What: 11 trends the NRF predicts will endure in 2021.

Why it is important: At IADS we see on our side some already concrete realisations of these predictions within our members’ actions, our studies and the outcome of the White Paper.

The National Retail Federation, the world’s most powerful retail association and partner of IADS, issues every year its predictions about what’s next for retailers. Here are their 11 predictions:

• Direct to consumer brands are entering partnerships with retailers, to differentiate and explore new models. As an illustration, Manor just concluded an exclusive partnership with running shoes On in Geneva and online.
• Supply chain transformation has been accelerated by pandemic, and 5G will contribute to keeping the momentum, which is one of the conclusions we reach in our White Paper,
• Livestreaming is key, as illustrated by almost all IADS members, including Sogo or Breuninger,
• Robotic deliveries still need to be further developed,
• Malls and department stores will need to “evolve” with new services and brand assortments,
• Touch-free technology will become the norm,
• Social commerce will grow faster than e-commerce,
• On-demand manufacturing will be key, which might be of interest for private labels,
• Digital transformation has just begun, and will be fuelled even more thanks to 5G,
• Customers are demanding options all the way, including on payment solutions,
• The disappearance of third party cookies means that to keep winning in e-commerce, retailers will have either to build a large database or team up with the right partners.

Retail in 2021: What will endure and what’s going to change?

What: the annual insight from WRC.

Why it is important: read the contributions from IADS including pictures from your stores

In the 9th issue of the WRC report, conclusions and numbers are drawn now that we are approaching the end of a very unusual year. Read the contributions of a vast range of contributors, including Simon Susman, Honorary President of Woolworths.

IADS has tightened its ties with the World Retail Congress this year. We contributed to the annual issue by providing our views on 3 topics:

• A sector analysis on Department Stores and their renewed relevance, mentioning the results of our White Paper,
• A sector analysis on luxury and its fundamental shifts,
• A display of the Christmas windows of the IADS members in a 10 pages series.

World Retail Congress annual report

What: a study by CBRE suggests that the cost of return in the US for the holiday season will jump +73% from the previous 5 years average.

Why it is important: no retailer has cracked the code yet to bring profitability in e-commerce, the fastest-growing channel in terms of sales.

CBRE estimates that, in the US, the 2020 holiday season will lead to a +40% increase in e-commerce this year (to USD 234.9 bn) and expects that a value of USD 70.5 bn will be returned, which represents a jump vs. last 5 year average of +73%.

For the average return, return logistics is estimated to represent 59% of the original sale price of the item. CBRE points out the difficulty to balance consumer demand, profitability and sustainability commitment due to returns impacts.

US Viewpoint Reverse Logistics Dec 2020

What: The Euromonitor Recovery Index forecasts.

Why it is important:  Only China, Sweden and Switzerland recover from the hit taken first half of 2020 in the coming months. The rest of the world will wait until 2022 to bounce back to 2019 levels.

The Euromonitor Recovery Index is a composite tracker mixing total GDP and factors determining consumers’ spendings. In spite of a rebound when the lockdowns are lifted, most of the economies will remain below 2019 until the end of 2021 in most of the scenarios.

Global Recovery Tracker: Activity in Key Markets

Global Economic Forecasts Q4 2020

What: a short analyse on UK brand Topshop following the collapse of parent company Arcadia Group

Why it is important: the world economy has been hit hard by the covid-19, and the retail sector was not spared. UK-based Topshop was once one of the hottest retailer on the high street, and if its decline started before the crisis, it was surely accelerated by the pandemic.

In a shot analyse, Business of Fashion looks at UK fashion brand Topshop to evaluate it and understand how it all went down. The collapse into administration of Arcadia Group, whose decline started before the pandemic has the retail group was losing ground to more agile ultra-fast-fashion e-commerce players, makes us wonder what will happen to the group’s brands.

Topshop also was slow to digital and could not compete with fast-growing e-commerce players like Asos and Boohoo. The brand was also slowed down by broader problems within Arcadia Group.

The rise and fall of Topshop: what went wrong

What: Retailers are increasingly offering cash-back rewards for slower shipping options.

Why it is important: They want customers to help bring down shipping costs.

While retailers are racing to perform ever-faster shipping times, some like Amazon, Macy’s or Target are also encouraging buyers to choose cash-back slow-shipping options during the holidays. At Amazon, those include picking up items in-store, bundling orders into a single-day delivery or — in exchange for a discount — opting for no-rush shipping. Retailers still rush-ship the items that need to be in by the holidays, but to offset that cost, they want the non-urgent items to wait. No-rush delivery is not new, but 2020 is proving to be its breakout year as the potential cost savings for the companies are significant.

Why retailers like Amazon and Target are embracing no-rush delivery

PRINTABLE LINK HERE

For some years department stores have been contemplating a less profitable future as costs increase and as they depend more every year on online retail. The Covid-19 pandemic has exacerbated the problem by accelerating our dependence on the online part of our business. In fact, we have been putting in place a number of channels and services for customers which we know are less profitable, and in some cases, loss-makers. So, the search for future profitability has become even more urgent.

The unstoppable growth of digital retail

For years now, bricks-and-mortar retailers have been battling with the issue of how to make the online part of their business profitable. Now, with the online share of business growing in the omnichannel mix, department stores are facing a future of less profitable retail – which they can ill afford. According to the World Economic Forum, e-commerce sales are expected to reach 40% of total revenue in the next seven or eight years. How can we remain viable when the fastest-growing channel is the least profitable? Is there anything we can do to prevent already thin margins being shaved further by demands for ever-speedier fulfilment, unrealistically broad assortment, and easy free returns?

The situation has become dramatic recently with the Covid-19 pandemic accelerating the development of online retail, the only channel left to many department stores to make any sales at all. These have not compensated for the loss of sales in stores, in spite of some very inventive solutions and admirable efforts to serve customers. Even efforts to concentrate on local customers and to use stores in novel ways as fulfilment hubs, for example, still leave stores with no better than 90% of “normal” sales. “Normal” being the level of sales required to keep afloat with the existing department store model. Needless to say, a future based on this level of sales will be short.

