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In early July, Hudson’s Bay Company, the parent company of Saks Fifth Avenue, announced a plan to acquire Neiman Marcus for $2,65 billion. This intention seems logical in a crowded market that calls for more consolidation.

Given the radical difference between the two companies, this would have already raised some eyebrows if the news had been limited to Neiman Marcus and Saks Fifth Avenue merging. However, conversations revolved instead around Amazon and Salesforce being involved in this deal.

While the merger is under review by the Federal Trade Commission, and therefore, everything is still being determined, this planned merger raises many questions when considering the context. While the IADS does not pretend to have a crystal ball, this Exclusive aims to review everything at stake and assess the challenges and opportunities the plan opens

Introduction: mega-mergers yesterday and today, from conquest to consolidation

The last mega-merger to have taken place on the US department stores scene was when Federated Department Stores, which had bought R.H. Macy’s in 1994 (8 years after R.H. Macy’s own efforts to take over Federated), acquired The May Department Stores Company for $11 billion (equivalent to $17.2 billion in today’s currency), creating the second largest department store chain company in the country by then, with more than 1,000 stores before divestments and a $30 billion turnover (equivalent to $46.8 billion in today’s currency).

This process, in addition to creating a giant which would be renamed Macy’s Group Inc. by 2007 with 850 stores in operation, led to the erasure of many iconic and legendary retail names, such as Filene’s in Boston, Kaufmann’s and Stern’s in New York state, Burdines in Florida, The Bon Marché in Pacific Northwest, Marshall Field’s in Chicago, or Hecht’s in Baltimore, to the dismay of many American customers. As of June 2024, Macy’s Inc. operates under various names, including Macy’s, Bluemercury, Bloomingdale’s and others, a total of 521 stores, and achieved a total of $23.69 billion turnover the past full year, a far cry from its peak in 2015 at $28.11 billion. In 2024, the NRF ranked Macy’s Inc. 22nd in their top 100 US retailers and did not even bother including the company in the Top 50 Most Influential Retailers Worldwide list.

The 2024 merger between Saks Fifth Avenue and Neiman Marcus, with the latter's absorption into a new company called Saks Global for a total of $2.65 billion and a consolidated turnover of $10 billion (behind Macy’s’ $23 billion and Nordstrom’s $14 billion), would not reshape the US retail landscape in such dramatic proportions, as the market has considerably changed since then. Many experts even wonder if this move will allow the new company to thrive in a market that has become hostile to department stores (it is worth remembering that Neiman Marcus rejected a Saks Fifth Avenue takeover bid in December 2023 for $3 billion, only to accept an offer for half a billion less six months after). They also have questions about the role of Amazon and Salesforce in it, as they both took a minority stake.

For now, the official post-merger announcement message is simple: no store closures, no rebranding. The whole purpose of this merger is to generate growth by encouraging vendors to sell more merchandise and customers to have more opportunities to purchase. But how realistic is that?

Branding, positioning, business model: where are the synergies?

Any retailer with a minimal understanding of the US retail market probably had the same reaction upon hearing of the merger project: there is a visible gap between Neiman Marcus Group, including its Bergdorf Goodman stores, globally acclaimed for its high level of services and focus on high-end repeat customers, and Saks Fifth Avenue, which has a much more diversified customer base.

In the past, the Federated example showed that mega-mergers encouraged branding harmonisation to generate scale economies when marketing the retailer’s name. This is why it led to replacing several historical names with Macy’s or Bloomingdale’s nameplates. However, times were different, and the US retail market was not as homogenised as it is now, with only a few names left, each displaying a more or less differentiated set of values to end customers. For that reason, a retailer’s name unification does not seem, for now, to be a potential road for the merging parties (even more that Neiman Marcus would have a lot to lose in such a move, probably more than Saks Fifth Avenue).

Let’s look at the opposite option: Neiman Marcus and Bergdorf Goodman represent the epitome of luxury retail in the US, in both US customers’ and international brands’ eyes. There would be no point for Saks Fifth Avenue to elevate itself and compete with such names, which suggests that a natural route would be for Neiman Marcus to consolidate its positioning on “hard” luxury, while Saks could trade slightly down. A downside of such a strategy would be that this could put Saks Fifth Avenue in an even more frontal competition with Nordstrom and Bloomingdale’s, which both have many locations in malls where Saks Fifth Avenue is already located.

From a pure retail name perspective, no option is more desirable than the other. However, the differentiation road seems the more probable. While this is great for US customers (and international brands), the nature of the differentiation and the ability to avoid unintended consequences remain to be seen.

The difference between the two companies' business models is also stark: while Saks Fifth Avenue operates most of its locations with a concession business model, Neiman Marcus and Bergdorf Goodman remain principally a wholesale operation. This has profound consequences as managing brand relationships and proposing the proper product selections to customers are radically different in a wholesale model, as many department store companies who have travelled the road from wholesale to concession: it takes years to become a merchant, and that savoir-faire can evaporate quickly.

This is not something to be taken lightly as it is probable that the centre of gravity of the newly created company, Saks Global, will probably be geared more towards New York, where Saks Fifth Avenue is located, rather than in Dallas, home of Neiman Marcus. It is striking that, within the announced nominations (Marc Metrick, CEO of Saks.Com, becomes CEO of Saks Global, Ian Putman, CEO of HBC Properties and Investments, becomes CEO of Saks Global Properties and Management, and Robert Baker becomes chairman of Saks Global), no mention is made of anyone from Neiman Marcus, including Geoffroy Van Raemdonck, the CEO.

Corporate culture is fickle and conditions future success. In another industry, aviation, it is probable that Boeing’s 2001 decision to relocate its headquarters to Chicago following its merger with Mc Donnell Douglas initiated a chain reaction leading to the current situation where the founding values of the plane manufacturer have evaporated.

Optimists write that, given Neiman Marcus’ ability to provide high levels of individualised services to high-end customers, this could be the opportunity for Saks Fifth Avenue to improve significantly its level of service, in particular online (which could be a factor explaining the presence of Amazon and Salesforce at the dealing table). However, this is easier said than done.

Is it about real estate…

The Hudson Bay Company and Saks Fifth Avenue are two particular groups in the retail world, as they decided in 2021 to spin off their e-commerce division and separate this business from the store operations. Consequently, Hudson Bay Group created The Bay, the company's e-commerce arm, and kept the stores being managed by Hudson’s Bay. Similarly, Saks Fifth Avenue created Saks.com, a separate business from the store operations, taken care of by SFA, in charge of 39 Saks Fifth Avenue stores and 95 Saks Off Price ones. This arrangement is unique because, in both cases, the online company oversees the general merchandising for all channels, including stores. In other words, the companies in charge of stores sell products selected and supplied by the online company. When this strategy was launched, many saw an approach aiming at maximising the value of real estate to offload it at some stage and focus on e-commerce.

Neiman Marcus, by contrast, is a genuine brick-and-mortar company, with 36 Neiman Marcus stores, 2 Bergdorf Goodmans and 5 Last Call discount stores. While it filed for bankruptcy in 2020 due to the consequences of the COVID-19 pandemic, Neiman Marcus Group came back as a Phoenix with new investors and a renewed success in terms of sales volumes and brand attractivity as early as 2022, thanks to a strict focus on top spenders and in-store services. This does not mean that the group remained idle online, as Neiman Marcus owned the mytheresa.com luxury e-commerce website until spinning it off in 2021 and filing for IPO in New York, with a $3 billion total shares value on the first day of trading. Since then, mytheresa.com has thrived in a context where other luxury pure players, such as Matches.com and Farfetch, went through significant difficulties.

It is expected that the new company, Saks Global, thanks to its tech minority stakeholders, will be able to create an innovative online shopping platform. However, a subsidiary managing the $7bn worth of real estate assets will also be set up. This suggests that the overall strategy will follow what HBC and Saks Fifth Avenue did a few years ago.

After all, there are already eight malls where both Saks Fifth Avenue and Neiman Marcus have a store each: Houston Galleria, Boca Raton, Bal Harbour, Troy, Michigan, St Louis, Las Vegas and Tyson’s Galleria. Offloading a location from some of these coveted malls (Bal Harbour, anyone?), knowing that Neiman Marcus stores are usually more extensive and more productive than Saks Fifth Avenue ones, might be an excellent opportunity to rack in a few dollars.

Interestingly, Hudson Bay will remain separate from Saks Global.

…or the money…

Both Saks Fifth Avenue and Neiman Marcus are privately owned. Saks Fifth Avenue belongs to Hudson’s Bay, which was taken private in 2019 by CEO and President James Baker for $1.5 billion (a third of its 2015 valuation), just seven years after being taken public by the same Baker. The activity has been challenging, which explains why James Bakers has been regularly offloading valuable assets, such as the Lord & Taylor building on 5th Avenue in New York, sold to WeWork in 2017 for $850m, with a 30% premium on its value by then.

However, things did not get brighter for Saks Fifth Avenue, especially its subsidiary in charge of buying, Saks.com, which brands recently accused of delaying payments, as the company was looking for additional borrowing capability. Estée Lauder Group placed Saks on credit hold for all its brands, including Tom Ford Beauty, Jo Malone and La Mer, as recently as last year.

Consequently, some brands might not be so happy to trade with a larger entity related to what recently worried them. It also does not come as a surprise that in Marc Metrick’s letter announcing the merger project, he mentioned that “absolutely no funds that otherwise support operations or vendor payables were used for the financing or associated costs of this transaction. It is our and SFA’s priority to fulfil our obligations to our partners. In the coming weeks, we plan to provide an update on the financial position for Saks and SFA from now through transaction closing.” He probably anticipated some embarrassing questions on whether the deal also aimed to clean off pending debts from the parent companies.

…or the tech?

In fact, everyone is scratching their heads about how Amazon and Salesforce will leverage their minority investment in the new entity and whether this is the dawn of a new way of approaching retail.

Having tech investors is a boon for a US department store company.

Unlike many of their European and Asian counterparts, which massively invested in the physical experience provided in their stores either during or immediately after the pandemic to remain relevant, US department stores failed to significantly reinvent themselves at scale in the past years in terms of experience, processes, merchandising and in-store services. As such, significant investments are needed, and not only in the flagship stores, to make sure the stores are attractive enough to lure in customers who are otherwise conveniently shopping for prices from home, thanks to many e-commerce options.

In addition, an increasing number of brands, especially in the luxury segment, are investing in direct distribution capabilities to eliminate a third party that is, in their eyes, no longer able to convey the level of experience they aim for.

Having tech investors allows, therefore, department stores to convince their stakeholders that the needed efforts will be carried out in no time to regain the lost ground. Given the fact that in recent months, the luxury e-commerce market has effectively imploded amid rampant discounting and astronomical costs of distribution, an Amazon-powered Saks Global would make sense: Amazon, with its vast scale and expertise in reconceptualising the online shopping experience, would be a significant boon to that effort. Every expert is, therefore, making predictions on the new areas of attention: AI, logistics, mass customisation and customer service.

It is, therefore, striking to listen to Marc Metrick when he evokes the “next day” or the low-hanging fruits he attends to pick with the merger: warehouse and fulfilment operations consolidation, scale economies by centralisation on customer services, and finding commonalities in terms of technology. In other words, the traditional retail playbook.

So, what’s really in store for Amazon?

Some analysts wonder if Amazon is not simply amplifying its range of investments, like a VC, after having burnt its fingers itself on new ventures (groceries, self-checkout…). This is not the first time that Amazon has inked a deal with a retailer, as in 2019, it issued a warrant to purchase 1.7m of Kohl’s in exchange for the right to allow Kohl’s customers to return Amazon products in the stores. However, the size and what is at stake is different. With Saks, Amazon focuses on the luxury customer, characterised by superior buying power, less price sensitivity, and more advanced tech acceptance.

In other words, for Amazon, the deal brings the possibility of entering a higher-end market than the one it currently thrives on without dealing with brands that have been so far in their vast majority reluctant to engage with it. Thanks to this partnership, Amazon might have access, in addition to high-margin goods, to fashion customers. It is out of place to consider that products sold on Saks/Neiman platforms would also end up in the Amazon marketplace, knowing that, for now, luxury brands would not be ready to drop their visibility at Neiman Marcus? After all, Amazon has, so far, not managed to break the luxury frontier, being blocked at the aspirational luxury step with brands such as Clinique, Kiehl’s or Coach.

Interestingly, there is nothing to be found about Salesforce’s involvement in the press so far.

*The merger between Saks Fifth Avenue and Neiman Marcus represents a significant shift in the landscape of luxury retail in the United States. Unlike the dramatic consolidations of the past, this merger is taking place in a much more competitive market. Integrating two distinct brands with different customer bases and business models will be complex and fraught with challenges and opportunities.

One of the most intriguing aspects of this merger is Amazon and Salesforce's involvement as minority stakeholders. Their participation signals a potential transformation in luxury retail operations, particularly in technology and e-commerce. Amazon's logistics and customer experience expertise, combined with Salesforce's strengths in customer relationship management and AI, could provide Saks Global with the tools needed to innovate and adapt to the rapidly changing retail environment. However, this is purely hypothetical for now.

However, the success of this merger will depend on Saks Global's ability to navigate several key issues. First, the company must manage the cultural integration between Neiman Marcus's highly personalised service model and Saks Fifth Avenue's more diverse customer base. Second, it must balance the need for maintaining distinct brand identities with the potential benefits of operational synergies. Third, the company must address the concerns of luxury brands wary of Amazon's involvement in the high-end market*

Credits: IADS (Selvane Mohandas du Ménil)

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*Day after day, retail analysts remind us that the in-store shopping experience needs to be reinvented to appeal to the younger, tech-savvy generations and lure them into brick-and-mortar stores. Indeed, innovative projects are sprouting worldwide, each pushing the boundaries of what a retail space represents by introducing fresh and novel concepts.

However, creating a compelling physical retail experience is merely half the battle. Many endeavours have tried and failed, not due to a lack of ingenuity but simply because their ability to communicate and highlight their inventiveness effectively was lacking. In the US, customers struggled to appreciate Showfields beyond the much-touted slide fully. Pioneering concepts like b8ta in Manhattan (now closed) or WOW in Madrid presented too many ideas simultaneously, making it arduous to convey their essence engagingly to customers.

Let's examine two prominent large-scale projects that have successfully reinvented the retail experience in recent years: K11 Musea in Hong Kong and The Hyundai in Seoul. Both aimed to revolutionize shopping for younger generations, but how did they manage to articulate and bring to life their innovative concepts effectively?*

Korea: presentation of the Hyundai Department Stores company

Hyundai, originally a construction company founded in 1947 during the post-WWII boom, swiftly adapted and diversified its operations. It ventured into foreign markets in 1965, established Hyundai Motor in 1967, and Hyundai Heavy Industries, a shipbuilding company, in 1973. The Hyundai Corporation, a trading arm, was created three years later, and Hyundai Electronics was founded in 1977, showcasing its rapid expansion and ability to adapt to changing times.

In parallel, a retail company, Keumgang Development Industries, was formed in 1971 to operate the commercial constructions built by Hyundai. It started to build its own mall units in 1977 with the Ulsan Center (now known as the Hyundai Department Store Ulsan Dong-gu) and the Apgujeong-dong shopping center in 1979. The first department store to be open under the name Hyundai was Apgujeong, south of Seoul, in 1985 (still operating today). The department store business then separated from the Hyundai Group in 1999 and became Hyundai Department Stores Co. in 2000.

Hyundai's strategic moves have been instrumental in its growth. It made a significant entry into the Chinese market in 2011 and further expanded its portfolio by acquiring Handsome, a fashion and beauty provider, in 2012. The company's foray into e-commerce with the launch of thehyundai.com in 2016 and the Hyundai Department Store Duty Free business unit the same year, demonstrates its forward-thinking approach and adaptability to changing consumer trends.

Today, Hyundai operates 14 department stores, including two "The Hyundai" locations (in Seoul and Daegu) and eight outlets. The company generated KRW 4,208 billion (approximately €2.8 billion) in revenue for 2023, down from KRW 5,014 billion (€3.38 billion) in 2022. The division reported a loss of €27 million in 2023 compared to a profit of €125 million in 2022.

The Hyundai Seoul

The Hyundai Seoul, a landmark in the city, opened its doors in 2021 with a unique focus on attracting Gen Y and Gen Z. This strategic move aimed to rejuvenate the traditional department store clientele in a country where all companies are vying for their attention. In 2020, Hyundai’s competitor Lotte performed 47% of their sales with customers aged less than 40, highlighting the importance of this target demographic.

The Hyundai aims to offer a "creative space filled with global content," from luxury flagship stores to those targeting younger generations, and features Korea’s largest food court so far. It is also the first eco-friendly department store in Korea, boasting indoor lawns, trees, and flowers. Its location in Yeouido, Seoul’s financial center, is key: the store is close to a very affluent residential zone and the Han river parc, meaning a consistent traffic flow both during weekdays and weekends.

As a new brand from the group , The Hyundai is design-conscious and thought to be highly Instagrammable from basement to top floor. Following the first iteration in Seoul, a new store under The Hyundai name was opened in Daegu, and a project is planned in Gwangju. The Hyundai became the fastest store in Korea to reach 1 trillion won in just three years, reflecting its appeal to younger customers and foreigners—showing an 800% growth in sales among 20-30-year-old foreigners between 2022 and 2023, with 100 million visitors in just two years.

The store, which dimensions and structure recall those of a mall, spans 89,000 square meters with 600 shops over 12 floors, including four for parking. Its interior was designed by Canadian studio Burdifilek, with each floor having a distinct theme centred around the atrium. It is the largest store in Seoul, and 49% of its space is dedicated to rest areas, specially designed to be Instagrammable. The building includes 90 restaurants and a museum.

The structure is a mixture of traditional store planning and innovations:

• The second basement, arguably the busiest by far at the time of visit, is dedicated to trendy Korean brands, clearly appealing to the taste of the younger generation, quite enthusiastic with the brand offer witnessing the energy that could be felt there,
• The first basement is the largest food court in Korea, including a food truck park,
• The ground floor, quite classic, offers luxury items, cosmetics and perfume, highlighted by a 12-meter-high waterfall garden with benches to listen to the sound of water, completed with a BeClean wellness beauty store. The store is accessible through five entrances independently from the car park accesses,
• The first floor is a neutral gallery-like space dedicated to international designers brands,
• The second floor, dedicated to international fashion brands and with an overall bolder design, is, just like the first floor, mixing men’s and women’s in terms of customer journey and discovery,
• The third floor is dedicated to sportswear, outdoor, lifestyle and homeware,
• The fourth floor, dubbed the “indoor garden” is spectacular, as it has been designed as a real-size garden with grass, flowers, and trees. On this floor, customers can find children's clothing and activities, home appliances, a playground for adults, Play in the Box, and the Blue Bottle café, which is an incentive for customers to spend time and enjoy the garden,
• The fifth floor gathers restaurants (80 dining options are available, from low-end to exclusive SMT, which terrace overlooks Seoul), service desks including the tax refund, CH 1985, a cultural space aiming at millennials and Gen Z, Uncommon store, a fully automated store, and exhibition halls, dedicated to collaborations with museums such as the Musée d’Art Moderne de Paris at the time of visit.

For more, the IADS reviewed in detail the store structure in October 2022.

How The Hyundai Seoul highlights innovation

What stands out is the level of attention that has been given to details in services:

• The Food Court features self-order kiosks throughout, all accessible and usable by foreigners (even if they do not have a Korean phone number) and an open area for handwashing and face checking.
• The "Play in the Box", a cultural space for adults, is designed for taking photos in a self-studio setting while being pampered with food and beverage options. It is possible to rent a space and spend time with friends there.
• On the 6th floor, to ease the customer’s life when booking a restaurant (and ensuring that they spend their time in the store rather than in a waiting area), machines calculate queues and send alerts in cafés, restaurants, and stores. That way, customers can do something else while waiting for their table.
• Lockers and rentals for baby carts, portable chargers, bikes, and luggage storage are available on three floors. Kids and babies are especially pampered: the Petit Lounge is a comfortable space for one person and a baby (and allows the spouse to go shopping).
• Various related services, including a garment repair shop, bag and shoe repair shop, and green dry cleaning support sustainability claims support sustainability claims.

But what is really striking is the apparent ease with which crucial information is passed on to customers, especially foreign ones. The floor guide is an example of clarity, focusing on must-see places. Everything is QR-coded: store location, shopping news, smart waiting and table ordering, local parking information, and even how to get free beverages on each floor.

Going further, Instagrammable places (the Waterfall, the Sound Forest) are clearly indicated as such, as are experience places (food, culture). Traffic is funnelled, so it is impossible to miss anything and be disappointed.

Similarly, the paper guide highlights 3 to 5 places on each floor. They can be:

• A branded location (Liquides perfume bar, Oera, Bamford, Andersson Bell, Innometsa, Tino5 FGS, Klattermusen, Arket, Smooth & Leather, Nike Rise),
• A branded experience (Barberino’s barber, Blue Bottle Coffee, Eataly, Sooty), a category (Shoe library, Archetype, Wine works),
• A concept (Sculpt Store, IAMSHIP, Platform place, Tom Greyhound, CH 1985, Uncommon store, 22 Food truck piazza, Peer),
• An immersive experience or service (Studio Petit, Play in the Box, Sounds Forest, ALT.1).

While it is not clear how this works and how this is pushed (and monetized) to brands, the guide is extremely clear and is a great example of efficient trade marketing.

Finally, services such as immediate tax refunds and gift certificates are clearly explained and detailed. Recently, Hyundai inked a partnership with The Mall Group in Thailand (an IADS member) to provide visiting Thai customers with additional perks, including a loyal membership enrollment, and no doubt that many accept such an enrollment.

Hong Kong: presentation of K11

Established in 2008 by Adrian Cheng, the K11 Group, part of the New World Development, introduced a unique concept dubbed “Cultural Commerce”, which aims to integrate Art, People, and Nature to create a diverse ecosystem. Cheng, a prominent Hong Kong entrepreneur, also serves as CEO of New World Development, executive director of Chow Tai Fook, and owner of Rosewood Hong Kong Hotel.

The first K11 location opened in Tsim Sha Tsui, Hong Kong, in 2009, followed by expansions into Shanghai, Guangzhou, Shenyang, and Wuhan. In 2010, Cheng founded the K11 Art Foundation to support Chinese artists. His vision of merging art with retail aimed to transform the shopping experience into an artistic journey, targeting the millennial shift towards experiential rather than transactional engagements. As such, K11 Group seeks to democratise art, support young artists, and conserve Chinese artisanship while integrating sustainability and technology.

After research indicated a shift in demand from older generations to millennials, the concept evolved with K11 Artmall in 2013, blending retail and gallery spaces. It was further expanded with K11 MUSEA in 2019 at Victoria Dockside and K11 ECOAST in mainland China in 2022.

Today, out of the total 29 retail locations in Hong Kong and China, there are 7 K11 Art Mall locations, including 6 in China (Shanghai, Wuhan, Tianjin, Shenyang, Guangzhou, Beiling), one in Hong Kong, and the K11 Musea. The group reported a total revenue (Hong Kong and China combined) of HK$ 4,995m (Hong Kong representing 62% of this revenue) and a result of HK$ 3,193m in FY 2023 (note: K11 is not a retailer per se, but a mall operator, which is why revenue is 100% based on rent). In China, a new project, K11 Ecoast, is planned to open in Shenzhen in 2024. The group plans to operate 38 projects (not all under the K11 Art Mall brand name, as the group also operates smaller units), and a mega project in Hong Kong, 11 Skies, is currently being built.

K11 Musea

In 2017, Cheng spearheaded the $2.6 billion redevelopment of the Victoria Dockside, a site owned by New World since the 1970s. This redevelopment introduced several new ventures, including K11 ARTUS, a luxury waterside residence, K11 ATELIER, a Grade A office building, and Rosewood Hong Kong, a luxury hotel. K11 MUSEA, a pioneering 280,000 sqm museum-retail complex on the Victoria Dockside waterfront in Tsim Sha Tsui, then completed it.

Since its opening in 2019, this landmark, after ten years in the making, developed with contributions from over 100 international architects, artists, and designers, has aimed to provide an immersive "journey of imagination" for its visitors. Inspired by "A Muse by the Sea," this complex pays tribute to Hong Kong's rich history and cosmopolitan culture, occupying a historic site once known as Holt’s Wharf, a pivotal logistics hub.

The design of K11 MUSEA responds to research identifying Asian millennials as "Super Consumers," a demographic expected to wield $6 trillion in purchasing power. Catering to their sophistication and demand for exclusivity, K11 MUSEA positions itself as an aspirational global destination merging art, culture, and commerce.

Additionally, K11 MUSEA is committed to sustainable development, achieving green building pre-certifications such as LEED (Gold) and Hong Kong's BEAM Plus (Silver). Its eco-friendly design, from Kohn Pedersen Fox and James Corner Field Operations, collaborating with OMA and Hong Kong-based LAAB and AB Concept, features a large living wall, natural materials, rainwater harvesting, and a seawater-cooled, oil-free HVAC chiller system, underscoring the importance of ecological considerations.

To attract local and international visitors, the mall comprises 250 retailers, 70 restaurants, 40 artist installations, and several educational activities for kids and adults, including new to Asia names such as Fortnum & Mason or the MoMA design store.

The ground floor is dedicated to luxury brands in a stunning environment with a giant staircase in the atrium decorated with copper-coloured panels and large windows opening on a promenade overlooking Hong Kong Bay, decorated with giant pieces of art,

The first floor is a mix of retail space and exhibition and is featured in the former location of the Intercontinental Hotel, from which some elements, such as the ceiling, have been kept. The rest of the floors are also mixing experiences, such as a giant slide on 3 floors or a 12-theatre cinema, a rooftop garden with a selection of plants, and kid’s activities such as a 10-meter-high slide on the roof near the kid’s Donut playground. In fact, it is rather difficult to describe this mall floor by floor, as many different activities are intricated. For instance, a jewellery school also acting as a museum is what could be assimilated into the high jewellery section, except for the fact that this section is not as precisely defined as one might expect, and other jewellery stores are disseminated in the rest of the store. It is, in fact, all about surprising the eye and senses by bringing unexpected solicitations permanently when visiting the space. Consequently, it is also possible to feel some frustration not understanding the mall in its entirety and not making the most of the visit.

How K11 emphasizes innovation

Just like The Hyundai Seoul, public information made available to foreign customers is all about the vast offer of services and facilities made available: a nursery room, disabled facilities, mobile phone charger, ticketing, free Wi-Fi Internet access, water dispensers on different floors providing free and clean drinking water that complies with top international quality standards.

The mall also advertises its “Nature Discovery Park” on the 8th level and its “Happy Mega Slide”, a 3-levels-high slide in the kid’s area. Interestingly, everything is monetized: while the slide is free (but needs to be booked, at the frustration of some visitors), the kids playground requires a ticket to be used, and visitors can also purchase tour tickets to discover the species in the garden, learn more about the architecture of the building, and discover art and art history through themed-visits of the space.

It is, however, also notable when compared to The Hyundai, that the information provided during the visit does not allow the visitor in a hurry to be sure of having seen every single feature the mall has to offer, which might be a reason for a second visit. Attention to detail is extremely high: for instance, the buttons used to call the lifts are very smartly integrated into architectural books on shelves, encouraging customers to read about the architectural features of the building while waiting. However, this detail, for instance, might also confuse other customers when looking for the calling button.

*The examples of The Hyundai in Seoul and K11 Musea in Hong Kong showcase two distinct yet effective approaches to communicating retail innovation to younger demographics.

The Hyundai adopts a highly guided and didactic customer journey, ensuring visitors do not miss any pioneering features and services. Every detail is clearly explained, from Instagrammable experiences to seamless digital integrations, creating anticipation and allowing monetization opportunities for highlighted brands. This meticulous curation leaves little to chance, maximizing engagement.

In contrast, K11 Musea banks on an element of surprise and discovery. While key facilities are prominently advertised, the tremendous scale and artistic interweaving leave some delightful gems to be organically uncovered during the visit. This air of mystery fosters a sense of exploration that encourages repeat visits to unravel all the secrets this innovative mall holds.

Whichever philosophy they embrace, the success of these projects lies in their dedication to effectively communicating their avant-garde concepts. As the retail landscape continues evolving, stores looking to captivate modern customers must prioritize clearly articulating their unique value propositions and savvily marketing the novelties that set them apart.

For legacy retailers and contemporary brands alike, there are lessons to be learned from The Hyundai and K11 Musea's masterful translations of innovative ambitions into tangible, memorable experiences that resonate with the sophistication and expectations of younger spenders. Transparent, simple and didactic communication is key to transforming curiosity into footfall and spending. Going forward, it’s the retailers who masterfully translate innovative ambitions into tangible, buzz-worthy experiences that get people talking, which will emerge victorious in this unforgiving retail arena.*

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Credits: IADS (Selvane Mohandas du Ménil)

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In the last few months, brands have been rushing to open stores on Avenue des Champs-Elysées, hoping to catch a chunk of tourist wallets, especially the ones coming for the 2024 Olympics. Sports brands are no exception and tend to settle in retail spaces in the avenue’s central and lower sections. England-based retailer JD Sports chose another option and opened its new global flagship store in the avenue's upper section (number 118), across the street from the Louis Vuitton flagship store and not far away from Saint Laurent and Cartier. While the store was opened by Brazilian soccer legend and Nike brand ambassador Ronaldinho in April 2024, the group said it will be “continuing its run as the globally recognised king of the high street. JD’s new store offers the brand's latest innovations in digital technology and merchandising and will provide visitors access to all the hottest brands and latest launches.”

JD Sports was founded in 1981 in Bury, in the North West of England, with one shop, John David Sports. The JD group now accounts for more than 3,300 stores worldwide, including 100 in France and 29 JD Sports stores in the Paris region only. In terms of sales, JD Sports claimed in March 2024 to outperform a challenging market with a 4% like-for-like sales growth in the financial year ending 3 February 2024, reaching £10.5 billion, with an 8% organic growth. The profit before tax is expected to reach £915 million.

The retailer’s new flagship store aims to provide an immersive shopping experience to customers and establish itself as one of the sports champions on Champs-Elysées. Who will be the customers visiting the store? What will they find there to differentiate themselves in the crowded area?

Who is the store made for: JD Sports’ young customer base

According to GlobalData UK, JD Sports’ shopper base predominantly comprises male shoppers (61.3%) due to the retailer’s focus on sportswear and lifestyle brands. JD Sports caters to various customers, from sports enthusiasts and sportswear fans to trendy comfort-wear seekers. While they have been able to attract customers from all income groups, JD Sports aims to appeal to a wide range of customers, especially those between the ages of 13 and 35 who are interested in sportswear and streetwear:

• In 2021, Millennial and Gen Z customers made up 51.6% of JD Sports' UK shopper base: 22% were aged between 18 and 24, compared to 11% for its competitor, Sports Direct.
• 38% were from 40 to 59 years old, compared to 41% for Sports Direct customers.

These shares show that JD Sports cracked the code to attract the younger generation: they embrace all the youth culture codes, not just sportswear. With memorable slogans, eye-catching imagery, and partnerships with well-known athletes and celebrities, the brand’s advertising campaigns and social media channels are clearly focusing on this young demographic. During the store visit, the campaign was about ‘Nouvelle Ere’, translated to ‘New Wave’ as a slogan. Through this five-country campaign (UK, Germany, France, Spain and The Netherlands), JD Sports aims to “cultivate emerging talent from key regions” across the brand’s music, sport, community and youth culture pillars.

JD Sports is considered strong both offline and online as it succeeded in becoming an omnichannel retailer that offers a seamless journey to its young customer base, who live with their phones in hand. They show a great understanding of these customers by focusing on trends, backed up by solid data and insights.

What does the store look like: sportswear retail codes and GenZ flare

The store spans 1,500 sqm. The two-storey store window features mannequins and dynamic screens on the first floor, while sneakers wall displays serve as windows visible from the outside on the ground floor. The leading brands sold in the store have their logos on the ground floor windows: Under Armour, The North Face, EA7, On, Puma, Fila, Reebok, Supply & Demand, Ugg, Crocs, Nike, Adidas, Lacoste, New Balance, Asics, Vans, Converse, Juicy Couture, Hoodrich, Columbia, and McKenzie. Not all brands, such as Fred Perry and Tommy Hilfiger, are mentioned on the windows.

Progressing from the entrance to the back of the floor, the ground floor is mainly dedicated to sneakers and articulates as follows:

• Men’s shoes (90% sneakers),
• Women’s shoes (90% sneakers),
• Socks, caps and lifestyle shoes (Birkenstock, Crocs, for example),
• Cash desks and 3 fitting rooms (which were closed at the time of the visit),
• The back of the floor is split into 2 parts: a soccer section (mainly offering team jerseys) and a teen and kids shoe section.

