French management school HEC organized on 1st of October an exclusive talk with Ian Rogers, Head of Digital for LVMH. IADS reports the highlights of this exclusive conversation for which no recording was allowed.

What

LVMH CDO answering HEC alumni questions, brining key insights on 2 topics:

• How LVMH addressed its digital transformation (at a moment when some of our members are doing the same)
• Evaluate how IADS members can gear their relationship with the luxury group in the future

Why is it important for IADS members

• Going digital is not a technological step but shall be considered as a deeply transformational organization change, led by the CEO to address his/her vision. The right organization does not have a digital leader, the right organization is digital, with appropriate KPIs and incentives redesigned and applied to the whole organization. Create a digital silo to suppress previously existing silos is a dangerous temptation: what prevails is the CEO vision on what should be the customer experience. To note: time is crucial, as there is a premium to whom starts the earliest, as this allows to make mistakes and test many options.
• Innovation shall address a limited number of topics. At LVMH there are 4 pillars:

o    Omnichannel commerce transformation

o    Clienteling and remote selling (including data ownership)

o    Data and artificial intelligence in pricing, collectioning and store merchandising

o    Chinese ecosystem

• In the future, LVMH plans to reap all the margin possible by establishing a direct relationship with customers, and will only keep relationships with wholesalers enjoying 2 competitive advantages: a faithful and dedicated customer base, and a true added value in terms of customer experience. This is where at IADS we believe Department Stores have a winning card in their sleeves.

Full IADS report - Digitalization according to LVMH and key learnings

PRINTABLE VERSION HERE

Self-proclaimed "the most interesting store in the world", Showfields opened a 1300sqm, four-storey space in New York City’s NoHo neighborhood in December 2018. In this new concept, a mix of curated DNVB and brick and mortar brands are housed in a most theatrical environment. It is a place for online brands, such as Nuria (beauty), Wet (swimsuit) and Paneros (clothing) to get a glimpse at physical retail and get a new customer baseline.

The store allows for offline and online worlds to collide as customers can both touch the products and use touchscreens to explore additional items or make purchases.

What makes Showfields different from other retailers, which function somehow similarly: curated brands and rotating assortments, like Joyce (HK), Galeries Lafayette Champs-Elysées (Paris) or Neighborhood Goods, Dover Street Market (US) and SKP-S (Beijing)? Or like b8ta (US), which also houses Direct-To-Consumer brands for their first dive in physical retail? The answer: theatre.

It is immersive

At Showfields brands get to showcase their products in a totally immersive décor. Where multi-brand stores install a brand next to the other, Showfields goes deeper as each brand corner features an environment relevant to its items. Think bathtub and mirrors for beauty products, and sofas and beds for quilts and pillows. Brands configure their space online via a six-step process; it will then be fitted out and staffed by Showfields. All the tech comes as part of the deal, including mobile POS and data sensors which provide real-time data to each brand inside the store, using heat mapping to show what products customers are touching, picking up and lingering in front of. Brands can rent a space on a monthly basis, with a four-month commitment minimum. Note that Showfields does not make money out of product sales, only on renting spaces.

But Showfields is not alone on that segment since other retailers worldwide also offer immersive experience to the customers. Korean eyewear brand Gentle Monster is very well known for its physical locations which vary a lot from one place to another. Each time it offers an immersive experience in a meticulous décor inspired by the environment and the city the store it is located in.

American designer Blaine Holvorson does the same with his Madeworn brand. His Los Angeles showroom, accessible upon appointment, is divided into three spaces staging three decors, three stories.

More recently, winter clothes brand Canada Goose opened The Journey: a Canada Goose experience in Toronto. The inventory-free concept store pushes the boundaries of e-commerce and retail. The top feature is the Cold Room, where products can be tested in temperature set at -12 degrees Celsius, while being surrounded by floor-to-ceiling Arctic landscapes and real snow. However, you cannot purchase merchandise in the store, you will have to order them online (via instore screens).

Some brands, with a specific immersive décor, manage to recreate the experience offered in their standalone store in a department store corner -for instance French cosmetics brand L’Officine Buly with its apothecary counters or American label Urban Outfitters with brass pipes and furniture- but not all brands’ corners in department stores are immersive, contrary to House of Showfields as the full store offers complete immersion.

Last summer the retailer launched House of Showfields, a 30-minute sensory theater production featuring six brands and designed for customers to touch, smell and taste the products. The experience, and the whole store for that matter, is not staffed with salespeople, but with actual actors who are trained to tell the story of the brands. Customers get caught in a brand’s story, without feeling pushed to buy. What’s more theatrical than that? Yet, it is reported that L’Officine Buly also staff its stores with actors instead of salesperson, to give even more storytelling to the brand.

The opening of the House of Showfields show draw a 33% gross in traffic, and a 50% sales increase (as of last fall).

It is “instagrammable”

Another asset that comes with having an immersive space is that, in a time where social media account for a big part of people’s exchange, it makes the place highly instagrammable. Influencers are the new fashion models and brands ambassadors, and the new generation of customers Gen Z are fond of short video media Tik Tok, pictures platform Instagram and other social networks.

Once again Showfields is not the only retailer to offer unforgettable pictures for your social accounts. Beauty brand Glossier, who’s brand identity already shows well in its product recognisable packaging (imitating paint tubes or coloured in a pink blush), showcases its items in clean, immersive decors. For example the Los Angeles store imagines a drive through the desert and even replicates Arizona’s Antelope Canyon in a separate room.

Museum of Ice Cream (MOIC) started as a colourful, pop-up museum playground highly instagrammable. It even had an actual pool of ice cream sprinkle, where Beyonce and Jay-Z took a dive. The experience eventually turned into a brand and opened an ice cream store in NYC, The Pint Shop,  just as much as intagrammable as their itinerant museum.

It is exclusive

The House of Showfields could relate to the notion of ‘incubators’ has it bets on lesser-known DNVBs that need physical exposure to gain customers. In the light of the recent demonstrations across the U.S.A., the store has dedicated an entire section to Black-owned business brands. Adding to all that the fact that items are showcased within a time-limited frame, it makes them all new each time you come back, exclusive, and desirable.

In that, Neighborhood Goods is similar has its offer regularly rotates, and varies from one store to another, reinforcing the sentiment of exclusivity.

Many retailers have understood the importance of exclusivity and already take advantage of that, especially department stores which host pop-ups and collaborations, with items made exclusively for the store event; through exhibitions at Le Bon Marché (ex: Los Angeles Rive Gauche, Let’s Go Logo) or collab at Selfridges (ex: The Co.Lab in partnership with Highsnobiety)

The difference with Showfields is that it is an exclusive show all year-round. Department stores with all-year dedicated pop-up spaces can offer a similar level of exclusivity.

