size and standardised model. The promise of Story was expertise in experience; collaboration with a number of other brands; working with small businesses and authentic products with special stories; and running a dynamic event schedule. All more like a magazine editorial role than a classic retailer. Once again, this was touted not as a shop-in-shop, but as a starting point for a major overhaul.
Goodbye Jeffrey, it’s the end of the Story
Whether the formats in question were appropriate to carry the future hopes of large department store groups is, of course, debatable. What is clear is that both department stores were probably seduced by the dynamic impact Jeffrey and Story were having on customers, the media and indeed consultants and retail commentators. Small concepts, linked to strong personalities will behave in certain ways: they will be agile and flexible, they will have minimal organisation structure, they will be subject to the whim and creativity of the founders, they will test and make mistakes, and sometimes they will be totally unsuitable for growth.
Acquiring the founder with the concept does not solve the problem. In fact, the chance of a new concept founder fitting into a large classic organisation structure is arguably quite low. Start-up founders hired by department stores have often left, frustrated at the immobility and slowness of the department stores’ structure as well as their incapacity to cut across the internal siloes.
Scaling is also a significant obstacle to success. In both cases (Story operated one store, Jeffrey three) the shift from operating on a small scale, selecting the assortment or the theme, signing collaborations and managing marketing, to making a difference in very large structures, is an almost insurmountable challenge, unless the expected impact is very clearly articulated and organised. The influence of
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was diffuse, and
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in large classical department stores.
To buy or not to buy…
As was discussed in the IADS Exclusive: Dealing with Disruption, a radical innovation in any business requires commitment and investment, sometimes at the expense of the established business. The onboarding of Jeffrey resulted apparently in no more than a star consultant let loose in the buying department; the ideals of Story were transformed into rather inadequate and sad gift shops. According to Doug Stephens who apparently had advised Macy’s to acquire Story, “Macy's squandered a golden opportunity to reinvent — not just the Macy's experience but the entire revenue model of department stores generally… but instead of taking a whole Macy's store and moving it over to the Story business model ... they chose instead to treat it as a bauble, a fanciful little concept inside the same horribly boring Macy's store”. Strong words indeed. It is certainly the case that
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with these acquisitions but as one commentator has written, was it perhaps “
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”.
These two cases raise an important question: how should department stores think about their revival and innovation in general? Acquisitions of small concepts or start-ups may help with the importing of skills and know-how. There is no doubt for example that the acquisition of the UK arm of buy.com helped John Lewis develop its own online business. But this was approached as a tool for the job and within a year, buy.com had been disbanded and totally absorbed into the mainstream business. Almost the same thing happened at Walmart when it acquired jet.com in 2016 for over $3bn and folded it into walmart.com to help it compete with Amazon. Current online Walmart development would appear to confirm the success of that move. On the other hand, with its acquisition of Bonobos, it was clear that Walmart was buying a brand alongside many others (Bonobos founder who joined Walmart has coincidentally left the company in 2020).
Department stores are not bad at innovation as the small Bloomies format or the Nordstrom Local shops testify. Even acquisitions can benefit a department store business as the
r6639_9_forbes_nordstrom_will_bring_trunk_club_to_stor...pdf
now being moved into Nordstrom stores illustrates. But this has not been taken on with the hope of transforming the business model of the company. For the moment, the two stores remain much as they were with
r6649_9_the_motley_fool_where_will_macy_s_be_in_5_years____the_motley_fool.pdf
probably assured after yet more cost savings, while
https://www.iads.org/files/pmedia/public/r6644_9_the_motley_fool_nordstrom_inventory.pdf
r6644_9_the_motley_fool_nordstrom_inventory.pdf
and relying increasingly on its off-price chain.
Perhaps with department stores, business model innovation or new formats need to be developed in-house. Otherwise, an acquisition should serve as a tool for a specific task.
Credits: IADS (Dr Christopher Knee)