Online today is generally less profitable

Interestingly, the problem is not limited to department stores. Walmart, the subject of a recent IADS Exclusive, with its huge investments and the development of Walmart+, is actively trying to reverse the tide in its struggle with Amazon through the development of new models. But, according to some, it’s still far behind Amazon, and there are developing tensions inside Walmart. Last year, the company was apparently projecting losses of more than USD 1 billion for its US e-commerce division, on revenue of between USD 21 billion and USD 22 billion. Walmart does not disclose these figures publicly and declined to comment.

According to Forbes, TheRealReal, the marketplace, increased its previous year’s loss in spite of revenue up 51%. The digitally native fashion retailer Revolve, also announced a loss against revenue exceeding all expectations. Farfetch reported larger than expected losses despite a record revenue growth of 44%. “These results mirror a familiar pattern for retailers: improving year-over-year revenue while profits decline. Often these slides in profitability correspond to an outsized increase in e-commerce sales, highlighting the unfortunate truth that it’s very difficult to operate a profitable e-commerce business. And it’s only getting harder”.

And the issue is not confined to fashion or apparel retail. Indeed, as reported in the Financial Times, grocery shopping is also losing money online. A cited Bain consulting report estimates that grocers around the world are typically suffering a negative operating margin of about 15% on online orders. Even a USD 7 delivery fee does not lift that number into positive territory. The only operation which appears to be mastering the issue is Ocado which claims to have a list of one million people waiting to become customers once it has the capacity to serve them. And that is likely to come about since it is estimated (by UBS and Bain) that a majority of shoppers will increase their use of online shopping after the Covid-19 situation improves. Ocado sees itself less as a retailer than as an online service provider to retailers through huge investments in automation, robotics and technology.

What can department stores do?

On a positive note, a number of department stores are vigorously addressing the problem. Indeed, it has been at the centre of their strategies for some who have been acting decisively to transform themselves. One example is Falabella which now describes itself as “a digital retailer with stores”. It has been analysing online costs for some time, attempting to balance value to the customer, value to the store, and net operating cost of different solutions such as DC to customer, DC to store, and click & collect from store inventory.

Theoretically, the costs of fulfilment, for example, of DC to store will be lower than home delivery, which would be less than pick from store which would in turn be lower than ship from store. However, in reality, results may vary depending on the individual efficiencies of each process such as the incremental use of store labour, the efficiency of fulfilment centre pick-pack operations, the cost of real estate of click & collect counters, store pick efficiencies and much more. It is these variables which have to be analysed and in fact tailored to the operation in question and properly integrated. “A lot of these online channels were added as an afterthought to the brick-and-mortar channel”.

In general terms, whereas the physical store costs may be dominated by real estate and labour, those of online retail would be made up to a larger extent of marketing (in particular customer acquisition costs) and fulfilment. As the Harvard Business Review puts it, retailers need to find a way of creating a “digital-physical fusion” which will catch up with customer expectations, and importantly create a viable business model. “The greatest barrier to adopting fusion strategies is not skepticism about their promise but inexperience with their execution.”

What are the priorities in this process for department stores?

• There has been much debate about whether department stores should offer their entire assortment online, or a subgroup, or even in some cases extra items not available in store. Clearly fulfilment costs should play a major part in this decision: items that have difficult logistics and return logistics should be the first to come under scrutiny.
• For the rest, supply chain optimisation is crucial. For the average retailer, fulfilment costs have increased 12% over the last 12 months before Covid-19. Even Amazon saw shipping costs jump 23% at the end of 2018, reaching a record USD 9 billion. This is multiplied by the fact that customers are increasingly expecting free and fast delivery. On the other hand, there is evidence that customers are willing to pick up in store to avoid shipping charges.
• Linked to this is the pricing and promotion strategy: any difference between online and store price will be picked up immediately by customers. In this area, technology is almost indispensable (dynamic pricing and markdown optimisation).
• Technology in the form of either AI and machine learning, or robotic automation is also becoming standard. The Ocado example mentioned above is highly dependent on technology to offer affordable services. So much so that it is now building DCs for other retailers. There is some evidence that cost-conscious retailers are being pennywise and pound foolish when it comes to IT modernisation. However, research from Publicis Sapient revealed that IT infrastructure investments can pay back in 2-3 years while continuing to create long term value through increased conversion, affinity and loyalty.
• Finally, AI can also help with customer response and customer acquisition. Lifetime Customer Value (LCV) is sometimes used as an excuse to cultivate unprofitable customers. Technology can help us distinguish and cherish our best customers. Customer acquisition is generally acknowledged to be one of the big costs of online business. Targeting and reducing this cost can significantly contribute to profitability.

Conclusion

Foot traffic to stores continues to fall, while online retail has grown many times in the last ten years alone and has been boosted by the Covid-19 pandemic, probably with lasting consequences.

Many retailers must adjust their physical footprint to accommodate these changes. In today’s landscape, the strategy to open as many stores as possible is neither viable nor practical. Instead, retailers must focus on having effective stores. This may mean downsizing to smaller stores, moving to different, high-traffic, convenient locations, or reformatting to better accommodate in-store pickups. The measure is a difficult one since it means reducing the proportion of the traditionally more profitable part of the business. Recent examples of closures include Le Printemps, and John Lewis.

Therefore, in parallel, we need to consider each and every way in which to truly integrate our existing channels as well as ways of evaluating the true costs of what we are offering customers. The current pandemic has led to a innovative but unprofitable solutions for customers. How can we readjust, rebalance and integrate our physical and digital formats to recover a profitable department store model for tomorrow?

This is one of the tasks which will be set for the IADS Academy 2021: proposing a P&L for a truly integrated omnichannel business, and the related KPIs with which to measure omnichannel performance. It is a practical case of department stores dealing with disruption as discussed in the IADS Exclusive: responding to disruption in which How to shift in a company from the Incubation to the Transformation Zone. It can be done, but it requires strong leadership and purpose.