Not surprisingly, the ground floor was crowded with young customers. Quite empty at the time of the visit, the first floor is dedicated to textiles and displays a product offer well-balanced between sports, streetwear and lifestyle clothes:

• For women, the product offer is mainly oriented towards tracksuits, leggings and athleisure wear, balanced with lifestyle brands such as Juicy Couture.
• For men, the offer seems more streetwear-oriented than performance-oriented. It concentrates on daily-wear branded T-shirts, NBA shirts, and bathing suits. For example, The North Face equally offers technical and lifestyle products.
• A similar balanced offer is available for kids and teens.
• 2 fitting rooms and cash desks are also available on this floor.

With various stone and metal types, JD Sports’ store concept is mainly black and grey, the usual colour codes sports retailers use. Touches of yellow are used to catch the customer's attention, especially for direction purposes. The lighting is only made with neon. To cater to the younger generations (at the time of the visit, most store customers were under 20 years old), the concept includes many screens (on the walls and ceilings) promoting the retailer ad campaigns and customer app and the brands they carry. These screens bring additional touches of colour, making the store more appealing. The screens on the ceilings also serve as transitions between sections. The music, pop and rap hits, is loud.

Store services and key features

The sales staff is very young, reflecting the customer base. They are well-trained, smiling, and systematically greet customers from the store entrance and throughout the journey. They wear uniforms: black JD Sports-labelled t-shirts and cargo pants, as well as yellow badge and phone holders, matching the store concept and making them very visible. During the opening month, the store included features like sneaker customisation and clothing embroidery, showcasing JD Sports' commitment to a personalised shopping experience.

All shoe sections are equipped with small TV screens hanging from the ceiling. When customers ask to try a pair of sneakers, sales associates can scan a QR code on products. Depending on the item's availability, the screen informs the sales associate that the required pair is ready to pick up at a specific counter (each item has a picture, reference, store section and requested size). This allows the sales staff to be fully dedicated to customer service instead of going back and forth in the stock room. Despite the many customers in the store, there were not many to try shoes on. It shows the store might be more of an occasion to socialise and browse products for the younger generation than to shop.

BOPIS options are available in the store. On both floors, through a specific ordering kiosk, customers can access the entire product catalogue, order and pay for their order to be delivered to the store of their choice or at home, and retrieve these orders, as well as click-and-collect orders, at the cash desks. At the time of the visit, customers were not using these kiosks.

There are very few fitting rooms in the store. At the time of the visit, only 2 were open, on the first floor, where ready-to-wear is located and where the traffic was relatively low compared to the busy ground floor. This shows again how the young generations use physical stores for experience and inspiration and e-commerce for ordering. Similarly, the cash desks were not busy with customers.

Finally, the soccer section on the ground floor offers a free FIFA Nintendo PS5 game console for small groups.

Sportswear fans know JD Sports’ “Undisputed King of Trainers” slogan. So will Champs-Elysées. The prestigious avenue is getting ready for the Olympics and will be packed with sports brands. Nike has been there since 2020 with its 4,300 sqm House of Innovation. Adidas' flagship store is currently relocated (and should be improved) from the lower to the mid-section of the avenue, with a 2,800 sqm space. On and Salomon are currently under construction. Lululemon opened last year, and Lacoste has a 1,600 sqm flagship store since 2022. How will JD Sports make a difference in this crowded area? JD Sports’ new location is in the more luxury-oriented part of the avenue compared to the other sports brands settled in the lower part with which they compete. As location can make a difference, in good or in bad, JD Sports is the second multi-brand sports retailer on the avenue, after Foot Locker, located in the lower part of the avenue. With a wider choice of sneaker options and a store designed for teens, JD Sports seems poised to attract more younger customers.

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Credits: IADS (Christine Montard)

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The rise of department stores in the mid-19th century marked the beginning of a commercial revolution that shaped retail and consumer culture as we know it. The world's first department store, Au Bon Marché, founded by Aristide Boucicaut in 1852, introduced groundbreaking commercial innovations and created a capitalist business model that birthed unique and effective marketing techniques still commonly used by retailers today.

The IADS had the opportunity to visit the “Birth of Department Stores” exhibit on display from the 10th of April to the 13th of October 2024 at the Musée des Arts Décoratifs in Paris. The exhibition's second part (IADS is a partner) will be presented at the Cité de l'Architecture et du Patrimoine from November 2024 to April 2025. It will place the emergence of department stores in a broader context, looking at the history of these institutions over time and in an international context.

Such excitement around the topic of department stores called for a piece on their history, reminding us why we love this model so much. From the seven hundred pieces on display, ranging from posters to clothing and toys to furniture, the exhibit allows visitors to understand the evolution of commerce and department stores from 1852 onwards. The long history of department stores underscores their lasting impact on both the commercial landscape and societal norms, prompting reflection on future innovations that will define the next era of retail.

We connect in the below piece the most recent initiatives spotted around the planet to their origins, and try to see if modern department stores remain true to their original groundbreaking role.

Department Stores started a commercial revolution

The exhibit outlines the rise of department stores in Paris, France, where the first-ever department store was born, becoming the new template of modernity and consumerism in the 19th century.

The rise of department stores in the mid-19th century started a commercial revolution that fundamentally transformed retail and consumer culture. Au Bon Marché’s Aristide Boucicaut laid the foundations of modern commerce with major commercial innovations like the invention of sales, fixed prices and seasonal exhibitions, children as a new commercial segment, and even mail-order sales.

Each of these innovations answered a specific question. Seasonal sales solved the question of extra inventory and were an occasion to attract less affluent customers willing to shop at Le Bon Marché despite limited means. Exhibitions helped maintain customer interest throughout the year and reduced slow periods. By organising events for products like household linens and fashion accessories, department stores could sustain a steady flow of customers. The use of free advertising calendars given to customers and posters by prominent illustrators further enhanced the appeal and visibility of the store, creating a culture of regular shopping events that encouraged consumerism.

Including children's sections in department stores marked a significant shift in retail strategy. As societal views on childhood evolved, children became a new commercial target and an additional way to attract female customers. Stores began offering a variety of children's clothing and toys, reflecting the growing importance of children in the family unit. Since then, department stores always maintained kidswear and toy sections, sometimes making them a strength in their business, as is the case at Manor, especially with toys. Despite ongoing challenges with kids-related products, department stores continue to find ways to represent this segment, showing the importance of an extensive product offer catering to their primary customers, women. Department stores show great agility in mitigating the impact of kids' product slowdown. For example, in May 2024, Galeries Lafayette Haussmann partnered with US famous retailer FAO Schwarz: the company took over the existing toys department to create a 620 sq. meter new toy area featuring iconic elements like toy soldiers and a giant piano. Differently, Boyner has embraced this trend with their new "Dynamic Teen store" at Boyner İstinyePark in Istanbul, which focuses on sports and entertainment for Gen Z and Gen Alpha. Department stores can create lifelong customers by introducing children to shopping alongside their mothers, appealing to them as teenagers, and retaining them as young adults.

Mail-order sales were another revolutionary aspect introduced by department stores. Boucicaut's colourful catalogues helped Au Bon Marché reach people outside of Paris, making its products available to more customers. American retailers like Sears and Montgomery Ward in Chicago later perfected this model. Unlike the earlier French mail-order businesses, which targeted niche markets or elite customers, Ward's model was designed for the general public, particularly those in rural areas. He issued the first general merchandise catalogue in 1872, which was simple and easy to use, listing 163 items on a single sheet of paper. Ward also introduced innovative product return practices with the "satisfaction guaranteed or your money back" policy in 1875, which built customer trust and loyalty. This innovation was significant in the United States, where distance had previously made it hard for people to access various products. Department stores were indeed at the forefront of distance ordering and delivering customers to their homes.

Today, this foundation has transformed into e-commerce. Even though some department stores were late in the digital commerce race, the COVID-19 pandemic forced them to transform rapidly. They now offer options such as ordering in-store for home delivery and same-day delivery services that cater to the demand for instant gratification. Omnichannel strategies like "Buy Online, Pick Up In-Store" (BOPIS) blend the convenience of online shopping with the immediacy of in-store pickup. At the same time, integrated approaches ensure seamless transitions between online and offline experiences. By constantly observing their customers and sticking to their needs, these innovations provide convenience and satisfaction, prompting us to wonder what new innovations will define the next era of retail.

By putting women at the centre, department stores started a social revolution

Department stores played a significant role in the liberation and emancipation of women, transforming public spaces and social norms during the late 19th and early 20th centuries. These establishments offered women a socially acceptable venue to step outside their homes, facilitating a new form of public participation that was previously limited or entirely restricted.

Historically, women's presence in public spaces was heavily regulated and often frowned upon unless a man accompanied them. Middle-class women, in particular, faced societal scrutiny if seen unaccompanied in public, as this was associated with scandalous behaviour. The emergence of department stores began to change this dynamic. These retail palaces were designed to be inviting and luxurious, featuring elaborate displays, comfortable lounges, and various departments catering specifically to women's needs and desires. The store wasn’t just about shopping; it was about creating a space where women could socialise, explore, enjoy cultural events and assert their presence in the public realm without needing male accompaniment. Department stores' architectural design and marketing strategies were crucial in promoting this new public role for women. Stores like Le Bon Marché in Paris and Macy’s in New York were true social hubs.

Department stores also played a pivotal role in employing women, marking a significant step towards economic independence for women. Positions such as saleswomen allowed women to work outside their homes in a respectable environment, breaking away from traditional roles confined to domestic, agriculture and/or factory work. Despite extremely difficult working conditions and a highly patriarchal culture, this employment provided financial independence and fostered a sense of self-agency and personal growth. Like men, women could also occupy management positions. Overall, cities became more attractive as they transformed into job centres, another aspect of the social revolution department stores were part of.

In essence, department stores acted as catalysts for social change. They gave women unprecedented freedom to explore public spaces independently, engage in economic activities, and participate in the booming consumer culture. This newfound public presence was a first step towards gender equality, challenging and gradually altering the misogynistic norms that confined women to private, domestic spheres. So, the rise of department stores was a commercial revolution and a social one.

From shopping palaces to modern consumption and cultural landmarks

The department store in the late 19th century stood as a monument to the new bourgeoisie class and used its members' entrepreneurial drive to accelerate growth and create a profitable business model. The middle class of that time fed off of the material world; the wide variety of garments and surplus of goods catered to the bourgeoisie, who would flock to put themselves on display at these stores.

Department stores became the symbol of modernity, not only through their innovative architecture but also by pioneering a new commercial system that laid the groundwork for contemporary marketing. Large, vibrant advertising posters were on display at the exhibit, showcasing elegant dresses that embodied the desired lifestyle of the time — depicting scenes like women strolling on beaches and in city streets while dressed in their finest attire. Making department stores visible outside of their premises was crucial: for the first time in history, these ads showed the act of shopping driven by desire rather than necessity, creating what was later called consumption.

Also, department stores developed techniques based on the notion that customers are not merely buyers but visitors who have come to experience the grandeur of the store. Usually featuring unique and innovative architecture and located at the heart of cities, these stores transformed shopping into a leisurely activity akin to attending the theatre, portraying department stores as attractions first and shopping destinations second. Nowadays, retailers are increasingly curating experiences to attract and retain consumers. Despite changes in the retail landscape, they continue to employ strategies that emphasise their role as destinations, leveraging stunning architecture and interactive displays to create engaging environments.

Historically, department stores have been architectural marvels designed to impress and entice visitors, contributing to reshaping city centres. This tradition continues as modern department stores often feature innovative and beautiful designs that draw people in, creating a sense of wonder and luxury. For example, this is the case at the Hyundai Seoul, which has a large atrium filled with trees, and Birmingham's stunning Selfridges store building. In addition, window displays and in-store pop-ups remain central to the department store experience. These visually captivating presentations are designed to inspire desire and imagination, transforming shopping into an event. Interactive elements, such as live demonstrations, themed displays, and experiential zones, enhance this immersive experience, as is the case at SKP-S. Over time, they expanded their influence and revenue potential thanks to new ventures outside their original premises. Most expanded to secondary cities, with stores becoming the new city centre landmarks.

Department stores emerged as cultural landmarks, blending innovative architecture and immersive shopping experiences to attract and retain consumers. Today, they continue to adapt to modern retail challenges by integrating digital advancements and maintaining their status as cultural and social hubs. The focus on creating a memorable experience as a primary marketing strategy ensures that department stores remain relevant and enticing to a new age of consumers. They encourage repeat visits and customer loyalty by offering a unique environment that combines shopping with entertainment and leisure. In the modern landscape, where department stores compete alongside e-tailers, positioning themselves as cultural and social hubs is more than ever pertinent to maintaining their appeal. The development of the department store from the early days of Le Bon Marché in Paris to today’s global retail giants shows their resilience and ability to adapt, innovate, and thrive in the dynamic industry. Reflecting on the rich history and impact of department stores on society, it is apparent that their evolution over time has shaped not only the retail sector but also cultural norms, paving the way for future innovations in commerce and retail. Their story is one of continuous change, a testament to their foundational role in the commercial and social fabric of society.

Credits: IADS (Katie Clark & Morghan Pollard)

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Check out the pictures here

After years of speculation, Dover Street Market, the renowned fashion concept store founded by Rei Kawakubo of Comme des Garçons and husband Adrian Joffe, finally opened a new location in Paris. Located in the Marais area, the new store is the 7th location to open over the last 20 years after Tokyo, London, Beijing, New York, Los Angeles and Singapore (not to mention Dover Street Market Parfums opened in Paris in October 2019). Kawakubo and Joffe After took over the building in 2019, but soon after, they decided to wait until the pandemic was over and tourism normalised to open the store. From 2021 to 2023, the gorgeous 17th-century Hôtel de Coulanges (once the house of French writer Madame de Sevigné) temporarily housed a non-profit cultural hub (“le 35-37”, after the street number the building is located at) hosting art exhibitions, fashion shows, temporary fashion markets and art performances. All these events supported the anticipation and excitement around the space opening and secured a break on taxes and rent. After this long delay, the much-anticipated store finally opened to consumers on Friday, 24 May 2024. What can one expect from this latest Dover Street Market family addition? Paris is seen as the fashion capital, but will the store succeed in the long run?

Dover Street Market's Paris location: a unique ecosystem approach

The store spans 1,100 sqm on 3 floors and is centred around a courtyard accessible from the street (rue des Francs-Bourgeois). The store occupies the ground and first floors of the building and parts of the basement. Kawakubo designed the store and said she wanted its design to be a statement in itself, focusing not on selling garments (clothes are not visible from the street, for example) “but rather a space in which shoppers can immerse themselves.” Considering the historical nature of the building, the store is a succession of rooms (some are relatively small). The retail space is genuinely immersive, if not too much of a labyrinth, making it easy to miss parts of the store. The customer journey starts on the ground floor. Then, the staff recommends continuing in the basement on the first floor before ending up in another part of the ground floor.

When exiting the store, customers can seamlessly access other experiential parts immediately accessible through the next-door entrance. More of an ecosystem than a store, Dover Street Market also includes a Rose Bakery coffee shop (as is the case in the other retailer’s locations) with a terrace and 2 different basements (-1 and -2 floors) offering 2 exhibition spaces, making the store a genuinely experiential destination. At the time of the opening, one of the exhibitions was about the Bovan label, and the other showed pictures of the long-time collaboration between Comme des Garçons and photograph Paolo Roversi. That’s not all there is. Not accessible to the customers, the upper floors house the Dover Street Market’s brand development team, offices and various spaces to host events and showrooms for the roaster of brands supported by the company (and sold in the store).

What about the store concept? In many parts of the store, the interior design takes cues from the big white curved furniture and counters that one can find in the Tokyo Aoyama Comme des Garçons store. In other parts (especially in the basement), racks and displays are made of industrial steel poles and tubes, highlighted by coloured neon lights. Very few colours are used besides white, with a baby blue or a light pink wall here and there. Floors alternate raw concrete and old hardwood pavement. The natural light floods almost all parts of the store. Overall, this store does not include the kind of impressive props usually punctuating the other Dover Street Markets locations (such as the gigantic pillar covered in knitwear in the NYC store or the gigantic bugs in the Tokyo store). However, the retailer’s identity is visible. The staff is plenty and reflects the store style.

The challenges and opportunities of independent fashion

Unlike their other locations, Dover Street Market Paris almost exclusively focuses on independent fashion labels under the wholesale business model and does not include global luxury brand concessions. Even though the store business model might consist of consignment deals, this business model makes a big difference in terms of investments and operations. According to CEO Adrian Joffe, small independent designer brands' biggest challenge is the lack of a platform to showcase their work (especially after Matches Fashion collapse). As such, Dover Street Market is an excellent window for these labels.

Brands and products are mixed, with no visible gender, category, or price logic for a customer journey starting on the ground floor, continuing in the basement, on the first floor, before ending up in another part of the ground floor. The result of this unusual mix creates a diverse and refreshing shopping experience. The store houses many brands (the lists below are not exhaustive):

• Ground floor: Comme des Garçons is the first brand upon store entrance. Many of its sub-labels are available (Play, Black, Shirt, Homme Plus, Homme Deux, Girl…) and are to be found on each floor. Other brands are Melitta Baumeister, Junya Watanabe, Noir Kei Ninomiya, Vaquera.
• Basement: Erl, Jacquemus, Online Ceramics , Bovan, Rassvet, Loutre, MM6, Zomer, Kidill, Kartik Research, Human Made, Westfall.
• First floor: Meta Campagna Collective, Bottega Venetta men mixed with Random Identities and Prada men, Walter van Beirendonck, Objet Trouvé, Doublet, Willy Chavarria, Charles Jeffrey Loverboy, JW Anderson, Rick Owens, Lido, Simone Rocha, The Shepherd, Undercover, Bottega Venetta women, Miu Miu and Prada women, Marine Serre, Ponte, Cecilie Bahnsen, Duran Lantink, Sacai, Molly Goddard, Junya Watanabe Man, Jah Jah, Kiko Kostadinov, Eckhaus Latta. The first floor also has a room dedicated to sneakers, which will probably be a key source of revenue.
• Second part of the ground floor: Nicolo Pasqualetti, Wales Bonner, Marc Jacobs, Craig Green, Hed Mayner.

There are almost no brands from the LVMH group (aside from JW Anderson and Marc Jacobs selections) and the Kering group. Among the big global brands, only a short assortment of Prada, Miu Miu, and Bottega Venetta offer luxury products.

This radical approach is indeed a risky bet on independent fashion. Even though prices are not low, the store cannot rely on high-priced Louis Vuitton, Loewe or jewellery products as in other Dover Street Market locations.

Will it work?

Considering the traffic, choosing a location in the Marais seems a safe bet, but it doesn’t come without risks for a retailer like Dover Street Market. The Marais’ reputation is to be a stylish and trendy area. Still, it is now more of another outlet for blockbuster fashion and beauty brands such as Sandro, Maje, Diptyque or Kiehl’s, to name a few, than an area for edgy and independent fashion to thrive. Also, despite tourists flooding the streets and relatively wealthy people living there, luxury brands failed to establish themselves in the neighbourhood, showing the Marais is not the right area for them. Dover Street Market customers are usually luxury fans, so will they be convinced by the assortment?

As said, independent fashion is another risky bet. Once they see how it works, Dover Street Market is said to discontinue around 20 brands from the next buying season to focus on the most successful ones, as it seems obvious that not all of the countless labels will find their audience. On the other hand, Paris misses a concept store like Colette. There is undoubtedly a vacant spot here for Dover Street Market to cater to the Paris fashion crowd. Also, these labels are offering more accessible price points (t-shirts start at €100), so it will be an opportunity for customers to buy a chunk of hype at a low cost.

Professional press and Paris fashion people have gushed about the success of the opening. According to BoF, traffic on the first day was 2,500 people with a 20% conversion rate, generating €75,000 (including Rose Bakery turnover) for a €40,000 budget. The average basket was €150, which seems relatively small for a store like Dover Street Market. Figures on the second trading day (the first Saturday of opening) were not disclosed. The store targets €12 million in revenue in the first full year of trading and aims to reach profitability in the second year at around €15 million. BoF mentioned that previous locations needed 3 to 5 years to break even.

The opening of Dover Street Market in Paris marks a significant addition to the retailer’s global footprint, introducing an immersive retail experience in the historic Marais district. This new location, designed by Rei Kawakubo, emphasizes an ecosystem approach rather than a traditional store layout, incorporating art exhibitions, a Rose Bakery coffee shop, and spaces dedicated to brand development and events. By focusing primarily on independent fashion labels and avoiding reliance on major luxury brands, Dover Street Market Paris offers a distinctive and diverse shopping experience different from other high-end boutiques and department stores in the city. Despite the fashion market challenges and the inherent risks of promoting small designer brands, the initial response has been promising. The store has seen significant foot traffic and sales, reflecting its potential to fill the void left by previous concept stores like Colette. Dover Street Market could become a hub for fashion enthusiasts seeking niche brands and an alternative shopping experience underlined by a true sense of community.

Credits: IADS (Christine Montard)

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The IADS was thrilled to attend the 2024 Viva Technology conference last May in Paris, eagerly seeking out key trends and exciting startups that could bring value to our members. VivaTech 2024 broke new ground with record-breaking attendance of 165,000 visitors, a 10% increase over last year. The event buzzed with energy, attracting 13,500 startups from over 25 business sectors and over 2,000 investors. One hundred twenty countries were represented, solidifying VivaTech’s central position on the global tech panorama.

At VivaTech 2024, the interaction between startups and tech champions highlighted a significant trend in the tech industry. The event not only emphasised established tech companies' dominance but also showcased the boundless innovative potential of startups.

Key themes included artificial intelligence, retail, climate technology, and mobility solutions. Despite the prominence of major corporations, the event still celebrated start-ups. VivaTech 2024 facilitated connections between startups, investors, and corporate partners, promoting an ecosystem where emerging companies could flourish alongside tech champions. This balance indicates that while tech champions are undeniably powerful, the startup dream is far from over. Startups continue to be essential drivers of innovations, especially in niche markets and emerging technology sectors. Our non-exhaustive review below highlights the most relevant retail trends we spotted this year for our members.

Tech champions vs. startups: is this the dawn of realpolitik in tech?

While having traditionally communicated on the startup ecosystem to promote a certain mindset in technology, this year, VivaTech concentrated on "tech champions", referring to companies that play a crucial role in shaping the technology sectors in their respective countries.

These companies have the economic power and capacity to promote innovation, attract talent, create jobs, and boost investment and exports. They can dominate their domestic markets and grab a significant share of global markets. Their size can even sometimes surpass country economies: if Nvidia, a chipmaker, was a country, it would be the 12th largest economy in the world after Mexico.

Tech champions are crucial for the growth of digital economies, as they create other similar enterprises, put significant resources into innovation ecosystems, and integrate new products at a global scale. They also provide practical exit opportunities to startup entrepreneurs and invest heavily in research and development. Overall, some believe that developing tech champions is crucial for the growth and competitiveness of digital economies, and countries must adopt the right policies and strategies to support their emergence.

It is notable, however, that not all players share this vision. Many, such as Meta's tech scientist Yann LeCun, are also calling for more control over these companies.

Many startups can potentially become tech champions, especially if they demonstrate innovative solutions, vigorous growth, and strategic approaches to scaling. Tech champions are companies that play a pivotal role in the global technology industry, driving innovation, attracting talent, creating jobs, and boosting investment and exports. Startups can achieve this status by following strategic approaches and developing necessary economies of scale and scope.

AI in retail goes beyond chatbots and copywriting.

AI continued to reign and dominate the event this year as companies showcased new and more concrete AI-powered use cases from fashion, beauty products, and payment systems. Below is a subjective curated selection of some of the most inspiring and exciting start-ups we spotted at VivaTech:

• Lowe’s Lowebot (retail): Lowebot is a prototype exploring how Autonomous Retail Service Robot (ARSR) technology can improve and enhance in-store service within a large-scale retail environment. It is designed to help customers with more straightforward needs navigate throughout the store and guide them to the product they are looking for, allowing them to get in and out quickly with exactly what they need. On a sales associate level, Lowebot is designed to enhance the employees’ ability to serve customers by addressing simple questions, focusing on more complex queries and delivering trusted project advice. Additionally, Lowebots allows for the streamlined processes and facilitation of real-time inventory and patterns across the enterprise.
• imki (fashion): Augmented and creative AI for luxury and fashion; a creative process with tailor-made, specialised, secure, and responsible solutions. They offer their clients specialised “business” AI bots, the bots having explicitly been trained, and they guarantee accuracy, precision, and efficiency. AI bots are adapted to the clients, driven by their brand DNA. They integrate their codes, the foundation of the brand, and their identifying product attributes. When brands integrate imki into their process, they reduce the time from the first creative explorations to the design phase and then to the product realisation. As a result, the product is brought to the market faster, reducing the risk of unsold, overstocked, and wasteful products.
• xydrobe (fashion): xydrobe collaborates with luxury brands to create narratives for customers. Their platform offers brands a unique opportunity to weave their stories into immersive virtual worlds, engaging the audience on a deeper level. Physical meets virtual, whether through the one-person xydrobe Pod or multi-person VR cinema, delivering one-of-a-kind experiences.
• Scentronics (fragrances): Scentronics was created on the belief that the era of mass perfumery is over. People no longer want to smell the same under the “rule” of brands. By breaking the traditional supplier-brand-retailer model to create and distribute scents, they bring actual value to consumers. Scentronics is the first AI-driven public scent creation platform. The customers' personal data (such as likes, dislikes, what makes them happy or sad) is collected via an intuitive web app, applied to the matching scent, and one’s perfume is made. These machines are currently found in over 45 countries, and the number is growing. They have three different scale models, each holding several ingredients, and can make a certain number of samples or bottles per hour, depending on the scale model.
• Lunu (payment systems): parallel to the product category innovations, we also spotted this startup that offers payment terminals to support a wide range of cryptocurrencies and wallets, making such transactions as easy as using a credit card.

Case study: AI and robotics are transforming inventory management

As every retailer knows, keeping inventory track has become more complicated given the amount of stock to move online and offline.

AI algorithms allow more accurate and data-driven decision-making processes. They optimise stock levels by analysing vast amounts of data, ensuring the right products are available at the right time. This reduces the risk of stockouts and overstocking, improving customer satisfaction and profitability.

AI-powered systems use historical sales data, market trends, and external factors to predict demand accurately. This enables retailers to make informed decisions about inventory replenishment, avoiding overstocking and costly markdowns, referred to as predictive demand forecasting. It also automates tasks such as updating inventory levels, reordering products, and predicting demands. Automating inventory management minimises human error and ensures optimal inventory levels, reducing the need for manual intervention.

AI and robotics automate inventory tracking, reducing the time and effort required for manual counting and coding. This improves accuracy and efficiency in inventory management.

These AI algorithms analyse customer preferences and purchase patterns to offer personalised inventory management, ensuring the right products are stocked at the right place and time. AI and robotics are integrated with supply chain operations to optimise inventory distribution across various locations, reducing transportation costs and improving overall operational efficiency.

AI-powered systems monitor inventory levels and sales data to prevent discrepancies and identify issues, ensuring products are consistently available for customers. Some of the top start-ups we found that are revolutionising supply chains with AI and robotics are:

• Trax: Provides in-store solutions using computer vision, machine learning, and hardware like cameras and autonomous robots to gather real-time data about shelf availability.
• Standard Cognition: Develops AI-powered checkout systems that allow customers to grab what they want without needing to go to a cashier.
• Trigo: Develops AI-based automated retail checkout systems, which can be seen in many different types of retail and service establishments with varying degrees of complexity. The common thread is the empowerment of customers, enabling them to complete transactions at their own pace.
• Sentient: Develops AI solutions for website experimentation and e-commerce recommendations that can transform customer experiences and increase conversions.
• Bossa Nova: This company produces robots for retail stores that scan shelves to help employees restock and track where items are located.
• Everseen: Uses computer vision to prevent theft at self-checkout counters.
• AiFi: develops store automation systems using AI and robotics. Its camera-first frictionless checkout experience allows shoppers to anonymously purchase items in-store without having to wait in line, stop to scan, or pay.

AI was not the only topic to take the stage, as sustainability remains an area for innovation

Sustainability remains a hot topic, and the event highlighted green technologies and sustainable solutions to reduce the environmental impact of digital technology. This included innovations in transportation, logistics, and energy efficiency.

CNN International gave a masterclass on how CNN is adapting its approach to sustainable storytelling.

Producing commercials can be unsustainable due to all the work and travel that goes into creating them. CNN started Create, an award-winning brand studio that works with a broad range of global brands to bring their stores to life, to the team space, TV, digital, and social.

Retail businesses can follow CNN Create’s lead by integrating sustainability into their operations, from transportation and material use to waste management and energy consumption. By doing so, they can significantly reduce their environmental impact and appeal to the growing market of eco-conscious consumers.

Create examines six critical areas: transport, material, disposal, fuel, and space. To reduce air travel emissions, Create sends smaller crews and uses local/remote crews. Where possible, Create will aim to use electric and hybrid vehicles.

As for material, Create will encourage all relevant parties of their productions to cut meat from catering and restrict the use of plastics. Regarding disposal, Create will follow the AdGreen ‘waste hierarchy’ of “Reduce, Reuse, Recycle, Recover, and Dispose” to aim for higher reuse and recycling rates. As for fuel, Create will use electric vehicles where possible and opt for petrol instead of diesel. Lastly, Create will explore energy-saving solutions and find ways to ensure that space can be powered by renewable energy.

Create continues its mission to obtain carbon-neutral certification for global film productions and events and has joined Ad Net Zero to help reach this goal. They place sustainability stories at the centre of campaigns and ensure all films and events are produced with our carbon footprint in front of our minds.

VivaTechnology 2024 demonstrated the enduring significance of startups in driving innovation, even as tech champions continue to dominate the industry landscape. The event highlighted the complementary roles of both entities: tech champions with their extensive resources and global reach, and startups with their agility and innovative prowess. Key themes such as AI in retail, sustainability, and the evolving realpolitik of tech underscored the potential for synergistic growth. By fostering connections between startups, investors, and corporate partners, VivaTech 2024 reinforced the idea that the startup dream remains vibrant and essential. As startups and established companies navigate this dynamic ecosystem, their collaboration and competition will continue to propel technological advancements and economic growth.

Credits: IADS (Elisabetta Falco Beccalli)

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Check out the pictures here

Brand differentiation through a strong and relevant positioning is commonplace. The leading brands are built-in with clear added value and customer promise, meaning that the best-in-class are often pre-empting a whole category in the minds of customers. For example, Louis Vuitton is linked to “the art of travel” (a phrase which encapsulates its origins as a trunk manufacturer, its positioning as a luxury brand, and connotes an idea of freedom of movement), Nike relates to sports and performance, and Emirates Airline with the notion of travelling in style. This is true as well for branded retailers: Apple’s appeal is all about uncompromising quality high-tech lifestyle, Zara about high fashion at affordable prices, and The Gap about quality apparel at the right price.

For brands and branded retailers, such differentiation in the minds of customers is achieved through heavy marketing investments, allowing them to establish a clear positioning which is at the core of their business.

Third-party retailers, such as department stores, are in a different position, especially for the larger ones. For a long time, they were seen by both businesses and customers as “houses of brands” and, as such, able to talk to anyone, proposing “everything under the same roof” (JCPenney was promising in 2006 “It’s all inside. For all the sides of you”, and well before that, Harrods’ motto was “all things for all people, everywhere” in Latin). For that reason, they were positioning themselves as being a crossroads (in Paris, well-known slogans like “everything can be found at La Samaritaine” and “there is always something going on at Le Bon Marché”), places of constant discovery (Manor’s slogan is “Special Everyday”, Isetan Shinjuku’s promise in the 1960s was “everyday is new. Isetan is for fashion”), or pre-empted the authoritative position of being the leading fashion destination (Harvey Nichols slogan in the 1950s was “London’s leading fashion house”, Peek & Cloppenburg was “House of Fashion” in 2000, and Dillard’s “the style of your life” in 2009). The notion of price was also important: in 2001 Arnotts was promising to be “the heart of style and value” while John Lewis has long committed to “never knowingly undersell”.

However, a brand promise based on being the place to be, at the edge of fashion, or at the best price, is quite difficult to sustain in the digital age when the Internet precisely allows the creation of massive digital marketplaces, giving access to the most obscure fashion in a millisecond, and always with the possibility to compare prices with retailers across the planet.

Some department stores have resisted thanks to their historical advantage: Harrods or KaDeWe’s reputation about luxury is universal (KaDeWe’s slogan in 2004 was “the fine art of first-class shopping”) while Galeries Lafayette is recognized as a place where fashion is much more than a mere promise, by giving access to every trend from across the planet.

But what happens when the goal is to pre-empt a new market, far from the historical moneymakers that luxury, fashion, cosmetics, or home categories have represented for department stores?

Last September, for the first time, IADS member Boyner, in Turkey, hostedtheir “Boyner Dynamic” event: 3 days of outdoor activities and gatherings to establish Boyner as the leading lifestyle destination in the country. The catch? Nothing was to be sold. It was all about gathering people together and animating a community. Let’s review it.

