Articles & Reports
Business case #4: Debenhams and Topshop buyouts
Business case #4: Debenhams and Topshop buyouts
Who doesn’t remember a trip to Oxford Street to check on the competition or just feel the consumption frenzy? Well, the Oxford Street and the high street we used to know will not be the same anymore. Debenhams and Topshop collapses are a brutal reminder of department stores and clothing chains struggle, private equity mismanagement, lack of strategy and then Covid-19 dramatically speeding up the process. Even though the brick-and-mortar shutdowns trend is global and rampant, we might find ourselves at a turning point, especially in the United Kingdom, with Boohoo and Asos buying bits of Debenhams and Topshop.
What has happened to the famous British retailers? What are Boohoo and Asos’s buying strategies aiming at? Are Debenhams and Topshop buyouts specific business cases? Is there a new pattern to be observed?
The high street fiasco
Debenhams and Topshop have been sharing history for a long time. They were both part of the Burton Group in the 1980s and 1990s. Their economic issues go back to before Covid-19 hit the world and the UK last year and they are collapsing at the exact same time.
Founded in 1778, Debenhams was once one of the largest retailers in the UK.
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when a private equity consortium (CVC, Texas Pacific and Merrill Lynch) acquired the department store for GBP 600 million. Three years later, the company returned to the stock market for GBP 1,2 billion. The consortium also took out more than GBP 1 billion from selling the company’s real estate and leasing it back. At that point, Debenhams was loaded with heavy debt and tied to very expensive leases. It was too late to remodel the strategy and there was not enough money left for investments such as the much-needed digital ones. Even recruiting Sergio Bucher coming from Amazon was no help. Reducing the store portfolio could also have been a smart, if not a lifesaving move: but while online shopping was expanding, Debenhams was still opening stores in 2017. Moving forward, it went from bad to worse until 1 December 2020, when Debenhams went into administration.
What about Topshop? When Debenhams exited the Burton Group, the remaining part of it became Arcadia Group and was acquired by Sir Philip Green’s family. Arcadia Group’s brand portfolio (Topshop, Topman, Miss Selfridge, HIIT, Dorothy Perkins, Evans and Burton) used to be led by Topshop for more than a decade, with years of thriving business, top models and billion dividends. At that time, there were still plenty of seats left at the digital table, but
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to force Topshop into the online-shopping era and failed to position the brand as one of its leaders. The Nordstrom deal was also probably too little to allow Topshop to really break into the US market. In the meantime, Topshop product offer diluted as competition became fierce, with both brick-and-mortar retailers and online players. In 2018, Sir Philip was also caught up in abusive sexual behaviour scandals, adding more mistrust towards him. Finally, on 30 November 2020, the group entered administration, just 24 hours before Debenhams did.
Get a move on
Going deeper into Boohoo and Asos’ moves, what do we know so far? They are both wunderkind British-born e-tailers chasing Millennials and Gen Z consumers for more than 15 years. Boohoo was first to acquire companies with Karen Millen and Coast in August 2019, then with Oasis and Warehouse in June 2020. In January 2021,
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for GBP 55 million (USD 75.4 million): website, private label brands and customer data. As of now, the website still attracts 300 million visitors a year. Boohoo also bought four fashion private labels that are appealing to the older generation (Maine, Mantaray, Principles and Faith). Thanks to Debenhams’ strong position on the cosmetics and perfume market, Boohoo is acquiring the 1.4 million Beauty Club members. The deal does not include the 130 brick-and-mortar stores and the 12 000 jobs involved. Premium locations such as Oxford Street, the ones that were fought for not that long ago, are not considered. A few days later, Boohoo acquired Burton, Dorothy Perkins and Wallis, all “mature brands” and the last remains of Arcadia Group. It’s a GBP 25.2 million (USD 34.7 million) deal and, once more, it does not include the 216 stores and the countless jobs involved. While only 10% of Debenhams’ customers are also buying from Boohoo, this demonstrates a strong will to grow outside of its existing 20-something business and to target new segments of the market such as cosmetics or older male and female clientele. The company said it’s a “significant opportunity to grow Boohoo's market share across a broader demographic”.
Asos, on a larger scale than Boohoo, aims to become the world’s number one destination for young fashion addicts thanks to its huge, varied and inclusive product offer. The company’s latest move will certainly serve that mission and will strengthen its strategy. As an existing wholesale partner to the brands,
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and sister brands Topman, Miss Selfridge and HIIT for GBP 295 million (USD 411 million). In 2020, Asos increased its sales by 19%, growing from GBP 2.7 billion to GBP 3.17 billion and could count on 22.2 million active customers. Asos said in a statement: “The Board believes this would represent a compelling opportunity to acquire strong brands that resonate well with its customer base.” An Exane BNP Paribas survey states that 40% of Topshop’s shoppers are also buying from Asos. Like Boohoo, Asos does not include Topshop’s 168 stores and 13 000 retail jobs in the deal.
While Boohoo is moving into markets outside of its current core business, Asos is strengthening its position in order to take the lead in its segment. While these are different strategies, both companies will grow their online footprint in the very near future.
Is it to say that Topshop or Debenhams stores will all permanently disappear? It remains to be seen, but one can guess that these digital brands in the making will find themselves in need of a physical approach to the business at some point (as other e-tailers have done). Whether it’s to have a brand billboard, a service touchpoint, a community hub or offer immersive entertainment to customers, stores should remain a key part of the business. Asos’ CEO Nick Beighton hasn’t ruled out the idea of taking over Topshop’s Oxford Street crown jewel “if it becomes financially attractive and we can find a partner to work with on that, never say never”.
Are we all British?