Credits: IADS (Dr Christopher Knee)

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What: A quick overview on different sustainable strategies in the fashion and retail industry

Why it is important: There are several ways for a company to become more sustainable

While in an April survey of European consumers by McKinsey, more than 60% of respondents said they considered the way brands promote sustainability as a factor in purchasing decisions, it seems like sustainability has reached a tipping point. The issue is now shifting from just another tool to capture brand value or market share to a condition for companies to secure their relationship with customers, partners, employees and investors.

The most common definition of sustainability is the one sustainable development, defined by the United Nations in 1987: “sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Sustainable development has three goals: economic development, social development and environmental protection.

A sustainable business is a business that has minimal negative impact on the global or local environment, community, society, or economy. A business that strives to meet the triple bottom line (social, environmental and financial), that incorporates principles of sustainability into each of its business decisions, that supplies environmentally friendly products or services, and/or that has made an enduring commitment to environmental principles in its business operations.

The garment industry

McKinsey reports that global production of clothing doubled between 2000 and 2014. Over that same period, the average number of garments purchased each year rose by 60%, and the Intergovernmental Panel on Climate Change (IPCC) has calculated the fashion industry produces 10% of the global carbon dioxide emissions every year, while it is estimated to use around 1.5 trillion litres of water annually. And while concerns have been rising about pollution, the garment industry has also been accused of unethical labour practices since the Rana Plaza disaster in 2013.

Beyond collective pledges and initiatives from the industry (the Fashion Industry Charter for Climate Action in 2018, the CFDA Sustainability Initiatives in 2019, and the Fashion Pact in 2019), the growing importance of sustainability issues, not only for consumers but for all their groups of stakeholders, has pushed brands to implement actions, initiate critical changes and even adapt their model accordingly. And some have seen in sustainability a window of opportunity to differentiate from their competitors, to engage with a new younger audience and to thrive.

A brand like Everlane mixes sustainability with transparency and builds strong relationships with factory owners to make sure they meet Everlane’s high ethical standards. Everlane also recently rolled out a line of clothing made from recycled plastic bottles and other reused materials. Patagonia uses sustainable materials as well and helps customers repair their clothing instead of buying new items. The brand follows fair-trade practices and closely monitors its supply chain to make it safe for both the environment and workers. And because the products are more sustainable, customers are encouraged to recycle old Patagonia items and purchase second hand.

Gucci is now in the middle of a 10-year strategy that plans for the company to reduce its total environmental impact by 40% within its direct operations and across the entire supply chain. It has also pledged to reduce by 50% its greenhouse gas emissions by 2025. Gucci is ahead of schedule and already close to achieving its 2025 targets, as its results for 2019 reveal a 39% reduction for the house’s combined impacts and a 37% decrease in gas emissions alone. Even H&M is moving away from the fast fashion model with its Conscious collection, made of materials like organic cotton and recycled polyester. By using eco-friendly fabrics and more sustainable production methods, the company hopes to reduce its environmental footprint. Customers can also recycle unwanted garments at H&M stores and get a discount for a future purchase. As a whole, H&M has a goal to use only sustainably sourced materials by 2030.

Started from a challenge from the CEOs of Walmart and Patagonia in 2009 to develop a common index that would measure the environmental performance of clothing products, the Sustainable Apparel Coalition created the Higg Index. Now used by more than 10 000 manufacturers worldwide, it is a suite of tools that enables manufacturers, brands and retailers to accurately measure and score a company or product’s sustainability performance.

IADS note: With main concerns around pollution, emissions and workers’ labour conditions, the garment and fashion brands concentrate effort on more circularity and more transparency, while tools like the Higg Index monitor data behind the sustainable claims and allow for the customer to verify the truth of the statements.

The brick-and-mortar retailers

Besides having recently open its first second-hand store and launched a subscription service for office furniture and kitchen cabinets, Ikea keeps going greener with more circular products, more sustainable stores and lower emissions. The company has lately made commitment to only use renewable and recycled materials in its products by 2030, to remove all single-use plastic products from its range globally and from customer and co-worker restaurants in stores by 2020, to achieve zero emissions in home deliveries by 2025, to reduce the total Ikea climate footprint by an average of 70% per product by 2030, and to expand the offer of affordable home solar solutions to 29 Ikea markets by 2025.

Walmart has started in 2005 to initiate positive changes across global supply chains. In 2019, the company powered an estimated 29% of their operations with renewable energy and diverted 80% of their waste from landfills and incineration globally. The world’s largest retailer sets goal to become a regenerative company by targeting zero emissions across the company’s global operations by 2040. Walmart and the Walmart Foundation are also committing to help protect, manage or restore at least 50 million acres of land and one million square miles of ocean by 2030 to help combat the cascading loss of nature threatening the planet.

In October, British supermarket chain ASDA has opened a sustainable trial store and unveiled a new plastics reduction strategy. Developed in partnership with some of the UK’s most popular household brands, the store is designed to help shoppers reduce, reuse and recycle easily. Asda will use the store to test and learn which elements of its new offer appeal most to customers and can be developed at scale to be potentially rolled out to more locations in 2021. The store has huge refill stations, fresh grocery sold in loose and unwrapped format, recycling facilities for items that are difficult to recycle, a new community zone for pop ups and partnerships with charities and a partnership with a vintage wholesaler who will be selling bespoke vintage clothing from well-known brands.

IADS note: The retail global activities with big-box stores imply for the operators to address the main issues of massive waste and gas emission with a focus on circularity. Using less or renewable energy, upcycling materials and cutting the waste down dramatically with a reduced amount or no packaging are here the most prominent axis of improvement.

What about Amazon?

Last year, Amazon’s carbon footprint grew 15% to hit the equivalent of 51 million metric tons of carbon dioxide. Facing criticism for the environmental impact of its business and the poor working conditions in the company’s warehouses, Amazon is joining a growing list of companies seeking to target sustainability-conscious consumers.