Boyner’s strategic goals are to capitalize on a perfect trifecta of changes, with the country, customers and market changing

We reviewed Boyner’s history in an IADS Exclusive earlier in 2022. What came up clearly about the situation the company found itself in was that a change was needed due to macroeconomic shifts in the country:

• The country’s population is younger than in Europe, but ageing: the median age is 33.5 years old (to be compared with 28.3 years old in 2007), with half of the population aged less than 30 years old.
• This population is urban (77% live in cities), connected to the Internet (95.5% of the 15-24 years old and 80.8% of the 25-74 years old) and healthy: life expectancy in Turkey is 77.31 years (the same as in Europe), 9 years more than in 2000, and a whopping 20 years more than in 1980 (while, in Europe, life expectancy was above 70 years in 1980).

As such, the average Turkish customers know trends and are well informed about brands. In parallel, the notions of nature, environment and health have become much more important than in the past.

In parallel, Boyner underwent some significant changes, as we reported in our previous paper: it transformed from being a manufacturer-turned-retailer in the 1950s to a branded distribution group, active in many verticals, and heavily relying on its private labels, appealing to the middle class.

This strategy worked until a few years ago, and 2020 represented an inflexion in the strategy with the release of a new store concept acting as the visible part of a new company approach to the market. Sensing that customers were evolving and starting to ask for something else, especially the younger ones, Boyner decided to pivot in the following areas:

• They decided to become a “lifestyle multi-brand destination”, combining private labels and international brands, selected, curated and presented in a way which appealed to and made sense for the new generation of customers,
• Anchoring the stores in their neighbouring communities was also key, as price was not seen as a sufficient differentiation point anymore. Sustainability and wellness were identified as key differentiation points, in tune with customers’ new preoccupations.
• Proposing a set of new innovative digital services, including state-of-the-art apps and a 90-minutes delivery service, Boyner Now, to easily blend into customers’ lives while at the same time facilitating the data harvest.

As a consequence, new stores were opened which reflected exactly this: vibrant locations with a different approach according to the neighbourhood (the first iteration, Cadde, located in the Asian part of Istanbul, has a different look & feel from the latest unit to have opened, in the posh Istinye Park location), but all promoting the notion of a sustainable lifestyle, good for the planet and oneself (this was also a very astute way to differentiate from the other large retail company in the country, Beymen, a former entity of Boyner, which is fully focused on trendy fashion and luxury).

However, Boyner’s top management also realized that new stores, and money invested in marketing campaigns, were a necessary, but not sufficient, condition for success: they had to find ways to change the Turkish customers’ perception of them (especially the younger ones), not an easy feat knowing that the company, and the brand name, have been around for 70 years. This is how they came up with the idea of the Boyner Dynamic Fest.

What was the Boyner Dynamic Fest?

Last September, Boyner organized a festival over a sunny weekend, in Istanbul’s largest open-air park, to “celebrate its passion for active life”. More specifically, this meant that Boyner organized a multi-faceted event designed to entertain its customers and celebrate a sporty lifestyle:

• The first day opened with a morning run, and participants were then invited to take part in dance workshops, workout routines, yoga sessions and other communal activities over the weekend which were striking in terms of the level of participation from many different generations of people,
• It was also possible to practice sports, thanks to a basketball court, a soccer field, gym machines and bikes in the open air,
• Nutritionists and life coaches were also animating workshops to explain more about the work-life balance, and Boyner completed this approach by inviting Turkish Olympic athletes on stage to share their experience with the crowd,
• A kid’s zone was organized where children could play, spend energy, practice face painting, or design wooden shoes.
• The 2 days were also peppered with concerts and public performances from Turkish singers and celebrities.

The event also aimed at communicating on the topics of sustainability. For this reason, participants were invited to step for charities: 1.3m steps were given to 11 non-governmental organizations in the domains of health, sport, and education. Also, the whole event was designed to be waste-free: rubbish was collected and recycled (7,000 plastic bottles and 4.5 tons of garbage were recycled), including the decor (500m2 of vinyl was upcycled) and raw material (6 tons of water used during the event were used in agricultural irrigation after the event, and 3,600 nails used in the festival were removed and reused).

All in all, the event looked like a very pleasant festival, which ticked all the boxes in terms of encouraging a healthy, green, and responsible lifestyle, but mixing it with enjoyable experiences and learning. As the Boyner CEO put it after the event, “We feel responsible for social goods on issues that affect everyone, such as the good life, and we always take steps that we combine with experience”.

What was so special about the Boyner Dynamic Fest?

From a participant’s point of view, this event looked like a very cool and enjoyable weekend full of activities that could be practiced in open-air, with family and friends. The fact that entrance was free of charge probably also helped.

However, a closer look at how the event was built showed some interesting features.

First, while the event entrance was free, participants had to register through a dedicated platform, independent from the existing Boyner ecosystem (the Boyner Dynamic Fest was advertised on a regional basis independently from the retail platforms). All in all, the event attracted a crowd of 6,000 people, which means that this event was a good deal in terms of customer data acquisition and the ability to contact them, even if they are not customers yet, in the future.

Also, another interesting point is that many brands took part in the event. In a dedicated area, a village of brands was built, with names such as Adidas, ASICS, DC, Jack&Jones, Levi’s, MACFit, Merrell, Puma, Skechers and Under Armour. Boyner astutely convinced this specific set of brands, which is perfectly aligned with the healthy and sporty purpose of this event, to take part in the festival. It should be noted that not only were brands not paid nor given perks to take part in this event, but they also had to pay for the set-up of their tents and product displays. The fact that this festival was a completely unprecedented initiative probably helped convince them, but Boyner’s argument was more striking: it was, for those brands, a great way to be associated with a retailer striving hard to be recognized as the champion of lifestyle, sport, and health in Turkey.

And this went through one of the most striking aspects of this whole festival: nothing was for sale.

It was all about customer education and experience and giving them the possibility to discover brands and products in a relaxed, no-strings-attached environment. The fact that no transaction was involved probably helped people ask questions about products and services without the fear of being lured into purchasing something at the end.

Boyner also made a good deal in terms of content, since all brands were more than happy to bring with them their own stories and customer-oriented content, adding to the richness of the event.

The fact that the whole event was free, without even making a product out of participants, made it quite interesting in terms of approach. Boyner dedicated a significant amount of time, energy, people and money to organizing an event that was not designed to directly contribute to its P&L. It was instead seen as a marketing investment, but designed in such a way that its free and generous aspect would encourage the crowd to participate even more and, ultimately, associate Boyner with the values that were championed during this event.

Some consumer brands already have such an approach of making marketing investments without any hope of ROI, just to pre-empt a specific positioning or customer perception. This is exactly what the President of Coca-Cola explained during the IADS CEO call in January: the company was directly investing in consumer marketing even though they do not have any B to C activity in Europe, as they rely only on the activity of their distributor (their bottler). They see these investments as “holistic”:

• They allow placing the brand close to the customer,
• They make their partners successful.

If, in this case, such “disinterested” investments are understandable, they are less common on retailers’ side: after all, department stores have always insisted brands should invest in trade marketing to promote their names to the final customer, even though this also contributed to the department store to being perceived as the exclusive place to find them.

Boyner’s initiative of financing their brand equity without any ROI expectation is uncommon at this stage but is also part of a larger trend where department stores have to invest in their brand perception to make sure they stay relevant to their audience or attract a new one. For instance, when Magasin du Nord invested to open a popup in Malmö, Sweden (where they do not have any activities), the purpose was not so much to generate sales but to create brand equity. Brand equity’s efficiency was proven when Breuninger renamed the recently acquired Konen store in Munich with its name, sales soared even though the upgrade works had not started yet.

Department stores cannot rely only on their featured brands’ marketing efforts to differentiate themselves through selection and curation, they need to stand for the values they aim to promote. In this perspective, the Boyner Dynamic Fest is a great example of a genuinely disinterested operation, included in a broader marketing scheme, which contributes to building brand equity, one brick at a time.

Credits: IADS (Selvane Mohandas du Ménil)

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IADS recently held a meeting on the Cosmetics & Beauty sector. Based on market research, NellyRodi and The Style Pulse presented the most innovative brands from different segments in cosmetics and beauty including skincare, makeup, haircare, fragrances, and more.

Check out our selection of these brands and the pictures by clicking the button below!

SKINCARE

IPSUM ALII

IPSUM ALII uses scientifically proven ingredients, infused with the ancient wisdom of Kampo medicinal herbs, associated with their anti-inflammatory and antioxidant properties, to restore skin to its equilibrium state.

Check out the IPSUM ALII website here

CHECK OUT IPSUM ALII's INSTAGRAM

MIMÉTIQUE

Mimétique is a skincare brand that targets knowledgeable consumers with scientifically-backed, education-focused products. They offer effective skincare solutions formulated with active ingredients that are kind to the skin and environmentally sustainable, using green chemistry and biotechnology in their French-made products.

Check out the MIMÉTIQUE website here

check out the MIMÉTIQUE instagram here

MTMLABO

MTMLABO is a skincare brand that offers custom-blended products using a unique library of botanical extracts. For over 30 years, the company has specialized in personalizing skincare to match individual needs and skin types, promoting natural beauty and self-acceptance.

Check out the MTMLABO website here

check out the MTMLABO instagram here

TALM

Talm is a skincare brand designed for women during pregnancy, postpartum, and breastfeeding, emphasizing safety, effectiveness, and beauty. Founded by Kenza Keller, the products are organic, vegan, and environmentally friendly, made in France, and include specialized prenatal and postpartum massages to enhance maternal well-being.

Check out the TALM website here

Check out the TALM instagram here

MEGABABE

Megababe is a body care brand founded to address common yet often overlooked issues like thigh chafing, underboob sweat, and body odor. Focused on creating clean, vegan, and appealing products, Megababe aims to tackle "taboo" body topics, helping people feel more comfortable and confident in their own skin.

check out the megababe website here 

check out the megababe instagram here 

MAKEUP

OBAYATY

Obayaty is a men's beauty brand that combines luxury, wellness, and innovation to promote self-care and self-expression. Using sustainable, consciously sourced materials and potent formulas, Obayaty offers a multipurpose collection that encourages male beauty and inclusivity, while striving for harmony with the community and the planet.

Check out the OBAYATY Website Here 

check out the OBAYATY instagram here

FLORASIS

Florasis is a beauty brand that combines traditional Chinese beauty rituals with modern technology, offering products that blend makeup and skincare. Their line emphasizes nourishing floral essences, celebrating the legacy of ancient craftsmanship while promoting inner health and outer beauty.

check out the Florasis website here 

check out the Florasis instagram here

GOOD WEIRD

Good Weird is a beauty brand that champions inclusivity and exploration in the beauty aisle. Emphasizing ease and versatility, their multipurpose products are designed for every gender, skill level, skin tone, and type, encouraging everyone to express their individuality. Good Weird is about looking good, feeling better, and embracing the unique in each of us.

check out the good weird website here 

check out the good weird instagram here

FARA HOMIDI

Fara Homidi embodies "Slow Beauty" with high-performance, cruelty-free cosmetics that prioritize quality and environmental responsibility. The brand uses sustainable materials for packaging and offers refill options, emphasizing a luxurious, eco-conscious approach to beauty.

checkout the fara homidi website here 

checkout the fara homidi instagram here 

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The future of department stores has become a topic that experts and media have expressed their views on many times, predicting the end of the model. While the so-called “retail apocalypse” didn’t happen, the retail landscape is indeed changing with a long list of mid-range store chains collapsing everywhere in the world and department stores evolving their model. With COVID-19, they showed agility to reinvent themselves by developing online capabilities overnight, updating their product offer and including more experiences and services to differentiate from the competition.

However, the transformation is not over yet. We are seeing an increase in the number of department stores resembling malls, favouring luxury over the idea of a ‘department store for all’. Conversely, branded retailers are increasingly resembling department stores. In that regard and following a premiumization strategy, Zara's most recent stores are taking cues from the department store playbook. Also, Marks & Spencer has emerged as a winner in the UK retail landscape.

Is that a natural evolution from both sides? Now that branded retailers are taking on the department stores’ codes, what’s in for department stores themselves? Are there any fundamental risks if they lose their factor of differentiation, or is it just a not-so-important question of display and presentation? Some department store companies have dropped the traditional way of presenting products by section and opted for a very immersive approach, becoming very large concept stores in the process. Is the future approach of department stores to merge customer journeys into innovative store concepts, to remain destinations for customers and differentiate from copycats who contribute to commodifying their once-typical approach?

A progressive evolution towards a luxury mall experience on some department stores’ floors…

Traditionally, department stores have been regarded as stores selling luxury in one form or another (either via their ‘look & feel’ or simply with the products and services offered). Take Galeries Lafayette in Paris: they are expanding the luxury footprint on the ground floor, with leading leather goods brands such as Loewe, Gucci and Balenciaga having bigger shop-in-shops. Considering their remarkable size, they can increasingly be compared to these brands’ free-standing stores. Also, Chanel and Louis Vuitton are growing their presence on the first floor, only further emphasizing the luxury mall feeling. Finally, with brands like Rabanne, Jacquemus, Carven, Marni, Jil Sander and Acne Studios, more affordable luxury fashion is also expanding with larger shop-in-shops on the second floor (compared to their previous locations on the first floor). Expanding luxury on the second floor is unprecedented as it was previously only dedicated to premium brands such as Sandro and Maje. In Copenhagen, Illum has Celine, Prada and Balenciaga shop-in-shops that are both accessible from the street and the department store's ground floor, transforming them into real free-standing stores. This set-up with double access to boutiques is now visible in every part of the world, from KaDeWe in Berlin to Beymen’s Zorlu location in Istanbul, or The Mall Group EmQuartier in Thailand.

Another example is Harrods, in London, which relentlessly ups the ante with luxurious shop-in-shops. The first floor is dedicated to luxury RTW and has truly become a mall. The plan also includes transforming the affordable luxury and contemporary fashion floor in the same way. Luxury fashion is undeniably ingrained in the DNA of department stores, so it's only natural for them to prioritize it. But one can wonder if the flare of those stores is still there; from a customer’s perspective, why shop at Harrods when you could have the flagship store experience a few blocks away? In the past, department stores allowed customers intimidated by luxury flagships to have access to luxury products. Now, in the new-generation Harrods, such clients may not feel as comfortable shopping there following the upgrade.

But to what extent is that a deliberate strategy? Luxury brands are increasingly pressurizing department stores to provide an experience in their locations on par with what brands are now able to display in their own, highly sophisticated, experiential, free-standing stores. In case department stores are not able, or willing, to accept such requests (which also often come with new demands in terms of financial arrangements), such brands do not hesitate to leave, putting the department store’s ability to regroup a compelling and aspirational offer in one place at risk.

…while, at the same time, branded retailers take on their codes

In the UK, Marks & Spencer is an interesting breed achieving growth while others are struggling. With the opening of 9 new stores in November 2023, they are in the middle of a massive store rotation and optimization programme aiming to transition from 247 stores to 180 higher quality, higher productivity, full-line stores, while maintaining their competitive advantage with the right locations. Also, M&S focuses on and streamlines its product range and achieves digital transformation, resulting in strong financial performance and increased sales. M&S's CEO, Stuart Machin, emphasized going back to the company's foundations of providing quality products at the best price and putting the customer at the heart of everything they do. Marks & Spencer gives a series of reasons to pay a visit:

• The onboarding of third-party brands: they bought out Jaeger (after its collapse) to revive its fashion department and include more beauty brands (they now sell 47 labels accounting for 40% of the beauty sales).
• In Leeds, which is their “best store yet” according to the CEO, the 9,000 square metre surface (formerly a Debenhams store) houses a supermarket, a fresh market-style food hall, a flower shop, a spacious clothing, home and beauty department, and a 164-seat café.
• A product offer tailored to local needs.
• Fun sensorial attractions to emphasize the experiential feeling, with cow sounds in milk aisles and rooster sounds in the egg areas.
• Events with daily M&S product testing such as alcohol-free wines or specialty coffee.

It is telling that M&S’s CEO has vowed to open “better, bigger” stores in former Debenhams locations than in the past, as it increasingly blurs the once very clear boundary between them and middle-class department stores selling fashion, home and beauty.

The case of fast-fashion operator Zara also raises a series of questions, as it has consistently challenged the boundaries between their offer, and, for a long time, luxury brand codes. After all, they were among the first ones to present coherent and structured stories in their windows at a moment when then old-school luxury houses were still simply showing products to passers-by. In the same perspective, they muscled up the notion of visual merchandising, as the concept of having an enticing store at each visit is part of their business model. Luxury brands and department stores noticed and learned along the way.

Fast fashion’s second transformative wave is now about associating the qualities once solely linked with department stores and making them the norm. Fast fashion seems to have appropriated them in a very convincing way: branded retail stores now look like department stores, and should their logo be removed, the illusion would be perfect.

For example, Zara in Battersea Power Station in London or in Champs-Elysées in Paris: both in terms of categories and set-up, they look like mini department stores. The new Zara concept is described as a stroll through different sophisticated atmospheres. The use of different upgraded materials and contrasting shades helps to delimit the spaces and product lines. Accessories and shoes now have their own section with a comfortable seating area and single shoes displayed on shelves, as in any department store. Lingerie is displayed in a specific cocoon-like area. While the Champs-Elysées store (2,700 square meters) only offers men's and women's RTW and accessories, the Battersea Power Station store is even more impressive. Spanning 4,500 square meters, it is the home of all product categories developed by Zara: men’s and women’s RTW and accessories, but also kids, beauty and an impressive Zara Home shop-in-shop. The result is quite stunning and extremely elevated for a fast fashion brand. Also, the customer journey is easier and more efficient thanks to the embedded RFID technology: Zara offers self-checkout options, but also faster access to fitting rooms as the counting of items is automated in real-time. Besides, customers can book their fitting room in advance to avoid waiting in line. Finally, as the stores have different departments and are getting bigger, there is a need for more directions: QR codes help customers locate the different sections on a map.

As a consequence, Zara’s stores are part of the process helping the brand to elevate itself in terms of customer perception, without raising its prices, which is a strong competitive advantage in a moment when new business models (Shein, Temu) are rising fast1. In the process, one could feel confused: remove the Zara sign in Battersea, and it would be easy to feel in a U.S. department store for instance, thanks to the quality of execution and store zoning. In a similar manner, the new Massimo Dutti store in Paris Champs-Elysées would not look too foreign to the usual men’s department store section anywhere in the world, as IADS’ partner Newstores reported last December.

But if branded retail smells, looks and tastes like good old department stores, what should actual department stores do to remain ahead of the race?

In 2024, what is a department store anyway?

To stay relevant, make a difference from copycats and aside from their price point, it is generally agreed that department stores should make sure to propose the following:

• Show tradition, authenticity and roots, but not too much to avoid looking old and stuffy
• Develop experiences, which means the store should be interesting enough to be worth the trip
• Emphasize novelty, spectacle and events, which will depend on where the store is located and whom it addresses
• Include more hospitality, an increasing part of the shopping experience
• Increase services, be it human or otherwise linked with understanding
• Guaranty variety in the product, brand and category offer
• And make sure the overall environment will make lingering worthwhile.

While most of these key points are ticked by iconic department stores such as Selfridges, Galeries Lafayette and KaDeWe, good examples of department stores not looking like department stores, but actually interesting destinations, could be Liberty in London, Le Bon Marché in Paris, Bergdorf Goodman in New York, or Jelmoli in Zurich. The catch? All these department stores are destinations because they only have one store. But what are the options for department store companies with more than one flagship store? 2 options seem to rise from the analysis of the market:

• Become Harrods, Liberty or Selfridges. Retailers now know they don’t need a store everywhere. Fewer but better stores with a deeper rather than broader assortment and a high level of service could be a solution. The extreme is of course for a chain to shrink to one door only, lose scale effect and negotiation power, and end up being dependent on external factors which become critical from merely influential in the past (the reasons of the demise of Barney’s in New York in 2020 are, in the end, purely linked to their inability to generate scale effect and, therefore, remain dependent on lease conditions. Jelmoli in Switzerland is the same).
• Become John Lewis (especially the Oxford Street store) or Frasers. This means going wide and increasing the entry-level appeal.  The issue is that the days of “everything under one roof” and “a bit of everything for everybody” are not anymore a working recipe for physical retail now that companies like Amazon do that very well online.

So, what should we learn from the fact that department stores have such a footprint that they are now imitated by large single-brand retailers, leaving them in a position of not being able to pivot unless they lose their most critical factor, their bargaining power thanks to their scale? Does this mean that the only future of department stores is to become great again by becoming a single destination, to the point of disappearing because this is the nature of any business based on trends?

Some markets have generated the conditions for the appearance of new concepts and business models. In China, department stores such as SKP-S and K11, or EmQuartier in Bangkok, Thailand, are interesting because they keep the purpose of a department store (curate an interesting offer for a curious customer and make sure the location is attractive and enticing, in one coherent and unified concept) but also unbundle its components at the same time. In SKP-S, K11 or EmQuartier, product offer is not organized by department, but by customer journey. In addition, the whole store displays such a strong concept (otherworldly at SKP-S, arty in K11 and entertaining in EmQuartier) that it becomes a destination per se, just like Galeries Lafayette Haussmann with the cupola, Harrods with the Egyptian staircase, or the atrium at Saks Fifth Avenue in New York), but with a je-ne-sais-quoi based on something else than purely architectural details. In addition, these concepts are created with the ambition to bring their specificities to various locations, not to base their uniqueness on one single, iconic location.

For anyone familiar with the evolution of fashion retail in the last 50 years, this means that large department store companies are putting the notion of concept store on steroids, by expanding this approach on a much larger scale (both in terms of single store surface and number of stores), mixed with the capability of department store companies to identify, curate and enhance interesting new trends and brands, but this time organized by customer journey and profile, and not anymore by section. In other words, any customer can have a different high-octane experience in these stores, at each visit.

Conclusion: Department stores have embedded their own reinvention in themselves since the beginning

It is no secret that department store companies have managed to adapt to many retail disruptions in the past, from the appearance of malls and commercial centres in cities’ peripherical zones, to discounters, hypermarkets, speciality chains, e-commerce and DTC brands. As they have managed to do so until now, they will probably manage to find a solution to this seemingly strange issue: how to remain special when companies from other industries do everything possible to look like them?

As SKP-S, K11 and EmQuartier show, it is possible to remain special while also being attractive to both customers and brands (who are not tempted to think that these department stores are increasingly becoming commoditized by new players). However, heritage companies such as Galeries Lafayette, El Palacio de Hierro or Breuninger do not have the luxury to close their stores and rebuild them in a new manner (even though this is what Breuninger is doing now that it has acquired the former Konen department store in Munich).

And yet, this is with this reinvention in mind that new initiatives should be seen, from the increase of high-end restaurants in Harrods (to revamp the experience just like what K11 is doing) to the Wellness Galerie in Galeries Lafayette (mixing retail and paid experiences like in SKP-S) or the way new El Palacio de Hierro stores are designed (in terms of seamless customer journey, independently of brands or business models, just like in EmQuartier).

Everyone in the industry knows that status-quo is not a viable strategy for survival. While chain stores and branded retail are progressively adopting old-world department store codes to gain credibility and luxury perception, department stores are, on their side, reviewing what they bring to a customer who has also changed in recent years. Old recipes will not work for new generations. This is one of the reasons why many IADS department store members have already started working on reviewing their approach to the customer journey, to imagine how they can present what they have to offer to new customers, accustomed to purchasing differently compared to their parents.

Credits: IADS (Christine Montard)

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Have you heard about Taylor Swift, a singer with a global impact?

Last year, NYU announced a class based on her. In March and November 2023, Stanford and Harvard respectively announced they would do the same. Swift holds the record for most songs to ever chart on the US Billboard Hot 100 (188 songs), and in fall 2022 she became the first artist to own the entire Top 10 simultaneously. Finally, Taylor Swift’s 2023 “Eras Tour” is the first tour to gross $1 billion, surpassing Elton John (the previous record holder with $939 million for his “Farewell Yellow Brick Road” tour).

In one way or another, Taylor Swift has amazed the world with her music, persona and business skills for over a decade. Sparked by this buzz, the IADS took a look at this phenomenon to figure out how exactly this popstar branded herself and her music and how she became a master in influence. Her highly engaged community of fans is interesting to look into to understand how emotion is a key factor in enhancing loyalty.

Co-creation, the value of the middleman

Is control everything? 

One of the most notable copyright cases in the music industry happened when Taylor Swift tried to purchase her ‘masters’ (the original recordings of her songs) in an attempt to control her music. The story is that after leaving her former record label where she recorded her first six albums, Swift found out that her manager had acquired her ‘masters’, preventing her from using her own music. This is when she decided to re-record her albums. Dubbed “Taylor’s versions”, they instantly acquired a higher value than the original recordings. Compared to the original ones, the new versions resulted in +43% in streaming and +4512% in album sales.

In a way, Taylor Swift's copyright case could be compared to a brand reclaiming control ownership and trying to increase its margin by going direct-to-consumer hence skipping the multi-brand retailer. This has been a fantasy that DNVBs like Glossier thought they could fulfil before realising that 1) they needed physical outlets to show their products and increase their customer reach, and 2) multi-brand retailers were well equipped to offer them this physical outlet. In the case of Glossier, they opened (and closed) a few free-standing stores and ended up signing a deal with Sephora in the US and Canada. For smaller DNVBs, engaging with a multi-brand retailer is also a way to test the waters before going brick-and-mortar. So just any brand can pretend to be the Taylor Swift of its category.

Convenience and relevance 

In their defence, it is worth reminding that, as a middleman, department stores also have a large and diverse range of merchandise and are located in city centres most of the time. As a result, to be efficient with their time and resources, it could be a more rational decision for the customer to shop at their facilities rather than at a single retailer. Convenience is an important factor in the customer journey that can greatly influence the purchasing option. On top of customer ease, department stores offer other significant advantages. As they attract different types of customers, they often have a superior market knowledge compared to a single brand. Adding a middleman into the sales process is also in the interest of the brand, as they can gain insights into customer behaviour and the performance of competing businesses. This is increasingly the case thanks to the retail media growing business (see our latest white paper on the topic). Also, when it comes to fashion or lifestyle brands, they can gain more flare and coolness by being displayed and mixed with other labels. And above all, department stores assume most of the market risk.

The case of the collaboration between Beyonce and Flannels 

Retailers are evolving from being a pure marketplace to experience hubs or even cultural centres as mentioned in a previous IADS Exclusive. In that regard, department stores are and have always been cultural stakeholders and their cultural footprint is ever-present. Luxury brands are also embracing the cultural aspect of physical retail with the emerging trend of mega flagships such as the Dior one in Paris.

In the world of department stores, Flannels is currently rethinking the role of its London flagship store. They opened a new space dubbed Flannels X. Rather than a space designed to sell products, it is meant to become an ever-evolving cultural playground of pop-ups, gigs and exhibitions for cultural creators to exchange and broadcast ideas. On the occasion of Beyoncé’s tour coming to London in May 2023, Flannels X had a pop-up store showing the Beyoncé x Balmain couture collection for the first time, and also selling merchandise from Beyonce’s Renaissance World Tour. While positioning the store at the intersection of luxury and pop culture to offer more experiences, this initiative helps Flannels create a community of younger engaged customers able to develop influence. It also demonstrates the relevance of department stores when it comes to collaborating with artists or brands: in the case of Beyoncé, Flannels offers her a convenient outlet she wouldn’t have otherwise. And in the case of brands, department stores remain customer magnets.

Developing influence: the power of a community

Building a community  

Beyonce has the BeyHive and Taylor Swift has her Swifties. They analyse her social media posts, lyrics, and visuals and try to predict the artist’s next move. This type of superfans is crucial to the success of the artist: they are the people who buy everything from vinyl records to merchandising, collect memorabilia, spend hours streaming the newly dropped music on every platform possible, and get the most expensive ticket package at every tour. But there’s more.

In 2007, researchers Duncan Watts and Peter Dobbs interrogated influence as a phenomenon. Their work revealed that influence is not driven by individuals but by a critical mass of easily influenced individuals. In fact, their research suggests that the Beyoncés and Taylor Swifts of the world are only modestly more influential than average individuals. This may sound counter-intuitive, but the spread of ideas and behaviours depends less on the person who starts them, and more on how susceptible the group is to what is being spread. It would be irrelevant to deny Taylor Swift’s influence though, but her true influence is on the Swifties, who in turn influence their friends, their other connections and beyond. In other words, Swift influence power should be attributed to her ability to foster a community. Rather than trying to reach out to everyone, it’s more effective to speak to superfans.

Rewarding the superfans 

First, Taylor Swift rewards her super fans by reposting or commenting on their posts. But the superfans are granted more. They can receive an invitation to secret sessions which are small and intimate gatherings in Swift’s home, in which she hosts previews of her new albums. While it seems Taylor Swift has its own tier-based loyalty programme, it might be difficult for retailers to offer a similar kind of reward as it goes through a true form of intimacy. However, DNVBs such as Glossier succeeded in establishing direct lines of communication with their customers through their websites, social media, etc, which foster a strong sense of community and trust. Superfan customers feel heard and valued as if they were truly part of the brand's adventure and narrative. But they (the VICs and VVICs) need to be rewarded in an emotional way that could compare to what Swift is doing with her secret sessions. Retailers have taken notes.

Loyalty programmes: rewarding through emotion

The case of Sephora 

A recent example of rewarding VICs comes from Sephora. When reopening their Paris Champs-Elysées store in October 2023, they gave privileged access to some of their best customers, even before the stars flooded the opening party. Over the past decade, Sephora has become a champion in leveraging the emotional drivers of loyalty. Research has found that almost 75% of what drives customer engagement and loyalty are emotional perks. Sephora believes emotional rewards are the new currency of loyalty. Sure, the right balance of transactional and emotional is needed, but Sephora’s Beauty Insider programme leans toward the emotional side, especially since 2017 when they launched the Beauty Insider Community for their superfans. It was designed to be an opportunity for beauty addicts (spending more than $1000 per year) to come together, ask questions, comment on products and post beauty looks. It is also a great way to get product recommendations, not just from Sephora but from the community itself. It’s a real-time, real-talk forum that has become a great resource for the customers and for the retailer to collect precious data.

Other examples from the industry 

When inviting a handful of their best customers to their runway shows, luxury brands master the emotional part of loyalty. With competition being increasingly fierce, some of them upped the ante by inviting their superfans (their VVICs) to their showrooms. It is a way to offer access to a form of ‘behind the scenes’, but mostly they can choose the items they want months ahead of their official in-store release. Other luxury brands understand the power lying in rewards based on human interaction. For example, Brunello Cuccinelli himself meets and spends time with the top brand VICs.

During the IADS Operations Meeting dedicated to Chief Customer Officers, members talked about customers' rising expectations for non-tangible benefits. In that regard, The Mall increases the benefits related to status such as lounge access, free parking, pre-sales and special seats for events. To create an emotional bond, El Palacio de Hierro offers a bottle of wine or a meal at one of their restaurants for their best customers' birthdays. On its side, Boyner considers offering airport fast-track for their top-tier customers. They also found out that people ask for digital subscriptions like Spotify premium: the cost is low and appreciation is high.

Other examples are interesting to consider in the reward economy. Chewy (the US pet brand) sends its best pet owner customers free, personalised portraits of their cats and dogs. Moreover, when a customer loses their pet, Chewy sends a letter of condolence. This human touch is priceless for the ones receiving the letter and a guarantee those customers will be returning to Chewy as soon as they get a new pet. Moreover, by rewarding their best customers, brands and retailers generate meaningful word of mouth and earn media value. The fans who attend one of Swift’s secret sessions will tell everyone they know about it for years. The customer who gets an unexpected pet portrait from Chewy will share it on social media and offer Chewy free marketing.

Conclusion

The remarkable success of Taylor Swift offers insights for the retail industry, highlighting the power of community and emotional engagement in fostering customer loyalty. Swift's ability to build a dedicated community of fans, the Swifties, is a lesson in developing brand loyalty. Retailers can learn from this by developing their own communities and rewarding their most loyal customers, as exemplified by Sephora's Beauty Insider programme, which balances transactional and emotional rewards to foster a strong customer connection. In addition, the emotional aspect of customer rewards, a key component of Swift's success, is crucial. Retailers can create a lasting impact by offering unique experiences and personalised gestures that resonate emotionally with customers, much like Swift's secret sessions or Chewy's personalised pet portraits. Besides, in the digitalised world we are living in, boundaries between categories tend to fade away. It is an opportunity to learn from other industries as they share the same customer base as retailers. They might have different practices which can be inspiring for department stores.

Credits: IADS (Christine Montard)

Printable version here

*The IADS attended the 2024 edition of the World Retail Congress, held in Paris from April 16th to 18th, which gathered 850 participants from 400 companies across 16 countries. During this edition, the Association had the privilege to moderate a roundtable between the CEO of Galeries Lafayette, Nicolas Houzé, and the CEO of Harrods, Michael Ward.