It is a gallery

Imagined kind of like a museum, customers wander from one brand to another and discover a new universe each time. At the end of the journey, they step into The Lab, which is like the gift shop at the exit of an exhibition or a tourist attraction. All items previously experienced in the store can be purchased in The Lab. We can make a parallel with furniture giant Ikea, which also offers an immersive experience where you wonder inside the store, passing from rooms to rooms to finally pick up items at the end of the visit. A formula that seems to be working as the turnover of the group has only been increasing since 2004 (from EUR 12,9bn in 2004 to EUR 38,8bn in 2018 according to Statista).

In the end, Showfields does not force any purchase on customers, but offers actual experience to have people coming back and eventually buying items. Bringing people inside through events in hope to turn their visit into a shopping trip. Isn’t it what Selfridges is doing with its instore movie theatre? Or what IADS member Galeries Lafayette did with a glass walkway in its Haussmann flagship to attract instagrammers? Or any other department stores with dining experiences or beauty services for that matter? Not to mention the Dubai’s Mall of the Emirates that offers access to a ski slope inside a mall.

So what’s more to Showfields?

As demonstrated above, Showfields is not completely revolutionising retail as we know it. Other brands and other retailers offer similar experiences and features in their locations. The retailer features a large assortment to reach out to a variety of customer range: from dog food to beauty products and digital items, it is a store for anybody.

But the real strength of House of Showfields can be that it is all at the same time: it is a store, it is a gallery, it is an experience, it is instagrammable, it is digitally enabled. Plus, there is a slide to go down from the third to second floor.

We can compare the attraction of Showfields to the one of Story when it first opened in NYC. But now that the concept has been bought by Macy’s and that founder Rachel Shechtman has left, it has somehow lost its appeal. Will Showfields experience the same decline and what will be left of it once/if the novelty has passed?

Showfields is funded by several ventures, and, as of this date, turnover information has not been released.

How about experiential retail in the Covid-19 era

How a store, that is all about the immersive physical experience, deals with the Covid-19 pandemic when people are reluctant to spend much time outside of their safe environment? As a response to the health measures, House of Showfields launched an App called ‘Magic Wand’. While inside the store, customers use their phone to tap or scan a display object, and the app will provide additional information on it. The app also allows customers to get prices, add items to a digital cart, and check out without interacting with a store associate. They can pick up a bag full of sanitized products on their way out.

Originally not a response to any sanitary crisis, but a desire to offer customers the experience they choose, Nike has a similar option in its latest House of Innovation in Paris. While instore, you can order an item through the Nike app and have it delivered directly to you in the store. Try it and buy it at one of the self-checkout stations, without interacting with any sales associates if that is your wish.

Inside Showfields, additionally to the basic safety measures such as mandatory masks, social distancing and hand-sanitising stations, the retailer has decided to focus on brands that guarantee a safe experience, and brands such as Play Doh (kids modelling clay) were removed.

Showfields also offer curated virtual tours of their store, so customers can discover the products and enjoy the experience from the safety of their home.

However, be sure that the instore guided tours bring more than just an introduction on brands and description of products. They are led by actors portraying diverse characters such as scientists, artists, creators, and explorers, to give an even more narrative arc to the store visit and the brands featured.

Moreover, the store gives the possibility to book a guided tour with CEO Tal Zvi Nathanel himself. Has this ever been seen before?

Conclusion

Can department store become immersive experiential space? What can they learn from Showfields? And is experiential physical retail still relevant after a pandemic?

As to the question if department stores can offer immersive experience the answer is yes. Best example is IADS member SKP latest store in Beijing: SKP-S. Designed in partnership with Gentle Monster, the store offers an immersive experience on each of its floors through a purposefully ever-changing landscape. The entire experience is based on the theme Digital-Analog Future and the assumption that, in the distant future, technical leaps will allow the boundaries between human and digital to blur -think massive artificial intelligence. The concept of this new store differs completely from SKP flagship store, which resembles more the ‘traditional’ department store/mall model. The SKP-S store is even is considered a benchmark in forward-thinking retail by Retail Leisure News.

SKP-S follows the same theme and narrative through the entire store, while at Showfields one brand equals one story.

As to the relevancy, one can wonder if physical experience is still a viable option after the pandemic that left people afraid to go out, interact with one another and afraid to touch anything. According to Essential Retail, experience will be digital after Covid-19, even instore. But will it be enough? Is this the end of what was in pass to become the new way of making retail? Showfields manages to keep its experience intact through the crisis, but will it last?

Finally, what can department stores learn from Showfields that they do not already know? Bring experience not necessarily link with the idea of purchasing? Done at Selfridges. Offer an immersive décor? Done at SKP-S. At the end of the day department stores already have the answers and know what they need to do to gain customers. It is up to them to find the right formula that will suit their business best.

Credits: IADS (Louise Ancora)

PRINATBLE VERSION HERE

INTRODUCTION: what is remarkable?

Covid-19 pandemic and the consequent lockdown strongly affected SM Group’s ability to operate both online and offline, due to the harsh regulations applied. This led the group into setting up a new way of selling and distributing its products, in a record time (deployment to 63 stores in 1 month), with significant & quantifiable results:

• Sales: average of 3,2K daily orders after lockdown (from scratch)
• Marketing: increase the reach by 31% while maintaining the CPC at an acceptable level

The “Call to Deliver” setup uses the existing instore resources (staff, assortment) to address the needs of the local clientele with a low-tech and simple procedure, while remaining in line with regulations and safety instructions.

Its success made SM Group identify a new channel opportunity, and this temporary solution has now become permanent, as it ideally addresses local communities’ needs & tightens ties between SM and those communities.

Benefits of the Call to Deliver setup

• Use of existing relationship with local customers to provide them with what they need, while reassuring about SM’s commitment and legal compliance
• From order processing to fulfilment, a low-tech setup, easy to implement, fast to deploy
• An internal cohesion tool: all teams were involved and contributed to find solutions
• Can be easily transposed to other IADS members setups

Key learnings

• In a crisis, grouping together to design a collective solution with clear accountability lines can be effective and quick
• The implication and cooperation of all teams from the beginning brings a pragmatic and down-to-earth implementation
• Low-tech and simplified procedures sometimes exceed more sophisticated operations
• By putting the customer experience at the centre a new retail channel was created and allowed to reach a new clientele

A harsh Covid-19 context

100 million Filipinos went into lockdown on 16th March 2020. Planned initially for a month, the lockdown ended up being one of the longest of the world, until June, and one of the harshest: total closure of the country and impossibility to travel, restriction on mass gatherings of more than 10 people, total closure of schools and “non-essential” businesses, “stay at home” orders and mandatory wearing of face mask outside, curfew from 8pm to 5am in Manila region (30% of the population, 27 million people), and other strict measures.

The release from lockdown end of June saw a rise in cases and led the Philippines to revert to a second lockdown early August, with a 24-hour notice to citizens and businesses. However, due to the impact on the economy and the lack of publicly funded social support, the lockdown measures were softened mid-August, sometimes creatively: at the time of writing, the Manila region is going through a rolling lockdown: one week open, one week closed.