Unfortunately, Brexit will have a major impact on such decisions. What will be the point of running stores when visitors from abroad might not consider UK as a shopping destination any longer? In fact, there is no more tax refund for foreign tourists from 1 January 2021. In 2019, they spent GBP 3 billion on fashion and luxury goods in the UK. “We are now the only country in Europe offering no VAT rebate, so why would tourists not go to Paris instead?” says Paul Barnes, the CEO of Association of International Retail.
Going further, is there a specific British pattern to be observed? What makes Debenhams and Arcadia bankruptcies and acquisitions specific? While the European economy was declining, it was no secret there were too many department stores and clothing chain options on the British high street. Besides and more importantly, British online consumption was increasing rapidly, thanks to (among others) Asos and Boohoo. According to an Office for National Statistics study, British online monthly consumption went from GBP 854 million in January 2016 to GBP 1.386 billion in January 2020. For the month of November 2020, just when both Debenhams and Arcadia were going into administration, ecommerce hit a record GBP 3.250 billion turnover, accounting for 36% of British total retail sales for the month. In this turmoil, winners are the ecommerce moguls for sure, but what is unprecedented is to witness their breaking and entering the British department stores scene.
While British retail and department stores might suffer more than others in the near future, we assume that the ones that are (and will be) surviving through numerous crises, are the ones adjusting to online demand, streamlining their operations and adapting their store portfolio.
One of the many learnings in Debenhams and Topshop’s disasters is also about differentiation, hence branding. Both -as brands- were once magnets to customers. They were attracting them thanks to the values, difference, uniqueness or zeitgeist they were claiming to carry. Whatever you name it, it has been lost at some point of the journey.
The branding question is more than ever a critical question for department stores. It will infuse all of the challenges ahead whether it’s about enhancing and transforming customer experience, growing digital capabilities or providing products appealing to an ever-evolving shopper.
Credits: IADS (Christine Montard)
Remote working: what can department stores learn from the great RW experiment?
Remote working: what can department stores learn from the great RW experiment?
Companies have been exploring the possibilities of remote working for many years. In fact, remote work has even, in some cases, been implemented then abandoned. Department stores have been forced into remote work by the current pandemic. Or at least some of the department store functions have been. Is this likely to become a permanent feature of our retail businesses? If so, what might it look like in more detail? Remote working has raised major issues for HR departments, as well as for management. If the practice becomes widespread, remote work will also have implications for city life and consumer spending more broadly, and therefore on department store customers.
A breath of clean air blowing through the cities
The silence and clean air of recent lockdowns in major cities have been partly due to a significant number of employees working from home.
With the coming of a (hopefully) viable vaccine, is it likely that remote work will continue? According to McKinsey international surveys of different jobs, some 20% of the workforce could work as effectively from home as from the office, 3 to 5 days a week. This would mean
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. Research from S&P Global Market Intelligence claims that 80% of organisations have implemented or expanded work from home policies and 67% expected these measures to stay in place permanently or for the long term (Candezent, Covid-19 and the retail industry, December 2020).
The effect on urban economics, transport, and consumer spending would be significant. Before Covid, around 5-7% of the workforce worked from home. A shift to 20% would, for example, lower the number of commuters with consequences for transport, petrol/gas sales, auto sales, restaurants and retail. Figures for office vacancy in the US would shift from 16.8% currently to 19.4% in 2021 and 20.2% in 2022. As an example, the sports retailer REI has already decided to sell its new headquarters in Washington before even moving in. It has decided instead
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across Seattle. (Washington Post) Some argue that
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on politics also.
The battle for the office
There are two extreme views of office work:
a) It is a place of pressure, constant interruptions, sometimes harassment, and often low productivity; against which home working is seen as autonomous, happy and in many cases more productive.
b) The office is a place of human contact, creativity, cooperation, empathy and an equaliser. Home working in contrast is an unwelcome and unmanageable merger of public and private, to the detriment of both, added to which it has none of the facilities which make office work efficient.
Some companies have tried and rejected distance working. For example, Yahoo abandoned it in 2013, citing the damage to company culture. IBM abandoned it the same year. Facebook has recently signed a new lease on a big office in Manhattan; and Bloomberg is reportedly offering an extra £ 55 a day to get its workers back to its building in London.
On the other hand, like REI mentioned above, Pinterest has paid out $ 90 m to end a new lease obligation on office space in San Francisco to create "a more distributed workforce". (see The Economist articles:
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and
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).
The classic office is pretty much a relic of the 19th Century, designed for control and surveillance, and dominated by the clock and the time employees sell to their companies. Changes in the office have broadly been limited to a choice between separate offices or open space. And the choice has been largely dictated by economic and cost factors rather than by efficiency or effectiveness criteria. (The same can be said of "hot desking".) Whatever happens, it is clear that the "office" as it exists today is in need of serious reform; and this means more than just ping pong tables, bean bags and unlimited fruit juice. Arguably, even ApplePark and Googleplex, which are used to lure talent to their office worlds, are merely more sophisticated versions of the same thing (see for example, the novel The Circle by Dave Eggers, and the movie). The Vitra CEO illustrated this view at a conference attended by IADS last September, by opposing cost & control-focused companies (where the work environment is not that important) to creativity-focused companies (where she sees an opportunity for her design company to improve the workspace).
The great divide at work
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(mixing both remote work and physical presence)**. It is the case not only that some industries are more suited to remote work than others, or that some companies have decided one way or another for strategic reasons, but that different functions may be able to adopt distant practices more easily than others within the same industry or company.
Amid a great deal of uncertainty and differences of opinion, it remains that within retail, and department stores in particular, there is clearly a face-to-face function involved in selling which has to remain mostly physical (even though an increasing number of sales jobs are being advertised as remote – see <https://www.flexjobs.com/jobs/telecommuting-jobs-at-neiman_marcus>) or Container Store (repeatedly voted one of the "best places to work"). The fact that many surveys consider retail to be one of the least likely industries to shift to remote work is undoubtedly because the figures are skewed by smaller independent retailers. Chains and indeed department stores
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.