This report is a selection of the most relevant insights gathered for our members.*

*Table of contents

1-    Introduction: the difficult task of forecasting in 2024 (Deloitte, Blackstone, VML)

2-    But what is retail anyway? A fresh perspective (Springstudios)

3-    How to win the new generation customers (Claire’s, MARS Wrigley, Pepe Jeans)…

4-    …in a time of mass distraction (Adidas)?

5-    What to expect from AI in retail? (Keystone, Decathlon, Google Cloud)

6-    The human factor: purpose, planet, profits… and communities (ThredUp, REI, Milani Cosmetics)

7-    A look at 3 retailers set in motion: Sephora, Printemps, Myer

8-    The future of department stores: the IADS interviews  Harrods and Galeries Lafayette

9-    Interesting Quotes*

As retail continues to navigate unprecedented challenges and rapid transformations, the 2024 WRC focused on how to maintain high performance, from integrating cutting-edge technologies like GenAI to adapting to changing consumer behaviors influenced by economic, social, and environmental factors and the overall convergence of digital and physical retail.

During the opening speech, the Chairman and CEO of Carrefour set the tone, as he dwelled on the 4 more important challenges faced by the industry:

• The unprecedented challenges faced by retail, through an uninterrupted series of crises.
• The digital transformation, which started 20 years ago, with a strong acceleration last year, increasingly blurring the border between online and offline. Some models born with this new paradigm, such as quick commerce, disappeared, however, new marketing models have disrupted the industry, and omnichannel strategies have proven successful. Digital transformation now focuses on AI-driven technologies, which could lead to the optimisation of supply chains, product assortments and personalised promotions.
• Inflation has reached unparalleled levels and will continue to impact businesses. Although inflation may subside, its effects will still be felt through fragmented shifts in customer behaviour.
• Climate change presents a decisive challenge, requiring businesses to adapt beyond merely reducing carbon emissions. Factors such as rising commodity costs and volatile energy prices demand transformative approaches as resources become scarcer and more expensive.

In fact, the retail industry is on the brink of rapid and intense transformation, with new shocks expected.

When it comes to Carrefour, the company has undergone a significant journey over the past six years. With 15k stores across 26 countries and various retail formats, it faced difficulties six years ago that required restructuring and selling off activities, such as in China.

Three strategies were employed to tackle the issue of low growth in the hypermarkets segment:

1. Adopting a customer-centric approach using NPS (for the first time!).
2. Changing processes to increase productivity.
3. Partnering with entrepreneurs for troubled stores (a significant change from the historical strategy of controlling all stores).

In addition, Carrefour implemented a CSR policy in 2018 that was formally integrated into its corporate status. The new plan, Carrefour 2026, focuses on acceleration and continuity with the aim of building a European platform and verticals (centralised purchasing in Spain, retail media, etc.).

Introduction: the difficult task of forecasting in 2024

The Global Chief Economist at Deloitte started the panel by stating that the economy in the world was not as in bad shape as often painted. In the US, a strong outlook is driven by low inflation, a tight labour market and robust consumer spending. Europe faces challenges, particularly in Germany and the UK: inflation may rise faster than expected, which might trigger answers from the European Central Bank very different from the US Federal Bank. China's growth will be relatively slow due to state favouritism of the public over private sectors and difficult demographics.

Overall, globalization is experiencing shocks from events like pandemics, trade wars, and geopolitical tensions. Companies now prioritize resilience and diversification over low cost and speed. This shift benefits countries like India and Mexico. However, potential risks of derailing remain, and they include Middle East tensions, China-West conflicts, and Ukrainian instability impacting business confidence.

The Senior Managing Director at Blackstone, a real estate investment company, gave the point of view from an investor’s perspective:

• 2024 presents complex investment opportunities due to increasing tensions and changing balance sheets.
• Cash flow becomes king again as the gap between value/convenience and luxury widens. As a consequence, niche and speciality businesses will survive, but scale will be key to thrive.
• More public-to-private transactions and consolidations are expected for investors able to catch the right sign at the right moment: “You can’t wait for the all-clear sign”, as she concluded. That was echoed later on by the former CEO of Walmart International, Judith Mc Kenna, who explained that she had to divest 40bn$ when arriving (out of a total 130bn$) in order to re-invest in digital and customer experience, without having the certainty that this would pay off.

Finally, the Global Chief Commerce Officer at VML, a consumer research company, gave a perspective from the customer point of view:

• For VML, “the customer is the product” now, as they are all living in a digital, heavily influenced world.
• Physical stores remain important but need revamping to remain relevant in the digital age, given the growing acceptance of data exchange for personalization and the emphasis on experience and emotion in marketing.
• Brand values and purpose are more crucial than ever for success.

But what is retail anyway? A fresh perspective

Giuseppe Stigliano, writer, researcher, professor of Retail Marketing innovation, and CEO of Spring Studios, proposed opening the session by reflecting on what retail stands for nowadays. It can be tempting to consider that the job remains the same… even though the context has radically changed.

From the academic perspective, “Retail is where goods are sold directly to customers (B2C), in small quantities, for non-business use and serve as the final step in the supply chain.” The traditional image of retail could be a supermarket alley. But when the future of retail is considered, it could very well be a customer wearing AR goggles while shopping in-store, meaning a very different image from this traditional perception.

This raises the question of the experience that customers have while shopping in-store: they rush to get groceries but also expect to have an experience such as discussing with a wine expert when they choose a bottle. How can retailers combine these contradictory demands?

In addition, retail encompasses a wide range of formats and channels (brick-and-mortar, online marketplaces, mobile shopping platforms), but something is broken due to new consumer trends such as B2Cization (customers bypassing retailers), C2C business (including second-hand through platforms such as Vinted), or their often conflicting expectations for experiences, speed, and efficiency.

In short: retail has to adapt, but the solutions found so far (going phygital) are not adapted and do not work. Omnichannel isn’t relevant enough as it is often not achievable. Besides the physical and the digital dimensions, virtual is now a third dimension (like buying a Balenciaga sweater in a Fortnite video game).

This is why Stiglilano suggested a new definition of retail: “retail is the curation and sale of a diverse assortment of goods and services to end consumers.”. From there, 5 key ideas need to be considered:

• Anyone capable of engaging with the final consumer should be considered a retailer. Retailing requires retailers to fulfil essential functions, because everybody can be a retailer.
• There is no one-size-fits-all approach, as the ideal customer experience is, by definition, a relative concept. Retailers should build on their experience and be ambitious, knowing that they don’t have all the answers.
• Developing effective use cases with emerging GPTs, such as GenAI and Blockchain, is necessary to win the customer. Either we understand, or we end up with digital Darwinism.
• Processing data to understand the role of each touchpoint along the 3DCJ (physical, digital, virtual) and optimising the right channel mix is the only way to thrive in a post-digital world. Once they understand what they can effectively manage, retailers should focus on optimisation and be ‘opti-channel’ rather than omnichannel retailers. *IADS Note: ‘Opti-channel’ could be considered a new blanket word for retail operations and an easy marketing concept, but it describes how IADS members currently work. Through the IADS Operations Meeting dedicated to the Omnichannel Business, we can see how IADS members are becoming opti-channel retailers as they work on optimising services (such as Click & Collect and BOPIS) instead of willing to invest in all omnichannel services, which would be ineffective.*
• Employees and customers seek purposeful corporate behaviour that resonates across organisational culture, product nature, and customer experience.

How can retailers embrace the paradigm shift? We come from a world where we think we need to build extremely strong foundations to secure our future. Stigliano recommends moving to a Lego brick world mindset, which can allow retailers to adapt (like changing the size and colour of the bricks when needed). Foundations are not everything retailers need; adaptation is key.

How to win the new generation customers…

This talk mostly tackled the thorny question of reaching younger generations without losing existing customers. To do this, retailers need to understand Gen Z and Alpha Generation value systems and not only offer them a transactional environment: the keys are about developing specific products addressed to specific communities, personalising products, and ways of self-expression.

For Mars Wrigley, the M&M’s example demonstrates how to offer experiences besides transactions. The company also taps into specific communities: for example, they developed the Respawn By 5 Gum brand. Infused with B vitamins and green tea extract, the brand is addressed to gamers willing to improve their accuracy and focus.

For Pepe Jeans, denim products are key, including new details, fabrics, and personalisation options. Developing content for social media is crucial: in that regard, they work with very young influencers.

At Claire’s, it is important to offer ways of self-expression to Gen Z and Alpha Generation. Customers produce their own content for Claire’s YouTube channel. They also built a Claire’s world in Roblox, where customers shop and give live feedback.

…in a time of mass distraction?

In today's era of information overload, retailers face the challenge of capturing consumers' limited attention in-store and online. To successfully connect in this age of mass distraction, retailers must focus on what is relevant and avoid overwhelming customers with excessive digital features.

With attention spans decreasing from 150 seconds to 46 seconds over 20 years, it is crucial for retailers to reduce clutter by resisting the urge to add too many screens. Instead, they should allocate clear and easy-to-find information at store entrances, freeing customers' minds to explore other products and potentially increase sales.

Retailers should also amplify the importance of products by giving customers what they want and remembering that human attention spans are limited. Embracing tangible and analogue elements within stores can capture consumer interest more effectively than an abundance of digital screens. For instance, one of the Adidas stores has a statue of the brand founder, and people pay true attention to it, touching it and taking pictures. This comes as a manifesto for physical stores, a proof that physical retail is far from being dead when well-executed.

What to expect from AI in retail?

AI has evolved from a budding technology to a transformative force, thanks to three key milestones: chips, hardware innovation, and data utilization. This powerful innovation is not mere hype. For instance, in 2008, Amazon was not prepared to go global due to numerous manual processes, isolated business operations, and insufficient focus on long-term customer experience, and AI could have provided strategic answers back then.

Since 2015, Google has been a pioneer in AI, recognizing the importance of unified data for efficiency. Gen AI offers numerous opportunities for increased conversion. Key initiatives that can boost KPIs and efficiency include:

• Content management: Improved product descriptions and conversational commerce can significantly impact conversion rates and customer loyalty.
• HR: AI can streamline the hiring process by analyzing resumes to find the best candidates.
• Procurement: AI can efficiently sift through contracts to extract vital information.

Achieving these goals requires building a solid platform for data and security.

At Decathlon, Gen AI focuses on enhancing customer experience, with visible innovations expected by 2025. AI will enable personalized product recommendations and provide guidance on sports practices. Offering hyper-contextual search and reassurance, Gen AI will help customers discover unknown products, which is valuable for retailers with extensive inventories.

It is key to recognize that developing Gen AI solutions should involve interdisciplinary teams, not just data scientists. Retailers must embrace a collaborative mindset between humans and machines to successfully organize AI developments.

The human factor: purpose, planet, profits… and communities

Thredup presented itself as a white knight when it comes to sustainability: approximately one-third of the items in a person's closet are worn regularly, while the never-worn rest holds value. As a consequence, ThredUp aims to revolutionize the second-hand market: circularity enables consumers to continue shopping in a very entertaining way. As such, ThredUp enhances customer engagement by offering an enjoyable experience: searching for specific items. Resale platforms present millions of unique products daily, unlike traditional retail. This encourages customers to return frequently and make purchases to avoid missing out on one-of-a-kind items.

Another way to look at the human factor is to talk about communities federated around a brand, or its purpose. REI, with its 23 million members, exemplifies successful community-building. The company supports grass-roots advocacy by educating people on engaging with officials for nature conservation efforts.

Interestingly, the sense of community and belonging developed post-Covid. For brands interested in harnessing such an approach, staying connected with communities requires ongoing dialogue through surveys that reveal customer preferences and opinions. This can lead to sometimes seemingly counter-intuitive consequences: some brands launched initiatives targeting specific communities, such as using unretouched photos in ad campaigns to increase engagement. A significant trend for community-focused brands is the concept of consequential strangers: customers seeking friendships through their association with a brand. Inclusivity, transparency, and authenticity are essential for appealing to Gen Z and Millennials, who often place more trust in influencers than the brands themselves.

4 points should be considered when building communities:

• Invest in company culture and ensure employees believe in the mission. This internal commitment will be evident to customers in the external brand culture.
• Develop emotional connections by meeting people where they are and increasing convenience.
• Incorporate retail into mixed-use areas, like Washington DC's Union Market, which combines housing, hotels, entertainment, and retail spaces.
• Prioritize customer stories by staying informed about events outside store walls.
• Maintain focus on core strengths even when attracting new customers beyond original communities. For instance, Milani Cosmetics continues catering primarily to pigmented skin customers despite expanding its customer base.

A look at 3 retailers set in motion: Sephora, Printemps, Myer

Sephora’s CEO promoted the company by showcasing its results and values, as the leading global beauty retailer, operating 35 markets, 3,000 stores with 52,000 colleagues and selling 500 brands. Following a 10-year growth trajectory, 2023 results were very good with +50% vs. pre-Covid, growing twice as fast as the beauty market levels:

• North America +27%
• Europe +23%
• Middle East +28%
• South East Asia +27%
• Latin America +43%
• China +2%

For him, Sephora's success relies on four pillars:

• Product curation and differentiation through strong brand partnerships. Sephora transforms small businesses into leading brands and maintains a unique perspective on beauty. They also support smaller brands to meet the 50% pledge in the US, reflecting consumer diversity. Clean and Planet Aware labels demonstrate Sephora's commitment to responsible retailing.
• Exceptional in-store experiences using innovative tools like diagnosis and skin analysis technology to foster personal relationships with customers.
• Community-building by nurturing the largest beauty community, hosting special events like "Sephoria" for product discovery and testing. Initiatives extend beyond the loyalty program.
• Talent development in retail as a people-driven business. Sephora values inspiration and aims to fill 70% of roles internally. To continue attracting top talent, they've introduced new work practices, such as full weekends off.

Printemps CEO’s speech was a bit more of a presentation of the company to an audience which might lack general knowledge about it. The Printemps Group, which includes Printemps, Citadium, Place des Tendance e-tailer, and home e-tailer Made in Design, processes a transaction every 2 seconds.

The company began its transformation journey four years ago in response to COVID-induced online growth, decreased tourism and local traffic, and brands going direct. To adapt, Printemps implemented a new strategy to create a personal omnichannel department store experience. This included:

• Enhancing the wow factor by redesigning their visual identity with nature-inspired green and luxurious gold accents. They introduced 30 new concepts such as 'Le 7ème ciel' for luxury second-hand items, upcycling, circularity, and restaurants.
• Fostering an intimate atmosphere with welcoming staff, personal shoppers, and special attention to VICs who spend over 30,000 euros annually.
• Embracing omnichannel retail with a unified stock system, marketplace integration, in-store e-commerce features (communication tools, QR codes, and distant shopping studios), and an online store presence.
• Expanding internationally to reach customers worldwide and opening additional locations in Doha last year and New York in February 2025.

After four years of transformation, Printemps exceeded pre-Covid levels. They doubled their Middle Eastern and Korean customer base, tripled the business from 30,000+ euro VICs, and achieved 9% of total revenue through e-commerce.

The Chief Customer Officer of Myer then took the stage to describe the company’s transformation journey. Myer, Australia's largest department store, has 56 stores, 20,000 employees, and a AUD $3.4 billion turnover.

Before the COVID-19 pandemic, Myer faced a challenging situation with a AUD $107 million debt, struggling e-commerce, loss of core customers, and a weak balance sheet. As early as 2018, Myer developed a plan to drive transformation by resetting its values and vision to prioritize the customer. The “Customer First Plan” focused on five key areas:

• Accelerating online capability and leveraging multi-channel opportunities
• Achieving factory-to-customer excellence
• Transforming in-store experiences
• Refocusing product offerings
• Rationalizing property and overheads

Myer implemented a more balanced merchandise strategy that relied less on seasonal fashion and more on deeper brand partnerships and inventory control. This led to a 26% reduction in core ranges since Fall 2019 and 35% growth from major brand partners during the same period. Over 400 new branded shop-in-shop concepts were introduced across stores, resulting in a better-balanced category portfolio.

To enhance team capabilities, Myer invested in transforming sales associates into tech-savvy, well-informed team members who could focus more on customers and less on administrative tasks. They introduced the M-Metrics app for analytics and customer feedback, which was sent directly to team members' phones. This investment in technology improved in-store customer satisfaction by 23% and increased sales associates' time spent helping customers by 20%.

Myer also built omnichannel capabilities by investing in their supply chain and launching a new national distribution center with world-class automation technology. This led to a 163% growth in online sales. Now, 59% of customers browse online before shopping in-store, making the online platform Myer's largest shop window. Multi-channel customers spend 2.6 times more than those shopping only in-store.

Finally, Myer worked on their CRM to re-engage with customers more effectively.

By altering value perceptions and increasing reward frequency, they developed a wider loyalty and points ecosystem through partnerships with third parties. Enhanced analytics and AI capabilities facilitated personalization, resulting in 36 million customers in their loyalty network. Moreover, they revamped their PR, offering unique events and experiences to attract customers.

Productivity improvements and strategic space reductions of 14.1% contributed to a 12% increase in in-store sales productivity. Additionally, over AUD $210 million was invested in store environment and infrastructure upgrades.

The future of department stores: an IADS interview of Harrods and Galeries Lafayette

The interview tackled the current department stores’ challenges and the most important topics for the future.

• How to cope with brands going direct? Harrods and Galeries Lafayette consider themselves houses of brands. Harrods creates iconic shop-in-shops comparable to free-standing and flagship stores, while Galeries Lafayette positions itself as a brand offering the best in fashion, luxury, beauty, and food.
• What do they do with data? Harrods employs large CRM and data science teams. However, the real difference lies in the customer experience. As customers return to stores post-COVID, Galeries Lafayette adapts to become an omnichannel retailer with the best assortment.
• What does omnichannel mean? Harrods prioritizes ultra-wealthy customers before targeting local or international ones. Personas are identified, and communication is tailored for long-term relationships. Galeries Lafayette caters to both tourists and locals seeking the best in fashion. Customers often research online before visiting the store, proving omnichannel is not solely transaction-based.
• What is the big elephant in the board meeting room these days? At Harrods, the focus is on providing exquisite services and ensuring staff possess excellent product knowledge. Customer centricity and NPS are vital for both Harrods and Galeries Lafayette. Staying updated on trends like sustainability and wellness is also essential.
• What about international development? Both stores represent their cities and beyond. Harrods has outposts in Shanghai to connect with wealthy local customers. Galeries Lafayette began international expansion over 100 years ago, accelerating growth in China 20 years ago, with plans to open more stores directly next year (also expanding into India through a franchisee partner). This development communicates their brand to customers worldwide.

Both CEOs concluded with pieces of advice for other retailers: Harrods recommends investing in data scientists, CRM, and customer-facing IT innovations. For Galeries Lafayette, being customer-centric is key.

Interesting quotes

Judith Mc Kenna, Former CEO Walmart International: “If in a team you have 2 people who think the same, you have one person in excess in your team”.

The World Retail Congress 2024 highlighted that despite the digital transformation, the physical store remains a cornerstone of the retail industry. More than ever, successful retailers are those who blend digital prowess with the tangible, sensory experiences only possible in physical spaces. This congress showcased the innovative ways stores are being revamped to create immersive, personalised experiences that attract and retain customers. The future of retail involves a strategic interplay between online efficiency and the experiential richness of brick-and-mortar stores. Physical retail isn't just surviving; it's evolving to fulfill new roles in community building, experiential marketing, and as a touchpoint for deepening consumer relationships in an increasingly digital world.

Credits: IADS (Selvane Mohandas du Ménil)

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The IADS recently attended a webinar hosted by Bain & Company covering the topic of ‘Monetizing sustainability – Navigating ESG pricing’ where the relationship between profit and sustainability was discussed. As we have covered in our previous IADS Exclusive on how retailers can turn sustainability regulations into opportunities, sustainability directives are here to stay and will only become stricter, but this should not stop retailers from finding ways to make such changes a win-win situation. In the same vein, the IADS also recently studied the key takeaways from Adam Werbach’s book ‘Strategy for Sustainability’ which explores how businesses can integrate sustainability principles into their strategies to create long-term value. Building on the principles and ideas discussed by Bain & Company and in the book by Werbach, we explore some of these ways to build a positive and profitable groundwork for retail businesses while keeping sustainability topics at the heart of the company, which in these days, is key to survival.

Bain & Company: How investments in sustainable initiatives can convert into financial value

To give an overview of the current landscape, Bain & Company shared in their ‘Navigating ESG’ webinar that it is clear many industries and geographies are moving at different paces in terms of Environmental, Social, and Governance (ESG) initiatives. Nevertheless, these topics have become central to boardroom discussions, with 90% of S&P 500 companies publishing sustainability reports. The projected annual expenditure on Green Capex for this decade is estimated at USD 6 trillion, with approximately 50% of new product launches embracing sustainability goals. This trend is further amplified by increasing media coverage and heightened consumer awareness. At this point, companies have not yet fully linked their sustainability efforts to a return on investment, as they are primarily driven by regulatory and corporate objectives. Today, there is quite a debate on whether ESG is truly being addressed fully to encompass the “E” (Environment), “S” (Social), and “G” (Governance), thus blending the 3 concepts is distracting and not always productive. Nevertheless, the next step, and major challenge, is to translate these sustainability initiatives into commercial success, which will require a lot of dedication and effort.

The benefits and risks of tackling ESG pricing 

If retailers can master ESG pricing and take advantage of green business models, although it is a complex exercise, they will be able to unlock significant benefits. The landscape offers promising prospects, such as the ability to command price premiums from a sourcing perspective and enhance margins through the emergence of new profit pools. Additionally, adapting to the evolving demands across the value chain presents vast opportunities for market share expansion and value capture. Launching new markets and products that are in line with ESG initiatives also provides a platform for brands to distinguish themselves and secure a competitive edge.

Conversely, the stakes of mismanaging ESG products and services are high. Overlooking emerging value trends could forfeit potential market gains while misjudging the market entry timing could close the opportunity window. Furthermore, exploiting these trends with too keen an eye on opportunism could tarnish a brand's reputation and compromise its success, underlining the delicate balance between seizing opportunities and navigating the risks associated with ESG initiatives.

Navigating ESG market opportunities effectively requires a multifaceted approach 

Bain & Company broke down the navigation of ESG pricing into 4 key guidelines.

Firstly, it is essential to have a clear understanding of the value at stake to guide prioritization, resourcing, focus and ensure that the overall sustainability strategy is in line with delivery and monetization. This includes being intentional when setting up new ventures especially in terms of the number of resources allocated, what they will focus on, and understanding the levers to be pulled whether that involves tapping into a new market or holding out for more premium offers or customers. In terms of customers, it is essential to understand the factors that push their willingness to pay and the problems the initiative helps the customer address. Supply and demand dynamics play a large role in success as well and it is important to understand if there will be enough green supply (resources) to carry out the initiative. Finally, it is important to understand the minimum margin requirement, meaning the target ROI and effective floor price, and the relationship this demand has on current products, wallet share, or loyalty.

Secondly, it is important to recognize that ESG triggers span across the value chain, with the intersection of costs incurred and value generated not always aligning. This means businesses not only need to understand their customers’ needs, but also their customers’ customers, and eventually the end consumer. This means that ESG pressures can come from a variety of places either from consumers changing opinions and driving pressures upstream, it can also come from regulations that bring more stringent practices, or it can come from a revolutionary technology change. Some examples of companies acting on these pressures are Coca-Cola announcing plans to use more recycled materials due a response to consumer demand, BMW sourcing aluminium from manufacturers exclusively using electricity obtained from solar power to meet their internal sustainability goals, or Rio Tinto investing in renewable energy and low carbon technologies to decarbonize their mining operations due to goals to meet both regulatory compliance and their internal sustainability objectives. Such internal sustainability objectives are important to get just right because efforts to go above and beyond, as seen with Walmart's Project Gigaton, will in turn have an impact on customer perception of the brand. The key to being successful in this stage is to ensure that the business is agile enough to act on these pressures quickly to clearly address the market demands, no matter which area the pressure is stemming from.

Thirdly, is it necessary to comprehend the currencies of value to accurately identify target segments and relevant propositions. Customer segments will vary in their willingness to pay across value attributes. When articulating the value proposition of an ESG initiative, it is important to understand the contributions that will resonate with customers. This can be addressed by asking questions such as: how can we help our customers drive value from ESG? and how can we help our customers deliver on their sustainability agenda? These questions cover tangible attributes such as helping customers drive growth or generate premiums from an improved ESG value proposition and improving their risk profile by helping them avoid greenwashing. The questions also address intangible values like helping customers attract and retain motivated talent due to stronger commitments to ESG or helping customers strengthen their ESG claims around their brand and helping them improve their market positioning. Such questions can also address sustainability value by helping customers deliver on their ESG and time-critical targets as well as offering more cost-effective pathways to achieve goals.

Finally, it is about playing the long game and ensuring pricing is established within the strategic context of sustainable offerings, carefully navigating supply and demand curves to achieve optimal outcomes. When defining the value proposition, it is important to focus on differentiation and going beyond regulatory requirements to drive bold change and address the industry’s main challenges to set the company to be an outlier versus the competition. The business needs to decide which areas it wants to be considered ‘compliant’, ‘proactive’, or ‘leading the market’ compared to the competition which helps protect the business from downside risks. These initiatives are more about laying a foundational ESG groundwork and might bring less tangible added value out of the ESG offering, but such changes will lead to longer success in terms of brand recognition.

Monetization might be the goal, but it can’t be achieved without a long-term strategy 

Bain & Company’s presentation broke down the ways that ESG initiatives can help a company find the right opportunities and monetize their sustainability strategies, but it is not enough to stop there. ESG needs to be ingrained into every fibre of a business to make a long-term and lasting effect. This is why the strategies and principles of Adam Werbach’s “Strategy for Sustainability” book are also important to consider when building out a corporate ESG playbook.

Strategy for Sustainability: Building out a solid long-term corporate sustainability strategy

In his book “Strategy for Sustainability”, Werbach explores how businesses can integrate sustainability principles into their strategies to create long-term value. He emphasizes the importance of aligning business goals with environmental and social objectives, arguing that sustainability is not just about minimizing negative impacts but also about seizing opportunities for innovation and growth. Werbach emphasizes that sustainability is not just a moral imperative but also a smart business strategy.

By integrating sustainability principles into their operations, businesses can unlock a myriad of benefits. Firstly, they can achieve cost reduction through the implementation of energy efficiency measures, waste reduction strategies, and sustainable sourcing practices, ultimately leading to long-term savings. Secondly, by addressing environmental and social risks such as supply chain disruptions and reputational damage from environmental controversies, companies can effectively mitigate risks and safeguard their bottom line. Thirdly, as consumers increasingly prefer environmentally and socially responsible brands, demonstrating a commitment to sustainability can significantly enhance brand reputation and foster customer loyalty. Lastly, sustainability challenges can spur innovation, prompting companies to develop new products, services, and business models that are not only more resource-efficient but also environmentally friendly, driving continuous advancement within the industry.

Werbach encourages companies to consider going beyond compliance and being transformational organizations by embracing sustainability as a core value and fundamentally transforming their business models to create positive social and environmental impacts.  With this philosophy, sustainability should be integrated into all aspects of a business, rather than treated as a separate, siloed function. This integration involves embedding sustainability into the company's mission, vision, and values to ensure alignment with business goals, incorporating sustainability considerations into decision-making processes across departments, from product design and procurement to marketing and human resources, and engaging employees at all levels to foster a culture of sustainability and empower them to contribute to the company's sustainability efforts. The key idea is to ensure that all decisions are driven by long-term sustainability goals rather than simply trying to meet quarterly exercise expectations.

Introducing new analysis strategies to ensure sustainability is a foundational consideration 

In rethinking traditional analysis methods, Werbach advocates for a shift towards more dynamic strategies and away from slower frameworks such as SWOT (Strengths, Weaknesses, Opportunities, and Threats) and PESTLE (Political, Economic, Sociological, Technological, Legal and Environmental). Werbach focuses on two methodologies: STaR Mapping and TEN Cycle.

STaR Mapping focuses on Social, Technological, and Resource changes, and moves away from competitive analysis towards simple incremental steps, termed North Star Goals, that can be implemented across the organization. STaR Mapping aligns short-term objectives with long-term strategies, anticipates energy and commodity costs, addresses demographic shifts toward aging populations, and prepares for future changes.

The TEN Cycle method takes into account Transparency, Engagement, and Networking in a cyclical process aimed at revitalizing conditions for long-term prosperity and the achievement of North Star Goals. The TEN Cycle helps strategists for sustainability celebrate transparency, build from the inside out, demonstrate that people are the most important company asset, provide deep induction processes and long-term equity incentives for employees, stay highly networked to outside organizations and companies, and employ cyclical and constant actions.

Xerox: a use case using Star Mapping, North Star Goals, and TEN Cycle 

Werbach illustrates the practical application of STaR Mapping, North Star Goals, and the TEN Cycle through real-world examples. Once again, these strategies focus on internal changes rather than on competitive analysis, which has been illustrated with a couple of examples from Xerox, where leadership teams leveraged these strategies to innovate and build sustainable and profitable businesses with significant industry impacts:

In 1993, Xerox hired chemist Patty Calkins to drive change as the company sought to integrate eco-conscious design principles into its products and services. Against the backdrop of heightened environmental awareness, Calkins helped the company set an ambitious North Star Goal: to produce waste-free products in waste-free facilities, fostering waste-free offices for customers through offering remanufactured products and parts. This simple foundational change led to big impacts, activating a TEN Cycle: the development of the ISO 24700 standard ensuring the quality of office equipment with reused parts, the reduction of overall costs due to better quality parts that would last longer and could be interchanged between products and offering better products to consumers. It is estimated that Xerox saved several hundreds of millions of dollars through the copier remanufacturing program.  Such a change also made Xerox reputable as being a sustainability innovator and the company became active in associations working towards regulation and spent time educating customers on why sustainable businesses do not always need to be considered more expensive as they make products that are made to last, thus saving customers money in the long-term.

In 2021, Xerox faced substantial challenges, with a staggering USD 17 billion debt, operating losses of USD 237 million, and a substantial loss in stock market value. Under the leadership of CEO Anne Mulcahy, the company embraced its tradition of innovation and community service to chart a new course, grounded in the North Star concept. Mulcahy's strategic vision allowed Xerox to move away from only selling copiers to expanding their product offering- which significantly propelled the company, resulting in a USD 978 million gain by 2005. This foundational change also set the company up to develop the first plain paper copying machine and to establish the renowned Xerox Palo Alto Research Center (PARC), which played a pivotal role in the evolution of personal computing and laser printing, giving Xerox recognition as an innovator.

Conclusion – A winning ESG playbook is all about the Domino Effect

The playing field of how businesses operate more sustainably and responsibly, especially in terms of ESG initiatives, might not ever have a set of official rules and guidelines to follow. Thanks to experts at Bain & Company and the advice taken in the examples shared in Werbach’s book, retail businesses do not have to act as guinea pigs and can follow the examples of many companies that have tried to innovate in the sustainability space.

What can be learned from these examples? There is a critical intersection between simplified long-term sustainability strategies that bring business value and profit in today’s business landscape while amplifying a company's culture and leading to strong relationships with employees and customers. There is also an advantage to being a first and influential actor, as seen with Xerox, that sets the stage for what a sustainable company looks like. By integrating sustainability principles into their strategies, businesses can achieve various benefits, including cost reduction, risk mitigation, enhanced brand reputation, and innovation. Overall, by embracing sustainability as a core value and integrating it into all aspects of their operations, companies can not only mitigate risks and comply with regulations, but also drive innovation, enhance competitiveness, and create long-term value for shareholders, stakeholders, and society as a whole.

IADS Note: To access the full Bain & Company webinar on ‘Monetizing sustainability – Navigating ESG pricing’, follow this link. You will need to input the passcode: !0J?Lp3D

Credits: IADS (Mary Jane Shea)

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The IADS attended the Global Peter Drucker Forum, an annual event organized in Vienna, Austria, last December. This event is an international management conference dedicated to the management philosophy of Peter Drucker, a management professor, writer, and consultant, often referred to as a “management guru”. The conferences held during the Forum aimed at making a reconciliation between pure research (systematically based on Peter Drucker’s findings) and practice, by having on-stage academics and executives.

While the whole session was dedicated to exploring the notion of “creative resilience” in an age of discontinuity, two specific talks raised our attention, as they challenged some notions that are taken for granted in business :

• Simplify to win,
• Plan a transformation process,
• Have the appropriate individuals carry this process.

What if the simplification process has become a poison for businesses in a world where uncertainty is everywhere and every day, at every level? What if the business transformation was not a process, but a never-ending moment, because its true nature is more psychological than measurable in actions? Finally, what if CEOs could not count on dedicated individuals to carry out a digital transformation process due to its very evanescent nature?