As of 7th September, the Philippines is the first country most impacted in South East with close to 239.000 cases and 3.890 deaths, making it the 21St most impacted country in the world. Economically speaking, Q2 saw a GDP contraction of -16,5%, household consumption -15,5%, unemployment +17,7% and -6,4% revenue from the Filipino diaspora abroad. Overall, the country GDP is expected to contract by -7% and is now in recession, the first in 30 years.

IADS Member presentation: THE SM STORE

The retail arm of SM Investment Corporation is the largest and most diversified retail group in the Philippines: food (SM Market, Waltermart and Alfamart) and non-food (SM Stores and specialty stores). Its 2019 turnover was 6,3bn euros (+9% vs. LY), with a net income of 217m euros (+10% vs. LY).

Part of the SM Retail division, the IADS member, the SM STORE, has 64 stores nationwide, representing overall more than 807.000 sqm. of retail space, operated with 23,479 collaborators. Pre-crisis, SM has operated e-commerce since 2018:  ShopSM, linked to the group’s loyalty programs and including a click & collect concept (buy online, pick up instore).

Reasons for implementing a new distribution channel

The impact of lockdown was immediate: deemed as “non-essential”, all 64 stores had to close from 16th of March till 18th of May. E-commerce operations were also stalled, with staff having difficulties to reach the fulfilment centre, and logistical difficulties abound.

This is why SM Store developed a new retail channel, adjacent to the e-commerce operations: “Call to deliver”. Simply put, use the existing instore resources (staff, assortment) to address the needs of the local clientele with a low-tech and simple procedure, while remaining in line with regulations and safety instructions.

Call to deliver program – the beginnings

The idea

No hard selling was allowed to anyone: the law about “non-essential retail” had to be respected. To comply with regulations while trying to find a business solution, senior store management contacted customers, either via email or social media, to “test the water”: gather some news & give comforting messages. Templates were circulated to make sure key messages from SM Stores HQ were carried, with a latitude given in the tone, allowing managers to express themselves in a natural manner.

Quickly, customers came back with questions about purchasing goods & SM identified opportunities:

• Kids (cater for their needs and entertain them)
• Working from home adults
• Keeping healthy and in good shape (from home)

E-commerce being itself crippled by the lockdown, it seemed natural to use stores resources and stocks.

How to onboard teams

Philippines is a fragmented country. Therefore, in addition to the lockdown measures and teams’ sickness*, the potential impossibility to travel due to the lack of transportation added to the difficulties.

SM assessed the local context surrounding each store and categorized teams according to their mobility:

A. can come to store, will not have problems with checkpoints

B. can reach the store, but might be difficult

C. impossible to move

This allowed the identification of resources to further contact customers.

*SM Store took care of all sick employees by providing them full support & equipment when blocked at home, in addition to the state support on pay.

The stock issue

E-commerce stock was not reachable and had a more limited choice than the stores themselves. It was therefore decided to use the store’s stocks. However, stores were still closed to the public as “non-essential” businesses.

At the beginning, customers were simply on the phone with a sales rep, who was going along aisles of closed stores to pick what the customer needed. This quickly proved inefficient and troublesome for everyone. It was then decided to gather a selection of items according to themes: “work from home essentials”, “stay at home essentials”… allowing compliance with regulations while expanding the number of skus available (this implied creating from scratch ad hoc catalogues).

How to deliver in a cost-effective way

Customers had 2 options: home delivery (thanks to the employees still able to freely move) or curb side pickup. In both cases, for the sake of simplicity, products were delivered into regular SM shopping bags from the store, and not the sophisticated e-commerce boxes. Interestingly enough, this contributed to tighten the link between stores and customers, by giving to the latter memories of what life was pre-lockdown.

Detailed organization of the Call to deliver process

CTD is organized into 5 simple steps, with clear lines of accountability:

• Ordering station – 2 positions:

• ‘CTD Shopper’: Order taken via phone/social media after engaging the customer.
• ‘Order controller’: checks the coherence of the order and accuracy of picking

• Picking station – 1 position: goes directly instore to pick the selection
• Packing station – 2 positions:

• Cashier
• Packer – checks the order slip, sends receipt to the customer and advise when orders are ready.

• Dispatching station: 2 positions

• Runner: takes the selection from packing station to dispatcher
• Dispatcher: monitors and updates delivery

• Delivery / pick up station: 2 options

• Employee rider (collects or processes payment)
• Delivery partner (for locations the employee rider could not get into)

Operation deployment and marketing

The rollout was quick and effective:

• 13-16 April: pilot in 3 stores
• 17 April: extension to 9 additional stores
• 65% of the network ready within 0,5 month
• 95% of the network ready within 1 month, mid-May (just before the reopening of stores)

No specific marketing campaign was carried during lockdown, however, since early June, SM carries monthly promotions including rebates or free delivery when ordering via CTD, on thematic “essentials” catalogues (Mother’s day, Father’s day, Independence Day).

Quantitative results: future of Call to Deliver

Call to deliver generated 212 K transactions during the course of 10 weeks, with an average of 23 K transactions per week, including a peak of 36K orders just before the end of the lockdown.

During the week of reopening, this channel generated 18K orders, and went back to 25K after 4 weeks.

On average, Call to deliver generated 4,9K daily orders during lockdown, and 3,2K daily orders after.

Measured digitally, CTD marketing generated in June a growth of +76% impressions, +31% reach and 75K clicks, at a CPC of 0.35 euros.

Going further, Call to Deliver is now a permanent option, along with store shopping and e-commerce: an app is available, logistics is handled by the e-commerce fulfilment partner. The articulation between e-commerce and CTD is quite down to earth:

• E-commerce is for people who have the time to browse and wait for the products, i.e. distant customers, content to have access to a selection of skus from the website
• Call to Deliver is for people wanting to order anything from the nearby department store. SM realized that this was a good option for quarantined people, especially the elderly.

CONCLUSION AND BENEFITS

SM identifies 6 key learnings from this implementation that will be rolled out to all operations:

• Simplicity of process for ease of execution
• Operations involvement for continuous improvement
• “The right person to staff the station”
• Digital advertisement is the best medium to quickly gain awareness
• The best endorsers are the most satisfied customers
• Sharing of best practices is key for common success

CTD’s execution also led SM to consider fulfilling e-commerce from its stores, and not from a central stock as it did before.