Other jobs in retail that require physical presence may include fulfilment, and warehouse tasks. It was suggested by the last IADS Academy, that the finance function in department stores is probably the one that could most easily be carried out at a distance. In fact, according to
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amenable to distance working, retail would include elements at both extremes such as handling data at the remote end of the continuum, and handling goods at the other end where physical presence is necessary. The
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has been highlighted by the current pandemic. And the future of this group
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.
However, such a situation divides a workforce, for example into those who work from home, all the time or perhaps several days a week, and those who make a regular commute to the office or the warehouse or the store. It means, within a retail company, a division between those who commute and those who don’t; those who are under classic physical supervision, those who are monitored digitally and those who have more autonomy. For the present it also means between those who are exposed to the virus and those who are not. At both Walmart and Amazon, warehouse and DC workers
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. This is the kind of challenge faced by HR and management in our companies.
Big challenges for department stores
There are many challenges for companies which shift into the "hybrid-remote" world.
- Hybrid workforce: as illustrated above, some groups of employees will not have the option of working from home. This may create resentments over what may be perceived as a perk for some but not others even if they see their company saving on real estate and office equipment and utilities while remote employees are picking up extra costs for these items themselves. (Several companies including Twitter and Slack are
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after
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.)
- Shift in work culture: there is no doubt that remote working is a very different experience from daily presence in an office. A company or team culture needs to be built digitally as many companies have experienced when hiring and onboarding virtually during a lockdown. Not only does this require a different type of leadership, but it also requires every employee to build a "digital identity", in the same way that employees construct a physical identity in face-to-face contact in an office.
- Management, communication and autonomy: employees are likely no longer to be paid on the basis of the time they spend in the company but on the tasks they accomplish. It is perfectly legitimate to take a break to get lunch for the kids while working from home as long as the job gets done. Performance evaluation and compensation therefore need to take this on board. Also, the whole set of skills which were appropriate for communication in an office may no longer be so at a distance. Informal communication needs to be created anew. Communication through meetings takes place both synchronously and asynchronously, in particular if meetings are conducted online and with distant geographies.
https://www.iads.org/files/pmedia/public/r6487_9_steven_furnell_home_working_and_cyber_security.pdf
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.
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https://www.iads.org/files/pmedia/public/r6483_9_the_great_dispersion_galloway.pdf
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?
Conclusion: get ready for a hybrid work future
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In general, it would appear that once employees are engaged with the idea,
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. However, department stores need to be able to cater for both sides and be prepared to go hybrid. Just as we have had to integrate different channels selling to our customers, we may need to learn how to integrate remote and present workforces to produce a seamless working environment which answers the demands of the future company.
Credits: IADS (Dr Christopher Knee)
Sustainability series #3: The B Corp Certification
Sustainability series #3: The B Corp Certification
What: A third-party certification emphasising transparency and accountability.
Why it is important: Its approach includes all stakeholders, which makes it a "fashionable" certification when advertised to the public.
While the pandemic is increasingly emphasising the idea that shareholder capitalism seems no longer adapted to the challenges companies have to face, there is no consensus yet on what should replace the "profits first" approach. But the growing influence of the triple bottom line (profit, people, and the planet) in corporate governance and the need for companies to take all stakeholders into account has led to the emergence of a new certification, called "B Corporation".
What it is
B Corp is a private third-party certification, assessing corporate companies' social and environmental performances. It requires businesses to “meet high standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose” (the 'B' stands for "beneficial"). B Corporations are verified and certified by B Lab, a global non-profit organisation with offices across the world, in Americas, Europe and Oceania.
B Lab assesses the way companies create value for all stakeholders: employees, local communities, and the environment. The organisation was founded in 2006 by Stanford University alumni and businessmen Jay Coen Gilbert and Bart Houlahan, and former investment banker Andrew Kassoy. In addition to awarding the B Corp Certification, B Lab’s initiatives include administration of the B Impact Assessment tool (the platform used by companies to perform self-assessments), management of B Corp consultants, as well as institutional advocacy.
The first B Corporations were certified in 2007. Since then, more than 100 000 companies have reportedly signed up for the B Corp assessment, with now nearly 3,700 B Certified Corporations in more than 70 countries across 150 different industries and sectors, including brands such as Patagonia, Allbirds, or Brazilian cosmetics Natura.
How it works
Beyond product or service-level certifications, B Corp measures a company’s global social and environmental performance. It assesses the impact of its business model and operations on the company’s workers, community, customers, and environment. Any company can apply to B Corp Certification, through the B Impact Assessment, B Lab’s extensive and thorough application process.
Becoming a Certified B Corp is a demanding process, needing a minimum verified score. The assessment process evaluates and scores business impact on governance, workers, community, and the environment, through 200 questions exploring a wide array of topics such as the standards used within the company, the ownership spread of corporate capital, diversity among employees or energy saving processes. It also aims to evaluate whether the applying company has a formal process to share financial information with employees, if it has ensured that its social or environmental mission will be maintained over time, or if it monitors and records its waste production. It takes 80 points out of 200 to pass the certification, and the results of the impact report of successful companies is made public.
Certification is open to any business older than twelve months, with a 3-step process: online self-assessment with a 10% selection rate, verification by B Corp and payment of a fee of between UDS 500 and 50 000 depending on the company annual revenue. B Corporations must re-certify every three years and they can also drop the certification along the way if the standard requirements no longer suit their strategy or threaten their short-term shareholder profitability.