While we already reviewed these notions in our 2022 White Paper, “Smarter department store organizations”, by especially wondering if the structure had always followed strategy in the past for department stores, these two conferences gave an interesting angle that comes as an ideal complement to the conclusions we made at that time.

Introduction: Questioning Conventional Business Strategies

During a conference held at the Peter Drucker Forum in Vienna last December, Pierre Le Manh, CEO of the Project Management Institute (PMI), an HR consultancy company dedicated to upskilling and reskilling people, made a disconcerting remark: at the beginning of the COVID-19 pandemic, the whole market thought that PMI would go down, as their business entirely relied on discretionary budgets. Contrary to expectations, they did not. The surprising part comes from Le Manh’s candid admission that they performed much better than anticipated, but no one in the company, including himself, truly understood why or what factors contributed to their relative success over competitors.

Since his career was built on the fact of being an outsider (he was first appointed CEO at less than 30 years old, under the premise that “he did not have any clue about the business he was about to lead,” a trait seen as a strength by the then-president of CFL Holdings who recruited him), he proposed to review his inability to explain PMI’s success by questioning what leaders are usually taught, and what he did not do “by the book” when he joined.

In doing so, he challenged the long-term effectiveness of conventional business strategies: defining a value proposition, choosing a market, adapting the offer, focusing on specific customers, and optimizing the supply chain are all sound strategies… but what if this simplification also creates an organizational fragility? After all, the business tactics companies have been using for the past 20 years were adapted to a world where free money, safe real-time logistics, and the predictability of events were taken for granted, a world that no longer exists.

He also emphasized that natural ecosystems are extremely complex and based on millions of interactions that allow the environment to remain very resilient. In his opinion, this suggests that the simplification businesses often pursue might not be the wisest move in a world where resilience and the ability to face the unexpected are now vital.

This strong view against simplification in business, for the sake of ensuring resilience and the ability to absorb shocks (even though “simplified” processes such as Just in Time were initially described as the best way for organizations to absorb shocks), was later echoed in another conference dedicated to digital transformation.

Digital Transformation: More Than Flexibility

When asked about digital transformation and its ability to add flexibility to organizations, Lalit Karwa, the Head of Tata Consulting Services in Europe, was clear: the question is whether digital transformation adds enough flexibility. He stated that the answer was negative: given the changes the world is undergoing, the need for flexibility is now extreme, and expectations to reach that level are not realistic. Moreover, the notion of flexibility varies according to different perspectives, and the gap between decision-making and execution in digital transformation often leads to failure.

He emphasized that digital transformation is primarily a transformational process, with the “digital” aspect being just a component. The foundation relies heavily on people and processes, often overlooked in transformation efforts:

• 70% of transformations fail due to internal resistance: making a company more flexible often involves less flexibility at the individual level, creating friction,
• Placing people at the centre of a transformational process does not reduce complexity, on the contrary,
• Processes cannot also systematically be trimmed down or reviewed according to general principles. In the same way that Le Manh mentioned that playbooks might have to be reviewed, Karwa suggested that “inefficient processes in any given company were there for a reason, and leaders should empower their staff capable of tweaking these processes rather than replacing them with external elements.”

In summary, digital transformation is a complex process that, unfortunately for CEOs, cannot be simplified by creating an ad hoc department responsible for such a transition. As Karwa put it, “If one does business as usual and launches into digital transformation as a parallel process, it will fail. There is nothing in digital transformation that has a start and an end.”

Instead of top-down efforts, Karwa emphasized the need for bottom-up transformation approaches, mixed with a systematic revaluation of conventional business practices. He cautioned against relying on external experts (notably interesting as he leads a consultancy company) and emphasized that, for change to be successful, employees must be motivated, equipped, and empowered to redesign processes.

He proposed a set of 6 rules to define the “new generation” digital transformation in organizations:

• The outcome should drive what gets prioritized,
• The outcome should be time-boxed,
• Uncertainty should be managed in new ways,
• Adoption should be planned at the design stage,
• Transformation should be an innovative process.
• Transformation should be carefully balanced in an equilibrated portfolio.

The outcome should drive what gets prioritized: 

Karwa explained that, for front-liners, respecting deadlines and budgets is paramount, and then they deal with “HQ’s eccentricities”. To ensure this group feels involved in the transformation efforts, the value proposition of such efforts should be clear, relevant, and valuable to them, and be the sole focus of management. Too often, transformation efforts culminate in grandiose plans that fail to connect with or engage the workforce.

The outcome should be timeboxed 

Karwa suggests that relevant teams (if not the entire company) should be tasked with realizing the value of their efforts within 120 days. Ninety days is too short a period, and 180 days too vague. Therefore, leaders involved in the effort should report and demonstrate results, ROI, and KPIs within this 120-day period.

Uncertainty should be managed in new ways 

It's impossible to act without checkpoints, which Karwa suggests implementing every two weeks. During these checkpoints, micro-decisions should be made according to market developments, user feedback, and general observations. These micro-decisions are intended to steer the project in real-time and mitigate the expensive commitments that will eventually need to be made.

Adoption by design 

Addressing the disconnection between decision-makers and those tasked with developing solutions, Karwa stressed the importance of empathy and humility. The transformation plan's solutions must be centered around people’s needs. In his words: "If no one uses your solution, why do you build it?"

The transformation should be infused with innovation 

The transformation process should be planned, designed, and developed with the objective of empowering the organization and providing it a competitive edge. In other words, innovation should be embedded in the transformational process to ensure the organization is not only equipped for today but also for tomorrow.

The transformation plan should be part of a larger perspective 

Karwa expressed his view that transformation initiatives should be part of a balanced portfolio, which plays at the same time offence and defence.

These last two points echo Le Manh’s views, who insists that businesses should allocate 70% of their resources to business as usual, 20% to innovating in known territory, and 10% to uncharted territory (a distribution rarely observed in real conditions, as per his own words).

While Le Manh advocates for CEOs to avoid oversimplification when developing a strategy and keep room for manoeuvring, Karwa goes further by stating that "innovation departments" are ineffective in driving company-wide transformation (as this opposes day-to-day business to innovation). Instead, he stresses the need for companies (and their cultures) to make innovation an everyday practice, rather than a periodic transformation. In other words, dismiss the notion of transformation as a plan with a beginning and an end, but instead, see it as a perpetual movement within the organization.

Karwa acknowledges that this vision is disconcerting, if not uncomfortable, but for him, this is the price to pay to be stronger. Le Manh goes further by reminding us that crises are opportunities for organizations to emerge not different but stronger. While this is now a widely accepted statement, he affirmed that companies today have no excuse not to be ready for unforeseen events, as developing alternative contingency plans is a critical and essential piece of work in a world where disruption becomes the norm.

Pierre Le Manh and Lalit Karwa’s viewpoints highlight the necessity of integrating resilience, innovation, and adaptability into the very fabric of organizational culture. This approach requires a shift in mindset, from viewing transformation as a finite project to understanding it as an ongoing, integral part of business evolution.

To broaden the subject and to resonate with the essence of their messages, a fitting reference from Peter Drucker, whose forum sparked these discussions, can be utilized. Drucker, a visionary in the field of management, famously said, “The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.” This quote encapsulates the core theme of the discourse presented by Le Manh and Karwa. It suggests that the key to thriving in today’s rapidly changing business landscape lies not in adhering to outdated models and strategies, but in developing an agile, forward-thinking approach that can adapt to new challenges and opportunities.

This idea prompts a broader reflection on the future of business leadership and strategy. As organizations navigate through an era of unprecedented change and complexity, the principles and strategies discussed by these leaders could serve as a guiding framework for others. It emphasizes the importance of understanding the evolving dynamics of the global market, the increasing interconnectivity of systems, and the unpredictable nature of future challenges. By embracing a mindset of continuous learning, innovation, and adaptability, businesses can not only survive but thrive in the face of uncertainty, turning potential crises into opportunities for growth and transformation.

Credits: IADS (Selvane Mohandas du Menil)

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In 2023, despite a promising start to the year, IADS members experienced a significant turning point in the retail market following the summer. This shift was further exacerbated by terrorist attacks in Israel in October 2023, leading to global economic concerns, particularly regarding inflation and growth in 2024. These apprehensions were evident during the IADS General Assembly in November, prompting IADS to invite The Coca-Cola Company to share their insights with IADS CEOs for 2024 and the FMCG (Fast Moving Consumer Goods) market.

The presentation was delivered by Nikos Koumettis, President of the Europe Operating Unit at Coca-Cola, and Rami Sabanegh, Vice President of Strategy at Coca-Cola Europe. Nikos Koumettis began his career in Marketing and Sales, working for Kraft Jacobs Suchard, Elgeka and Papastratos/Phillip Morris, and joined Coca-Cola in 2001 as General Manager for Greece and Cyprus. Since then, he has built a wealth of experience in several international roles. Similarly, Rami Sabanegh has an impressive list of credentials and uses his extensive knowledge of management consulting as a member of Coca-Cola’s European leadership team, where he leads business analysis, strategy, insights and strategic transformation for 40 countries. Together, they shared their expertise on the European customer landscape, macroeconomic factors, sustainability, technological shifts and their company's extensive reach, serving 500 million customers across a wide product range.

Introduction: Europe is a highly diverse and challenging space to operate in

The diversity and unique characteristics of Europe's market make it a difficult and exciting retail space to navigate for companies, including Coca-Cola. The European market, spanning 40 countries, including the 27-nation European Union, presents a diverse landscape with multiple currencies and a population of 600 million residing in 250 million households. This market's allure lies in its blend of developed and emerging economies, extending from Ukraine to Switzerland. However, despite the immense opportunity this presents, there are also challenges faced by retailers in this vast market presented by a few distinct features of European constituents and consumers.

Europe's population is on the verge of decline, even when immigration is considered, it is also a swiftly aging demographic with one in four Europeans aged over 60, and it features an increasing trend towards single or two-person urban households. These shifts hold significant implications for companies, including Coca-Cola, leading to evolved market strategies and the introduction of different types of product lines including zero-sugar and zero-caffeine products.

Such demographic changes should also be considered by department store businesses but are often overlooked by retail marketing departments. The evolving market, such as the ageing European consumer demographic, necessitates adjustments and adapting to the consumers’ needs. An example of such a change is the need to print larger product labels and price tags for ageing customers. As Europe continues to face macroeconomic crises and businesses must learn how to adapt to a ‘business as usual’ volatility, they need to think about how customers will respond and reallocate resources effectively to survive.

If the customer is ever evolving, who is the target audience?

Customers have undergone significant behavioural changes in response to various market forces, displaying both short-term and permanent shifts. In the short term, behaviours include down-trading, where consumers opt for discounters and private labels. The new generation of thrifty shoppers is showing reduced spending on non-essential FMCG products and a focus on finding the best deals. The more permanent changes that are here to stay include more planned purchases, reduced impulse buying, smaller but more frequent shopping trips, and an emphasis on value for money.

Coca-Cola is adapting dynamically to these shifts by developing fresh and healthier products, expanding retail partnerships, and implementing dynamic pricing strategies. Coca-Cola's revenue growth management methods involve offering various pack options at different price points per channel to address customer affordability and preferences toward value. The change in demand can be seen when analysing discrepancies in purchasing between regions and countries. The Classic Coca-Cola product is growing in Eastern countries, while in the West, growth mostly is driven by Coca-Cola Zero or low-calorie equivalents.

Another way Coca-Cola has shown its creative adaptability to a transformed consumer is with the offering of products in new formats such as its smaller 150mL cans to allow customers to still enjoy Classic Coca-Cola, but also control their calorie intake. These changes stress the importance of differentiation in terms of value for money, as middle-market brands face competition from discounters' private labels and premium products.

How macroeconomics push Coca-Cola to adjust its strategy

Europe is experiencing a transformation of trends that are reshaping consumer behaviours and business strategies, which are likely to extend to other markets in the future. These trends include a growing emphasis on health and wellness, with EU customers actively seeking mental and physical well-being. Coca-Cola acknowledges this trend's impact on customers and employees, addressing issues such as mental health support for staff.

Environmental concerns are also on the rise, with European consumers increasingly becoming more eco-conscious, prompting brands to adopt sustainable practices. It is also important to acknowledge that compliance with evolving government regulations is difficult as directives are still being set in place (noting that Brussels's demands for the European Union are stricter and more challenging compared to meeting the United Nations' expectations). Coca-Cola is actively addressing the evolving regulatory sustainability framework in Europe by keeping up with these directives and setting ambitious targets. These targets include giving back more water than they use, which they have already achieved, and focusing on increasing the scale of recyclable packaging use, with a target of 50% by 2030. CO2 emissions remain a challenge, and the company has committed to achieving Net Zero for bottlers by 2040, implying a substantial annual decrease of 8% which is a very ambitious goal.

Implementing digital strategies into marketing efforts

Technological shifts, including increased tech literacy and AI usage among consumers of all ages, are also changing how people consume and interact with brands. The company aims to have a visible presence where customers are investing in digital media and targeting the 18-28 age group to stay relevant and measure the effectiveness of their investments. Achieving relevance with young emerging consumers also includes shifts in Coca-Cola's talent acquisition. The company has an average age of 26-27 with a low turnover rate of 4%, meaning they value the company and tend to stay longer to grow with the company.

Coca-Cola's growing digital investments serve several strategic objectives, other than just appealing to a younger customer and talent base. These digital investments have a dual purpose: one aspect focuses on bringing the brand closer to customers, while the other aims to ensure the availability of appropriate digital platforms for various aspects like e-commerce.

Coca-Cola’s overarching vision is to replicate the brand's offline success in the online world, relying heavily on first-party data to understand customers and tailor offerings to them. Additionally, these investments are driven by the pursuit of measurable ROIs, a feature not readily available through traditional media channels.

Conclusion: An extreme need for adaptability

The insights presented by the Coca-Cola Company shed light on the multifaceted dynamics of the European market and the evolving behaviours of consumers that department stores should consider when developing marketing strategies and business models. The European market's diversity, ageing population, and changing household structures are factors influencing customer preferences, leading to short-term and permanent shifts in buying habits. These changes have been ignored by many marketing departments in favour of more traditional techniques, yet as pointed out by the Coca-Cola company, they are key to remaining relevant and innovative in an ever-changing consumer landscape. Coca-Cola’s insights highlighted the need for retailers in Europe and those operating across differing cities, regions, and countries to adapt to changing demographics, stay up to date on economic conditions, and respond to evolving consumer behaviours. Retailers should focus on offering value for money, addressing wellness and sustainability concerns, and leveraging digital marketing to remain competitive in this consistently dynamic market.

Credits: IADS (Mary Jane Shea)

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The IADS is at a crossroads when it comes to helping its members, by addressing their most operational questions and helping them to address current and future challenges. Being sustainable is certainly a critical one and it requires means, energy and time, which is even more difficult in crisis moments. The IADS invited Andrea Baldo, CEO of the Danish responsible brand GANNI, to share his views on the best ways to make true impacts and maintain a responsible vision.

Shareholders are usually not happy to reduce profits to fund sustainable changes, customers ask for sustainable products but are not ready to pay the price for them, and businesses are not happy to see governments talking about taxing people to fund the green transition. However, Baldo argues that this is the responsibility of CEOs to address the future, even if this means making sure investors are aligned on this vision too. For him, becoming sustainable in the future is much more important than digital transformation. He explains how CEOs can fight sustainability systemic issues by taking risks, choosing realistic actions over hollow claims and always favouring adaptation and innovation.

Fighting a systemic issue: ESG credibility and taking risks

First of all, for Andrea Baldo, the fashion industry cannot become a sustainable industry as it is in essence consuming the planet’s resources. True sustainability will only be achieved with significant technological advancement. Second of all, when it comes to acting more responsibly, very little development happened in 10 years (between the 2009 COP meeting and the Copenhagen Fashion Summit in 2019). Illustrating this fact, organic cotton only represents 1% of the global production, which shows how slow progress is.

This issue is systemic. On one hand, CEOs of fashion companies have to generate return on investments for their shareholders who are not always in favour of the development of more responsible products as this is equivalent to reducing profits. On another hand, the fashion industry asks consumers to pay 25% to 30% higher prices for sustainable products to help companies in their transition towards more responsible operations. Finally, people and companies are also voters who might refuse to vote for candidates advocating for additional taxes funding sustainability efforts.

Besides being responsible for their company strategy, culture and people, CEOs can choose to drive change, knowing that this is adding responsibilities on their shoulders. This means taking the risk of disagreeing with shareholders. But the good news is investors are increasingly looking at ESG credibility when considering investments. This has been the case at GANNI when Baldo was looking for investors for the company.

Still, despite great results in the past years, how to maintain the company vision when the growth rate decreased from 2-digit to 1-digit in one year? Tactically, being B Corp-certified does help as it forces shareholders to accept change, look at the impact on the planet, keep it as a strategic priority and pursue the company vision. In that regard, GANNI has a second responsibility board that helps prevent shareholders from back-peddling.

Being responsible rather than sustainable: the path to true transformation?

Embracing responsibility as part of the company culture means accepting that it is impossible to be sustainable. So, rather than claiming a ‘make believe’ sustainability, GANNI focuses on innovation, transparency and creating visibility for stakeholders and consumers through various honest and rather small initiatives such as:

• Using recycled materials for store props (rugs made of fabric waste for instance),
• Having a team dedicated to scouting fabric innovations,
• Recycling coffee waste to grow mushrooms.

These examples show a realistic path on the journey to becoming a more responsible version of the company in a very honest and transparent way. Consistency is also a key value at GANNI. When they decided to discontinue leather as a decision truly reducing the accessories and shoe businesses’ carbon footprint, they showed consistency by not offering beef at their cafeteria or not paying for expenses involving beef consumption anymore. This is a matter of adding credibility to the company's actions.

Even though some initiatives might look minor, not only the big projects are impactful in changing the culture and being more responsible: smaller initiatives (which are most of the time zero-cost) bring change and are necessary to drive transformation within and outside of the company.

GANNI also explored rental and second-hand models with varying results: while they didn’t find the key to success for rental, second-hand is already profitable for them. Finally, in terms of marketing, they opened a second Instagram account called GANNI Lab to highlight responsible efforts and to provide consumers with more information than the ones they find on the label.

Equivalent to digitalisation, sustainability has become a synonym for transformation and Baldo mentioned similarities in changing consumer behaviour and uncertain returns on investment. Circling back on the low share of organic cotton in the fashion industry, Baldo stressed the need for an improved supply chain, especially on the production side so that suppliers are paid more, allowing them to develop technical innovations and increase the usage of responsible materials.

Adaptation to markets and innovation: the keys to maintaining the vision

With an advanced contemporary positioning competing both with affordable luxury (Jacquemus, Acne Studios) and premium brands such as Sandro and Maje, 40% of GANNI’s customer base is 25 to 35 years old. 16 to 25-year-old customers account for 30%. Those groups usually declare they are interested in sustainability efforts.

In terms of territories, the brand has a strong presence in various European countries and the US, and it entered the Chinese market before COVID-19. After 2 years of presence in China, GANNI realized customers were primarily interested in their “scandi-cool” style and that was their entry point into the brand. They were also susceptible to the notion of woman empowerment. The responsibility credentials were coming at the bottom of the list. Actually, while the notion of sustainability appeals to communities in the West (we are all in the same boat and need to change our behaviour collectively), it is more of a personal choice in China (with the mindset of ‘I do it for myself and to feel better’), plus the notion of wellness is closely connected. For that reason, for instance, the alternative responsible materials required a lot of explanation to make sure customers understood them and liked them.

In Japan, the situation was different. It appears that when they entered the market, there were already a significant number of local players doing what GANNI was doing. However, they were not communicating these efforts as transparently as GANNI did, which is why many Japanese customers liked the relationship the brand proposed to create with them.

Evolving materials is also a key step towards responsibility. Discontinuing the use of leather is the number one priority and GANNI won’t use leather any longer from 2024. This is no easy task as challenges exist in that area. Non-leather materials are still perceived as cheap or plastic-like.

Andrea Baldo's insights offer a compelling vision for the future of sustainability in the fashion industry. Baldo's approach, as demonstrated by GANNI, emphasizes the importance of CEOs in taking risks to drive change, even in the face of shareholder resistance and market challenges. His focus on ESG credibility, embracing responsibility over hollow sustainability claims, and integrating innovative and transparent practices showcase a realistic path towards transformation. According to Baldo, sustainability is not about solving every big topic but taking a step-by-step approach: this could be done both by making sure shareholders are aware of what is at stake, but also by collaborating with other companies in frameworks such as what the IADS is.

GANNI's initiatives, from using recycled materials to discontinuing leather, and exploring rental and second-hand models, reflect a commitment to a more responsible business model. This approach is not just about environmental impact, but also about adapting to different market sensibilities and consumer behaviours, acknowledging the diverse perceptions of sustainability across cultures.

About Ganni

Based in Copenhagen, GANNI has developed exponentially over recent years thanks to a unique Scandinavian sense of style. Acting responsibly is seen as a moral obligation at the company which is on a journey to minimise its social and environmental impact. In 2020, they launched the GANNI Gameplan setting 44 tangible goals to be reached by 2023 across four main pillars: People, Planet, Product and Prosperity. The company is B Corp certified and has been elected one of the Time 100 most influential companies in 2023.

Credits: IADS (Christine Montard)

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IADS recently held a meeting on the home and decor sector. Based on market research, NellyRodi and The Style Pulse presented the most innovative brands from different segments in home and decor including furniture, tableware, decor, home appliances and electronics.

Check out our selection of these brands and the pictures by clicking the button below!

FURNITURE

FRAMA

FRAMA is a multi-disciplinary design brand that creates lifestyle objects to inspire the senses and encourage mindful living. With an emphasis on natural materials, simple geometries, and uncompromising quality, FRAMA’s work connects the imaginative with the practical, resulting in a uniquely warm and honest aesthetic.

Check out the Frama website here

CHECK OUT Frama's INSTAGRAM

DOOQ

Born in Portugal, Dooq is a design company dedicated to creating designs that stimulate the senses, and are inspired by the unexpected meeting of opposite things.They seek to find balance in things that are contrasting, creating pieces where feminine meets masculine, small meets large, soft meets solid and past meets the present allowing the new to blossom.

Check out the Dooq website here

check out the Dooq instagram here

POTIRON

Potiron Paris offers a blend of iconic and trendy decor products for every budget, including furniture, lighting, and decorative items. Emphasizing creativity, quality, and affordability, the brand now has an internal design studio to create unique, fashionable collections, making stylish interiors accessible to all.

Check out the Potiron website here

check out the Potiron instagram here

TABLEWARE

PINOLI GLASS

Pinoli Glass crafts unique, unconventional designs that elevate any home, celebrating life's beauty and unpredictability. Their pieces, embodying a "go with the flow" philosophy, provide an escape into extraordinary with every sunlight reflection.

Check out the PINOLI glass Website Here 

check out the pinoli glass instagram here

KNINDUSTRIE

KnIndustrie’s tools are conceived to serve food with practicality and elegance. On the table, KnIndustrie’s products become the center of conviviality, the protagonist of every experience dedicated to the presentation and use of food, where the functional element of the kitchen enters the “table space” with elegance, at the service of guests.

check out the KNINDUSTRIE website here 

check out the KnINDUSTRIE instagram here

AYA & IDA

AYA&IDA, established in 2018, is a Danish family business focused on reducing plastic waste by offering stylish, functional alternatives to disposable products. Named after the founders' daughters, their range

includes drinking bottles, food containers, and lunch boxes, promoting sustainable living and responsible consumption for a better future.

check out the Aya & IDA website here 

check out the Aya & Ida instagram here

DECOR

MAISON DEUX

Maison Deux is a Dutch design studio created to design fun, minimalist products that last for generations. We are a standalone design brand offering a range of durable rugs and rugs with playful, high quality designs, without compromising on quality and durability, while maintaining our social contribution.

Check out the Maison Deux website here

Check out the Maison Deux instagram here

WL CERAMICS

WL CERAMICS crafts porcelain with dedication, rooted in the historic porcelain capital, Jingdezhen, China. Since 1993, this family-operated business has been producing decorative porcelain, specializing in large, wheel-thrown pieces like vases and ceramic furniture. They collaborate with clients, architects, and designers to create custom designs, while also offering their own collection that can be personalized to meet individual preferences.

Check out the WL Ceramics website here 

check out the WL Ceramics instagram here

SHNEID STUDIO

Schneid Studio merges sustainability with timeless design, creating a wide array of products such as bowls, vases, benches, cups, wall hooks, and lamps. Rooted in a profound respect for nature, their work is characterized by ethical practices, collaborations with local artisans, and the use of naturally sourced materials. Their collection, inspired by traditional architecture, art, and poetry, showcases a balance between muted and vibrant designs, all embodying a contemporary yet enduring aesthetic.

check out the SHNEID STUDIO website here

check out the Shneid studio instagram here

DESIGN BY US

Design by Us blends fashion, fantasy, and humor to create distinctive lighting and interior designs. Challenging traditional design perceptions, they draw bold inspiration from the fashion industry to craft unique, recognizable pieces. With a commitment to creativity and an entrepreneurial spirit, their work is a playful exploration of forms, colors, and expressions that defy easy categorization.

check out the Design by us website here

check out the Design by us instagram here

HENRY DEAN

Henry Dean specializes in unique, handcrafted decorative glass objects, including vases, bowls, plates, and candleholders, focusing on recycled materials and in-house designs inspired by nature. Their commitment to artisanal craftsmanship and sustainability is evident in each distinct, mouth-blown piece that reflects a blend of traditional techniques and modern aesthetics.

Check out the HENRY DEAN website here

Check out the henry dean instagram here 

HOME APPLIANCES

CREATE

Create specializes in offering a broad array of affordable, quality home design appliances, from chef-grade kitchen gadgets to advanced cleaning tools, enhancing daily life with ease and efficiency. Emphasizing continual updates to include the latest functional, high-tech, and retro appliances, Create is dedicated to meeting the ever-changing needs of customers, ensuring a blend of modern convenience and classic style in every home.

Check out the create website here 

CHECK OUT THE create instagram here

AARKE

Aarke elevates daily routines with premium home essentials designed to improve water quality through innovative design and sustainable materials. Their commitment to meticulous engineering and quality ensures every product, from carbonators to water purifiers, enhances both function and aesthetics in the home.

Check out the Aarke website here

CHECK OUT THE Aarke INSTAGRAM HERE

ELECTRONICS

GINGKO

Gingko Design specializes in creating elegant and sustainable home and gift products, recognized for their innovative designs with international awards. Their range, inspired by the longevity and beauty of the gingko biloba tree, includes lighting, accessories, and timepieces, blending modern technology with a practical, aesthetic approach.

Check out the Gingko website here

check out the Gingko instagram here

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Michael G Jacobides is a strategy professor at London Business School as well as the Lead Advisor of Evolution Ltd, a boutique advisory firm helping clients adjust to a shifting context. A leading expert on business ecosystems, value migration and how firms navigate shifting, digital environments, he is Academic Advisor to the BCG’s Henderson Institute and has recently been a Visiting Scholar at the New York Fed and Visiting Fellow at Cambridge. . During the IADS 64th General Assembly held in 2023, Jacobides addressed IADS member CEOs to discuss the reinvention of retail and department stores, the foundations and evolution of ecosystems, and how these can be harnessed by retail businesses.

Harnessing the ecosystem advantage to reinvent retail

Defining an ecosystem as “a collaborative structure of interdependent firms delivering an integrated customer value proposition”, the concept provides a crucial lens for comprehending the evolving landscape of retail. Department stores, as integral components of these ecosystems, face new challenges stemming from shifts in consumer behaviour. These challenges prompt a closer examination of how department stores can effectively navigate and harness the advantages presented by dynamic business ecosystems.

Department stores: then and now:

The rise of the department store defined modern retail as we know it today. It changed the retail ecosystem from prices that were determined by negotiations between the clerk and customers to fixed prices. Department stores were the natural business ecosystem orchestrators in retail and consumer goods. Department stores did two things:

• They created superadditivity (the total value created by the platforms is greater than the sum of the values created by its parts), meaning that putting multiple items together in the same place makes other items more valuable just by being in close proximity to each other.
• Secondly, department stores offered customers experiences that were unmatched by any individual brand or manufacturer thanks to economies of scale and experiential displays that drive customers to spend more.

However, the 21st century has proven to be challenging for department stores. This has resulted in a sector-wide decline. Physical stores are starting to lose their superadditivity advantage to online marketplaces. According to BCG, the expected channel share for the 2023 holiday share of wallet shifted a lot with online marketplaces representing 30%, mass market retail representing 21%, and department stores representing 12%. This wallet share has been spread out among the different generations with department stores expected to perform well only among Baby Boomers. On the other hand, GenZ and Millennials are more drawn to off-price or discount offers, direct-from-brand, and specialty retail. And GenX is split between online marketplaces, mass-market retail, and direct-from-brand. This means that department stores’ Baby Boomer clients are getting to the age where they either die or stop spending money as they no longer bring in an income.

Redefining the role department stores should play in the 21st-century retail environment

Redefining the role of department stores in the current day retail environment requires an understanding of the business ecosystem. It is important to tackle ways that a department store can evolve as an ecosystem as the productive generation shifts from Baby Boomers to newer generations. These can be understood by asking a couple of questions.

The first question to address is: How can department stores collaborate with and complement (as opposed to compete with or substitute) the emerging digital retail ecosystems? They need to use physical locations as a lever to redefine the double value proposition user experience for influencers, brands, and shoppers by connecting the physical and digital worlds. For example, influencers offer live-stream shopping, which is experience-rich but lacks physical touch. Department stores can become complementors to online influencers and offer them things like iconic physical locations to stream from and interactions with fans, for example, Harrods offers a special room where customers can enjoy a beautiful setting with mirrors, lamps and screens allowing them to follow livestreamed masterclasses done by influencers from across the planet, and try the products on the spot at the same time.

Department stores can also fill the gaps by providing access to a wider subscriber base, new experiences, and increased reasons to visit (a possibility that not all brands are fully aware of). Taking on partnerships like these will create new revenue streams and advance and reposition brands in ways that can benefit all involved.

The second question to address is: How can department stores create a hub for reinvention of the retail experience without breaking the bank? They can leverage favourable economics of having central locations and high reputation as an anchor and bring complementors to fund the development of experiments in a controlled way. Deciding boundaries for criteria for innovation inside and outside the ecosystem is crucial for maximizing benefits and minimizing downsides. For example, European energy provider, Enel, is using its installed base of 3 million lamp posts as an anchor point to expand product offerings and get partners on board by promoting smart city initiatives to develop its value. It is also interesting to note that by doing so, they also expand their base of possible partners, as in addition to private businesses, local authorities were happy to team up as they know some of the new services or features could benefit their voting base.

But does this mean that you need to have a cool and sexy brand in order to be successful in complemented services? Jacobides explains that it is not necessary, or even sufficient enough. Virgin is an example of a brand that has tried it and failed with their attempt to expand their mobile business into banking, finally taking a toll on both businesses. It is not only about having a cool brand, but you must also have something in terms of the value-add to the customers. WeWork is a good example of an ecosystem that lacked brand recognition that failed recently due to greed and not due to the failure of the idea. In fact, a strong brand is actually a reflection that you are doing something that people and consumers like. But you can also reinvent your brand in order to access a very different class of customers. Mercedes-Benz has done this by connecting with rappers in the United States to make their cars go from being seen as nothing special to the type of cars used by rappers in the music industry, appealing to a younger customer base.

Engaging and empowering legacy companies

Legacy businesses such as department stores are grounded in traditional ecosystems which might seem more difficult to reinvent and think outside of the box. To propel these entities forward, achieving organizational alignment becomes imperative for successful innovation. Deliberate attention is required to determine where innovation resides within the organizational structure, as this placement significantly influences its perception.

The innovation process design itself should be strategic and forward-thinking, taking into account the intricate dynamics among various departments and teams. When individuals feel integrated into something novel and inspiring, their receptivity to change is heightened. A straightforward narrative and a well-articulated rationale behind the proposed changes can cultivate a positive atmosphere, fostering enthusiasm and openness within the team.

Conclusion: Navigating business ecosystems for department store reinvention

In the ever-changing retail landscape, department stores face the imperative of reinvention, guided by insights from business ecosystems. Department stores, once retail pioneers, grapple with 21st-century challenges posed by shifting consumer behaviours and the fast emergence of online marketplaces, Jacobides explains. The posed questions — how to collaborate with digital ecosystems and create innovative hubs — signal a new era of adaptability and value proposition redefinition.

The cautionary tales of failed ventures drive home an important point: real success goes beyond just having a cool brand; it's about consistently giving customers something valuable and dynamic. Mercedes-Benz's brand reinvention, resonating with the music industry, can serve as inspiration for department stores seeking to connect with a discerning, younger clientele.

Engaging and empowering legacy companies calls for a deep commitment to organizational alignment and innovative thinking. Unveiling potential within traditional ecosystems requires a meticulous approach to innovation's placement and a forward-thinking design acknowledging team dynamics. The atmosphere fostered within these organizations becomes the catalyst for successful innovation.