After the company co-founded The Climate Pledge in 2019, a corporate commitment to reach carbon neutrality by 2040, and launched earlier this year a $2 billion fund focused on supporting businesses and innovations that will help decarbonise the economy, the e-commerce giant is now starting to label products that meet select sustainability certifications on its U.S. website. To qualify for Amazon’s new Climate Pledge Friendly Label, products will have to achieve at least one of 19 certifications that guarantee the item has a reduced environmental impact. Certifications selected include Cradle to Cradle, Fairtrade, the Global Organic Textile Standard and clean chemistry standard Bluesign Product. More than 25 000 products from the fashion, beauty and household goods categories will be included in the programme. Since 2015, Amazon has also been working on reducing the weight of outbound packaging by 33% and eliminated more than 900 000 tons of packaging material, the equivalent of 1.6 billion shipping boxes. With Shipment Zero, Amazon sets the goal to make all shipments net zero carbon, with a goal of delivering 50% of shipments with net zero carbon by 2030.

IADS note: Besides a global strategy to reach carbon neutrality and a constant effort to cut the waste down by working on packaging, the e-commerce giant is now creating its own sustainable label, matching existing certifications, and designing its own externally-verified certification to identify products that requires less packaging and energy to be shipped.

The department stores

Department stores still mostly consider sustainability through the products they sell, but some of them are starting to cultivate a broader approach to sustainability with more conscious and collaborative ways to make business, that are better aligned with the customers’ new expectations and the brands’ own agenda.

Galerie Lafayette launched Go for Good in 2018 to make fashion socially and environmentally more responsible, with measurable actions for the group to became a more ethical employer, a driver of sustainability with lower emissions, and to use more upcycling and traceability for the products. Last year, the company turned the movement into an ongoing sustainable fashion initiative with higher goals, and has also initiated a national community consultation process with Paris Good Fashion and a group of partners to develop responsible fashion for the future. Open to anyone until late October and accessible though make.org, the consultation aimed to gather suggestions from at least 100 000 people on the sustainability commitments they expect.

After Project Ocean in 2011, Selfridges launched in August Project Earth, a five-year sustainability plan introducing clothing rental, a second-hand fashion shop, beauty pack recycling, refill services and a “concierge” service to help organise product repairs. As part of the plan, Selfridges is working with brands to promote recycled materials and more sustainable fabrics. With the multi-stakeholder initiative, the group is also pledging to reduce greenhouse gas emissions by 64% from its stores and office by 2023, to continue to purchase 100% certified renewable electricity, to eliminate waste at source by working with suppliers to reduce unnecessary packaging, to continue to address food waste in restaurants, including continuing to donate unwanted food to donation partners, and to offer every team member up to five days’ volunteering a year.

Interviewed by The Guardian on the occasion of the launch, Anne Pitcher, Managing Director of Selfridges, sees that “the pandemic has changed everybody’s thinking forever”, and shares her feeling that “we’ve all changed and people will care not only about how you do business, but how you place people and planet at the heart of your thinking.”

IADS note: While it remains crucial for department stores to ensure what they sell is socially and environmentally always more responsible, like the fashion industry does, they should also keep broadening their vision to sustainability issues attached to supply chain and operations. Like retailers, they could design and implement their own ways to better reduce emission and waste to become more circular. And because sustainability is also about social responsibility, they should continue their efforts to stand as responsible employers, inclusive companies, and active members of their local community.

Is sustainability a real opportunity for growth, or just sound resources management?

The pandemic has dramatically increased stakeholders’ expectations for a more socially and environmentally responsible business, and sustainability is a window of opportunity opened as consumers and brands re-evaluate the business models they want to support.

In a comprehensive business case for sustainability published in 2016, the Harvard Business Review reminds that sustainability efforts clearly result in a positive impact on business performance. They drive competitive advantage through stakeholder engagement, help improve risk management, foster innovation, improve financial performance, and help building customers loyalty and attracting and engaging employees.

Interestingly enough, the same article also states that companies managing their resources efficiently lower their costs and achieve better results (this applies to water, energy and other resources). Could that be called sustainability efforts? All the examples shown here, be it from fashion brands or retailers, are Involving additional activities, often made visible by the customer. In other words, being sustainable means investing more and costing more (even if, in the end, the customer bears the additional cost).

Is that the only option for department stores to explore? Or can sustainability simply go hands in hands with efficient and good management. In this case, how to make it visible and desirable to the customers?

Credits: IADS (Renaud Pillon)

What: Perspectives in international tourism according to Euromonitor.

Why it is important: A set of examples in innovation to handle the problems caused by the decrease in tourism. More importantly, the projections of the industry recovery by market and segment.

Travel and tourism have been very significantly affected by Covid-19 pandemic, following a global GDP growth expected to fall by -4.8% in 2020 and a recovery between 2022 and 2023. Interestingly, at the global level, this led to the realization from customers that their traveling habits are not sustainable (21% of customers not planning to revert to intercontinental flights for this reason) while due to the economic difficulties, 42% of the companies involved in tourism are planning to either roll back or cancel their sustainable product and services programmes. Taking a look by region:

• Europe is heavily affected, with discrepancies between countries (France, Italy, Spain, and the UK are facing drops between -11 to -12%). Recovery is not expected before 2024, and value-driven tourism will probably prevail over the numbers-driven model. Furthermore, regional tourism will be key: domestic expenditures are expected to revert to 2019 levels within 2022, whereas inbound receipts will revert to this level only in 2023.
• In the Americas, the US and Canada are expected to suffer a drop of -6.5% and -8% in 2020, with airlines and lodging businesses going back to normal in 2023.
• In Asia Pacific, the crisis led to putting a halt in the growth, but some countries did not end up in the red. China, for instance, expects its growth to be reduced to 1.7% in 2020 and pick up gain in 2021 by +7.6%. However, South Korea and Japan are expected to decrease by -1.2% and -5.8% respectively in 2020.