At IADS, we also consider this experience interesting for the following reasons:

• Contributing to solidify a team spirit within each store by trying to set up something new, together,
• Impressive speed of execution and deployment thanks to management and teams cooperation
• A good solution proving that getting back in touch with local clientele does not always imply complex setups

video: Click here for more information about the Call to Deliver program

Sources on general situation of Philippines:

nCOv2019.Live: Covid Worldwide statistics

Foreign Policy, 14/03/20, Coronavirus Lockdown Launches Manila Into Pandemonium

Flanders Trade, Coronavirus, the situation in Philippines

BBC News, 04/08/20, Coronavirus: Millions return to lockdown in Philippines

The Diplomat, 07/08/20, Philippines tightens lockdown measures as Covid-19 cases rise and economy plunges

The News Lens, 18/08/20, Philippines Lockdown Lifted, no Relief for Frontline Workers

Manila Bulleting, 03/09/20, Moody’s sees deeper economic contraction in PH

Credits: IADS (Selvane Mohandas du Ménil)

PRINTABLE VERSION HERE

Department stores are being challenged to rediscover what it means to serve their local customers. Going local in retail has been a trend for some time but the Covid-19 pandemic has brought it into focus and perhaps accelerated the trend. What does this mean for department stores and their business model?

The trend to local

The current Covid-19 pandemic has all but put an end to international travel and tourism, and indeed put a serious dent in national travel and tourism too. The proud department store boast comparing their visitor numbers to those of the Eiffel Tower, the Colosseum, the Great Wall, the Statue of Liberty, now seems irrelevant. At least this is the case for the world’s flagship stores, some of which relied on foreign tourists for upward of 60% of their business.

Even at a local level, shoppers are tending to remain in their own areas of the city rather than travel to shop.

For those department store chains present at a local level in smaller national cities, the challenge of getting their customers back into their stores is already great, especially if many customers have been tempted to use online alternatives. For the large flagships, the challenge is acute. Indeed, our city-centre flagships have been privileging customer experience in an effort to convince visitors to browse, stay as long as possible, be inspired and “shop”, as opposed to enter, search, find, pay and leave.

With the fear of contagion, shoppers are more than ever interested in convenience, in a frictionless intuitive experience, which allows them complete control over their use of time and effort. Even in the luxury world, as the hospitality industry is keenly aware, convenience is a type of luxury. The luxury retail world needs to take this on board in terms of knowledgeable and sensitive staff, and maximum use of technology, including for payments or inventory search for example.

If we combine this with another trend, that concerned with global warming, diminishing carbon footprints, gas and particle emissions, energy use and environmental preservation generally, then localism becomes even more attractive, and addresses a younger demographic. To a certain extent, this has already taken root in parts of the food retail industry, and, for example, in department store Manor’s local produce traceability to nearby farmers; see also Whole Foods local sourcing.

Local city

Department stores have been at the centre of the life of cities since their invention in the 19th Century. A reassessment of cities is currently underway in the light of environmental, health and social considerations which concentrates, for example, on grouping inhabitants’ needs within a 15-minute radius by foot or bicycle. Work, home, shops, entertainment, education and healthcare should all be available within the same time a commuter might once have waited on a railway platform, according to Carlos Moreno of the Sorbonne.

The recent opening of the first full-line Nordstrom store in Manhattan has attracted a lot of attention. Perhaps the equally important openings of two Nordstrom Local stores in the city have been less commented. The first Nordstrom Local in Melrose, LA, was noticed but, like the Manhattan stores, the two further ones in LA were not. And yet these are efforts to cater to a local population in terms of service, assortment and of course convenience. "Whether it is our Nordstrom Local locations on the Upper East Side and in the West Village, our new flagship opening, or our Nordstrom Rack locations across the city, we want to bring the added convenience of services such as online order pick-up, fast and easy returns, alterations, styling and more as close to customers as possible," Nordstrom's president of stores Jamie Nordstrom said in a statement.

The combination, at least for the moment, of flagship global brand store with local outlet, appears to be replicated with Nike which has recently opened its third House of Innovation in Paris after New York and Shanghai, while simultaneously developing the Nike Live local concept in California (Melrose and Long Beach) as well as in Tokyo.

Local community

It has now been conclusively demonstrated that most of the traffic for online department store customers comes from the area near the bricks and mortar stores. So even if the store itself depends heavily on tourists, the online sales form a hub pattern around the store. When this channel took off during the pandemic, a number of stores concentrated on what they could do to help their local communities. John Lewis, for example, donated £1.4 m to around 3000 local charities during the lockdown.

John Lewis has also recently vastly increased its local reach in spite of plans to close stores by partnering with 500 Coop shops to serve as collection locations.

Technology plays a part in convenience and efficient service: Marks & Spencer has recently introduced a Mobile Pay Go facility in 310 stores. It is available through the app and linked to the loyalty programme, and for the moment targets convenience shoppers. The Japanese giant Lawson convenience store company is rolling out prefabricated stores to local communities in China and planning to develop them in Japan also.

Economies of scope

The advantages of a local perspective described so far are clear in terms of serving the changing needs of the market. It allows:

• Targeting and personal service (return on service investment)
• Increasing quality of offer and relationship (adaptation to market)
• Developing trust and loyalty (dependable and stable customer base)
• Supporting the local economy (earning good will/increasing intangible asset)

However, it also requires some costs. For example:

• Adjustments in marketing (local and social media)
• Adapting assortment (local merchandise team)
• Agile supply chain
• Upgrade in staff skills base
• Relative management autonomy

Traditionally, department stores have relied on economies of scale: centralised management and support departments have allowed larger companies to get better prices for volume from suppliers, to minimise supply chain costs per unit, to rationalise management processes to reduce the marginal cost of growth etc. And these might still be relevant, to some extent, for some businesses.

However, the current situation underlines the obsolescence of the traditional mass-market approach of department stores. Other industries (and in particular manufacturing which is where the original inspiration for department store management found its roots) have moved on.

Technology and new management practices today offer new or refined capabilities:

• Flexibility which allows variety of designs or offers
• Rapid response to changes in market demand
• Greater control and accuracy leading to better quality and reliability
• Reduced waste of goods as well as of training and maintenance
• Greater predictability from information and data reducing markdowns and personnel costs
• More speed from smart processes and AI

All of these points challenge the assumptions of economies of scale which the volume-based department stores have been wedded to since their inception. (Even the higher end “luxury” department stores have been following that same logic, but compensating for their higher costs through a higher gross margin justified by enhanced service, innovation in merchandise or “customer experience”.) Arguably, technology, processes and management today allow a shift towards economies of scope, and a vastly different model of the department store.

Could it be that the team of outsiders currently running the John Lewis Partnership in the UK is moving in the right direction? They are closing stores (even recently opened ones), considering new businesses (retail and non-retail), planning to move to 60% online sales, developing partnerships (and reducing central staff) to increase flexibility, and revisiting their technology offer through further partnerships. Only time will tell; and it will depend at least as much on the execution as on the strategy. But the challenge of local is real.

Credits: IADS (Dr Christopher Knee)

PRINTABLE VERSION HERE

Covid-19 has changed people’s consuming habits, but how exactly? Lockdowns across the globe boosted trends that were already emerging before the pandemic. We identified these trends and reviewed some examples from various markets.