In conclusion, the future of retail businesses hinges on the strategic navigation of business ecosystems, collaboration with emerging trends, and relentless innovation. By embracing these principles, department stores secure their survival and position themselves as pioneers in a continually evolving retail narrative. This transformative era invites exploration, reinvention, and enduring success.

Credits: IADS (Mary Jane Shea)

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Sephora is one of the largest distributors of LVMH perfumes and cosmetics, which generated 7.7 billion euros in turnover in 2022 with 3,000 stores in 35 countries. After the recent launch of the retailers’ new concept dubbed ‘Store of the Future’ in Singapore, London, Shanghai and Wuhan, Sephora reopened the Paris Champs-Elysées store at the end of October 2023 after 6.5 months of renovations. As the second biggest Sephora (behind Dubai and ahead of New York’s Soho store) and considering its prime location, this refurbishment is strategic to the brand. Also, Sephora will be an official partner of the Olympic torch relay during the Paris 2024 Olympic and Paralympic Games. The perspective of such a major event called for the “reinvention of] the prestige beauty flagship experience”, as [Guillaume Motte, the retailer’s President and CEO puts it.

It is the first major remodelling of the 1,200 sqm location since it opened in 1996. Back then, Chafik Studio (a guest speaker at the IADS in 2022) designed the store with what was already a true and unprecedented customer-centric vision. The renovation budget is a well-kept secret, but it is the largest investment from Sephora Europe.

Before the renovation, the store accounted for 12 million visitors per year (10,000 daily, compared to 20,000 for the Eiffel Tower), with a quarter coming from outside France. The store sells a product every 15 seconds. In total, 200 people work at the flagship, with 50 to 60 people per day. This does not include the hundred or so brand ambassadors working daily.

The IADS visited the store to see what it has to offer. The store concept has evolved and is more relevant. The store offers a clear segmentation, personalised services and digital features, only if they are considered essential to customers.

Store concept: less black, more light, and the introduction of wood

The new store concept is more livable and a bit breathier than the previous black-and-white one. Considering the one-of-a-kind location, the flagship’s design inspiration is coming from Paris. The walls at the entrance are mimicking the limestone used on Parisian buildings. The Champs-Élysées avenue itself is also a source of inspiration with a large 2.6-metre-wide central white marble paved path that runs straight through the store. Also, the store is filled with light thanks to a 90-metre long glass illuminated ceiling, which can be adjusted to give a natural light feeling (very much needed in this low-ceiling buzzy space).

Sephora’s signature black-and-white stripes are still present, but more subtly on columns. Overall, complementing the white colour, the black colour is less present and used on the floor on each side of the white-paved path and for the lower part of the storage cabinets. The signature red carpet has been kept but only at the store entrance. The store is supposed to be less noisy than before thanks to some specific textures on the walls, as well as the use of wood, which adds a warm and wellness-like feeling to the skincare area. Also, the round-shaped embossed matte white walls contrast with the black elements. Finally, and for the first time in a Sephora, there are large green plants. All the furniture has been redesigned to be more compact without reducing the number of products on display. As a result, the store is easier to navigate.

Store organisation: clear segmentation, personalisation and… brands

Rather than featuring the usual list of product categories, the store directory at the entrance is service-oriented: makeup services, skincare services, hair services, fragrance discovery, brow bar by Benefit, face glow bar by Seasonly, personalised engraving, click & collect, gift wrapping and immediate tax-refund. The directory also mentions the private lounge and the fact that all products are on demand upon request to beauty advisors.

Right after the directory and on the left side stands The Corner, a huge shop-in-shop space which will be devoted to individual brands, with the first one being Dior. Then the category and brand experience rolls out up to the back of the store with a clear segmentation: fragrance, makeup and care.

The store is a big narrow rectangle: it gives a great perspective, but it requires visual stops. This is why the Beauty Hub (already existing in other stores but much bigger here) is located in the middle of the store and considered a kind of ‘Arc de Triomphe’ to the paved path. This space is used to advise customers and to organise events. It is modular and can be managed and animated by Sephora or monetised to other brands. At the time of the opening, a new brand was planned every day, with makeup and skincare brands mostly taking over the hub. Appealing to the younger customers, there is an area showcasing the brands that are ‘Hot on Social Media’, plus ‘The Next Big Thing’ gondola and the ‘Gift Hub’ for gift wrapping. The retailer’s private label collection has its own department, and there’s an area for hair care. A unit dedicated to Dyson hairdryers and GHD straighteners is a new store service. Contrary to the London store, there is no Lip Bar, a category significantly growing post-pandemic.

The store emphasises personalised services with a large number of beauty counters which are monetised to brands. The beauty hub accounts for 16 seated counters where customers can benefit from personalised services depending on the brand: skincare consultations, face massages or makeup services to help consumers achieve the look they want, etc. The Brow Bar offers Benefit masterclasses. The skincare accounts for 8 seated counters. At the time of the visit, some were managed by Clarins (a simple brand sticker is put on mirrors making the brand rotation easier). The hair section has 4 seated counters where customers can book 30-minute hair appointments. The Gift Hub offers personalised gift packaging but also individualised voice messages, scents, and gift boxes. Finally, a private lounge is accessible to Gold customers (the highest level in Sephora's loyalty programme). It is also monetised, as brands can use it for product launches or specific services: at the time of the visit, Guerlain was offering made-to-measure care services.

Is the Champs-Elysées store the store concept for future renovation projects? “Our new stores, such as the Champs-Élysées flagship, as our first London store and our newly renovated stores in Shanghai, Singapore and Wuhan, are sources of inspiration for our future renovations, as they illustrate our strategy and the experience we want to provide to our customers,” Motte said. “But there is no ‘template. Each of them must be meaningful locally and resonate with local communities.”

Finally, Sephora is well known for its power in attracting key, hot new brands and making them exclusive (an issue our members are very familiar with). The brand assortment accounts for 309 brands. There is a handful of exclusive brands including Prada Beauty, Valentino Beauty, Glow Recipe, Maison François Kurkdjian and Penhaligons, which will only be available at the flagship and on Sephora’s French website. This shows efforts in developing the premium and niche fragrances business, which is significantly growing at the moment.

Digital features and payment options emphasize efficiency and loyalty

Click & collect is available in the store. A smaller specific entrance on the left-hand side of the main entrance (already existing before the renovation) is dedicated to click & collect orders and is accessible from the main entrance as well. Also at the entrance, is a selfie-friendly multicolor light box.

A large screen is on display at the right side of the entrance, communicating promotions and events. In the end, fewer screens are animating the different spaces than before, with no use of augmented or virtual reality and no mention of metaverse or Web3. For now, the digital tools are considered gadgets by Sephora and efforts are being put into giving customers a real-life experience. In the future, Sephora might integrate more digital tools, but they will be placed in the hands of the beauty advisors and not in self-service.

The checkout area is located at the end of the central alley. Sephora has completely overhauled its checkout management and now has 4 different flows for customers to access a cash desk. Gold customers have dedicated checkout access. Other customers can choose between a traditional checkout, accessible via a single queue to optimise the customer flow or a self-service checkout, the latter being permanently supervised by advisors to limit shrinkage and help customers during the operation. The display dedicated to miniature and impulse products has been optimised for the checkout waiting line. Finally, cash points are also discreetly scattered around the store for payment by credit card on the sales floor. In 2024, to facilitate payments, Sephora plans on deploying a payment tool directly on beauty advisors’ PDAs using the Tap to Pay Apple technology.

The extensive renovation of Sephora's Champs-Elysées flagship store marks a significant milestone in the company's ongoing evolution and is a testament to the brand's approach to customer-centricity and customer experience. The emphasis on personalisation is a strategic move that addresses the evolving desires of today's consumers. The store's layout doubles down on offering a variety of personalised services such as makeup, skincare, haircare and fragrance discovery, catering to individual customer needs in a more tailored manner. The store is more ‘breathable’ than before, thanks to the optimisation of the displays, the introduction of more light, as well as natural elements like wood and plants.

Credits: IADS (Christine Montard)

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The International Association of Department Stores (IADS) had the opportunity to visit Thailand in 2023, providing a chance to review the myriad of innovations that are consistently emerging in this specific retail market. Thailand, particularly Bangkok with its state-of-the-art stores like The Mall Group's Emquartier, is renowned for an exceptional focus on customer service and offers valuable insights and lessons for European retailers.

In an era where customer loyalty is increasingly crucial for department stores, the approach of Central Group in Thailand stood out. They have established a business unit with its own profit and loss accountability, solely dedicated to cultivating customer loyalty. This initiative extends well beyond the confines of their own operations, presenting intriguing elements that could be of interest to external observers.

Therefore, we explore in this article Central Group's business strategies, focusing on their main flagship stores - Central @ CentralWorld and Central Chidlom. These establishments are integral parts of a larger ecosystem where loyalty is not just a concept but a tangible, profitable asset. This strategy enhances Central Group’s engagement with its customers and strengthens its relationships with brand business partners.

Introduction to Central Group

Just like many other retail giants, such as IADS’ Thai member The Mall Group,  Central Group's origins are surprisingly humble. The journey began in 1925 when Tiang Chirathivat, hailing from Hainan Island, established a modest shop on the outskirts of Bangkok, specializing in basket sales. Recognizing the potential in Thailand, he soon partnered with his son, Samrit, to open a more centrally-located store near the present-day Mandarin Oriental hotel in Bangkok. There, they expanded their offerings to include books, magazines, and a variety of general merchandise.

In 1956, they made a significant leap by opening Thailand's first and largest department store at that time in Wang Burapa in central Bangkok (this location has since closed). Central Chidlom, the first full-scale department store in Thailand, opened in 1974, encompassing 11,000 square meters. Originally a four-floor establishment, it was rebuilt after a 1995 fire and reopened in 1998 with seven floors.

Central Group has mirrored global corporate strategies by understanding the importance of real estate control. This led to the establishment of the ‘Central Pattana’ subsidiary in 1980, focused on development. Their inaugural mixed-use project, featuring retail, private apartments, offices, and hotels, opened in 1982 on 31,000 square meters in Ladprao. At the time, it was Thailand's largest shopping mall, including a department store that remains the most successful in the Central Retail network to this day.

Expansion and scaling up were achieved through acquisitions (like Robinsons in 1995), diversification (such as Tops supermarkets and Powerbuy in 1996, and the Park Hyatt hotel in 2017), and international growth (with La Rinascente in 2011, Illum in 2013, KaDeWe group in 2015, Globus in 2020, and Selfridges group in 2022). This growth occurred alongside typical retail group developments: the launch of ‘The 1’ loyalty programme in 2006, the introduction of an e-commerce channel in 2013, and the opening of flagship locations like the Central department store in Central World (opened in 1990 as Zen department store, with the real estate acquired in 2002) and the Central Embassy mall in 2014, which includes a direct connection to the Central Chidlom department store and the Park Hyatt hotel.

Today, Central is a conglomerate composed of three direct business units: Central Retail, Central Pattana, and Central Plaza Hotel. It owns The 1, Central Insurances, Grab Thailand, KaDeWe, Illum, and Globus. Operating in over 3,700 locations and with branches across more than 7 million square meters of retail and commercial spaces, including 84 department stores, the group is supported by 80,000 employees and serves 30 million loyal members.

Visiting Central @ CentralWorld

CentralWorld, Thailand's ninth-largest shopping complex, encompasses not only 550,000 sqm of retail space but also houses a hotel and an office. Previously known as the World Trade Center, it was acquired by Central in 2002, strategically positioned to complement the nearby luxury Siam Paragon mall. CentralWorld, which targets the middle-class demographic, underwent significant changes, including the transformation of its Central department store. This store, formerly named ZEN, was completely revamped following a fire in 2019.

Notably, CentralWorld was home to the Japanese department store Isetan until 2020. This influence is evident in the food court, which exudes a distinct Japanese ambiance.

The Central department store spans seven floors, covering 50,000 square meters, and serves as a model for new store concepts across the nation. A unique aspect is the integration of sustainability messaging with fragrances throughout the store, enhancing the shopping experience with pleasant scents.

The ground floor is dedicated to beauty and fashion, featuring accessible luxury brands such as Sandro, Maje, Vivienne Westwood, Veja, Etude House, and Sunay. The layout includes red carpet walkways and well-presented brand signage, creating an upscale atmosphere. This floor is also a hub for temporary installations, like the prominent Seiko watches stand observed during the visit.

The first floor showcases women's shoes, jewelry, and designer clothing, with brands like Paul Frank, Steve Madden, and Nine West, also available in the Siam Paragon mall. Unique features of this floor include a second-hand stand, Komehyo, in partnership with a Japanese company, and a dedicated space for Thai fashion designers.

On the second floor, shoppers can find women's accessories and ready-to-wear items from Marks & Spencer, which includes a small food section. However, the lack of windows on this floor limits natural light, making some areas, like the lingerie section, feel crowded and enclosed.

The third floor is dominated by sportswear, divided into brand-specific areas, suggesting a concession-like operation. It also features denim, luggage, gifts, and a Muji store.

Men's casual and formal wear, along with watches, are located on the fourth floor. This level is spaciously designed to showcase both local and international brands such as Wrangler and Polo. Additionally, it houses a barber shop and cafes near piano displays, offering a unique blend of services.

Children's products are the focus of the fifth floor, where the loyalty programme is prominently advertised. This area includes child-friendly facilities like arcade games (that were not operational during the visit). Facilities are very interesting: baby changing rooms and kid’s toilets are extremely well designed and user-friendly, in addition to smartly-presented reminders of all the F&B offering available in the store. In comparison, it was very strange to see that the cash desks were rather difficult to find, and not particularly tourist friendly.

The sixth floor is dedicated to home decor, offering full-priced merchandise in a spacious and inviting environment. This floor features a food court designed to mimic Bangkok's street dining ambiance, strategically located near the cash registers. The ventilation system effectively prevents food scents from permeating the floor. This level also emphasizes the group's sustainable practices, through material explanation and encouragement to eco-friendly gestures.

The last floor houses an outlet for home and decor items. The layout is clean and well-organized but lacks decoration. Given the view from the windows, it is also very surprising that this space is not used for other purposes that could make the most of its potential.

Each floor of the Central @ Central World department store is seamlessly connected to the mall, with entrances opening onto promotional stands offering discounts on products relevant to each floor's category.

Visiting Central Chidlom

Central Chidlom, a venerable establishment in the company’s network, predates its high-performing counterpart, Ladprao, by eight years, having opened its doors in 1974. This iconic store encompasses seven floors, which, at the time of our visit, were undergoing extensive renovations planned to last two years.

The ground floor is dedicated to cosmetics (including Buly) and accessible luxury items, including brands such as DKNY, Calvin Klein and Longchamp. The accessories section exudes a luxurious ambiance, contrasting with the rest of the floor which presents standard brands commonly found in other retail locations.

The first floor is dedicated to women's ready-to-wear clothing, accessories and jewelry, including a local Thai fashion section called Thai Thai, a Marks & Spencer store, and mid-range brands such as Tara Jarmon, Maje and Sandro (which are displayed in the “luxury” section in Central @ Central World). Additional amenities on this floor include a click-and-collect area, a dedicated cash desk for The 1 loyalty programme members, and direct access to the Central Embassy mall.

The second floor is a dynamic space focused on denim, sports apparel, and watches, where cleverly designed columns demarcate the various sections.

The third floor is dedicated to men's fashion, including luxury, as well as a Supersports section (a company owned by the group). The men's fashion area is well-executed with a classic style, though the brands are predominantly mainstream.

The fourth floor focuses on tech, home decor and furnishings, but not only. Amidst ongoing restructuring, this floor also accommodates hair care and high-end jewelry salons, as well as a mattress display. Despite a somewhat disjointed layout, the atmosphere retains a luxurious feel, and the expansive electro-domestic space invites browsing.

The fifth floor, dedicated to children, offers an immersive experience surpassing that of CentralWorld. It includes a changing room, a breastfeeding area, and personalized cash desks for each section. During our visit, lingerie and swimwear sections were being added due to the ongoing restructuring.

Finally, the sixth floor caters predominantly to tourists, featuring a Muji store and customer services. It also houses a food court, reminiscent of CentralWorld but with a more organized and compact layout. Muji occupies half of the space, with the food court taking up a third, and the remaining area dedicated to tourist items, luggage, and customer services. A lounge is available, although its signage is inconspicuous, making it challenging to locate without prior knowledge.

Interestingly, and surprisingly for any European customer, neither Chidlom or CentralWorld department stores featured visible anti-theft systems on the products sold at the time of visit, which suggests either total lack of it, or massive use of RFID tagging to prevent fraud.

Central’s vision: be the “central of life”

When examining the mission of Central as presented on their website, their objective is manifestly defined: they strive to be the 'central of life.' This goal is to be at the forefront of people’s everyday experiences through a comprehensive ecosystem encompassing physical stores (as exemplified by two case studies), an online shopping platform, and superior customer service. A critical component in materializing this vision is their loyalty programme The 1, which offers a fascinating subject for analysis.

Predominantly, The 1 is unique to Thailand and has not yet expanded internationally. While each European department store operates its own loyalty scheme, sub-programs do exist to acknowledge Central Thailand's customers in affiliated stores like Selfridges.

Since its inception in 2006, The 1 has diversified beyond conventional retail, encompassing food specialty stores, hotels, banks, and offices. A significant milestone was the launch of a dedicated app in 2020, followed by the introduction of a top-tier membership category in 2021 and an extension into the restaurant sector in 2022. Importantly, The 1 is designed to be a profit center, which is why the whole programme needs to be profitable.

Presently, the programme has garnered over 20 million members (with 8 million active annually) and circulates more than 10 billion points across various partners, including notable brands like Toyota, Adidas, and even hospitals or gas stations. The points system is designed with location-specific variability; for instance, Marc Jacobs purchases accrue different points based on whether they occur in a Central Department Store or an offsite franchise.

The primary strategy for profitability focuses on partnerships rather than solely on Central’s in-house businesses, such as Central or Robinson Department Stores. Regarding total sales volume generated through the program's ecosystem, approximately half derives from external partners, with the majority of the remaining points being utilized internally.

The 1's privileged class signifies a premium tier for members who spend over THB250,000 annually (approximately €6,500). This group, consisting of about eighty thousand members, contributes significantly to the loyalty scheme's revenue, generating about one-fifth of the overall sales. This segment predominantly utilizes partnership credit cards and dedicated apps, which facilitate customer engagement through inspiring content, serving as platforms for offer discovery without necessarily concluding transactions.

Demographic analysis reveals that the program's user base mainly comprises Generation Y (45%) and X (35%), with a notable presence of Generation Z (11%). Predominantly female (62%) and residing primarily in the Greater Bangkok area, the programme evidently caters to an affluent clientele. Advanced CRM techniques enable customer segmentation and identification through various models, such as life stages or lookalike propensities.

Consent management is centralized under The 1 programme, which also plays a pivotal role in enabling cross-channel acquisitions between business units. The programme also tracks the types of credit cards used in transactions, including those from private banking, thereby providing valuable customer insights through comprehensive dashboards available to brands. Current initiatives include developing retail media programs for advertisers, aiming to automate processes both online and offline, albeit with limited traffic numbers. When comparing their vision of retail media to, for instance, the US models, they do not sell to advertisers a quantity, but rather the quality of the audience.

The top 20% of customers enjoy a 95% retention rate, with an annual spending growth of 8%. On average, members engage with around 4.8 product categories within the scheme. The offers encompass access to data, insights, rewards, and engagement solutions, maintaining a flexible approach that can be adapted internally to meet specific needs. Future plans include fully internalizing and white-labeling strategies, though there is no provision for training on how to best utilize these services, leading to varying success rates across different businesses like Central Department Store (burn rate: 200%) compared to Starbucks (<100%).

Looking ahead, key questions revolve around the potential applications of blockchain technology and Web3 for managing point currency supply-demand and real-time yield, coupled with the objective of simplifying the user experience to enhance clarity and ease of use for consumers.

Conclusion: Centralizing Life in the Digital Era

Central Group has realized exponential growth since its origins nearly a century ago as a humble Bangkok shop. Strategic expansions into real estate, hospitality, and online channels have enabled the diversified conglomerate to embed itself at the epicenter of daily living for Thailand's rising middle class.

Led by generations of the Chirathivat family, each evolution has built upon learnings from the last. As founding patriarch Tiang Chirathivat once wisely pronounced, "Progress lies not in enhancing what is, but in advancing toward what will be."

Indeed, Central Group has consistently looked ahead, cementing its positioning through acquisitions of prestigious brands and loyalty ecosystem cultivation via The 1 program. With over 20 million engaged members and partnerships spanning hospitals to gas stations, Central cannot be dethroned as Thailand's predominant retail centrality nexus.

What is interesting with The 1 is that they offer an alternative to all loyalty systems as they are currently designed either in the West or in the East, by mixing the need for profitability with a strong concern about customer privacy and rights. As a consequence, The 1 is an ecosystem that goes beyond Central Group’s own boundaries and becomes an asset as strategic as the other business units which are historical components of the group.

As the next generation pioneers ever-more immersive customer experiences through experiential stores, decentralized Web3 platforms and virtual reality, the company may realize the ultimate manifestation of its vision – “pioneering innovations that centralize life”.

Credits: IADS (Selvane Mohandas du Menil)

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Nick Greenspan, the UK Retail and Consumer Products practices partner at Bain & Company has deep expertise in the digital environment, thanks to 35 years of consulting experience with many of the UK's leading online businesses. His focus is on helping clients with corporate transformations, strategy and vision development, customer-led repositioning and operational improvement.

IADS invited Greenspan to address member CEOs to share his expert opinion about major factors from 2023 that will continue to influence the retail and consumer industries going forward. Greenspan addressed these times of uncertainty and offered a bit of direction to weather upcoming challenging times, offering a bit of a playbook on how to win the future of retail.

How to maintain optimism in the current environment

Greenspan opened the discussion by asking the room: “If there was one capability for your business that you could have to help you thrive in the next 2-5 years, what would that capability be?” The answers ranged from collaboration, a crystal ball into the future to being able to predict what comes next, unlocking data, being adaptable, and delivering service as a differentiator. While all these points are relevant and real issues that retailers are currently facing, Greenspan proposed to see them in a positive manner: in turbulent times, the market share fluctuates the most, meaning there are ways for businesses to differentiate themselves and stand out as opposed to times when the market is stable. Gains made during periods of turbulence have the potential to be maintained throughout the next cycle.

However, Greenspan was vocal on the fact that the focus should not solely be on cost reduction as it is a seductive but limited lever. Instead, he proposed some elements to weather the storm during volatile times.

3 elements needed for businesses to thrive in uncertainty.  

Since the pandemic, the trajectories of each market position have become very different from each other, with pressure currently very strong on both value-end (with many players being disrupted and customers stopping buying for fear of the future) and high-end (where a shift from visible consumption into quieter areas of investment is taking place) segments. For that reason, instead of considering recipes that will not be able to be adapted to each specific situation, businesses should focus on what they need to address current challenges. Retail leaders need to reflect on how strong their businesses are across three key elements and should focus on strengthening areas of weakness to enforce their adaptability in turbulent times.

Greenspan shared three fundamental elements that are crucial for businesses not just to survive, but to thrive amidst uncertainty:

• Prediction: Interpreting data and maintaining a realistic outlook on the future are deemed essential. While the unpredictable nature of the market poses challenges, retailer leaders are encouraged to equip their teams with tools and strategies that enable them to anticipate and respond to changes proactively.
• Resilience: Businesses are encouraged to strike a delicate balance between resilience and efficiency, as Greenspan states that "a perfectly resilient business is also perfectly bankrupt." This highlights the necessity for businesses to be both low-cost and efficient, ensuring their ability not only to withstand sudden shocks but also to recover swiftly.
• Adaptability: Continuous investment in adaptability and the streamlining of services are key components of a successful strategy. Executives are challenged to foster adaptability across the organization, constantly assessing and correcting the course as the external environment evolves.

As a strategic call to action, retail leaders are prompted to engage in self-reflection, evaluating the strength of their businesses across these three vital elements. This strategic approach, tailored to the specific needs and challenges of each business, becomes the cornerstone for thriving in an environment marked by constant change and uncertainty.

What was going on in 2023?

2023 was a tumultuous year with pressure coming from everywhere. The US economy slowed down, there were many signs of local fatigue in Europe, the Chinese economy has not recovered, and there continues to be a lot of post-globalisation and political risk with the wars and unrest. These things led to higher labour costs, increased energy prices, increased commodity prices, disrupted supply chains and incited fear in consumers, thus slowing the economy.

At the same time, retailers were being hit heavily by inflation which increases operational costs and costs of goods sold, while also resulting in the pullback of customer spending. In most markets, no one has the experience of dealing with hyperinflation. So how can department stores equip themselves to prepare for this unknown territory going forward? For starters, it would be wise to ask department store players that are used to operating under such conditions such as Falabella in Chile or Beco in Venezuela. While no one has the innate instincts to handle inflation, a conversation with a business that is used to operating in such conditions could help other players understand what it is like to have inflation as a factor in the business as a whole. Retail businesses can no longer use like-for-likes as a reference in an inflationary environment and they need to be able to adapt and understand their business in different terms as this KPI is no longer relevant. Prediction is all about educating teams on what happens in an inflationary environment, especially as Greenspan predicts 2024 to be tougher than 2023.

The key themes for 2024 and beyond

Some interesting trends need to be considered by retail leaders in the 2 to 5-year scope and forecast in order to be predictable, resilient and adaptable.

Growing, elevating, and having a fluid customer base as new generations gain prevalence

Gen Z and Alpha, expanding at a rate three times faster than other generations, wield significant influence. Notably, Gen Z initiates luxury purchases as early as age 15, while older generations (age 70 and up) tend to stop buying luxury goods after a certain age. The younger generations are opting for online channels over traditional retailers such as department stores and showcasing loyalty driven by promotions rather than brand affiliations. Amidst these shifts, there's a strategic imperative for department stores to engage with luxury brands as department stores can offer a broader set of customers that are cross-shopping brands. Department stores also occupy the best locations in cities, giving a broader physical reach than luxury brands typically have. The challenge lies in avoiding the precarious middle ground (as seen by Debenhams or House of Fraser) and instead, fostering collaborations that extend the luxury brand's influence to offer a win-win partnership to capture the wallet share of these younger customers.

Products and experiences of desire

To cultivate irresistible products and elevate customer experiences, there is an imperative for department stores to triple down on creating immersive environments. However, a challenge arises as the investment in reserving physical space for experience tends to decrease sales per square foot opportunities, making it seemingly counterintuitive to remove products for the sake of theatrics and experience. Despite this paradox, not embracing experiential elements could make a store irrelevant in the ever-evolving retail landscape.

Striking the delicate balance between bringing theatre to retail spaces and maintaining optimal product presentation is crucial for sustained relevance. A strategic approach involves implementing a multi-channel proposition and arming sales assistants with the tools to help customers connect emotionally with the products. It's not an either-or situation; understanding customer behaviour is key to success. Take, for instance, Harrods' black card customers who, despite spending GBP100,000 annually, derive satisfaction from a seemingly irrational GBP20 rebate. Recognizing such idiosyncrasies is imperative for ensuring customer contentment. Additionally, ensuring seamless inventory management is essential to offer the right product, even if it's not physically present in the store. The focus is on driving exceptional experiences for VICs and creating an aura of exclusivity.

Next gen customer connection

In the same vein as upping products and experiences, there is a need to meet customers where they are. Brands are going DTC and using apps like WhatsApp to sell, thus cutting off retailers such as department stores. This means that department stores need to find similar ways to interact and engage with their customers with a focus on product and differentiation in order to stand out and survive as future consumers’ expectations evolve.

Delivering on the sustainability imperative

In the realm of sustainability, consumers continue to express a heightened concern, particularly regarding the removal of plastics. Despite a recent pullback in positioning sustainability as a primary differentiator—attributed to the prevailing political environment where humanitarian issues take precedence over environmental considerations—retailers face a delicate balancing act. The risks associated with discontinuing investments in sustainability initiatives are significant, potentially leading to a massive backlash from both customers and employees. This dynamic landscape is further complicated by changing consumer behaviours, such as the intentional shift towards buying less fashion or opting for second-hand alternatives. Initially, data did not align with vocalized intentions, as consumers expressing sustainability concerns continued purchasing from fast fashion retailers. However, recent trends indicate a growing alignment between consumer behaviours and their stated values.

To address this shift, many department stores are strategically introducing more circular products, with watches and jewellery proving to be more successful in this sustainable business model than clothing. The inclusion of sustainability and circular products not only opens a dialogue with customers but also presents an opportunity to explore these environmentally conscious offerings. While the demand for such products may be less than vocalized, positioning recycled items as limited and exclusive products creates a unique value proposition. Consumer scepticism towards certifications and labels remains, yet there is a clear desire for narratives surrounding second-hand products.

Tech-enhanced value chain

In navigating the evolving retail landscape of 2023 and beyond, the strategic investment in technology and data emerges as a cornerstone for success. Recognizing the significance of maintaining customer relationships in these unique market conditions, retailers are compelled to revisit foundational principles. While the current market climate differs significantly from the past, there is a renewed focus on core fundamentals, such as prioritizing the product and its shelf presence.

Simultaneously, safeguarding the front-line staff has become paramount—a critical yet often overlooked element in recent years. Amidst this backdrop, Artificial Intelligence (AI) stands out as a powerful enabler, offering retailers the means to decipher vast datasets for tailored customer experiences. The key application of AI lies in its ability to facilitate rapid changes in the retail experience. The imperative is not to pursue perfection but to engage in a process of iterative testing. AI's transformative potential extends beyond customer interactions to reinventing and optimizing supply chains and internal operations. The strategic decision for retailers involves weighing the extent to which they engage in these advancements independently versus awaiting plug-and-play systems from major suppliers. While certain aspects, such as accounting AI automation, may be outsourced to industry giants like SAP, there's a compelling case for retailers to internally pilot and build customer experience solutions.

Conclusion: Navigating a retail business across unknown waters

In navigating the complex landscape of retail's future, strategic insights from Greenspan underscore crucial imperatives. The trifecta of prediction, resilience, and adaptability emerges as paramount for business survival and prosperity. Reviewing 2023's challenges—from economic slowdowns to inflation pressures—these all called for a response from retail leaders, while many have never faced such obstacles before. Looking forward to 2024 and beyond, there are persistent themes of change that emphasize the imperative for department stores to engage with changing consumer demographics, prioritize experiential retail, embrace sustainability, and leverage technology for a resilient future. In essence, the roadmap provided advocates for a dynamic, customer-centric, and tech-enhanced approach as the cornerstone for success in the ever-evolving retail landscape.

Credits: IADS (Mary Jane Shea)

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Introduction: companies are far from done with digital transformation and now comes AI

For over a year, gen AI has been on everyone’s lips. Boards are pressing their CEOs to have a strategy for incorporating AI in the business even as many executives still don’t know where to start. The IADS organised a conference with Bain & OpenAI as early as July 2023 to explore the topic. In any case, 90% of commercial leaders expect to utilize gen AI solutions “often” over the next 2 years. They are cautious though, and are most enthusiastic about use cases in the early stages of the customer journey including lead identification, marketing optimization, and personalized outreach.

This article delves into AI developments that have the potential to impact and improve retailers’ operations, in order to define a non-exhaustive list of existing use cases already implemented. In CRM and marketing, gen AI helps to better target audiences and shift towards ultra-personalization. The impact of conversation tools has already been visible in copywriting and chatbot developments as AI has been influential in boosting creativity. When it comes to sales functions, AI tools have the power to increase sales thanks to better and tailored customer experiences. In terms of supply chains, AI has not been fully developed, but there is a lot of potential. Finally, AI has already impacted HR practices.

Gen AI for CRM and marketing: advancing towards ultra personalization

Enhanced audience targeting

Gen AI can combine and analyse large amounts of data (demographics, customer data and market trends) to identify additional audience segments which may have been overlooked in existing customer data. Gen AI can significantly reduce the time spent researching and creating these unique audience segments. Without knowing every detail about these segments, gen AI tools can automatically propose tailored content such as social media posts. Then, marketing (collaborating with sales) can use gen AI to create sales campaigns to reach prospects. This requires efficient data management: a comprehensive and aggregated dataset is needed (such as an operational data lake pulling in various sources) to train a gen AI model that can generate new audience segments and content.