Why it is important
With the increasing importance for businesses to set up a model that differentiates them from competitors, being identified as a B Corporation is a way for a company to publicly claim special concerns about environmental and social performance over profits. In 2016, the Harvard Business Review pointed out that claiming unconventional corporate identity such as being a B Corp helped firms communicate their values and identity to customers, especially the younger ones. With such a certification, smaller businesses can prove they are authentic advocates of stakeholders’ benefits, next to bigger established operators with more means to show their CSR efforts.
At a structural level, and comparable to the Higg Index scoring, the B Corp certification helps a company gauge its social and environmental performance compared to competitors. It is a convenient tool for a business to identify potential points of improvement and to draw a roadmap to more sustainable business practices. It is also a way to benefit from both the B Lab and other B Corporations’ advice. Unlike with the Higg Index though, B Impact Assessment score is disclosed publicly, and every B Corp’s Impact Report is available to anyone on the B Lab platform (example here with Patagonia). Transparency and accountability have been originally part of the standard, and B Corporations are required to embed stakeholder governance principle in their statutes. The B-certified company must modify its governing bylaws to allow directors to “consider stakeholders besides shareholders in company decision-making”, legally committing itself to maintaining a balance between people, the planet and profit in the decision-making.
Standing for a more conscious approach to business is becoming increasingly good for business which explains a growing interest from companies regarding B Corp certification. The consumer’s fast-growing demand for more positive business practices has been accelerated by this year’s pandemic, and the B Certification potential as a leverage for growth is now reinforcing interest in the standard, especially from the fashion industry. In September, WWD foresaw that “B Corps may become Fashion next A-list”, underlining that, despite just 150 companies so far in the B Corp community worldwide, around 1 000 fashion companies have signed up to the B Impact Assessment since March 2020. In August, Vogue Business confirmed that the pandemic pushed fashion brands to consider B Corp status, “a little-publicised sustainability certification that is growing in importance and impact amid a lack of trust in social and environmental guidelines".
Limits and criticism
Despite the fast-growing community of B Corporations, certified members point out their difficulty to express to customers the complexity of the B Corporation certification. Moreover, there is a lack of visibility and understanding of the label among consumers. According to Vogue Business, the certified brands often have to explain B Corp to consumers for the first time, especially on new markets, implying that the standard’s main benefits might still be more B-to-B than B-to-C.
According to WWD, detractors say B Corp Certification is one among many other sustainability initiatives, with a lack of government oversight and little accountability beyond what is owed to shareholders. They also complain that B Corp standards are not legally secured, that neither the board nor the corporation are liable for damages if a company fails to meet them, and that the changes in the company bylaws remain secret.
Although B Lab is a not-for-profit organisation, The Conversation revealed in 2019 it raised over USD 32 million since 2006, with much of its funding coming from major foundations and organisations such as Prudential, Deloitte LLP, the Rockefeller Foundation, or the U.S. Agency for International Development. In 2017, B Lab received about USD 6 million in certification fees, and USD 5.6 million in donations. The article also pointed out that its board members primarily came from the business sector, with the organisation paying USD 6 million in salaries and compensation. The B Lab lobbying activities in the U.S. towards making benefit governance mandatory most probably has a substantial cost, but financial connexions to the private sector and governmental agencies can raise questions about the organisation’s own agenda, especially when it comes to transforming the global economy.
An ambitious target
While the shift from old-school shareholder capitalism to a more balanced model between purpose and profit is underway, the rise of alternative forms of organisations requires to swiftly re-consider how we do business, to initiate positive changes and make sure customers know the values we stand for.
B Corp is not perfect, but the certification comes with a level of transparency and accountability that is still missing in the Higg Index. It is emerging as a useful toolkit for any business, big or small, from any industry, to continuously improve its sustainability performance and to clearly identify itself as willing to be part of a positive change in business practice. However, the very small number of retailers who are so far listed with B Corp raises questions about its relevance for the retail industry (Allbirds, Patagonia and Eileen Fisher stand out more as exceptions), as well as its heavy bias towards the US.
Also, B Corp Certification’s standards remain notably hard to reach, and every candidate might not be able to qualify. It is certainly becoming one of the third-party certifications to have, but it is a hard one, and with just 10% of the applicants passing the assessment, the label may remain out of reach to most.
Credits: IADS (Renaud Pillon)
Read also:
Making a good job of remote work
Making a good job of remote work
What: some keys from economics professors to navigate through remote working
Why it is important: remote work has surprised us all rapidly in spring 2020 when almost the entire planet was forced to stay home to stop the spread of the virus, forcing both employers and employees to shift from office work to home work overnight.
The article highlights two important concerns to take into account when making the assessment of this experience: fist people were started working remotely suddenly and without being prepared; second a temporary shift to working from home may be very different from a permanent change
The article also looks at the different industry and mentions which ones are most suited for remote working; and does the same exercises with countries.
Making a good job of remote work
Are you ready for Buy now, Pay later?
Are you ready for Buy now, Pay later?
What: A new payment method with increasingly growing important.
Why it is important: BNPL scheme are a strong lever to increase the average basket value.
The penetration of digital capabilities into payment methods, coupled with customers eager to have flexibility in their cash management, explains the rise of Buy Now, Pay Later solutions, according to WWD. The article argues that BNPL schemes allow customers to increase the value of their basket, either by complementing their purchase (with an item that they would not have afforded to buy otherwise) or the will to consume less, but better (assuming that quality is correlated to price tag value). It is also a way for pandemic-hit customers to keep on buying in spite of a temporary difficult situation. Transparency and seamless integration in the buying journey are also cited as key drivers for this solution to grow.
IADS note: interestingly, this type of solution has been developed initially in countries where the economic situation forced retailers to find creative solutions to fuel consumption, such as Mexico, where El Palacio de Hierro already has quite an expertise on this topic.