Home

The “Netflix and chill” was already the new hot Saturday night pre-covid, and people had been activating their nesting mode for the last few years, as shown by the “Hyyge” Danish trend (a sense of cosiness that comes from doing simple things such as lighting candles, baking, or spending time at home). This translates into quilts, pillows and good food to ensure a good night home. Obviously the trend was taken to an all new level when the pandemic forced us to stay in. A trend which might become the norm eventually, as remote working -already in sights pre-Covid- has also been accelerated by the situation. A study by FlexJobs released in February 2020 (before the pandemic) indicates that remote working has grown by 44% over the past five years in the US. A study by McKinsey published in July reveals that “74% of surveyed CFOs plan to keep part of their workforce permanently remote after the Covid-19 crisis.” McKinsey also highlights that in “around 200 million people were working remotely by the end of the Chinese New Year holiday” this year.

Lifestyle

Forced remote working (because of lockdowns) gave legitimacy to sweatpants, and more generally comfortable clothing. It follows the athleisure movement that already allows for people to walk down the street wearing leggings and sports equipment with style. Without overanalysing, we can only assume that the next generation of worker will be mobile and will need a hybrid workwear wardrobe both smart and comfortable, that adapts to the new habits of consumers: working from home to office, biking to work, using flexible offices. Additionally, in the current economic uncertainty and the financial crisis that will follow the health crisis, people are not particularly in the mood for crazy fashion. They need basic, daily essential clothing to suit the timing we are entering.

Local

The sanitary crisis also accelerated the desire for local consumption, in food and fashion. According to consulting firm Nielsen “local origin has become an important accelerator in brand/product decision making during COVID-19 and will remain a major choice driver into the future.” Indeed the fact that global supply chain slowed down during the lockdowns, forcing people to rely more on locally produce items, led to consumers putting more trust in the local market at the exit of the crisis. A study by Cetelem lead in Europe shows that “94% of those surveyed think that products manufactured in their home country offer an added guarantee and 93% believe the same is true of regional products.” Customers also see local consumption as a way to be more sustainable and to support the local economy.

All these trends do not necessarily question retail as we know it, but as we make it, and address the needed actions to activate the change, with a common guideline: go back to the essential.

What made the department stores great when they opened in the 19th century was to give clients the possibility to buy everything, and anything, at one place. It was convenient. Soon they started selling products made with valuable material. It was fancy. They had an assortment available nowhere else. It is exclusive. And they used to be a platform launch for brands. It was trendy. For some they welcomed clients in the most beautiful Art-Deco buildings. It was magical.

**WHAT NOW:

HOW CAN DEPARTMENT STORES ADAPT QUICKLY TO THE NEW TRENDS?**

Home & Lifestyle

Retailers should rethink their assortment and their lifestyle offer. Put the accent on home and furnishing, as people are learning to spend time in their own home again when they have been used to spend the biggest part of their day in an office for most of their life. Highlight clever ways to make a home-office. In its strategic plan, Swiss IADS member Manor indicates that it is repositioning its focus toward core activities such as home and beauty. During the lockdowns, Filipino IADS member SM Retail offered ‘ad-hoc’ catalogs, made-to-measure curated offers based on the physical inventory and focusing on immediate needs for customers like for Home, to ensure a good remote-work environment, and Toys, to keep the kids busy. There is no surprise that the home department was the busiest and most popular.

In fashion, department stores should turn toward a comfortable fashion offer, and stock stylish training gears that are necessary for the new urban equipment (bikes, scooters …) that are practical and wearable in the office, as Printemps did when opening outdoor dedicated space La Réserve in its Paris flagship.

Local – in terms of customers and assortment

Become again a local retailer. Big flagships in capital cities should compensate the lack of tourists’ flow by betting on their local clientele. Know you immediate customers, watch their environment, learn from their lifestyle, and gave them what they want and need. You don’t sell the same handbag to a Parisian woman and to a Chinese tourist. A way to know one’s customers is to offer one-to-one shopping experience such as personal stylists like French IADS member Galeries Lafayette did when launching its new personalised live video retail service in May 2020 or via extensive data gathering like Nike is doing through its diverse communication platforms (see our latest exclusive article here). For instance, Venezuela-based IADS member Beco reaches their customers directly on Instagram, attracting a younger, social-media savvy crowd. That is how the retailer adapted its offer before launching its e-commerce this summer.

Increase the offer of locally-made and locally-sourced produce in the lifestyle and the food departments is becoming necessary so retailers should turn to local designers and producers. Here again Manor is reinforcing its local F&B supply chain strategy, via its ‘Local’ label, promoting locally-sourced fresh organic products. Betting on local brands and producers is also a way to diversify the assortment from one big chain to another on a global level.

Conclusion: what is your next step?

Look at Texas-based retailer Neighborhood Goods whose success story should be an example and inspiration for department stores. Referred to as a “new type of department store” by the retailer itself, and dubbed ‘the new Sears’ by Forbes, the three physical locations (open in less than three years) feature an ever-changing rotating assortment, carefully curating brands that are right for each neighbourhood, and therefore offering something new each time a customer returns to the store. Plus, a rotating and time-limited assortment will help avoid being left with too much stock -especially in this uncertain timing.

We can question if having a rotating assortment a suitable model for department stores; or if investing in the local market will be their recovery. However we acknowledge that the health crisis, as it did for retail and fashion trends, has forced a change on department stores that had been in question for years now, and it is up to each to define what is their priority. Is it adapting assortment? Is it re-engaging with customers on all channels? Is it refocusing on core values?

Credits: IADS (Louise Ancora)

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The beginning of the third century of department stores

Some big players in the European department store world, including Dr. Christopher Knee from IADS, were interviewed for The Future of Department Store by Erik Van Heuven, published just before the covid-19 pandemic. They make a number of interesting and insightful points about department stores. Do these points still hold after the first wave of lockdowns, and will they provide a guide to the future in the “new normal”? Dr. Christopher Knee reviews the conclusions drawn by then at the light of what we perceive today of the new realities.

How a crisis will concentrate the mind

In the months before the Covid-19 pandemic a number of famous department stores were suffering (JC Penney, Macy’s, Barneys New York, Debenhams, House of Fraser…) generating a familiar plethora of articles predicting the death of the 19th century format, often using Darwin as a meme. More recently as a result of the pressure all retailers have experienced, the end of department stores is once again described as imminent.

What do the actors themselves say about it? In The Future of Department Stores, a book published just before the pandemic, 12 important European department store retailers shared their thoughts on the opportunities and challenges for department stores.

There follows a selection and synthesis of some of their preoccupations and how they might be viewed in the “new normal” post-pandemic world.

Heritage and branding

Department stores are conscious of their heritage. It is viewed as an asset which distinguishes them from other retail formats. Their history is often deeply embedded in their brand, as it is in the cities in which they have traditionally played a significant role, defining whole areas and attracting tourists at least as much as major city monuments. In some cases, it is difficult to imagine the city without the store (try Paris without Galeries Lafayette, London without Harrods or Selfridges, Milan without Rinascente, Amsterdam without Bijenkorf, Brussels without Inno, Berlin without KaDeWe, Helsinki without Stockmann, or Madrid without El Corte Ingles). These landmarks are slowly beginning to come back to life.