Accelerating Travel Innovation After Coronavirus

PRINTABLE version HERE

For some years we have seen the beginnings of a shift from shareholder to stakeholder capitalism. Actions taken during the Covid19 pandemic and analysed in the IADS White Paper would seem to echo the new “stakeholder” purpose of companies. What they probably signal is in fact a rethink of the department store model in terms of its offer, its structure, its relation to other businesses, and its adaptation to new market realities.

The IADS has published a White Paper reviewing its members’ actions during and after the Covid-19 lockdown and draws key lessons to prepare for new crises and to address the future of the department store industry, at a moment when some regions are facing new episodes of lockdown: “Global pandemic and local department stores”.

One of the observations of the survey has been that IADS department stores were driven by agility, commitment and responsibility. Notwithstanding their size and complex organisations, department stores were surprisingly agile in addressing the pandemic issues, without losing focus on their social role and responsibility. All IADS CEOs swiftly adjusted their strategy to protect staff and customers, accede to government requirements, maintain and nourish relationships with customers and suppliers, while defending their businesses and preserving cash. This translated into a remarkably fast and coherent shift from all IADS members towards their stakeholders: customers, staff, suppliers, community, and shareholders.

In 2019, we saw the US Business Roundtable redefine the purpose of a corporation as serving these five groups of stakeholders, and this was followed by the Davos Manifesto of 2020 which shifted away from shareholder capitalism towards a business responsibility to “society at large”. We should remember that this was seen by many as a significant shift away from the principle of shareholder capitalism, which has been more or less dominant since the 1970s with Milton Friedman arguing that the primary aim of a company is to maximise value created for its shareholders. Doing anything else was described as spending “someone else’s money for a general social interest”.

It would appear then that the Covid-19 pandemic has renewed interest in this conversation about the purpose of a business. No company, to our knowledge, has questioned the appropriateness of taking on these broader interests in spite of the fact that most of them are struggling to keep their head above water in terms of sales and, even more so, profits. Such declarations of solidarity with all five stakeholder groups come at a time when issues such as climate change, diversity and inequality are all being aired and are apparently of concern both to our customers, and to our employees (in a survey, 70% of workers said their CEO should take a stand on climate, diversity and inequality).

So, stakeholder capitalism demands that companies should save the planet, increase diversity, ensure the right standards along the whole of the supply chain, get rid of the gender pay gap, take responsibility for its employees’ health (physical, mental and financial), as well as conduct a profitable retail business through a series of rolling lockdowns. Is this a reasonable expectation?

Furthermore, some of these issues are perhaps ones over which there may be shades of opinion among managers in a company. What happens if not everyone is on the same side in the “culture war”?

A provocative piece in the Financial Times argues that the burden may be too heavy for companies to carry alone. Indeed, it argues, “the social welfare of individuals is more a matter for their families, friends and state-funded community services….the physical health of the population is a matter for public health services, while issues such as climate change are a matter for governments to rule on”. It reminds us that companies pay taxes so that others do such stuff.

What it forgets, however, is that the sophisticated operations of department stores (and indeed other retailers) puts them in a privileged position regarding knowledge of what members of the population think and need, that the health services of many countries have been overwhelmed due to long-term underinvestment, and that they are already often playing an important community role which has not abandoned sustainability even in the face of serious cost overruns.

Whether this balance between business, politics and society is a desirable state of affairs or not, it remains that without the cooperation of businesses, and department stores among others, the situation on the ground would have been significantly more unpleasant for a large proportion of the population in many countries.

The fact that it also makes sense from a business perspective and increases customer and employee loyalty does not diminish the contributions of department stores which have stepped into the breach as detailed in the IADS White Paper.

It may or may not be part of a shift towards stakeholder capitalism, but the actions undertaken have redefined the sense of purpose of department store companies, given them a new lease of life and injected new meaning into the daily activities of many employees. Coupled with innovative adaptations and practices such as remote working, we are perhaps witnessing something special which may yet have positive consequences, with department stores taking back the initiative.

Credits: IADS (Dr Christopher Knee)

In its “Global pandemic, local department stores” White Paper, the IADS reviews its members’ actions and draws key learnings to prepare new crises and address the future of the department store industry, at a moment when some regions are facing new episodes of lockdown.

A comprehensive review of business practices developed as an aide for crisis management

According to the UNWTO, the 2020 Covid-19 global pandemic triggered a crisis forecast in July to lead to a 5.2% worldwide GDP contraction by the end of the year. Border closures meant an unprecedented decrease of international tourism, estimated to fall by 67% this year alone. With its ties to tourism, retail, representing 1 out of every 12 workers in OECD countries, is durably affected.

Department stores play a central role in the retail landscape by mixing experience and curation in landmark buildings open to everyone in the heart of our towns. They bridge the gap between cities and regions, tourists and locals, online price-oriented convenience and offline emotion and discovery. The Covid-19 context doubly penalises department stores through the drop in tourism and lockdowns of non-essential retail stores, significantly curtailing their domestic markets.

IADS members manage in total 233,000 associates spread over more than 495 points of sales in 19 countries. On average, they had to close in Spring during a period equivalent to 19% of their total 2019 opening time. The IADS dedicated its yearly Academy programme to understanding how its 12 members steered their businesses during lockdowns until reopening. The result of this extensive analysis translates into the first White Paper of its kind, shared by the Association with its members and their peers. Now that a second Covid-19 wave is hitting markets, exchanging learnings is key to allow all retailers to adjust their business practices to the new realities. This White Paper was conceived both as an inventory of practices across the board and as a source of ideas for immediate and future actions.

IADS department stores were driven by agility, commitment and responsibility

Notwithstanding their size and complex organisations, department stores were surprisingly agile in addressing the pandemic issues, without losing focus on their social role and responsibility. All IADS CEOs swiftly adjusted their strategy to protecting staff and customers, acceding to government requirements, maintaining and nourishing relationships with customers and suppliers, while defending their businesses and preserving cash. This translated into a remarkably fast and coherent position change from all IADS members towards each stakeholder.