The Growing Allure of Buy Now, Pay Later
Is Asia the next market for resale?
Is Asia the next market for resale?
What: Asia and Russia are opening to second-hand buying
Why is it important: by 2029, resale might become a bigger business than fast fashion.
According to analytics firm GlobalData, fashion resale is growing 21 times faster than sales of new clothes and will reach USD 36 billion by 2024. If trends continue, resale will be a bigger business than fast fashion by 2029 and it will include Asia for sure.
Aside from Japan and South Korea where vintage market is quite developed, the rest of Asia used to be reluctant to buy second-hand apparel. Until now. In China for instance, where pre-owned items account for just 3% of the luxury market, resale has struggled for cultural reasons (bad luck, hygiene). Newness was also a cherished characteristic among the newly affluent.
However, resale platforms have emerged around the world in recent years and are raising funds to fuel their expansion. Chinese luxury fashion resale platform Plum has brought in around USD 50 million in venture capital. Worth noting, a UBS survey of luxury consumers published last year found 72% of respondents had increased their purchases in the online resale market, up from 31% in 2018.
Indonesian fashion resale platform Tinkerlust, has around 180 000 monthly users and has introduced them to sustainability on its social networks by engaging influencers: an effective strategy in Southeast Asian markets where word of mouth is highly trusted.
In Singapore, The Fashion Pulpit, a store dedicated to fashion item exchanges has opened 3 years ago and is becoming profitable. Its founder’s ambition is for fashion lovers to think about swapping before buying something new. An annual fee equivalent to USD 450 will allow customers to benefit from unlimited exchanges.
A spokesperson for Vestiaire Collective, which has over 10 million members worldwide, said that while its core markets are currently Western Europe, USA, Australia, Hong Kong and Singapore, it’s strongly focused on growing its business in Southeast Asia, Malaysia and Eastern Europe.
While younger Asian customers are embracing second-hand as their values are evolving, local companies will still have to nurture a nascent market and tailor their offering to shoppers.
The Key to Asia’s Resale Market
Singapour, temple du consumérisme, se laisse tenter par les échanges de vêtements
The future of US retail is not in relocations, but in new models
The future of US retail is not in relocations, but in new models
What: Customers are moving out, and retailers are adapting
Why it is important: New experiences and services are the solution, not new stores
In the US, mall operators are following the new consuming and housing habits, and predict a rise of suburban malls, taking precedence over city centres. However, retail specialists such as Robert Burke object that simply relocating or opening new stores will not be the right answer for new consuming trends. Footfall metrics are obsolete in a world where traffic is less important than customer retention. Experience, digitisation, meaning and seamless integration in every-day life will be key for retailers to stand out of the crowd, and avoid being commoditised, a risk taken by big box or strip malls today.
Social experience will be the real currency in the future, and retailers need to adapt to this new reality.
Retail Reorients as Shoppers Migrate
Initiatives to solve fashion’s packaging problems
Initiatives to solve fashion’s packaging problems
What: the latest initiatives to reduce cardboard boxes use
Why it is important: a growing number of companies have ideas about how to reduce packaging waste
According to Pitney Bowes (a shipping services company), global parcel volumes topped 100 billion in 2019 for the first time and surged in 2020.
A growing number of start-ups and brands want to take the cardboard box out of the equation entirely. Here are the latest initiatives that are trying to wean consumers off single-use packaging.
- Olive (shopolive.com)
The company was founded by Nate Faust, who previously co-founded Jet.com in 2014 before it was sold to Walmart in 2016.
The platform launching 17 February 2021, will deliver orders from different brands (such as Adidas, Anthropologie, Everlane, Ray-Ban, Goop, Free People, Hugo Boss, Sam Edelman, Stuart Weitzman, ThirdLove, Veronica Beard, Ugg Australia and Vince) in soft and sturdy reusable crates. Customers can return them by leaving outside their front door for the postal service to collect. The totes arrive as weekly shipments (twice weekly in New York), allowing Olive to consolidate orders from multiple retailers at its warehouses.
Olive hasn’t actually eliminated cardboard boxes from its shipping process yet. When a customer places an order, the brand first ships the item to the start-up’s warehouses in the same packaging that would have gone to homes, and only then are products put into their totes. Faust said as volumes rise with individual retailers, in the next three or four months, it will become cost-effective for Olive to start shipping totes directly to brands, meeting the start-up’s goal of eliminating single-use packaging.
- Asket (Swedish menswear brand)
The brand spent a year redesigning nearly every aspect of its packaging, from the thickness of its cardboard to the size of its return instruction cards. It swapped out plastic garment bags for a greener alternative even though it would slow down garment handling in factories and warehouses.
- Repack (Finnish company)
The company offers customers a choice: receive their items in the usual disposable box, or pay a few dollars extra to swap in a mailer designed to be shipped back for a few dozen more trips through the post. The mailers are plastic, as are Olive’s, but their boosters say by using them again and again they save far more packaging from the landfill than they create.
- Boox
The brand of e-book readers is testing various incentives to convince recipients of its boxes to return them, including discounts on subsequent purchases and donations to local schools or charities.
- Amazon
The company has repeatedly tightened packaging rules for sellers on its marketplace to consolidate items in fewer, smaller boxes, and has even installed machines in some warehouses that create form-fitting packaging for items as they roll down the conveyor belt. Whether the goal was to reduce shipping costs, save the planet, or both, the end result, according to the company, was to use the equivalent of 1.5 billion fewer boxes since 2015.
Consumers have spent two decades stuffing the packaging from online orders in the trash. Convincing them to think about boxes, paper and plastic bags is a struggle and there’s a price to pay: so far additional costs or slower deliveries.