Transitioning from personalisation to hyper-personalisation

Initially, personalization was limited to traditional market segmentation like gender, age and income. With AI, personalization has become more sophisticated, allowing retailers to understand and anticipate customer preferences more precisely and create tailored experiences able to foster loyalty. In that regard, AI technologies including deep learning and machine learning (ML) are used to analyze structured and unstructured data to create a complete view of each customer. Alix Partners sees the most significant AI potential in combining gen AI with ML to identify high-potential customers (based on customer lifetime value) and determine which ones are likely to make additional purchases. Together, ML can analyse complex data to identify patterns while gen AI can generate new content. This approach paves the way for real-time, highly personalized omnichannel experiences. For example, companies like Stitch Fix (online personal stylist) use gen AI to interpret customer feedback for product recommendations. The next step for companies is to transition from reactive to proactive personalization, providing 100% individualized content across channels. Here, the challenge will be about ensuring ethical data usage while protecting customer consent, privacy and security. Customers are increasingly expecting personalised experiences and relationships with their favourite retailers: as discussed during the IADS Operations Meeting dedicated to Chief Customer Officers in November 2023, the best way is to be as transparent as possible with customers and explain why and how their data will be used to help them get what they want.

AI conversation tools provide solutions for copywriting and chatbot

Gen AI’s capacity for producing natural-sounding language makes writing one of the tasks it’s wellsuited for. In addition to ChatGPT, start-ups like Jasper and Hypotenuse offer new tools. Jasper scales up marketing content like blog articles, social media posts, sales emails and website copy. By providing a few keywords, Hypotenuse users will instantly turn them into full-length articles and marketing content. On their side, tech providers such as Shopify, Salesforce and Amazon are adding gen AI copy options to their platforms to help companies streamline the writing of everything from marketing emails to product descriptions. In that regard, during the 2023 IADS Operations Meeting dedicated to Chief Customer Officers, El Corte Inglés noticed that AI product description is sometimes better than when done by people. While human oversight is needed, AI copywriting tools can already automate laborious and mundane work.

AI-powered chatbots (especially useful for platforms with a vast inventory) can enhance the shopping experience by understanding and responding to natural language and offering tailored product suggestions. Importantly, they create an iterative experience in which shoppers can respond to the results with feedback or additional questions, guiding the bot towards what they want. However, bots face limitations in providing accurate product suggestions and require a deep understanding of the retailer's inventory. Also, BoF made tests in spring 2023 and found that bots' replies can sound automated. So far, the best solution is to complement traditional search with a gen AI assistance.

A larger goal for many fashion players is to use customer data to personalise chatbot’s responses. The bot could use the data to offer specific sizes based on a customer’s preferences, for example. It’s an ambitious goal, though, and requires brands and retailers to have their customer data at hand and to be able to map it to their inventory. Google research showed that 46% of organisations think gen AI can address shopper enquiries with interactive responses beyond just product recommendations. Also, 43% want to use it to analyse emotional sentiments in customer feedback. When it comes to IADS members, Galeries Lafayette and Manor are currently fine-tuning their chatbots.

AI can boost creativity

It’s not a magic wand, but AI can support fashion design

Tools like DALL-E 2 and Midjourney have made it easier to create fashion content through generative AI. Whether it’s for branding purposes or to truly create design variations, some brands are already leveraging generative AI for product design. It provides designers an easy way to design countless variations of a piece of cloth, mixing inspirations to see what the outcome might look like. It does come with challenges. AI-generated designs still need manual edits and integrating the process into existing workflows can be difficult because it doesn’t consider real-world factors like fabrics and construction. Designs still generally require manual editing with separate software (for example to change a colour). Despite companies working on 3D gen AI, images are two-dimensional for now: the design only shows the front of an item, leaving the designer to create the rest of the garment. Finally, AI can produce concepts that are difficult or impossible to construct, making it impossible to translate them into finished products. Finally, intellectual property issues exist with AI-generated designs. Nonetheless, gen AI can represent a powerful tool to boost creativity which could help Private Labels design teams for example.

Generating unprecedented visual content

Visual content has emerged as another promising use of gen AI for fashion brands and retailers, which are under constant pressure to renew visuals for marketing, social media and e-commerce. Gen AI has the potential to provide more creative freedom and shorten production timelines as scouting locations, finding models and styling them are no longer necessary. For instance, Casablanca fashion brand used AI to produce stylized ad images, demonstrating AI's potential to revolutionize content creation. As AI-generated images are rapidly developing, Galeries Lafayette created amazing AI interpretations of its famous cupola. Besides unlocking additional creativity, using AI can offer cost savings and creative flexibility but may also impact traditional roles in image production. Also, there are potential sustainability benefits since AI eliminates the need to travel to shooting locations and reduces waste (multiple samples and sets discarded after use). Recent Google research shows that 39% of the surveyed organisations use gen AI to empower creative retail teams to curate bespoke images and creative content for campaigns and editorial placements.

To what extent can AI help develop sales?

AI to enhance customer experience and sales…

With its ability to analyse customer behaviour and preferences, gen AI can assist with hyper-personalized follow-up emails at scale. When thinking about clienteling, it can also act as a virtual assistant for each sales associate, offering tailored recommendations, a warm welcome to new customers, and reminders and feedback, which can each result in higher conversion rates. As a potential sale progresses with a customer, gen AI can provide real-time guidance and predictive insights based on an analysis of historical transaction data. Finally, AI can boost sales performance by automating mundane sales activities, allowing sales associates to spend more time with customers and leads (while reducing the cost to serve). The potential applications of gen AI and ML extend further, including matching customers with relevant sales associates. The integration of these technologies can significantly enhance outcomes, making it a promising investment for retail businesses. Some companies that are empowering this process are BSPK, Clientela, and FindMine.

As announced during CES and NRF in January 2024, Walmart's strategy is going big on AI with many different use cases proposed, showing the width of potential applications. One of the initiatives aims at making sure people’s refrigerators are always stocked. Using the example of a party a customer would throw for the Super Bowl, Walmart explained their AI-powered app will show everything people might need instead of having them search for chips, drinks or a new large-screen TV. Also, as explained during the third IADS CEO quarterly exchange of 2023,https://www.iads.org/web/iads/5747-iads-ceo-meeting-3.php Cyrille Vincey (Partner, Advanced Analytics and Retail practice, Bain & Co) explained how AI helps Carrefour in developing sales. For example, online shoppers can ask the chatbot for ideas for meals for a family of 4 for a week. In response, the chatbot provides recipes and translates them into a bucket list, and ultimately into a full basket. On its side, El Corte Inglés just launched an online ChatGPT personal shopper giving fashion advice and able to increase the conversion rate and hopefully the basket size. Overall, it has been an excellent learning experience, and the first results are promising.

… And reduce returns by solving fit issues 

Amazon Fashion has introduced new AI-driven features to address the fit problem in fashion e-commerce. The new tool aims to reduce returns and improve the overall shopping experience. The personalized size recommendations algorithm evaluates sizing relationships between brands, reviews, and customer fit preferences to recommend the best-fitting size. The AI-generated fit review summarizes customer feedback, helping shoppers make informed decisions about sizing. Also, Amazon has improved its size charts using AI to enhance accuracy and consistency, making them easier to follow and potentially addressing the variability in sizing systems across styles and brands.

AI-driven startup solutions addressing fit issues are developing quickly. 3DLook, a guest speaker during the 2023 IADS Operations Meeting dedicated to CIOs and CTOs explained how they help brands such as Bershka increase revenue and cut costs related to fit and sizing problems. AI and 3D engines deliver advanced body measuring technology for more intelligent fit experiences.

From forecasting demand to sustainability, AI has not fully transformed supply chains yet

Why do companies struggle with using AI for supply chains?

Companies have struggled to use AI to address fundamental supply chain challenges. Supply chain management is complex as it requires the participation of several functions (including procurement, manufacturing, logistics and sales) and sub-functions (such as demand planning, inventory planning and scheduling). Besides, organizational structures and incentive systems motivate employees to optimize the performance of their own function or subfunction rather than the end-to-end supply chain.

Companies often try to improve their supply chain performance by adding more people to a function. But the problem is typically a lack of knowledge, which cannot be solved simply by creating larger teams. High-potential performers often do not regard supply chain management as a preferred long-term career path and move to other functions after only 2 or 3 years. Because of the high turnover, institutional knowledge ends up dispersed across the company or escapes the company altogether.

The root cause lies not with technology but with how and where companies are applying it. Probably because they consider it is too risky, companies have not pursued the more valuable application of using AI to make recurring decisions by recognizing patterns in big data that humans cannot see.

It is too soon to rely on AI to predict what shoppers will buy

There are challenges in using AI to predict what shoppers will buy. Experts are cautious, emphasizing that the emotional nature of fashion purchases represents a significant hurdle. AI should be seen more as a support tool for experienced merchandisers rather than a replacement for human expertise. AI-driven services, such as in-season reorders and pricing optimization, are gaining traction though. Yet, brands are sceptic about AI-powered demand forecasting even though leveraging ML can provide more accurate predictions and allow inventory optimization by analyzing historic demand, supply data and trends. Although AI has the potential to provide more precise forecasts than historical methods by considering a multitude of variables, concerns remain about its readiness to entirely replace human decision-making.

Supply chain automation

Modern supply chain automation is not possible without AI. AI gives supply chain automation technologies such as digital workers, warehouse robots, autonomous vehicles, etc, the ability to perform repetitive, error-prone tasks automatically. Thanks to AI, automation can be fulfilled in the back office (document processing), logistics (companies like Amazon are investing in autonomous trucks), warehouse management (Ocado), quality checks and inventory management (thanks to AI-enabled computer vision systems).

Improving sustainability

Sustainability is a growing concern for supply chain managers since most of an organization’s indirect emissions are produced through its supply chain. AI can help improve supply chain operations to make them more sustainable. AI-powered tools can help optimize transportation routes by considering factors such as traffic, road closures, and weather to reduce the number of miles travelled. For instance, DHL uses AI to optimize vehicle routes and reduce fuel consumption, resulting in lower emissions and improved sustainability. Since AI-powered forecasts should help maintain optimal inventory levels, carbon emissions attached to storage and movement of excess inventory could be reduced.

Supporting functions: financial forecasting and transforming HR

AI for financial forecasting

After marketing, financial forecasting is the second area where retail and CPG executives will invest in AI tools. Algorithms can analyse large amounts of financial data and generate forecasts based on historical trends, market fluctuations and other factors. AI financial forecasting can also be used for a variety of purposes, such as predicting stock prices, forecasting economic growth, identifying potential investment opportunities and make better decisions about inventory management or pricing strategies.

From recruitment to job performance and professional growth

There is a growing use of AI in crafting job postings, shortlisting candidates, matching applicants to job ads and personalising communication with applicants, but also in specialized tasks like predicting the candidates' future performance. Companies like Skims are using AI platforms like Dweet for recruiting, which shows promising results in broadening candidate searches. On its side, Eightfold AI's platform is designed to predict the future roles an employee might be good for.

In that regard, Gen AI can help identify career paths and opportunities for employees, hence facilitating a more personalized career development journey. It can be particularly beneficial in visualizing career trajectories and identifying potential role models within an organization. In the future, AI could assist in identifying candidates for promotions and better role placements, reducing talent attrition costs. Also, the technology can be used as a productivity aid in performance reviews. It can assist in creating initial drafts of reviews by synthesizing feedback from multiple sources, thus allowing managers to focus more on individual development and growth.

Overall, gen AI could streamline administrative tasks for HR to focus more on strategic aspects of talent management. The technology should be first used to improve decision-making and performance management.

Navigating bias in recruitment

However, the success of AI in recruitment still heavily relies on human oversight to address its limitations and potential biases. The technology aims to reduce biases in hiring, but its early development stage means it's not fully reliable yet. For now, experts say AI could even amplify existing biases related to age, gender, and race. AI is not advanced enough yet to completely replace human involvement in hiring. However, some tools aim to create a "positive bias" by focusing on desired skills rather than disqualifying candidates. Dweet's software, for instance, highlights candidates with relevant experience and doesn't penalize gaps in resumes or lower educational levels.

Conclusion: first comes a clear vision for AI

Looking ahead, the potential of Gen AI in retail and fashion is immense and still unfolding. But for now, top executives are admitting they're far from ready to deal with changes brought by generative AI, according to a new global survey by Deloitte's AI institute. The problems may only get worse. Executives who reported the most investment and knowledge in generative AI capabilities are the ones most worried about the technology's impact on their businesses. Only 1 in 5 executives believes their organization is "highly" or "very highly" prepared to address AI skills needs in their company. Only 47% say they are sufficiently educating employees about AI. The majority of executives said their organizations were focused on the tactical benefits of AI, such as improving efficiency and cost reduction, rather than using it to create new types of growth.

At successful companies, McKinsey found there is a clearly defined AI vision and strategy. Also, more than 20% of digital budgets are invested in AI technologies. Teams of data scientists are employed to run algorithms to inform rapid pricing strategy and optimize marketing and sales. Finally, strategists are looking to the future and outlining simple gen AI use cases. Such trailblazers are already realizing the potential of gen AI to elevate their operations. Players that invest in AI are seeing a revenue uplift of 3 to 15% and a sales ROI uplift of 10 to 20%.

While the application of gen AI in a retail business can seem overwhelming as it can fit into almost any piece of the business, the earlier that it is ‘plugged in’ is better as it only gets wiser with time and data. The time to jump in the AI train is now.

Credits: IADS (Christine Montard)

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Annual Department Store Results 

Assessing the concrete and measurable outcomes of the crises since 2019 and analysing the continued recovery patterns witnessed in the 2022 fiscal year.

In May 2021, Dr. Christopher Knee launched the “IADS 100 Report”, a first-of-its-kind report gathering the financial data and figures of 100 department stores around the world. This global observatory was created in a time of turmoil to create a benchmark for global department store players.

Since the release of the first report in 2021, it has been proven to be a difficult task to find relevant and comparable data for 100 or more consistent department stores as many companies change hands in ownership, decide to go private, or don’t break out results by business unit. To clarify the definition of this report, we have decided to rename it to “The IADS Global Department Store Monitor” to reflect that we are consistently reviewing the landscape and updating it with any important and relevant information.

Another area of important clarification is around what results are being captured in the report. Fiscal years do not always line up with some companies finishing their year with the calendar year and others ending their fiscal year in June or July. The 2022 fiscal results for this monitor have been considered as any annual report that closes from the end of December 2022 to those that end in June 2023. To compare yearly results, this pattern has been followed for all previous year’s results as well. This baseline allows a level of consistency in the events that have occurred in the years covered to be able to draw conclusions.

The entire reason the IADS 100, now the IADS Global Department Store Monitor*, was launched was to address the various amounts of disruptions that followed the Covid-19 pandemic and after, as it seems that disruption is now a norm in the retail business. Even now at the beginning of 2024, the baseline of annual results is still being compared to 2019 figures.

What does this say about the state of recovery? We are not out of the woods yet.

This report will attempt to detail some of the major changes across global retail markets and understand what a new turbulent normal could promise. Note: To make comparisons year over year, all exchange rates to Euros come from March 22, 2021, which was the date chosen during the initial IADS 100 release.*

Fiscal year 2022 to 2023: Navigating turbulence on the road to recovery

As retailers ventured into the new year, the challenges of the past two years continued to cast a long shadow, requiring an 'all hands on deck' response to manage the ongoing ripple effects of the Covid-19 pandemic. This period saw a combination of social and political unrest, supply chain disruptions, geopolitical conflicts, an energy crisis, and the looming threat of inflation. Despite the collective hope that 2022 would usher in a semblance of relief, the reality proved more complex.

The year unfolded against a backdrop of persistent global turmoil, including the invasion of Ukraine by Russia in February 2022, intensifying political unrest and reshaping the geopolitical landscape. Amidst these challenges, a significant demographic shift occurred, with India surpassing China as the world's most populous country in April 2023, adding another layer of complexity to the global economy and some foreshadowing as to what would occur in the future retail landscape.

However, amid the adversity, 2022 also brought forth exciting trends that promise opportunities for adaptation and growth. Advances in machine learning and AI (such as the public release of ChatGPT by OpenAI in November 2022) emerged as powerful tools for retailers to cut costs, build more efficiency and make strides toward sustainability goals. While governments continued to make progress on sustainability regulations and the demand for sustainable goods persisted among consumers, the prioritization of making progress on things such as Scope 3 emission tracking began to take a back seat as the world grappled with the sobering reality of the ongoing humanitarian crisis in Ukraine.

For department stores, the fiscal exercise in 2022 centered on a dual focus: generating revenue and gaining control over costs without compromising their core value proposition. In this intricate dance between economic recovery and global challenges, retailers found themselves navigating a terrain that demanded resilience, adaptability, and a strategic response to an evolving consumer landscape.

2022 results: the race to the 2019 starting line

Asia: an uneven playing field

In China, Rainbow (-1%), Wangfujing (-15%), Maoye (-22%), Parkson Retail Group (-23%), Wushang (-11%), Golden Eagle (-9%), and New World (-23%) all saw a slightly negative sales trend in 2022 compared to 2021. While some of these department store players saw positive results in the previous period between 2020 and 2021, not one has rebounded back to 2019 baseline figures. This could be explained by the continued “zero-Covid” restrictions that remained strictly in effect until November 2022 when Chinese citizens began to protest the lockdowns leading the government to eventually ease measures. In Hong Kong, Wing On (-8%) had similar results to those in China with a slight drop off from 2021 sales figures, still unable to return to 2019 results. It is also important to mention that Sogo (Lifestyle) went private in 2022, therefore there is no longer follow-up data on their results. In fiscal 2021, Sogo was operating higher than 2020 levels but still had quite a bit of recovery before meeting its 2019 baseline. Also, BHG’s 2022 results were not explicitly shared but saw strong recovery from 2019 results with 2020 at a +16% increase and 2021 at a +62.5% increase compared to 2019.

India, on the other hand, has become the country to watch in the retail world, especially as they have been able to pick up much of the market China has lost, and their results show their strength. Lifestyle (Landmark Group) (+46%) and Shopper’s Stop (+63%) both reported FY22 earnings that not only surpassed 2021 figures but also 2019 results.

Japanese department stores saw a range of results with H2O (+28%), Isetan Mitsukoshi (+11%), Tobu (+20%), Tokyu (+5%), and Kintetsu (+11%) reporting positive results from 2021 to 2022 while all remaining negative in comparison to 2019 figures with the exception of H2O (+4%) which had a slight uptick from 2019 results. Daimaru Matsuzakaya (-12%) and Marui (-5%) reported slight losses between 2021 results and 2022 results while Takashimaya (-49% due to closures and restructuring of some locations as well as reduced customer confidence with rising costs) and Sogo Seibu (-59% which has been struggling for years as more e-commerce players enter the market and with reduced store doors, Seven & I Holding company has now sold off the department store) showed much larger deficits each due to their unique situations.

The rest of Asia saw a variety of results. Matahari (+16%) in Indonesia reported a slight increase in turnover, this stays on its positive upward trend from 2021, but unfortunately still falls very short compared to 2019 results. In the Philippines, SM (+25%) and Robinson’s Retail (Rustan’s) (+61%) saw a healthy increase in results in 2022 with SM ultimately beating 2019 figures. In Korea, Hyundai (+40%) and Lotte (+12%) both reported an increased turnover in 2022 and in comparison to 2019, while Hanwha Galleria (-19%) reported a decrease in turnover in 2022. Finally, Odel (+12%) in Sri Lanka and Central Retail Corp (+21%) in Thailand both exceeded 2021 results.

To recap, with the goal being to outperform 2019 numbers, the only department stores in Asia that reported higher sales in 2022 than in 2019 are Lifestyle (Landmark Group) (+27%) and Shopper’s Stop (+16%) in India, H2O (+4%) in Japan, Hyundai (+128%) and Lotte (+3%) in Korea, SM (+4%) in the Philippines, Odel (+11%) in Sri Lanka, and Central Retail Corp (+6%) in Thailand.  Though the sample size is not all-encompassing, major players are included and it is very interesting to note that no players from China (that we can track) have been able to reach a 2019 rebound in 2022 suggesting that recovery in China might be a harder feat following all the disruptions from pandemic and lockdowns the retailers operating there have faced.

In Oceania, Myer beat 2019 results in 2022 with a +27% increase and also improved performance by +12% between 2021 and 2022. As for David Jones, the department store was sold by Woolworths therefore making 2022 figures unable to be retrieved, but the department store had surpassed 2019 levels in 2020 (+2%) before falling just below the 2019 baseline with a -3% fall between 2020 and 2021 results.

Europe: The 2022 recovery journey was both challenging and transformative

Across Europe, department stores in the sample all saw increased sales from 2021 to 2022. This includes Coop Group (+2%) and Jelmoli (+11%) in Switzerland, NK (+14%) in Sweden, El Corté Ingles (+8%) in Spain, Coin (+4%) in Italy, Stockmann (+10%) in Finland, and Kaubamaja (+13%) in Estonia. All of these retailers have also beaten 2019 benchmarks except for Coin (-33%), Stockmann (-17%) and El Corté Ingles (-6%).

The UK especially saw a lot of government and legal transition from a change of hand following the death of Queen Elizabeth II to the tumultuous change of 3 prime ministers in just three months from Boris Johnson to Liz Truss, who only lasted 45 days, to Rishi Sunak who now faces the task of steering the country through a recession with soaring inflation. Despite these changes, the Queen’s Platinum Jubilee at the beginning of 2022 and her funeral at the end of 2022, as well as the ease of travel restrictions, brought 2022 back to a strong year of tourism in the UK which in turn helped retailers recover.

Against this backdrop, UK department stores, including Marks & Spencer (+10%), John Lewis (+0.3%), Harrods (+192%), Selfridges Group (+29%), Fenwick (+31%), and Liberty (+42%), demonstrated positive growth between 2021 and 2022. Marks & Spencer (+17%), John Lewis (+2%), Fenwick (+13%), and Liberty (+25%) even surpassed 2019 figures, indicating a robust recovery. Although the fiscal year 2022 results for Fortnum & Mason and Harvey Nichols are undisclosed, Fortnum & Mason (+34%) had already exceeded 2019 levels in 2021, while Harvey Nichols (-29%) continued to grapple with recovery challenges.

To dive deeper into some of these UK department stores, Selfridges navigated a transition year in 2022 under new owners, Central Group and Signa, overcoming challenges such as increased debt, staff restructuring, and rising interest rates. Despite these hurdles, the department store experienced a turnover increase. Harrods staged a remarkable recovery, surpassing 2019 levels. The store's ability to operate throughout the fiscal year without closures and with fewer global travel restrictions contributed to its success. Fenwick returned to profits, driven by the sale of its New Bond Street store. The company's future strategy involves significant investment in digital platforms, recognizing them as a growth driver, and enhancing their physical stores, especially the Newcastle location. While all these achievements in 2022 are noteworthy and a great recovery back to 2019 benchmarks, fiscal 2023 and beyond will be a challenge of their own as the country undergoes inflation pressures and rising costs amidst changing consumer behaviours. UK department stores are encouraged to think ahead and invest in their future, which is what Fenwick is trying to do. But will it be enough?

Americas: a gradual push towards 2019 benchmarks

As opposed to the positive growth trend seen across the board from the Americas department store sample in 2021, 2022 results were less promising. Chilean retailers Falabella (-13%), Ripley (-8%), Cencosud Paris (-7%), and US retailers Kohl’s (-7%) and Macy’s Group (almost flat at -0.1%) all saw a downward trend in department store sales from 2021 to 2022. Alternatively, Mexican retailers El Palacio de Hierro (+23%) and Liverpool (+16%), Ecuadorian retailer De Prati (+15%), and US retailers Dillard’s (+6%) and Nordstrom (+5%) reported growth. Neiman Marcus did not share 2022 results but did state that the business in the fiscal year was ‘relatively’ flat compared to the previous year.

Those surpassing 2019 benchmarks included all of the sample minus Kohl’s (-9%), and coming in almost flat, but just below 2019 figures were Macy’s Group (-0.5%) and Nordstrom (-0.3%). The rest of the department stores in the Americas reported a recovery compared to 2019 with results as the following: Ripley (+32%), El Palacio de Hierro (+30%), Liverpool (+25%), De Prati (+14%), Dillard’s (+11%), Cencosud Paris (+10%), Falabella (+7%). Also, it is once again important to mention that Neiman Marcus’s results are unknown for this comparison.

Retailers in Latin America continue to face a political shift to the left that started in 2018 and which has continued to impact the political landscape in the region. Despite political changes, Latin American retailers are experienced in operating during inflationary periods, which is something the rest of the retail world is not used to doing. Thus, Latin American players may be able to weather the next few years better than other areas of the world. In 2022, countries like Chile saw a drop in total retail spending, a shift from the recovery in 2021 driven by increased consumption. The more cautious spending in 2022 was influenced by a reduced money supply, a new government, and a significant global and domestic inflation increase. While in Mexico sales growth in 2022 slowed compared to 2021 but remained positive thanks to surging consumer prices and top-line inflation. Across Latin America, e-commerce and digital channels are continuing to be developed while store redesigns are also being put at the forefront.

In the US, a major topic that continued to be addressed following the pandemic was around inventory and supply chain management with excess inventory and shifting customer behaviours. To address this inventory, US department stores had to heavily rely on discounting in 2022 which in turn impacted gross margins. Off-price retailers saw a lot of growth during the period, which made department stores rethink their business model and sizes of their physical stores allowing them to offer a smaller and more profitable footprint.

Macy’s Group has tested this type of footprint revamp with smaller format stores but is still trying to find the right physical store mix by expanding their Market by Macy’s and Bloomies concepts (this is a major strategy going forward for the business) while in parallel closing underperforming stores, exiting failing centres, and improving store experiences. Finding the right balance between making physical stores profitable and reacting to the deceleration of digital channels impacted the business in 2022. Nordstrom is showing similar results to Macy’s when comparing 2022 to 2019 and has also expanded its smaller format concept (Nordstrom Local) but it is their discounted store (Nordstrom Rack) that is a solid investment as they produce returns that exceed the cost of capital in a short period. This is why Nordstrom has carried out the expansion of Nordstrom Rack in 2023 and will continue the growth of locations in 2024. So why is it that Macy’s and Nordstrom are reporting losses in 2022 and compared to 2019 while Dillard’s, which has not begun to offer smaller local formats, has reported growth in 2022 and against 2019 baselines? Could this mean that Macy’s and Nordstrom just need some time to figure out the right store mix? Or does Dillard’s have some kind of secret to beating 2019 baselines that the other US department store chains have not figured out?

What to expect from the 2023 fiscal year and beyond

A major trend seen from fiscal year 2022 and which has continued into 2023 has been the number of department stores that are either changing hands, going private or in talks of such a change. In Asia, Japan’s Seven & I Holdings decided to sell Sogo & Seibu in mid-2023 to Fortress Investment Group, while Hong Kong’s Sogo (Lifestyle) announced it would be going private at the end of 2022. In Europe, France’s Galeries Lafayette Group sold BHV Marais in early 2023, and Sweden’s Ahlens was sold by Axel Johnson to Ayad Al-Saffar. At the end of 2022, South Africa’s Woolworths sold Australia’s David Jones unit to a private equity fund. In the US, Kohl’s was being put under pressure by shareholders in 2022 to sell as they were not meeting profit expectations and Macy’s reportedly received a USD 5.8 billion buyout offer in December 2023 to go private. All of these changes and moves to go private can be attributed to the fact that operating in a public market in these times is very difficult, and going private allows companies to have more freedom and access to levers to make faster changes which can in turn offer a narrowed focus on reshaping the business for the new market conditions.

The global landscape has become increasingly intricate both geopolitically, with escalating conflicts such as those involving Israel and Ukraine, and economically, contributing to sustained challenges in supply chains. The ongoing escalation in global transport and energy costs is further fuelling inflation across various regions. This inflationary trend is expected to persist and exert continued influence on business outcomes. As consumers exercise caution and restrain from making non-essential purchases, there is a potential for fiscal 2023 performance to be adversely affected compared to 2022. In response to such economic uncertainties, private label products are gaining traction as a viable alternative, perceived as a cost-saving measure.

New markets are emerging, especially India, as the country has been able to capitalize on the loss of Chinese business due to the country’s late release of Covid restrictions. India’s retail scene is growing with a surge of retail square meters increasing by +46% in 2023. Luxury department stores such as Galeries Lafayette announced expansion into India in 2023 and now Walmart is importing more goods to the US from India and reducing its reliance upon China.

When it comes to consumer behaviours and shopping trends, department stores across the world have to better understand how to manage their inventory and services across their omnichannel. Covid brought on major investments and developments into e-commerce platforms and online sales hit record highs. But now consumers want to come back to physical stores and have in-store experiences, but the traditional large formats are not what they are looking for. This has encouraged department stores to test smaller formats and off-mall locations. As department stores work out the right mix between online sales and the sweet spot of physical retail sizes and concepts, profitability will be a key indicator of decision-making going forward.

Speaking of profitability, in the coming years, retailers will pivot their attention towards achieving heightened profitability and efficiency. The accessibility of AI technology is reaching unprecedented levels, prompting retailers to reassess which facets of their business can benefit from more efficient AI integration. Just as the pandemic reshaped consumer behaviour, retailers must now respond adeptly by reintroducing customers to stores, offering products and services that align with their evolving demands. Amidst economic pressures, these challenges become even more intense, requiring strategic innovation and adaptability.

IADS Note

While department store diversity can be a strength, it also makes comparisons difficult. It is clear, for example, that data concerning revenue, profits, selling space etc. will often not be available from privately held companies. If the IADS obtains such data privately and confidentially, we will not publish it.

Credits: IADS (Mary Jane Shea)

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What skills will we need in the future and how to attract those talents?

The IADS Academy programme, a 28-year-old tailor-made mentoring workshop open only to our members’ high potentials, promotes cooperation and future orientation. Over the years, the IADS Academy has trained 180+ executives from 28 companies in 21 countries, some of whom reached top positions in member and non-member companies (for IADS member companies alone, 4 CEOs). The following is an attempt to report all insights the Academy group considered and worked on during the journey to their final presentation shown to the IADS member CEOs.

Table of contents

Transverse skills are key to enabling technical skills

Technical skills are more important than ever and impact organisations

Skills: moving from curriculum vitae to curriculum personae?

First IADS Academy take: company culture and leadership are the foundations

Company culture: psychological safety and leadership

Leadership: strength-based management, communication and mentoring

Second IADS Academy take: a different approach to recruitment and retention

Employer branding requires the same tactics as for loyalty programmes

Recruiting outside but also inside the company

Development and succession planning to build tomorrow’s talent

Third IADS Academy take: fostering flexibility

Differentiating bonuses, incentives, benefits and perks

Developing flexibility in location and hours to offer a better work-life balance

Introduction: the only constant in this world is change

First, department stores were renowned for their disruptive business model, then for their ability to adapt to the countless changes happening since their inception. Their heritage, skills and strong ability to build strategies and master plans have been the recipe for success but the rapidity and magnitude of changes have escalated in the past years making uncertainty and volatility CEOs' top concerns (followed by talent, inflation, managing stakeholders and supply chain).

Change is everywhere, outside and inside of companies. While VUCA (Volatile, Uncertain, Complex, Ambiguous) could illustrate what happened in the past years, it seems it is now too weak of a word to express CEOs’ top concerns. In that regard, BANI (Brittle, Anxious, Non-linear, Incomprehensible) has replaced VUCA. To navigate in such a world, companies need a new set of skills. Threats and change also come from inside companies and 71% of CEOs said labour shortage is their biggest existential threat. It is a consequence of COVID-19 but also of the difficult adaptation to the generational tipping point, with Gen Y and Z already accounting for 50% of the labour market in 2020 (and to account for 70% in 2025). Companies now understand how their approach to work is different from the previous generations. However, a new approach to talent management has not been implemented yet.

Today, companies face a paradigm shift: not only are technical skills more important than ever, but transverse skills are key to making the most of them. It means that companies might be moving from curriculum vitae to curriculum personae when considering talent. When it comes to attracting and retaining talent, there are interesting common practices in the retail industry, but the IADS Academy offers its own take: company culture and leadership are the foundations of everything, and the group proposed a different approach to recruitment and retention.

Transverse skills are key to enabling technical skills

Technical skills are more important than ever and impact organisations 

Whether it’s about legacy or new jobs, technical skills are critical to the department store business. For instance, the sales associate job now requires working with new and digital tools. Also, the department store business model is increasingly complicated and requires more data, business intelligence and project management skills. On their side, logistics functions are becoming more customer-centric with the rise of e-commerce and product returns, also requiring new technical skills.

New jobs have entered the department store business and play a strategic role in today’s organisation. Data functions are no longer about 1 or 2 people in the organization as the data topic has grown both in size and complexity to provide relevant information for analysis and decision-making in all departments. In that regard, data is sometimes still limited to some key users and usage. To change this, retailers are currently building single data platforms: this requires investments obviously, but also high technical skills.

E-commerce functions also grew and require highly skilled teams. While department stores are on the right track to compete with pure players, e-commerce is de-prioritized today and the question of "where should e-commerce sit in the organization?" has not been cracked yet. This impacts both the organisation and the talent pool. Some retailers such as Galeries Lafayette split e-commerce functions between IT and marketing: it is an interesting approach but the risk is that decisions are based on IT capabilities rather than on business needs. Besides, this organisational model doesn’t answer the question of "P&L ownership". On its side, Magasin du Nord considers e-commerce as a store but it needs to get closer to the physical stores to create a true omnichannel business. Finally, Manor’s e-commerce is under the Chief Digital Officer who is a ComEx member so e-commerce and the omnichannel business are priorities.