A leap forward for department stores

Such changes in a limited period of time deeply affected corporate organisations. On the one hand, with tourism disappearing and stores closing, it became necessary to talk and sell to locals in new ways. Marketing and digital departments were brought to the fore and made responsible overnight for business continuity, generating many original initiatives as shown by Beco in Venezuela which launched its e-commerce website in record time. On the other hand, companies’ working organisations were radically revised to provide more flexibility and resilience, as exemplified by the setup of “corona teams” in many organisations to handle and steer the response to the crisis. As an illustration of how deep those changes went, Manor in Switzerland and The Mall in Thailand both decided to strategically transform their structure at the end of their respective lockdowns with an emphasis on corporate simplification, team agility and a direct relationship with customers.

These agile evolutions effected in a short time helped to accelerate the adaptation of department stores to new market realities: all IADS members, following the lead of peers such as Falabella in Chile or SKP in China sped up their digitalisation, even if it meant in some cases adapting to different market specificities. For instance, Sogo in Hong Kong improved its CRM programme while simultaneously accelerating its marketplace relaunch. Agility also contributed to enabling store teams to mitigate the absence of tourist customers by exploring new ways of building ties with locals. Their proposals included adapting assortments to new trends, new marketing messages or ways of voicing them.

Looking back, the store closures significantly accelerated the department stores’ digital alignment while re-emphasising, where needed, their roots in their local communities.

Giving perspective: department stores are taking back the initiative

More than compiling stories of endurance during the crisis, the IADS White Paper findings show that the context provoked an upgrade within department stores. They have a clear and positive role to play in the digital age, provided they inject the necessary amount of energy to adapt, whether it is about curing their addiction to tourists by caring for locals, defining the role of stores and their number, or rethinking the flagship’s place in the city.

Keeping as close as possible to the customers’ new realities and expectations will also be a central topic, by defining the nature of the offer and how it is sold - online and offline – while always safeguarding the surprise factor inherent to this format.

Finally, reviewing and digitalising operational processes will also be crucial to ensure that department stores, renovate their organisation and decision-making processes, to both address sustainability topics and be prepared for any potential next crises, whatever their nature (cyber, political or weather emergencies).

While these strategic topics are detailed in the White Paper, the key conclusion for department stores is that to be ready for their upcoming challenges and potential future crises, scenario planning is central to ensure long-term sustainability in a world dominated by short-term deadlines and quarterly reports. Since 1928, the main role of the IADS has been to design with and for its members the appropriate strategies drawn beyond the immediate horizon and consider scenarios for the future.

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Following a truly innovative process this year due to the worldwide pandemic, the IADS Academy was conducted in full digital mode, and looked at immediate consequences of lockdowns for IADS member organisations. A number of suggestions were made by the 2020 IADS Academy who presented some answers to the question “What next?” at the General Assembly of CEOs on 30 October 2020. Their answers covered customer behaviour, convenience, private labels, and store networks, as well as organisation structure and skills for the future. They caused some important questions to be raised relating to organisations, profitability and store real estate.

The Covid-19 pandemic has affected all our businesses, and indeed has also impacted the IADS activities. This is the reason why, this year, the 2020 IADS Academy was asked to go very operational in its data collection and thinking process, to address the pandemic-related questions: what have we, as department stores, been doing in relation to Covid? and what next at this stage of the pandemic?

The outcome of the work has been a White Paper, titled “Global pandemic, local department stores, learning from the pandemic and addressing the future for the industry”, to be released soon, which covers in detail the context in which we have been operating and a whole series of innovative and speedy actions. In addition, participants in the 2020 IADS Academy were asked to go further into scenario-planning, which led to a presentation to IADS CEOs at their General Assembly on 30 October 2020 (see summary and slides here).

The Academy considered several scenarios for the immediate future. These could be described as best, middling and worst, or short-term, medium-term and long-term (up to 24 months ahead). Scenarios used for the simulations were the following:

• First scenario: another lockdown within 8 months (the 2020 IADS Academy work was finalised before the second round of lockdowns and curfews across Europe)
• Second scenario: full recovery within 14 months in Asia and US thanks to a vaccine but leading to “travel bubbles” and regional closures in the meantime
• Third scenario: painful global recovery within 24 months and adaptation to a “new normal”, including “stop and go” local approaches leading to a permanent state of economic crisis and customer insecurity.

Each scenario was aiming at constructing possible actions and strategies under three main headings:

• The department store context: cities, flagships, and local retail
• The department store offer: services and assortment
• The department store organisation: structure and roles

The matrix below synthesises their analysis:

![ac20 article chart 

The priorities overall are fairly clear:

• emphasise local retail
• prioritise safety and stability
• develop digital and online operations
• innovate in services, sometimes quite radically
• upgrade and develop private labels
• shift to an agile organisation structure and leadership
• and, even further, to an ecosystem characterised by autonomous structures and empowerment

The value in this work comes not only from the suggestions but also from the structured thinking which we need more than ever for crisis management, including the scenario-planning approach we advocate at IADS.

As with all good research, its value lies also in what questions it raises for further investigation. Three such big questions should be mentioned:

I. What is involved in shifting towards a flatter more agile organisation structure?

…especially as future structures are likely to mean fewer people, as well as fewer layers. From a practical standpoint, outsourcing tasks to teams means defining those tasks very precisely since the teams will not necessarily be involved in other parts of the business: a “division of labour” approach reminiscent of early scientific management. And yet, according to many accounts, we are also moving in an opposite direction where the skills we will need for the future are analytical thinking and innovation, active learning, complex problem-solving, critical thinking and analysis, and creativity, originality and initiative (see Future of Jobs Survey, World Economic Forum, 2020). These latter are more general and pose a real challenge to HR departments to find the right profiles.

Some of our members are already tackling these issues such as Falabella’s “delayering” projects. In general, agility as it has manifested itself during Covid, as was mentioned by the Academy, is more an accumulation of small decisions taken with speed. The question is: have we managed during Covid to speed things up which normally would take longer?