The Start-Ups That Want to Solve Fashion’s Packaging Problem _ BoF Professional, News & Analysis
Olive, New E-commerce Platform, Consolidates Packages Into Weekly Delivery
Suppliers relations and human organisation
Suppliers relations and human organisation
What: A White Paper on suppliers’ data management and its consequences on retailers organisation
Why it is important: PIM and OMS are essential to manage the post-pandemic world where omnichannel becomes the norm. In order to gain efficiency, these new systems need to be backed by the right human organisation.
Data is the new oil, but it is not limited to customers’ data, on the contrary. Suppliers are also generating a significant portion of data that is now essential to retailers, to optimise their selling process. This means that technical adaptation is required: Excel spreadsheets are no longer the norm when department stores need to deal with 30% more products available on the market every year, including 20% new product attributes, due to 16% new brands arriving with their own vision and differentiating point. Accenture and Alkemiks (who attended the IADS Digital Retail meeting in 2019) review what is at stake, what are the new tools needed, but also the new human structure (page 35 and beyond). From roles to processes and KPIs, the human structuration is key to make sure that implementing PIMs or OMSs will not only help sell better, but more efficiently in terms of costs.
White paper: SUPPLIER RELATIONS 3.0 - TRANSFORMING YOUR BUSINESS TO MEET NEW CUSTOMER NEEDS
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How the fashion supply chain is being forced to change
How the fashion supply chain is being forced to change
What: Covid has played havoc with established fashion supply chains.
Why it is important: The supply chain landscape is shifting both geographically and in terms of adapting to an agile, digital, demand-driven model.
With the uncertainty and disruption in retail during the last year of covid pandemic, retailers have been rushing to adjust their businesses with dramatic consequences for the supply chains which sustain retail. By last July, about 400 manufacturing firms representing 150 000 jobs had suspended operations in Cambodia. In Bangladesh, the world’s second biggest garment exporter after China, 348 factories closed between March and April 2020, according to its manufacturers and exporters’ association. A recent survey of suppliers found that orders for the current season were down 30 percent compared to last year. On top of that, the rise of fast, online-only fashion companies is shifting the manufacturers’ business model, with a premium on agile, digital production. As the article puts it, “we are changing from a supply chain to a demand chain”.
In fashion's global supply chain, a ruthless race to the bottom
Gartner on top priorities for IT in 2021
Gartner on top priorities for IT in 2021
What: IT is becoming ever more central to retail operations.
Why it is important: IT appears to be shifting from a service to more operational role with responsibility for results.
Gartner has published a report on the top priorities for IT in 2021. One of the main findings is that IT in businesses will be experiencing a more urgent imperative to generate more business value and approaches to information. This will be the case at all levels in IT roles. Furthermore, as business partners get used to technologies, IT leaders will need more sophistication in their partnerships and collaboration. Specific issues also arise with the covid pandemic and its consequences: one is the crucial role played by the function in allowing business continuity; another, on the other hand, is the increased risk to security with working from home which generally falls within the scope of IT. The increased use of data in business will mean, according to the report, that “by 2024, 25% of … CIOs will be held accountable for digital business operational results, effectively becoming ‘COO by proxy’”.
See full report by Gartner below:
Top Priorities for IT: Leadership Vision for 2021
Dealing with e-commerce returns
Dealing with e-commerce returns
What: Dealing with e-commerce returns has become critical for retailers
Why it is important: the fastest-growing channel, e-commerce, is also the less profitable per se (for now) and its profitability is even further hampered by returns. If not properly treated, this topic could be very well the cause of more casualties on the retail scene.
The NRF reports that in the US, USD 428 billion in merchandise at retail value were returned in 2020, an increase of +23% vs. 2019. This increase is logically explained by the pandemic, stay at home instructions, an extension of maximum delay to return products from 30 to 90 days and forced at-home-try-on attitude from customers, unable to go to stores. In addition to impacting P&L, it also leads to overuse of space: CBRE estimates that the additional warehouse space needed to accommodate the returns in the next 5 years will equate to 40 million square metres.
This is why SDC reminds a few simple rules about the way to deal with this potentially explosive situation:
- Integrate the return process into a true omnichannel approach, at the structural core of the retailer’s organisation, and allow customers to return goods to many different points (Note: this is exactly this year’s IADS Academy topic).
- Clearly explain to the customer the consequences of returning products in terms of environmental impact, to share the responsibility and the efforts,
- Consider alternative ways to sell returned products, such as second-hand channels (see for instance Galeries Lafayette’s partnership with Vestiaire Collective)
The Way Forward with E-Commerce Returns
Work from anywhere
Work from anywhere
What: a reflexion by Harvard Business Review on the new working trends, as remote work will allow for us to potentially work from anywhere in the world
Why it is important: remote working has been forced by the pandemic and is here to stay beyond the Covid-19 crisis. Employers and employees should learn how to make the most out of it.
The article looks at the possibilities and benefits brought by remote working such as reducing or eliminating real estate costs, or even hiring and using talent globally. But it also looks at concerns which include how to: communicate across time zones, share knowledge that isn’t yet codified, socialize virtually and prevent professional isolation, protect client data, and avoid slacking.
Insights of the Brexit impact on European travel
Insights of the Brexit impact on European travel
What: Visa examines the consequences of Brexit on intra-European travel once the Covid-19 restrictions are lifted.
Why it is important: While Europe is a privileged destination for UK citizens, the centrality of Heathrow Airport might also impact continental Europe as a destination for non-EU tourists.
Visa has started to anticipate the consequences of Brexit on European tourism. While the new regulations will obviously impact English tourists (9 out of 10 destinations for UK travellers are in Europe), it will also have an economic consequence as they represented in 2016 a total value of EUR 37 billion in spending (for some countries, this is far from being a detail: in Spain, English tourists represent 23% of total entrants).