Tech and IT functions are still too centralized making it difficult to have quick wins. A more hybrid model between external and internal resources as well as a more decentralized approach could help. Interesting initiatives such as Galeries Lafayette’s "low code/no code" programme enable non-IT employees to develop their own tools using very basic code and foster quicker innovation. Also, many IT organisations such as Manor’s are currently reorganizing using agile methods.

Finally, CSR transformation represents additional pressure. Prioritised by top management and high on companies’ strategic agendas, the topic is truly technical and tough regulations impact the entire organization. CSR requires specialized profiles to build up new capabilities.

Skills: moving from curriculum vitae to curriculum personae?  

The macro trends are paving the way to a different approach to skills. Consider the sales associate role again. It now requires a true omnichannel mindset, an open mind to working with new and digital tools, the curiosity of knowing what is happening online and even the will to encourage online shopping. Besides, the rise of online shopping and the impact of COVID-19 have had an important impact on physical shopping with customers expecting more than just transactions. Also, retail-tainment is now a common practice among retailers which means front-line workers should envision the entire shopping experience, be able to offer more than just selling products and participate in in-store events. The consequence is an increase in personalisation and relationship-building with customers.

Also, skills last less than before as jobs are changing at a faster pace. CVs, which recruiters spend an average of 10 seconds on anyway, are less relevant and precise than before. So, a paradigm shift is needed: moving from relying on the traditional hard and soft skills to considering technical and transverse skills instead. Transverse skills are increasingly considered as the only ones helping employees in navigating a BANI world. As stated by the Academy cohort, soft skills used to be the icing on the cake. Now transverse skills are a fair part of the cake.

While technical skills are (and will remain) key, transverse skills will make a true difference in making the most of the technical skills. The Academy group listed the following key transverse skills: teamwork, strategic vision, adaptability to change, communication, emotional intelligence, time management, resilience, critical thinking and empathy. While they can be perceived as hard to define and detect, transverse skills can be evaluated through personality tests. Department stores are increasingly considering transverse skills. For instance, Galeries Lafayette launched a toolkit mapping 12 behavioural skills to achieve performance at an individual or a group level. The goal is to have a common language: it helps describe professional expectations and develop competencies and careers. This toolkit can be used throughout a career (recruitment, evaluation, career development) and for all types of jobs. The 12 behavioural skills have already been added to the yearly review for some cohorts. The next steps are to continue to develop this tool for recruitment, in all yearly reviews and career development.

On its side, with highly specialized profiles, Magasin du Nord is looking for a data-driven mindset, leadership skills, creativity and diplomatic skills to be able to work together with other departments. El Palacio de Hierro focuses on the eagerness to learn, to self-train and to share knowledge, on the ability to quickly learn technologies, to foster change, to simplify processes and to analyse data and prioritize through it. Adaptability, open-mindedness, emotional intelligence, and being result-oriented are also considered key skills. Willingness to learn is also listed by Sogo. On its side, Manor defined 3 broad types of skills:

• Professional skills: digital skills, data-driven decision-making, ownership, entrepreneurship, and problem-solving skills.
• Social skills: interdisciplinary collaboration and communication skills.
• Personal skills: emotional intelligence, creativity, courage, risk tolerance, team spirit, self-responsibility and agility.

First IADS Academy take: company culture and leadership are the foundations

Department stores as well as many other industries recently witnessed a dramatic shift in recruitment: it is not about ‘Tell me why we should hire you?’ anymore but about ‘Tell me why I should work for your company?’. Companies have to meet new and unprecedented demands which requires a rethink of the way they look for, find, attract and retain talent. The Academy cohort reviewed some common practices and offered their own take.

Company culture: psychological safety and leadership 

By using the famous quote by Peter Drucker “culture eats strategy for breakfast”, the Academy group strongly highlighted company culture as the most important foundation. Lack of company culture represents one of the main reasons for employee disengagement. When asked “If you could make one change at your current employer to make it a great place to work, what would it be?”, 41% of respondents say engagement or culture. The topic is far more important than pay and benefits (28%) and wellbeing (16%). Post-pandemic, company culture increasingly means that companies should build psychological safety and a culture based on trust instead of fear, allowing employees to share ideas, raise concerns and even make mistakes. The Academy group found out that Maslow’s Hierarchy of Needs also applies to employee engagement: feeling safe and having all the tools to work is the mandatory basis for higher levels of engagement. Besides, $600 bn a year is lost on employee turnover. In contrast, companies offering high psychological safety experience many benefits: a 27% reduction in turnover, 76% more engagement, 50% more productivity, 74% less stress, and 57% workers more likely to collaborate.

The Academy group made clear that culture is everyone’s responsibility, and not only the CEO’s. They set the tone and embody the company culture. They also should increase interaction with the employees which will contribute to showing them they work in a safe environment. CEOs are not alone. As mentioned by The Art of Leadership Studio, a guest speaker during the Academy programme, 70% of the variance in team engagement is down to the team manager. Managers have a pivotal role in conveying culture to the employee base so that they feel empowered, included and engaged. Changing the culture is difficult but some initiatives can work their magic: conducting regular engagement surveys can serve as the base for a more efficient attraction and retention strategy. CEOs should be ready to face the results and to allocate resources for action. Companies should be transparent about the reasons why surveys are conducted. Action plans should be built with HR and management teams, and then communicated using marketing tools. Then new initiatives will be incorporated internally and also benefit the employer branding.

Leadership: strength-based management, communication and mentoring 

Leadership has tremendously evolved since the manufacturing economy where the manager served to increase productivity. The service and then the tech economy brought a new breed of managers: the leader, who was supposed to increase commitment, retain and engage. Post-pandemic leaders become people leaders and are here to infuse empathy.

To double down on this change of role, companies should develop a culture of feedback. Four out of 10 workers are actively disengaged when they get little or no feedback. 82% of employees appreciate positive and negative feedback. 43% of highly engaged employees receive feedback at least once a week as opposed to 18% of low engagement employees. Recognition is also part of the feedback culture and requires taking a moment to recognize a good job. This doesn’t cost and helps to create loyalty and trust. It implies the development of strength-based management instead of assessing feedback and development plans solely based on weaknesses.

Being a great leader also means interacting and communicating with employees. In that regard, IADS members have developed best practices. Manor has regular “CEO Connect” events where the CEO explains the strategy and does a transparent Q&A with employees and hybrid town hall meetings with various departments. There is also an open-door policy for ComEx members and leaders. At El Palacio de Hierro, “Talking with Juan Carlos” sessions are regularly organised. Breuninger makes a weekly 60-second video available where the CEO discusses a specific topic. Finally, Galeries Lafayette’s CEO kicks off every year with a video available to all employees. The Academy also stressed the importance for CEOs to get closer to the teams by visiting stores more often or having informal lunch breaks with employees as Magasin du Nord’s CEO is doing daily.

As stated by Quadra Consultants, a guest speaker during the Academy programme, mentoring can also be a powerful tool. As an individual guidance method, mentoring can help achieve personal or professional success. On the contrary to coaching, mentoring typically involves a long-term, informal relationship and is focused on sharing knowledge, skills, and experience. It also aims to provide emotional support and guidance. The benefits of mentoring are wide-ranging. From leadership mentoring to personal development and employee retention, the benefits to the mentee are self-confidence, self-awareness, job satisfaction, aspiration, and the likelihood of promotion. Besides, 89% of those who have been mentored will also mentor in turn, and so will contribute to this cycle of learning and development in the organisation. There are also many positive benefits for those doing the mentoring. Studies have shown an increase in self-confidence, communication skills, job satisfaction and loyalty to their company. Harvard Business Review conducted a study researching the positive effects mentoring can have on the mentors themselves and found that people who served as mentors experienced lower levels of anxiety and described their jobs as more meaningful than those who did not mentor. Also, mentors play a pivotal role in leadership development. They provide guidance, support, and valuable insights, helping mentees navigate the complexities of leadership. Through sharing experiences, facilitating networking opportunities, and holding mentees accountable, mentors contribute to the personal and professional growth and empowerment of aspiring leaders.

Second IADS Academy take: a different approach to recruitment and retention

Employer branding requires the same tactics as for loyalty programmes 

To be an attractive employer, companies have to understand employee needs and wishes when it comes to their job and work environment. In theory, the employer brand is considered one of the most critical aspects of getting the right talent. But in reality, the Academy group realised there are little to no strategies and measures in place. Employer branding might seem obvious as a combination of internal factors (such as what it’s like to work for the company, benefits and evolution potential), and external factors (such as the brand identity and purpose). Department stores are masters at attracting and retaining customers with improved loyalty programmes but don’t apply the same tactics with talents. Today, the responsibility of employer branding falls into HR alone. The Academy group came up with an interesting idea of both HR and marketing departments working together on building true employer branding: marketing skills and techniques and HR knowledge (and a budget) would serve the company's recruitment needs.

Recruiting outside but also inside the company  

Recruiting is expensive in terms of time and money. Companies also lose knowledge when employees resign, not to mention stress for the manager losing a team member without having visibility on when someone will take over. Regularly conducting casual interviews through social media proved to be efficient in building a potential employee base, anticipating needs and getting to know candidates better. In that regard, Magasin du Nord’s recruiting team is spending 20% of their time informally approaching potential candidates. Candidates like this individual approach: instead of HR trying to fit them into a job ad, the discussion is more about their ideas, dreams and career paths for the future. As a result, 30% of recruitments are made this way. For now, the casual interviews happen on LinkedIn: collaborating with the marketing department could allow the HR team to reach out to candidates on TikTok or Instagram in the future. Today, the best candidate for a job might be the one with a great Instagram profile and a poor resume.

Also, getting closer to schools and universities provides significant results, not to mention building employer branding. In that regard, fashion companies are creating their own college environments by partnering with existing schools to create tailored programmes and train students to match their organisations’ needs. In the ‘80s and ‘90s, department stores like Bloomingdales, Sears and Macy’s were known for their executive and merchandising training programmes teaching the basics of operations, product development and retail strategy, as well as soft skills like effective communication, organisation and multi-tasking. Such courses, which could last up to 18 months, also helped participants gain an awareness of the value and longevity of a retail career. Macy’s current CEO, Jeff Gennette, graduated from Macy’s executive training programme in the 1980s. Over the past decades, many of these programmes have fallen, often a victim of cost-cutting. However, many companies have instead relied on fashion and retail programmes at universities to supply new talent.

Early 2023, SMCP (Sandro, Maje, Claudie Pierlot) launched the SMCP Retail Lab. It is a year-long programme built in partnership with Ema Sup Paris school and IFM (Institut Français de la Mode) to train selected participants on clienteling, live streaming and styling. It aimed to boost recruitment by making the sales associate role more exciting and modern. At the end of the year, participants receive a certification and are offered opportunities to work in the group’s brand stores. In the US, the Capri Holdings Foundation for the Advancement of Diversity in Fashion8, (the group is the home of Versace, Jimmy Choo and Michael Kors), sponsored a 5-week footwear and accessories masterclass at Pensole Lewis College of Business and Design and paid for the students’ room and board. At the end of the course, the company offered internships.

Recruiting inside the company should also be developed, but do managers know their own employees to start with? It seems they don’t, or at least don’t know them enough to identify potential talent and specific skills. Several existing tools assessing behavioural, personality and leadership styles can help companies close the gap: HOGAN, PDA or DISC to name a few. Companies can also do internal surveys to learn more about their employees. This is what El Palacio de Hierro recently put in place, starting with the executive level. Also, retailers usually welcome interns and students working short time. They could become a key resource as they are probably studying disciplines of some interest to department stores. The Academy group suggested department stores build a plan to identify what interns and students study and create a lasting relationship to potentially onboard them later on.

Employees come and go. When we see a customer buys less and might leave us, we will send an attractive offer and try to reactivate them. Why don’t we systematically keep in touch with people leaving companies? Those people will go work at competitors and gain great knowledge, so it is just a smart move to try to keep them close to us. Of course, some managers already offer to keep in touch, but it is not done systematically. It requires to be conceptualised. The answer proposed by the Academy is building a company alumni group. Investing in an HR platform would be necessary for such a venture. The group advocated for a yearly alumni informal reunion with the CEO where recruiting deals for the future could be made.

Development and succession planning to build tomorrow’s talent 

First, companies have to make sure that all employees have access to the same information regarding development and careers in their company. Most HR systems can be complex (SuccessFactors, Workday for instance9) and some of them require a desktop to access. All job descriptions should be accessible and easy to find for all deskless employees, but also for the next generation of talents, the interns and students working part-time.

Second, transparency in succession planning should also offer interesting results if planned. Examples of employees recruited for short-term contracts, staying in the company and evolving to higher positions exist (there were 2 out of 8 Academy participants that had this experience at their respective department stores), and they could be numerous if companies have better succession plans.

Third IADS Academy take: fostering flexibility

Differentiating bonuses, incentives, benefits and perks 

Gone are the days when simply focusing on compensation was enough to keep most of the workforce satisfied. Money still counts as shown in the Career Builders 2022 survey listing the top 4 motivators for job-seeking applicants: providing a higher salary, flexible schedule, better benefits, and the ability to work remotely.

While bonuses and incentives are usually defined by job groups and hierarchy levels, department stores tend to have a generalist approach to other benefits and perks. A solution tackled by the Academy group during the programme would be to consider different levels:

• Common perks for the entire company: salary range, common variable incentive scheme based on profit-sharing, employee discount, parental leave policy for instance.
• Perks based on job specificities and competition: performance-based variable scheme, organisation of working hours, work-from-home policies, etc.
• Perks based on individual needs with options to choose from: flexible working hours and work shifts, possibility to change the days off, 4-day planning, childcare solutions, training programmes, medical insurance, etc.

Such differentiation could be an answer to applicants’ needs while limiting the investments implied by the systematic enforcement of benefits and perks. Differentiated benefits and perks could evolve with the employee lifecycle (for instance switching from childcare benefit to another benefit when it is not needed anymore). The Academy group didn’t keep this idea as part of their final answer to the CEO's question, but this could represent some ‘food for thought’ for companies to truly assess what they should offer employees depending on who they are and what they do. There are risks attached to this idea as it questions equality, and it might be difficult to apply in some countries. But this would certainly enhance fairness and equity. Besides increasing personal and professional satisfaction, matching benefits to employee needs could help attract candidates. Finally, matching needs with various benefits and perks would be remembered and could enhance the company's reputation.

Developing flexibility in location and hours to offer a better work-life balance 

Flexible schedule and ability to work remotely are part of the 4 motivators for job-seeking applicants. However, communication and learning can be partially lost with remote working. In response, companies need to rethink what should be done in terms of team building. What are offices for in a post-pandemic world? Companies should offer reasons for the employees to come to the office. Social aspects are key as employees are looking for collaboration, friendly interactions with colleagues (workplace relationships account for 39% of employees' job satisfaction) and the commute should be as short as possible. This implies investments for companies as the workplace now competes with home and other locations. But with work-from-home and flex-office (shared desks), office space can be reduced resulting in saved costs.

Companies are increasingly giving access to amenities inside and out (cafés, bars, restaurants, gyms, etc.). The new workplace should be designed to allow "me time" (phone calls, etc.) and "we time" (meetings, collaboration, fun). Companies must invest in engaging, user-friendly and smart technologies to support flexible work: laptops and video conference devices in meeting rooms for hybrid meetings. There should be a clear differentiation between the tasks done in the office or at home and the home-office ratio should be flexible. Working in the office should be favoured to exchange with other stakeholders, ideation, solution finding, workshops, meetings and lunch dates. Work-from-home should be more to work on or answer emails and participate in virtual calls or webinars. Finally, days in the office should be occasions for social gatherings and mingling. In that regard, Magasin du Nord emphasizes Friday drinks and office parties for instance.

Manor is a fair example of the efforts put into making the office attractive. They created a dedicated collaboration zone called "Atelier" for collaborative work and spontaneous encounters. They offer a cafeteria with a barista for coffee breaks. They have regular company lunches and celebrations (successes, farewells, etc.). Flexibility is a matter of work-life balance and has different meanings from one region to another. Uniqlo is a pioneer in the Asian market as they offer 2 days off per week to front workers. On its side, Breuninger is quite advanced and offers the “B Abroad” programme: assuming that it is feasible, employees can work 30 days per year from abroad (European countries).

There has always been a gap between front and back employees. However, the Academy group also mentioned the importance of flexibility for store employees. Term-time working offers different shift models to choose from. Mothers can work during the time kids are in school (e.g. female pilots at EasyJet and Marks & Spencer). Companies could also offer different work stints in different stores to reduce commutes. Home office could also be offered to store administrative roles. Job sharing could be proposed to moms after maternity leave like Marks & Spencer is doing. Finally, sales associates could also work from home if they are equipped with a cell phone and a clienteling tool.

Conclusion: a paradigm shift is necessary

When it comes to skills and talent, department stores are undergoing a significant transformation. Companies are now recognizing the importance of a holistic approach to talent management, valuing skills that encompass both technical proficiency and interpersonal capabilities. This evolution is not just about adapting to the changing market demands. It's about reshaping the workforce to be more agile, innovative, and responsive. The integration of new technologies and e-commerce, along with a heightened focus on CSR and sustainability, further highlights the need for a diverse skill set in employees. The IADS Academy underscored leadership and company culture as pivotal elements in driving this transformation. The emphasis on psychological safety, employee engagement, and a strength-based approach to management signifies a shift towards a more inclusive and supportive work environment. Moreover, the new recruitment and retention strategies highlighted by the IADS Academy, such as building strong employer branding and fostering a flexible work culture, are essential in attracting and retaining the best talents. These strategies not only cater to the immediate needs of the workforce but also anticipate future trends, ensuring that department stores remain competitive and relevant.

Finally, the IADS Academy recommend focusing on transverse skills to change the talent management approach, evaluate company culture with engagement surveys and reassess flexibility models. Bringing HR and marketing teams together is also seen as a game-changer in recruitment. Efficiency in talent management comes with the development of casual interviews, an increased focus on interns and part-time workers and an open door to alumni.

Credits: IADS (Christine Montard)

Access the printable exclusive and our full White Paper below.

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IADS White Paper - Retail Media

Since its inception in 1928, the IADS’ purpose has been to coordinate information between department stores worldwide and research their activities to help them address the many challenges they must face. This translates into many responsibilities carried out by the IADS, all solely intended to provide insights to its members and help them have a broader understanding of the shifting business environment.

Every year since 2020, the IADS has produced a White Paper on a specific topic perceived as important for its members. In 2020 the purpose was to collect the learnings from the management of the pandemic and how to make sure department stores would be prepared for the next crisis. The 2021 White Paper was dedicated to digital transformation and its impact on the organization. In 2022 it was all about the development of sustainability, CSR and ESG in retail businesses. And the 2023 edition is dedicated to the hot topic of retail media.

Why is it so hot? Just for a start, this subject has generated a considerable amount of buzz, conferences and articles over the past three years (as suggested by the lengthy number of sources that the IADS quoted in its White Paper). Also, it was interesting to see that the 2022 edition of the NRF Big Show was all about retail media on stage, but with very few suppliers at the fair, which was the contrary in 2023, with a significant number of suppliers proposing new solutions to deploy retail media.

The other reason why the White Paper this year was dedicated to this technical topic is because we believe at the IADS that retail media could be a profitable route for department stores willing to maximize the value of their real estate. While retail media has expanded thanks to the digitalization of the world, we believe that the amount of in-store interfaces with the customer, coupled with tracking and measurement capabilities in close-loops that are now allowed with the state of technology, could transform department stores into very efficient media companies, maximizing the value of the number of eyeballs visiting not only their e-commerce websites but also their flagship stores. This vision was also confirmed in 2023 during an IADS CEO meeting, during which the Publicis COO suggested that this was starting to happen in a select number of retailers.

The 2023 edition of the White Paper aims to identify where the retail media market stands, spell out the opportunities (and potential traps) for department stores, as well as suggest a few routes of reflection for department store leaders to prepare their organizations for such a shift. Finally, since retail media is seen as a way to generate incremental, high-margin, revenue, we also explore this school of thought and try to understand the cost of such new revenue, not only in financial terms but also in terms of people, organizations and needed adaptations.

Introduction: retail media is less of a revolution than a reinvention

Retail has never been a stranger to advertising. It started as early as the 19th century with many companies, such as Sears, Printemps, Jelmoli and Harrods, starting to issue catalogues where they encouraged brands to advertise. That was the beginning of an awareness from department stores: why pay for brand advertising when they can do it by themselves? After all, the job of department stores was to make sure that their locations were welcoming enough visitors, or, in other words, make sure that their name was advertised enough.

But then, brands were another story (and somebody else’s P&L chart), and instead of bearing the cost of advertising alone, department stores began to sell them advertising space, creating new revenue streams. This period also coincided with the development of the modern advertising industry, which evolved from selling ad spaces in newspapers to offering complete brand solutions. This shift enabled department stores to forge a new kind of relationship with brands, selling them opportunities to stand out through trade marketing cooperation.

As such, the idea of department stores (and retail companies as a whole) selling advertising space is not new. So, how is retail media any different?

From trade marketing to retail media

The eternal challenge in advertising, from the advertiser's point of view (the brand), has always been to make advertising effective and profitable, especially in terms of return-on-investment measurements. Trade marketing was beneficial for brands to increase demand at the department store level, aligning with their brand strategies. However, top-of-the-funnel strategies (i.e. national advertising) were more difficult to evaluate in terms of ROI, while bottom-of-the-funnel ones (i.e. advertising on the POS, trade marketing) were difficult to scale at a national level.

Things became more complicated with the advent of new technologies and media (like radio, TV, electronic commerce, social media, and mobile phones), as the dynamics of customer engagement and advertising significantly evolved and merged the needs for top-of-the-funnel and bottom-of-the-funnel investments. Retailers started incorporating various advertising activities, ranging from in-store displays to online visibility, aiming to increase demand and sales at the Point of Sales (POS) by starting earlier in the funnel. To cope with the lack of visibility of ROI in the upper funnel, brands were sold access to readers or watchers profiled according to an ideal target, a profiling made possible thanks to the navigation history knowledge acquired about said readers or watchers via tracking (cookies). However, the market has become much harder to navigate, as costs of advertising online have been on the rise for the past few years, and third-party cookies are disappearing in the wake of a stronger concern about personal data. There is no real exit door: when it comes to traditional media formats, the scope of these activities is finite, limited by their available space and frequency.

This is why retail media networks (RMNs) represent a new paradigm, offering individualized advertising opportunities to brands within the retailer’s ecosystem, utilizing first-party customer data. RMNs can be defined as a collection of advertising and promotional tools owned by a retailer, utilizing first-party data to target shoppers and prospects effectively. They offer a significant opportunity for revenue generation without cannibalizing traditional trade marketing activities.

This approach emerged in response to the need for more measurable and efficient advertising models and the opportunities presented by digital acceleration during the Covid-19 pandemic. Retailers, in digitizing their operations, realized the potential to monetize their customer data, thereby providing brands with improved ROI on their marketing investments. RMNs aim to not just rebrand traditional trade marketing but to leverage closed-loop knowledge of customers for measurable KPIs.

RMNs are rapidly growing, with the US market alone expected to reach $61.15 billion by 2024. This growth indicates a significant shift in digital ad spending towards retail media, which in turn translates to opportunities for retailers.

Retail media encompasses many different realities today

The growth in advertiser investments in RMNs is driven by an increase in RMN options and new market entrants. Marketing experts categorize marketing tactics into three groups: traditional analog media, onsite digital media, and offsite digital media:

• Traditional analog media includes long-standing retail advertising methods in physical stores.
• Onsite digital media represents the first phase of retail media (Retail Media 1.0), where retailers use their digital platforms (like websites and mobile apps) to monetize customer traffic through onsite advertising.
• Offsite digital media (dubbed “Retail Media 2.0” by some analysts) involves leveraging retailer-collected first-party data to target audiences outside of the retailer's own digital and physical venues (for example: selling advertising space to travel agencies on a retailer luggage e-commerce website or store section).

Onsite Retail Media offers retailers greater control over first-party customer data and targets customers effectively. However, it faces limitations like restricted media inventory and the quality of search interfaces on retailer platforms.

Offsite Retail Media allows retailers to advertise beyond their properties, significantly expanding their reach. This approach offers benefits like efficiency in advertising, omnichannel sales attribution, and transforming physical stores into digital platforms. However, challenges remain, such as the difficulty in targeting the right audience and gathering accurate metrics from third-party platforms.

A significant portion of US advertisers uses multiple RMNs, indicating a trend towards diversifying advertising strategies. However, the decision to use RMNs remains often reactive, driven by current market conditions and the need to drive product sales, rather than strategic brand building.

Why retail media represents an actual opportunity for a great variety of retailers?

Retail Media Networks (RMNs) provide a significant advantage to retailers, focusing on their ability to monetize proprietary shopper data, the resurgence of physical stores in advertising strategies, and the opportunities presented by non-endemic advertising.

Retailers like Kroger utilize their loyalty and POS transaction data to create targeted advertising and measurement tools. This allows for precise campaign planning, personalization, and post-campaign tracking, offering advertisers detailed insights into customer segments and sales uplift. RMNs have shifted the narrative from trade marketing being a "bottom-of-the-funnel" medium to a strategic "top-of-the-funnel" medium, attracting larger marketing budgets and making physical stores valuable again. They provide incremental revenue, which is particularly appealing in the context of shrinking margins in brick-and-mortar and e-commerce channels.

The context matters: despite the growth of e-commerce, 85% of retail sales in the U.S. still occur in physical stores. RMNs enable brands to target customers throughout their entire shopping journey, including in-store interactions. This has led to a renewed interest in physical stores as strategic assets for advertising. Retailers are finding innovative ways to incorporate advertising into the in-store experience, such as digital screens and in-store radio stations. The integration of these technologies transforms stores from mere points of sale to influential advertising platforms.

Also, RMNs provide a valuable channel for non-endemic advertisers (brands that don’t sell directly through the retailer but offer complementary products or services). Retailers' access to first-party data allows these advertisers to target customers with precision and relevance. This is beneficial for retailers as non-endemic brands often have larger media budgets, enhancing RMN revenues without risking cannibalization of existing sales. It also offers single-brand retailers an opportunity to expand their customer experiences. Retailers like Gap Inc. and Macy’s have experimented with targeting both endemic and non-endemic advertisers, although resulting in varying strategies and outcomes.

A tentative panorama of RMNs across the board, beyond FMCGs

Initially, FMCG (fast moving consumer goods) retailers played a central role in the development of RMNs. Facing slow growth and advertising challenges, FMCG retailers saw RMNs as a solution to improve return on advertising spend (ROAS) and forge stronger relationships with brands. The pandemic accelerated online grocery buying, further emphasizing the need for effective digital advertising. Amazon's success in retail media, especially with high margins, set a precedent for other FMCG retailers.

However, RMNs are no longer exclusive to FMCG retailers. Specialty retailers and other retail verticals are also developing their own RMNs to capture a portion of the advertising market. The diversity of RMNs across different retail sectors demonstrates their broad applicability and potential. The landscape of RMNs is dynamic and geographically diverse, with a significant number of players in the US and competitive markets like France.

France, in particular, has seen substantial growth in RMN investment, with a variety of players and tech suppliers entering the space. The formation of alliances and collaborations is more typical in Europe than in the US. These alliances bring together various retailers to pool data and technology resources, such as Unlimitail, which gathers 13 European retailers from various verticals. While this type of alliance should provide its participants a local competitive advantage, and fit in our views of retailers uniting to be stronger together, it should also be seen as a reaction to the lack of scale that US retailers have.

What are the limitations in RMNs that retailers need to be aware of?

First of all, the RMN market is becoming crowded, leading to a potential Darwinian consolidation. Brands are overwhelmed by the plethora of RMNs, leading to the implementation of new selection KPIs, like minimum monthly visitors, which could create a disadvantage for smaller retailers. Despite the success of smaller players like Albertson's, Kroger, and Ahold Delhaize, the largest players dominate the market (Amazon, Walmart). Moreover, the market might face a limit on the number of interested advertisers, potentially capping additional revenue opportunities.

Also, the rise of RMNs has introduced complexity in retailers' relationships with brands:

• Retailers hastily building RMN platforms have led to inconsistencies and data gaps, complicating decision-making for brands. For retailers, RMNs have shifted their role from solely product suppliers to shared responsibility for driving brand demand. This shift demands new competencies and strategies, potentially leading to internal organizational challenges and a need to recalibrate the relationship with brands. Retailers venturing into RMNs faced organizational stress tests, including integrating new competencies and managing cultural shifts.
• Brands heavily rely on RMNs for first-party data as a response to the demise of third-party cookies. However, there is frustration regarding the quality and consistency of data across different RMNs. The disparity in data quality across platforms is a significant concern for brands looking to optimize their investments.

For RMNs to be sustainable, they need to be perceived as strategic brand-building investments, not just tactical sales activation tools. However, many brands currently view RMNs primarily as drivers of sales conversion, indicating that RMNs are not as high in the marketing funnel as desired. This perception could hinder the long-term growth and brand equity building potential of RMNs.

Finally, there is a risk of consumer annoyance due to excessive advertising through RMNs, potentially leading to a negative impact on consumers’ enthusiasm for brands. Retailers and brands must be cautious in their approach to advertising to maintain customer satisfaction and trust.

Moving forward: what does it take to become a media company?

The evolution of RMNs is marked by a shift from onsite to offsite spending. Smaller RMNs tend to focus more on offsite spending, selling data to target customers outside their digital properties. This shift is driven by the potential for higher conversion rates and order values through combined onsite/offsite advertising packages. Retail media is reliant on the value of retailers' first-party data and their ability to collect data across all customer contact points, including physical stores.

Department stores have the potential to offer unique advertising possibilities by leveraging their online and offline footfall. The digitization of stores and the capability to sell first-party information allow for innovative onsite media propositions. This is particularly relevant for department stores due to their significant online and offline traffic.

In particular, physical stores, especially flagship stores, are seen as major untapped channels for advertising. They offer detailed geo-localized data that can inform brands about shopper behaviour in specific areas. This granularity of data is key for advertisers to optimize their marketing and product strategies. Retail media networks enable brands to reach customers close to the point of purchase, making physical stores an integral part of advertising strategies. In that perspective, retailers can use foot traffic data to create hyper-local segmentations and improve advertising efficiency in local markets.

But to successfully transition into a new mass media, retailers need to differentiate their RMN products, address organizational challenges, form strategic partnerships, and make informed technology choices. The landscape is becoming more complex with the emergence of various digital marketing platforms, in-store advertising companies, marketing personalization platforms, retail analytics, experiential technologies, and retail media accelerators.

Conclusion: are RMNs nice to haves, or imperative moves?

Not only do RMNs encapsulate a strong transformative impact and potential, but also complexities and challenges in achieving it.

RMNs mark a paradigm shift in retail advertising, offering precise, data-driven advertising opportunities both inside and outside retailers' own media channels. With projections indicating that RMNs could become a $100+ billion market by 2028, major retailers across various categories are launching their own networks to tap into the burgeoning demand for targeted and measurable advertising.

For them, RMNs present an opportunity to generate new, high-margin revenue streams that can compete with established advertising channels. The integration of brick-and-mortar stores into omnichannel RMN strategies, utilizing location intelligence and digital targeting, further expands the scope and efficacy of these networks.

However, the journey towards fully leveraging RMNs is not without hurdles. Issues such as data transparency, measurement inconsistencies, questions around brand-building value, and organizational preparedness are significant considerations. Overeagerness in RMN adoption without adequate strategy could risk customer trust and devalue retail assets.

To effectively harness the potential of RMNs, retailers need to concentrate on several critical areas:

• Differentiation: Retailers must create a unique RMN proposition, focusing on niche audiences and ensuring data transparency to stand out in an increasingly crowded market.
• Organizational readiness: Implementing RMNs demands robust cross-functional collaboration and new competencies like ad sales and campaign management. This may necessitate structural adjustments within the organization.
• Coordination and standards: The establishment of shared standards for ad formats, metrics, and disclosures is crucial to address current inconsistencies and break down 'walled garden' silos.
• Tech investment: Significant investment in modern ad tech stacks, data clean rooms, edge computing, and in-store technological enhancements are pivotal for executing effective omnichannel RMN strategies.
• Collaboration and exchange: The role of international groups and associations, such as the International Association of Department Stores, in facilitating collaboration and exchange among retailers is vital. Collective action and peer learning can significantly benefit retailers in navigating the RMN landscape more effectively than going it alone.

As RMNs continue to evolve, they hold the potential to redefine marketing dynamics and reshape brand engagement. However, the extent to which this promise is realized depends on retailers' and brands' commitment to carefully navigating the RMN space, investing strategically, and adapting to emerging challenges and opportunities.

Credits: IADS (Selvane Mohandas du Ménil)