According to some, the ideal command structure in the army is not a rigid hierarchy but a sphere, where the core sets the culture, and those at the edge of the sphere use their initiatives and take decisions as the situation demands. Only this allows an organisation to cope with VUCA (volatility, uncertainty, complexity and ambiguity); (see The Economist, 24 October 2020, p.58). Others suggest that one of the best ways to achieve resilience is through the establishment of routines or simple rules known as heuristics (see HBR, Building Organizational Resistance, November-December 2020).

II. Shifts cost money: how to find necessary investments?

This is particularly important since much store-based retail was already dealing with a lower-profit retail future even before the pandemic. Can we find resources through development or through charging for services?

For example, delivery from stores was initiated by Manor to respond to customers’ needs. And it was indeed welcomed. But it was also a terribly expensive service for the store. Is it worth the cost? It might be that responding to customers’ needs is always the right thing to do and that ways will be found or developed to make it profitable in the future. Should we simply act and modify and fine-tune as we go? It is perceived as a considerable risk. Are there any examples from the past of such a risky action eventually turning a profit? What does appear to be true is that the new “remote work” is often more productive than work performed at the office (this point was raised by the Academy also). This means that at least some costs should be saved by a new structure. Best practices in remote working are only recently beginning to emerge.

This strain on investments was illustrated in part by a discussion of Geoffrey Moore’s theory of “zoning” and how to bring new ideas into the mainline business. (see IADS Exclusive article: Responding to disruption)

III. What part in the business is online retail likely to play in the future?

This is probably an impossible question to answer since, increasingly, department stores are no longer separating their online and physical businesses. Indeed, in some cases they are no longer able to do so. However, it remains an important question for its implications for the real estate assets of the business, sometimes quite considerable. A number of businesses are facing the possibility of closing down less profitable stores and/or using them for other purposes such as fulfilment centres (as hinted by El Corte Ingles and already realised by Macy’s and Lotte). John Lewis has recently revealed plans to convert part of its business and real estate to other formats including residential.

In the present circumstances, the question of flagships is also raised, especially if they relied significantly on the tourist trade. Local, smaller stores were initially neglected but appear now to be nearer to the centre of department stores’ attention. Some, such as Magasin du Nord, are asking whether the value of smaller stores may have increased from the real estate point of view because of the crisis. A number of companies, as is well known, have been developing smaller, local stores for some time, such as Nordstrom Local.

Following the General Assembly held in October, elements of these questions have been incorporated into the IADS programme for the coming year as topics for meetings, exchanges, and indeed future Academy investigation. This renewed approach aims at bringing elements of answers to complex CEO questions and help our members to address their future.

Credits: IADS (Dr Christopher Knee)

What: Psychology shows us that in a crisis, consumers favour the familiar.

Why is it important: If this also applies to the department store assortment, we should hold back on innovative products and marketing until consumers feel safe again.

In this psychology article from HBR, the authors argue that fear during a pandemic will lead human beings to favour what is familiar. Thus, although food consumption shows a surge of both health food and junk food, this is because consumers are pushed towards more familiar options which can be either, according to the consumer group.

It is perhaps therefore not the best time to innovate or think about new marketing strategies. If the same applies to apparel or fashion, then we should err on the side of conservatism.

In a Pandemic, We Buy What We Know

What: Some practical ideas on how to make remote working function.

Why is it important: department stores are discovering remote work and its complications and pitfalls. Using the experience of consultancy firms, we can learn more quickly some ways of tackling the problems effectively.

One of the challenges of remote work is to build and sustain a strong culture. In fact, consultancy firms have been doing just this for years. The author from McKinsey identifies three keys to the success of this endeavour:

1. Build a strong learning and social culture. This was achieved through “super Fridays” once a week and yearly “value days” with most employees physically present.
2. The building of team microstructures. At the start of each project, teams draft charters that specify how they will schedule and conduct meetings, share the workload, make decisions, give each other feedback, blend virtual and in-person interactions, and respect individual styles and preferences.
3. Constantly refining the core of the culture to deal with and adapt to changing circumstances.

3 Tenets of a Strong Remote Culture

What: a redefinition of the role of stakeholders

Why it is important: In 2019, the US Business Roundtable redefined “the purpose of a corporation to promote an economy that serves all Americans ”. It comes with five commitments — to customers, employees, suppliers, communities and shareholders.

Stakeholder capitalism demands that companies should save the planet, increase diversity, ensure the right standards along the whole of the supply chain, get rid of the gender pay gap, take responsibility for its employees’ health (physical, mental and financial), as well as conduct a profitable retail business through a series of rolling lockdowns. Is this a reasonable expectation?

The provocative piece in the Financial Times argues that the burden may be too heavy for companies to carry alone.

Covid has put "stakeholder capitalism" on steroids

Used to reacting to unexpected events, armed forces have developed an appropriate structure to cope: instead of hierarchy, a sphere with a core setting the culture and the edge free to react as the situation demands. Can we learn from this?

What the armed forces can teach business

How to build an organisation able to cope with a crisis? Two suggestions: the first is to establish organisational routines for efficiency; the second is rules of thumb or heuristics which promote speed; the third is improvisation addressing an opportunity or a specific problem.

Managing risk and resilience 

What: the reasons why customers still rely on stores for their online groceries.

Why it is important:  IADS members have experienced different approaches during the first lockdown wave: supermarket delivery at Manor, Call to deliver service at SM, new e-commerce approach at Sogo. In spite of the growing numbers of online grocery orders, this article argues that stores will remain at the centre of the game.

On the US market alone, online grocery is expected to represent 21,5% of total grocery sales by 2025, to € 215 bn. During summer 2020, it is reported that online grocery sales increased five to six times over previous year, however, it is estimated that only 2 to 4% of US shoppers went to a 100% online process, from ordering to receiving the delivery. The Takeoff Technology White Paper argues that customers favour curbside pickup or going in store to pick up the order, for two reasons: no waiting time (same day delivery) and no extra cost (as this option is usually charged).