What is important is that the measures and protocols taken to ensure staff and customer safety are in line with the store brand and image, whether they court exclusivity or family-orientation.

Space-time

This emphasis on the “wonder” inspired by the department store building has continued since the format’s founding, with major architects hired to remodel or build new stores around the world. The recent wave started with Rem Koolhaas and the Prada store in New York in 2001, an approach which was quickly adopted by department stores, notably the Selfridges in Birmingham by Amanda Levete and Future Systems, opened in 2003. Investments have continued with Koolhaas at KaDeWe as a recent example, and the hugely expensive refurbishment/restoration of the Printemps store in Paris. These places are designed for “shopping” rather than buying, and for customers to linger and dream. While this will no doubt be the case once again in the future, the health crisis underlines a defensive preoccupation with convenience, even in the luxury world. Furthermore, although the space variable remains an important component of the winning formula, time and speed have become a real part of the offer of intuitive shopping.

Global and local experience

The status of the department store in the city makes it an experience in itself. The KaDeWe building in Berlin, like the Rinascente in Milan have historic significance, just like the Marshall Field’s in Chicago (which inspired Selfridges in London) and which elicited large protests when it was renamed Macy’s. These buildings have both tourist and local appeal. But it is the local customers which department stores now have to woo back, until international travel regains its former volume which will not be for some time. It was precisely because of the experience of neglect felt by local customers that Galeries Lafayette opened a special tourist store across the street from the flagship with tax-free and group facilities. It is this tension and mutual dependence between the global and the local which is the challenge for flagship department stores. Stores in smaller cities require a different sensitivity. (see concept of “the 15-minute city”.)

There is no doubt that the food offer including restaurants has become an important component of the experience of visiting department stores. Food is fashion and embodies perfectly the need to offer a global food experience as well as to emphasise the low carbon footprint fresh provenance and local taste and production.

Management

Department stores have also been working for a long time on their business model and structure, and how to make it efficient (this was indeed the original role of the IADS, to bring “scientific management” to the format). However, a different model is now required: some elements of the original model act as a brake on the development of department stores, with silos slowing its response to change,  merchandising models unable to adapt to competition and to the new relations with brands, and employment practices which discourage the kind of engagement customers have come to expect.

This revolution remains to be fought: getting away from what one retail leader has called “mismanagement” is a fundamental requirement for many industries. Classic theories still dominate and are no longer capable of delivering the leadership, engagement, flexibility and agility needed in the current century. This characteristic has been accelerated by the health crisis.

E-commerce

The march of e-commerce has been accelerated also. It is no longer a “must-have” because your retail business is old-fashioned without it. E-commerce for many was the only source of revenue during the lockdowns. Online selling represents huge convenience for customers. For retailers, it has opened up a whole range of innovative solutions to getting essentials (and often less essentials) to customers.

However, these are rarely profitable solutions for the long term. What remains is diminishing returns as online grows. With the covid-19 spread, online became a way to remain present in the mind of the customer, but not a source of profit for the future. The original goal of the IADS, to make department stores efficient and profitable has not yet been reached for the online business. As the CEO of the online business whose department store division failed puts it, we are “not good enough yet…”. While before the pandemic, most department stores were struggling to offer the same assortment online as they did in store, the more recent point of view would appear to be that the “infinite shelf” or “endless aisle” is too expensive, and that choice, selection, curation and indeed personalisation are the ways forward to increased convenience and frictionless retail.

Conclusions

Department stores cannot remain a volume business:

Unless department stores can attract large numbers of tourists and a significant local clientele, they will not remain volume businesses. Locally, the middle class which the department store format was engineered to serve is shrinking. Hence the tendency to move upmarket. With the continuation of the covid-19 scare, we will have to learn to serve fewer customers.

Department stores need to know their customers:

As a corollary to the above, department stores need to know their customers. This does not necessarily mean knowing them individually, but knowing what kind of experience, assortment and service they are seeking – and also how to surprise them. Technology understanding and investments will become crucial. Such a close contact with customers moves us still further away from mass retailing.

Who are the local customers?

Department stores will need to learn to address their local customers more clearly and appropriately. This also applies online: most online department store customers come from the areas around the physical stores. Even the large luxury brands are conscious of this lacuna. Customers are (re)discovering their community and their environment. However, this means losing some of the benefits of economies of scale.

Choices:

The best way to address customers in the future will be to “cut across the noise” and curate the offer. And the offer needs to match the store brand as well as the targeted customers. This will involve some difficult choices. Department stores may choose to offer above all convenience, or entertainment, or a curated selection, or value, or innovation… In the past, department stores attempted all or most of these. In the new normal, customers need one unchallengeable reason to visit.

Simplifying the store:

One of the main objectives of department stores in the new normal should be to simplify: this means simplifying operations to focus on profitability; and simplifying the offer to appeal to a local customer mindset. Department stores are both complicated and complex. Complicated in their operations which can be simplified through appropriate strategy and management. Complex in their DNA which can be managed through a shift in business model and technology.

Want to go further or exchange your ideas? Share your thoughts with us at [questions@iads.org](mailto:questions@iads.org)

Credits: IADS (Christopher Knee,)

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The killing of George Floyd in the US and the consequent protests around the world have brought to the surface a long-felt sense of injustice that has found an echo so deep that it has forced media, businesses and politics into a frenzy of self-justification and defensive posturing.

The reaction has some things in common with the viral spread of the MeToo movement three years ago following the revelations of harassment and sexual abuse by Harvey Weinstein.

Mary Barra, CEO of GM, Ken Frazier of Merck, Arvind Krishna, boss of IBM, are just some of the Fortune 500 names who have recently spoken out in support of Black Lives Matter, in complete contrast to the deafening silence we have grown used to on these controversial issues. From the department store side, Michelle Gass, CEO of Kohl’s, has been outspoken against racism and referred to her company’s CSR report. John Lewis who recently appointed a new chairman who is a woman and black, published its first diversity report just before her arrival. Although John Lewis’s overall diversity numbers are good, there is still a strong imbalance between higher and lower levels in the company.

Is the situation and these pronouncements different now? Are these bosses to be taken seriously this time, or are we witnessing another episode of “race washing” which defuses a short-term crisis without yielding any substantive changes?

“Give the lady what she wants”

Marshall Field, founder of Marshall Field’s department store in Chicago

Underrepresentation is everywhere

There is clear underrepresentation in business of most non-white straight male groups in top roles. For example, according to The Economist (13/06/20), although black people make up over 13% of the US population, only 4 of the current Fortune 500 CEOs are black, and 6-7% are female (including Best Buy, Kohl’s and JC Penney) . The same goes for other top positions in business. Even among those companies which claim good practice on diversity, there is sometimes an element of bad faith: look closely at the makeup of company boards and it appears that many of those which claim to have a diverse board are counting non-executive directors equally. Very few indeed will have a woman at the executive helm who is not an owner’s family member (which is not to diminish those people’s competence). Similarly, in whatever country, ethnic minority groups get fewer in number as you move up the hierarchy.