However, in addition to that, the new frictions at the Anglo-European border might also have a consequence on international tourism: as Heathrow Airport was the most internationally connected hub for the last 3 years, the difficulties of entering Continental Europe from England (no fast track, need of documents…) might lead to a loss of appeal of multi-country visits to Europe (which for Asian tourists, in particular, is important).
Global Economic Insights Jan 2021
Retail has a place on the high street of the future
Retail has a place on the high street of the future
What: Fixing business rates is key to helping the industry survive
Why it is important: Hundreds of small town centres are at risk
In truth, there was overcapacity on the high street even before Covid-19 accelerated the shift to online shopping. Many retailers had failed to keep up with the changing shopping habits of young consumers and were unable to compete with innovative online-only rivals.
Irrespective of the reasons behind particular company failures, there are wider repercussions for Britain’s towns and high streets that cannot be ignored. Analysis by the Centre for Retail Research estimates that more than 15 700 shops closed last year, resulting in some 176 700 retail job losses. At stake is not just the future of international fashion destinations such as London’s Oxford Street, home to recently collapsed Topshop’s flagship store and a vast Debenhams outlet. Such shops acted as high-street anchors across the country, attracting local trade and footfall. Their demise puts the future of hundreds of small town centres at risk.
UK government must play its part in slowing the retail collapse to give time to a post-Covid transition to the high-street of the future. There is no reason why non-food, bricks-and-mortar retail should die. One area where the government should act immediately is to reform the business rates system (property tax). The 12-month business rates holiday, introduced in March last year after the pandemic first struck, needs to be extended further.
Retail has a place on the high street of the future
Mint FW21 Men’s Fashion report
Mint FW21 Men’s Fashion report
What: the Mint report for the Men’s FW21 season
Why it is important: Discover Mint’s analysis of trends seen on the (often digital) runway for this unusual FW21 season
Mint Group, an agency representing the likes of Saks Fifth Avenue, Nordstrom, David Jones or the Real Real, and partner of IADS, shares its FW21 report for Men’s Fashion.
8 DTC trends to watch in 2021
8 DTC trends to watch in 2021
What: Digitally native brands will continue to adapt and evolve in 2021
Why it is important: even though online retail accelerated with the Covid-19 crisis, making DTC brands uniquely positioned to weather the disruptions in retail, they will continue to evolve and reshape for the long-term
Retail Dive looks at the DTC space and decipher height trends that will shape this business model in 2021. Trends include:
- More traditional retailers enter the DTC arena: With less foot traffic in physical stores, retailers took inspiration from DTC brands on how to approach tech-savvy consumers.
- Digitally native brands see the value in physical retail: over the years, DNVBs realised that in order to scale their businesses and succeed in the industry, they need to enter brick and mortar in some capacity.
- DTC brands extend their category reach: As top brands lose market share in certain categories, DTC companies have the opportunity to expand their product offerings (to respond to the demand for casual and self-care products for example)
- Tech-savvy consumers will be drawn to DTC brands: While consumers spend less time in malls and more on their mobile, DTC brands have opportunities to appeal to a new demographic and retain the ones they already have.
- Securing funding could be easier, at least for some: The pandemic also impacted how investors view the retail space and how they think about DTCs. E-commerce is projected to post a 32.4% increase compared with 2020. Therefore DTC brands and tech companies are well-positioned to receive funding from investors
- Exit strategies get more complex: Once brands grow, they begin eyeing their next move. Some brands have pursued acquisitions by larger retailers while other brands have chosen initial public offerings. A new popular option is going public by way of special purpose acquisition companies (SPACs).
- Leadership turns to retail vets as founders step back: As popular DTC brands scale much larger than their startup days, founders have taken a step back, and retail veterans have moved into C-suite roles. The shift of founders away from the day-to-day of their brands isn't likely to end, as successful DTC brands continue to expand and recruit leadership that can help them reach the next growth stage.
- Brands will continue to struggle with profitability: Media costs came down during the pandemic, but the solution is temporary and brands need to continue to look for ways to mitigate the high costs of acquiring customers online. In order to eventually turn a profit, brands will need to continue finding solutions to attract consumers and bring marketing costs down.
Related items:
- How DTC brands will approach physical retail in 2021
- One big way Direct-to-Consumer retail is changing
The future of city centres
The future of city centres
What: a reflexion on the future of city centres
Why it is important: Department stores have an opportunity, and a duty, to rethink their business model, based on traffic flow, in favour of more experiences and interactions
Covid-19 has and will continue to redefine urban dynamics: people, who used to come to cities for economic and social opportunities, will probably tend to gather in city centres for pleasure of social interactions. This evolution, due to the digitisation of every day life and the successive lockdown waves, goes hand in hand with an older reflexion led by mayors on how to create the city centre of the future (see our articles on 15-minute city, the impact of new flows on urban organisation, and the reflection on capital cities vs. regional cities). This impacts the future of business: when the London mayor thinks about making Oxford street fully pedestrian, and in Paris to turn the Champs Elysées into a giant garden, this means that retailers have also to adapt.
Moreover, older traffic patterns are disrupted:
- Tourism is not expected to come to 2019 level before 2024
- There will be fewer employees and workers coming to the city on a daily basis (more and more will opt, if possible, for a balance between work from home and office gathering).
As a consequence, multi-format thinking (such as what Galeries Lafayette has done in Le Marais area) becomes key.
What will city centres look like post-Covid
Related items:
- Welcome to the 15-minute city
- The pandemic resets the destiny of cities
- Where are the opportunities? Capital cities or regions
AI and dynamic pricing
AI and dynamic pricing
What: A report exploring what is at stake when it comes to pricing managed by AI.