It is therefore seen as a way to save time and money with the store seen as a node in both the supply chain network for additional services and in customers’ lives thanks to its proximity. Looking at what Amazon or Ali Baba are doing therefore suggest that not only stores are still central in the equation, but the real question is, instead of questioning their very existence, how to use technology to keep on proposing flexible convenience at competitive prices.

Post-pandemic:The Future of Online Grocery Is As Much Physical As It Is Digital

What: Convenience store should have profited from the pandemic. But only some did. Others have been facing competition.

Why it is important: Convenience is very attractive to customers. But the idea of convenience is evolving. Formats other than classic “convenience stores” can offer convenient shopping and attract customers. Imagine a “convenient” department store.

Although many convenient stores have benefited from the crisis. Some have not.

Thus sales have grown in South Korea and in Mexico, but in Japan, home to the three biggest convenience store chains, they have been in decline. Rivals (such as supermarkets) are offering the same goods for less, as well as delivery, often to customers’ home. Deliveroo is being used in the UK, DoorDash the US delivery app has opened its own virtual DashMart.

Wawa also from the US has started drive-through stores. Others are reporting a surge in deliveries, including US 7-Eleven. It shows that convenience is less a store format and more a customer service which other formats can emulate … including department stores.

Retailers Use AI to Improve Online Recommendations for Shoppers

What: Lockdowns have changed travel patterns within cities, including a reshuffle in terms of traffic flows.

Why it is important: Department Stores must be aware of this change to properly fine-tune their strategies into addressing local communities.

The Spring lockdown (and, in some countries, the second lockdown) has generated fantasies about the death of cities and a massive rural exodus for teleworkers able to extract themselves from cities. While this remains to be proven, and for now, is not supported by data, not only this idea overlooks that this is not a possibility for everyone, but also that cities were already thinking about redesigning their role prior to the crisis (see this article).

The lockdowns forced citizens to revise their travel strategies within cities above all by reducing the extent of their commute, as they had to focus on buying groceries and nothing else. This behaviour change, combined with prior studies about how travel patterns can be affected by simple decisions such as favouring smaller streets over major roads, leads to the idea that tomorrow’s cities will respond to the needs of communities by becoming a collection of neighbourhood centres, which, in consequence, will force them to review the travel routes and patterns.

The consequence? Department stores, often located at crossroads on major routes, will need to anticipate this change in order to avoid staying on the side of the road.

Covid-19 Is Not The ‘Death Of The City’ - It’s The Rise Of The Neighborhood Center

What: The Covid-19 pandemic makes customers less able and less willing to spend than before. How should we re-engage with them?

Why it is important: The article offers suggestions on ways to adapt to a new customer-centric reality and importantly poses the question for each company: “What should be my minimally viable strategy to get through these unprecedented times?”

An article from Harvard Business School argues that the current crisis is different from past financial crises: it is health and safety driven. This means that supply and demand exist, but customers do not have access to products and are therefore suffering “deaccession”. Rather than customer coming to companies, companies need to go to customers.

• Five measures can be taken:
• Expand digital (for example, allow customers to pre-order on mobile)
• Reward loyal customers
• Maintain emotional connection through actions
• Recognise customers’ financial constraints
• Use the situation as an opportunity to each out to new customers with new products or services

Your Customers Have Changed. Here's How to engage them again

What: Shutting stores is actually not solving retailers’ underlying problems.

Why it is important: Stores remain key but need to be the right size and in the right location.

Retail chains have announced thousands of closures this year after closing a record number of stores last year. The hope is that by cutting expenses associated with physical locations, the chains can become more profitable and start growing sales again as customer purchases shift to their remaining locations and websites. But that rarely happens, according to new research and interviews with industry executives.

“Closing stores isn’t going to solve a retailer’s underlying problems,” said Stephen Sadove, the former chief executive of Saks Inc. “You have to look at why the stores aren’t performing. What is their competitive advantage and their reason for being?”

Retail Chains Shed Stores, but It Isn’t Good for Business

What: Visa’s forecasts regarding holiday spending worldwide.

Why it is important: They have identified consumption patterns that are reassuring regarding the potential of upcoming holiday season

Visa has identified that, in most of the countries, the post-initial lockdown offline recovery is on its way, with a stronger trend in advanced economies compared to emerging market. Visa identifies this difference through 4 factors:

• Stronger government support at the customer and corporate level
• Lesser dependence on cross border and commodities businesses
• Stronger resilience of SME in developed economies
• Shorter periods of total economic immobilization than in other parts of the world (Latin America)

Having made these observations, Visa remarks that customers are adapting in 3 ways that are worth being noticed by retailers:

• There is a spending shift: outdoor activities being reduced, this translates into a spending on indoor activities (e.g. from restaurants and hotels to groceries and indoor dining)
• Working from home creates new demands in terms of equipment (including leisure)
• A spending bounce is a regular pattern in every economy having suffered a lockdown

Visa anticipates that the momentum (once again, in some countries, as, for instance, France and UK are still impacted by a lockdown) will continue during the holiday season due to these trends.

Visa Report on Global Holiday Spending 

What:

A research article on the impact of free shipping on profitability.

Why is it important for IADS members:

Although free shipping is a major marketing perk to generate additional purchases, it can also seriously degrade profitability.

Journal of Marketing research published in May an analysis carried on a large European retailer promotional campaigns, to evaluate the impact of free shipping operations. During the four weeks promotion period, free shipping impacted online order by an increase of +11%. However, at the same time such increase translated into high-return items being purchased, generating additional costs to the point that on average, the result of the promotion period equated to a loss of -0,7%.

According to the researchers, the rationale in customers’ mind is twofold: free shipping comes as a reward for taking a risk on a product, and in parallel, the feeling of gratitude for having shipping costs eliminated encourages them to make a risky purchase. At the end of the day, free shipping encourages customers to purchase products prone to be returned for any reason.

The academic team behind the research mentions that a way to avoid such problems and impacts on profitability could be to identify the highly-returned products and provide customers with more information on these, so they can make more informed choices.

Is Free Shipping Worth It for Companies?