What is the excuse?

The main argument put forward by businesses has been that racial and gender inequality are problems for society to solve. Only society as a whole through government can tackle poverty, inadequate schools, a flawed justice system, and dominant domestic arrangements.

After an incident at Nordstrom Rack where the police was called to deal with three black youths wrongly suspected of shoplifting, it was commented that “Nordstrom cannot fix society on its own as it relates to stereotypes”.

There is of course a moral imperative which recognises that businesses exist in society with employers and employees, customers, suppliers and stakeholders. It has been pointed out that business is where races mix in a world which is often sharply divided into separate communities. As the multinational 3M has put it, “businesses have a responsibility to help lead”.

The business imperative for diversity

What is the impact of low diversity on business? Any imbalance in employment of different social groups represents potential waste of talent as employees at all levels may be excluded in spite of their high ability. A number of reports have considered this angle and by and large link lack of diversity to underperformance. A paper published by the World Economic Forum argues that “diversity brings many advantages to an organization: increased profitability and creativity, stronger governance and better problem-solving abilities”.  It continues, “companies with more women in the C-Suite are more profitable”. BCG claim that “diverse leadership teams boost innovation”; and for McKinsey, “many successful companies regard I&D (inclusion and diversity) as a source of competitive advantage. For some, it’s a matter of social justice, corporate social responsibility, or even regulatory compliance. For others, it’s essential to their growth strategy”. It is no accident that JC Penney, long recognised for its efforts in promoting diversity, has a specially designed training programme called “winning through inclusion”.

What is to be done?

Most under-represented groups appear to reject quotas and affirmative action which they claim have not worked. Having the scales tipped in their favour, reduces their voice when they do get to the table. Furthermore, it should not be what some have called a “box-ticking exercise” (ok, we’ve got a woman, so we are not un-diverse). Rather, what is needed is a) focus: diversity is a difficult topic which needs a strategy. Also, the situations of different under-represented groups are not the same. Race, gender etc. cannot all be solved together; b) the problem should not be ghettoised for example through a “diversity committee”. It should be the concern of the whole business and led by the CEO; c) metrics and measurement. Goals and targets need to be set, (not quotas) including follow-up, for example, of executives who leave; d) management practices need to change. Managing diverse teams is a new skill which needs to dispense with “affinity bias”, the tendency to assume we are working with people from a similar background.

In terms of merchandise, the list of faux pas is a long one: Macy’s got publicly shamed and had to apologise for a set of plates on the theme of weight reduction which were insensitive. The well-known racist sweater design by Gucci wich raised a storm of protest prompted the comment from film-maker Spike Lee: “we’ve got to be in the room”. In other words, if there is no diversity in the company, there will be costly and offensive mistakes made (whether you have a “diversity officer” or not, apparently).

Are there any best practices?

A four-part series appeared in Women’s Wear Daily at the end of June as part of the panic following the realisation that the George Floyd killing and its aftermath was perhaps more significant than first supposed. It attempted to paint a picture of fashion, brands and retailers in terms of their diversity employment and policies but ended up as another example of evasion and prevarication on the part of many of the companies approached. Many claimed they had no data to share. Macy’s CEO was quoted as saying that diversity and inclusion has been in the retailer’s DNA for years, but it needs to and plans to do more, in light of the recent protests over the killing of George Floyd. Many followed his line that diversity “requires long-term action” as though the problem had only just been identified. Even Nordstrom which came off relatively well for a department store, confessed that they “must do more”. In the Forbes “Best Employers for Diversity” ranking of 2020, Nordstrom occupies position 273, Macy’s 293, and Bloomingdale’s 339.

Although not noted for diversity in management positions, John Lewis in the UK as mentioned above, recently appointed its new chairman: a black woman who came from outside the retail industry. The management board of the John Lewis Partnership now consists of 8 people mixing ethnicity, gender, continuity and expertise in a convincing cocktail.

Are we really listening to our customer?

An Accenture study has found that “42% of ethnic minority shoppers would switch to a retailer committed to inclusion and diversity” and 41% of LGBT shoppers would do the same. It is never one element that shapes how people perceive a retail brand. Many points of interaction including marketing and advertising, store environment, front line employees, products and services, and public statements contribute to brand reputation. We are beginning to hear the faint rumbling also of black influencers being short changed by brands, of fashion students at Central St Martins or Parsons demanding more mixed teaching.

As the report on retail by DLA Piper surveying businesses in the US, the UK and Europe concludes: “the most senior people driving strategy in the largest listed retail firms in the US, UK and mainland Europe are not representative of the customer groups they serve or the type of diverse leadership which can give them a proven competitive edge”.

Conclusions

Undoubtedly, the US is a special case in terms of ethnic numbers. Few other countries have a comparable racial/ethnic mix, and indeed few other countries collect census details like the US. Nevertheless, the lessons are broader: diversity is the opposite of sameness, uniformity, and the “affinity bias” mentioned above which smothers innovation and creativity. At the present moment, racial diversity is under the spotlight. It is a perfect moment to learn that our customers are diverse beyond simply age, and if we are to keep them, we will need to cater to that diversity, whether ethnic, gender, sexual, disability or other. We will not have the means to do so successfully if we rely on a traditional uniform leadership. “To start building diverse senior teams for the future, retailers need to take deliberate and proactive action” …. Only this “will ensure the pipeline is filled with leaders of the future” (DLA Piper).

For companies, this means:

• Having a real strategy for diversity
• Recognising that diversity concerns the whole company; a “diversity officer” may have the effect of absolving everyone else from responsibility
• Pushing for diversity where it is needed: at the top and particularly in senior executive and operational roles

Credits: IADS (Christopher Knee,)

PRINTABLE VERSION HERE

![2020 ARTICLE E-commerce & Department Stores

E-commerce has become an essential part of the department store toolkit. It is tasked with increasing sales, improving service to customers and, thanks to an optimised structure, boosting profitability in the same way the return on space did in yesterday’s model.

However, e-commerce pure players and most of the e-department stores are losing money in operations, competing for a fickle customer who appears to chase the cheaper option in their mostly indistinguishable offers.

*Is that an inescapable fate? If it is, why are some department stores entering the game now, when so few have succeeded so far? Learning lessons from the small number of best-in-class players, the few who are making money, might be a good idea for the newcomers.

And for others too.*

“Think about customer relationships, revenue will follow”

Michael Kliger, CEO Mytheresa

For a long time, Rinascente of Italy has been sceptical of e-commerce. And yet over the last two years, under the impetus of its owner Central of Thailand, it has invested 20 m Euros and created a 50-person business unit to make 15 000 items from 650 brands available to its customers in Italy. Liberty of London, which has been online for 12 years (its site now accounts for some 10% of sales), has restructured its e-commerce through an investment in a Salesforce CRM platform and a datalake with Azure to allow its 40-strong team to improve their service as well as to link with their recently launched B2B platform operating in 32 countries. LVMH, owner of historic Bon Marché store in Paris, last year rechristened its 24Sèvres website (named after the address of the Bon Marché) as 24S, increasing its offer to men’s wear, bringing its total number of brands on offer up to 200, available in over 100 countries, most recently South Korea and Germany.

The future is online…

One reason, of course, is that, as Bain tells us, by 2025 e-commerce will account for 25% of the luxury market. Customers, as we are repeatedly told, are “channel-agnostic”, that is they expect to be able to shop whenever, however, and wherever they want. Furthermore, the competition is upping its game: brands are going direct to consumer and bypassing intermediaries (Gucci and Burberry are examples of prominent presence on the web with substantial visitor numbers); multi-brand sites are also growing with Farfetch, YNAP, Ssense, Mytheresa and MatchesFashion as notable examples.

…but does the future pay?

However, it is also generally acknowledged that online retail is at best a lower margin business than physical retail has been, and at worst a seriously unprofitable one. Unlike physical retail, the main cost headings online are fulfilment and supply chain; customer acquisition; and IT investments. Even those companies mentioned above are rarely straightforwardly profitable. The 2019 YNAP results were seriously impacted by what has been described as “its painful tech upgrade” with a losses of around $10 m. Ssense, which said by its owners to be profitable, recently acquired Polyvore then immediately shut it down, an expensive customer data purchase. The Farfetch CEO has declared that it would reach break-even by 2021, some 14 years after its launch, while reporting a current loss of £85 m. Only MatchesFashion and Mytheresa (which both started as small brick and mortar shops) are currently profitable. They have also remained small in terms of assortment, while on the other hand YNAP offers upward of 800 brands, and Farfetch some 2000.

What lessons can be learnt from this and what are some of the success factors?

Retail brand or product brand?

Online retail is not the same as physical retail. The cost structures and business models are different.

![2020 ARTICLE E-commerce & Department Stores

Rinascente has announced that it will soon be introducing a “gamification” element to its site. While this will be welcome to the extent that it contributes to engagement and productivity, it should take care not to reduce the convenience of online shopping, even though it expects 70% from mobile. The company is aiming for sales of 80 m to 100 m Euros in 2 years. Since it will ship from store, it will serve Italian customers only, for the initial phase. However, the pick-from-store solution was a serious drawback to the recently launched Fenwick site in London during the lockdown. It also apparently proved a disaster for the early Sälling online experiment in Denmark. It is indeed difficult to imagine pickers competing with the huge number of shoppers which Rinascente attracts on many days. Breuninger of Germany cleverly operated the other way around when it used stores as extra stock for web purchases when the DC proved too limited for the rush of online orders during confinement. SM of the Philippines also initiated a new “channel” during lockdown which served customers from the stores.

Rinascente is so far a modest e-commerce proposal but is planning to be augmented in the future by a “marketplace” offering many if not most of its 120 concessions in order supposedly to generate more traffic and income at little extra cost. While the benefits are extolled by tech company salespeople, they may be less obvious on the ground.

![2020 ARTICLE E-commerce & Department Stores

Liberty, which is still experiencing very limited traffic online (just over 600K visits last May, compared to YNAP’s 13 m or Farfetch’s 21 m), is both a retailer brand and a product brand – and an international one at that. It apparently derives the greatest part of its profits from own-brand merchandise and from selling fabrics as a wholesaler. This places it halfway between a retail brand (which most department stores are) and a product brand (such as Burberry, its Regent Street neighbour). Arguably, product brands need to “tell a story” online, while retail brands need to prioritise curation and convenience. This difference is, or perhaps should be, reflected in the online experience: is it proposing shopping involving browsing and gifts, as claimed by the Liberty e-commerce director, or is it an efficient experience for time-poor customers? In this sense, it falls between two stools. In some ways similar to Liberty, is the Fortnum & Mason web site which, according to the chief customer officer, is in effect the ground floor of the store (and it also consists mostly of its own brand offer). It would be inconsistent for the Liberty site to offer a marketplace, like Rinascente is planning.

![2020 ARTICLE E-commerce & Department Stores

On the continuum of models, 24S plays both the card of the Bon Marché store of which it is the website, and that of LVMH, many of whose luxury brands it offers as well as others. But it comes down more on the side of retail than of brands. Most of its sales are apparently achieved outside France, and perhaps for this reason, it has never wanted to be associated through its name with the Bon Marché store which is relatively less well-known abroad. 24S probably has about twice the traffic of Liberty, because of the notoriety of the brands, but is still very small compared to other multi-brand websites. On profitability, Bernard Arnault, the owner of LVMH and 24S has been quoted as saying “we haven’t found a way to make it (24S) profitable… they are all losing money… the bigger they are, the more money they lose”.

Bon Marché operates a separate site called La Grande Epicerie, dealing with the high-end food offer of its eponymous store.  Although food online is a case on its own, partly because it is primarily local (apart from food gifts), it nevertheless offers a range of services from which there is much to be learnt.

Limited assortment and unlimited customer knowledge

The right and appropriate assortment is just as important online as it is offline. Successful online players limit their assortment online. The “endless aisle” is a trap: some 65% of the business comes from 30 brands, according to Mytheresa CEO, and inventory costs also exist online. Furthermore, operational efficiency increases if there are fewer photographs to be taken.

However, keeping the assortment curated requires excellent customer knowledge. This means being prepared to select customers on the basis of their lifetime value and eschew the lure of the quick one-off sale. Sophisticated and effective customer acquisition requires data and the intelligence to use it.

Typically, the more wealthy customers who have the potential to become long-term clients value curation and convenience online. Understanding which customers are worth engaging and which aren’t, also solves part of the customer acquisition puzzle. A corollary of this point is, of course, that buying requires a high level of expertise and agility in order to satisfy and indeed anticipate those precise customers’ needs.

![2020 ARTICLE E-commerce & Department Stores

The recently launched Printemps online site (printemps.com) challenges some of the above: it complements their small specialised online offers as well as the Place des Tendances by the Printemps.com site, launched in 2013, and which is a relatively small site offering around 400 brands. The Printemps.com has been described as mobile first, targeting 20 to 40-year olds and is forecast to break even in 4 years. It is very much a “magazine” format offering goods for sale. It is possibly an attempt to create a “story line” for a multi-brand retail format by using the magazine format to deliver brand value through lifestyle.

Conclusions

Recent high-end fashion online launches and upgrades thus demonstrate several things:

• That online and offline are different businesses
• That retail brands and product brands require different models
• That there are indeed ways to make online retail profitable
• These include

+ keeping a tight rein on assortment

+ choosing customers according to their lifetime value

+ and making sure the buying skills are sufficient and adapted

• That there is perhaps still some room for innovative thinking and new models

Credits: Dr Christopher Knee, IADS