Why it is important: Dynamic pricing is key to leverage profitability in an ever competitive market, and all IADS members experiences lowered profitability in 2020 due to promotions and, in some cases, price wars. Using AI in that field is an example of digitalisation applied to the back-office, helping earning additional points of productivity. Two interesting business cases illustrate that point.
Retail Week produced a report in December 2020 based on its key learnings from UK customers: 42% think that their income was reduced during the Covid-19 peak crisis, and 27% remain concerned that it will be still the case in one year. No wonder that for 46% of them, price and free delivery were key elements in their purchase decision for Christmas, and that with the expansion of digital, they will use even more Internet to compare prices, at the expense of physically visiting stores (44% plan to visit always or often a store after the pandemic, vs. 77% before).
Perception of unfair pricing also impact the willingness to stay loyal to a store. Interestingly, most of the UK retailers remain laggards when it comes to automation in that field: 40% manually input prices, 43% manually operate promotions and 57% manually operate markdowns. AI allows to connect the dots between demand in real-time, cost of acquisition and market situation. There are 2 examples in the study:
- Albert Heijn in the Netherland, which shows on electronic tags original price, real-time calculation of discounted price and the date of expiry of the offer (especially adapted to fresh goods taking into account their expiry date),
- Carrefour Brasil, which is using AI to become a pricing leader instead of following the market, by automating its pricing structure in 10 stores across 10 to 15 categories during 6 months, leading to gains in margins and profits at same level of sales.
Tourism in 2021: significant changes
Tourism in 2021: significant changes
What: Airbnb’s perspectives on the US market for 2021
Why it is important: no more intercontinental tourism, but regional tourism will surge.
Airbnb carried a study on US travellers’ intentions for 2021. The result: regional tourism will increase, all the more that customers are eager to be allowed to travel again: only 21% of American tourists plan to travel overseas, the rest look at domestic or local destinations. 55% report to be interested in taking a trip within driving distance. In parallel, potential tourists for 2021 are younger (55% are under 50 years old) and wealthier (3/4 of customers earning more than USD 100,000 plan to travel).
The consequences:
- Mass seasonal tourism is going to be less important than what it used to be, and the variety of “popular” destination will be wider: more hits, less blockbusters,
- The travellers’ flow will be spread more evenly during the year, as local or domestic trips imply a greater flexibility (all the more in the work from home context).
This, in addition to the fact that business travel is unlikely to return to its pre-pandemic levels, leads Airbnb into focusing on regional holidays and experiences.
Airbnb Sees Regional Travel Boom in 2021, Less ‘Mass Travel’
DTC brands, an opportunity for department stores
DTC brands, an opportunity for department stores
What: BOF lists pieces of advice to DTC brands to properly address their wholesale strategy in 2021.
Why it is important: Department stores tick all the boxes to be attractive to DTC brands and renew their portfolio, contributing to increasing their level of attractivity toward customers.
According to BOF, DTC brands should aim to directly operate 50 to 80% of their business, in order to maximize their margin, by using the proper online marketing tools. However, getting there is expensive, which makes wholesale partnerships more attractive than ever.
BOF reminds that, although online-only retailers have replaced department stores in brands’ minds, the latter still has an important part to play, due to their stores’ network, sales associates’ quality, customers base and relationship. The more outstanding experiences department stores will develop, the more qualitative their clientele will remain, and therefore, the more attractive they will be too hot DTC brands.
DTC vs Wholesale Striking the Right Balance
GDR 77th Global Innovation Report
GDR 77th Global Innovation Report
What: IADS’ Partner GDR quarterly report on innovation in retail.
Why it is important: a series of retail examples gathered by GDR from all segments and categories.
GDR identifies 4 trends this quarter: Carbon as a currency, Re-store, Driven by digital, and The wellness stretch.
Carbon as a currency: a new carbon-neutral positioning as a key differentiator for brands and retailers. How so?
- By informing / incentivizing customers (via providing the carbon impact on receipts, pricing the goods according to their CO2 emissions, offering to customers a subscription to an eco-friendly initiative, or even buying and reselling products when customers are finished with them).
- By designing products differently (diamonds made from atmospheric CO2, waterless shower gel sold in a one year’s supply packaging, traceable jeans),
- By rethinking the brand experience (allowing customers to pay for parking with their extra electricity, selling goods in bulk, proposing circular experiences).
Re-store is a GDR portmanteau word related to all new initiatives designed to reinvent retail:
- Think of the store as a hub thought for customers (a studio for their live streaming, a place for them to exchange and share advice),
- Make the store available 24/7 from everywhere (virtual stores and experiences, allowing BOPI), or increase the store experience via VR consultants and help,
- Customize the experience (made to measure cosmetics and fragrances, try and decide service in e-commerce),
- Be at the heart of the local community, for a reason (ideology, social approach, recycling capabilities).
The examples collected by GDR in digital all have one aim, increase the time spent online and offline:
- Shoppable virtual events, shoppable emails,
- Virtual games collaborations, virtual travel experiences,
- Virtual products for social media (digital only make up),
- Delivery of trending products on social media (dishes from Tiktok).
The Wellness Stretch takes its name from the new segments this category is encompassing, including new products and services:
- Mental workout, meditation, anti stress support,
- Mindfulness applied to everyday products (toothbrush, Lego, toilets),
- Aromatherapy household,
- Products thought to improve your health (bras detecting breast cancer, mood boosting sunglasses.
Retail Review #2: sustainability & community
Retail Review #2: sustainability & community
Keeping markets under a close watch, IADS has gathered innovative concepts related to key topics such as sustainability, local retail and community, and multichannel experiences.
Discover the selection of our second retail review below:
