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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.

Printable version of exclusive here

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)

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Introducing the NRF Big Show

The 2024 edition of the NRF Big Show took place on 14 – 17 January. The four-day event was fully back on track, with more than 40,000 attendees and several exhibitors surpassing last year’s attendance (1,100), which was already a record. Overall, the event felt overwhelming, not so much due to the number of exhibitors and the energy in the fair section, but through the lines at the entrances of the conference rooms, which were often crowded and had to turn down people. Excitement was palpable, and the international crowd, as well as brands (and not only vendors), were back. The message was that the event was back to its pre-pandemic heights.

The overall mood of the show was buoyed by the positive end-of-the-year outlook: on average, the Q4 2023 reports grew +3% on average for US retailers. While it is generally admitted that the US economy will not go into recession, as spending levels remain stable, it was initially feared that it might crash. Combined with the slowing of US inflation, this gave a sense of optimism that drove many conversations with the intention to invest.

AI was of course the major topic across the room, both in the fair and on stage (last year’s star theme, retail media, was big on stage but few exhibitors were proposing solutions linked to it), but not only, with a mix of US-specific concerns and international issues:

US specific:

• The resilience of customers and a disconnection between their attitude (as every poll mentions that they are afraid of the future) and their actions (spending remains high),
• The level of shrinkage due to organised retail crime, a topic addressed by John Furner, the CEO of Walmart, in the kick-off conference. It was notable during store visits at CVS or Walmart that hygiene and everyday items were often sold behind plexiglass protection, making it necessary to call a salesperson to buy deodorant.

International topics:

• The capabilities to build additional revenue through retail media were often quoted by several international retailers, showing that, while the US still leads the race, retail media networks are expanding.
• New models were often also quoted, including resale (even though questions remain about the profit potential of the business model), as well as the fact that experience (restaurants, travel) is booming at the expense of discretionary spending.

There was a sense of satisfaction from many players to see how resilient retail has been, and how it has managed to engage transformation. Marc Metrick, the CEO of Saks, for instance, explained that the bet of separating stores from dot.com businesses paid off, as online is the true centre of gravity. Such a positive view was also notably echoed by the CEO of Tractor Supply, an operator of retail farm and ranch stores across the US, which topped $1 billion in e-commerce sales and started using AI for marketing copy, replenishment and customer service (including an AI-powered bot).

Aside from AI (which we will report separately later on), general conversations were all about adapting product offers to customers’ tastes, and how to do that in a productive but speedy way, making meaningful partnerships and making sure they add some value for the final customer, and, finally, the recognition that price is not everything and experience should be redesigned to make stores interesting again (this is reflected by the selection of 3 interesting stores available in this report). We believe that when it comes to tech, the most interesting quote came from Thierry Cotillard, CEO Les Mousquetaires (Intermarché): “In 2024, we will ask our tech partners to commit on the ROI promises they make. It might go as far as to start paying them when the expected ROI starts to be delivered.”

Monetizing personalization through retail media

The exchange started with a review of retail media now that the practice is well implemented in the industry. The concept can be assimilated to content-driven commerce, significantly influenced by customer behaviour shifts, particularly since the pandemic. In markets like China, consumer journeys increasingly begin with media-led interest, incorporating content creation within retail spaces. This trend reflects a growing convergence of retail, media, and entertainment sectors, which is becoming increasingly visible. It is proven now that retail media strategies can enhance traffic and sales, and ultimately augment customer lifetime value.

Retailers need to keep in mind that achieving this requires the injection of new competencies within their organizations. The question that looms is to understand what and who will drive, lead and influence the customer journey.

As a leading food grocery organization, GPA (the largest food retailer in Brazil) has integrated retail media through its extensive loyalty programme and robust online presence. They have adopted a two-pronged approach:

• Customer Focus: Utilizing their comprehensive loyalty programme data gathered both online and offline for personalized customer engagement.
• Data Utilization: They realized that they needed to clean and qualify their data better, which is why they relaunched their programme to include tiered segmentation, enabling more targeted communication and monetization opportunities through their app (the top-tier customers have a tenfold longer lifetime value than entry customers).

This approach allowed them to become a real bridge between brands and consumers, making sure that they push the right product at the right moment to the right customer. Incidentally, this has opened a significant avenue of income on the way.

Now Brazil and Latin America's largest marketplace, Mercado Libre started with e-commerce, and then expanded in logistics and fintech, before embracing retail media with Mercado Ads. It has already become a significant business: in Brazil, 70% of the ad spend is digital and 25% goes to retail media. Their leading position is facilitated by the fact that in the country, 7 out of 8 customers looking for a product start their search on Mercado Libre. In addition, 80% of the searches are unbranded, as they are searching for a product type. As a consequence, this has opened a huge opportunity for Mercado Libre to sell visibility to brands.

When asked about the complexity induced by the fact that retailers need to become content producers now that they have the data on the target customer and the tools needed to reach them, both GPA and Mercado Libre acknowledged that this is a challenge. Retailers are not content creators by definition. GPA focuses on generating interest through engaging app content and non-sales-oriented live streaming. Mercado Libre notes that in Brazil, and more generally in the West, it is unlikely that super-apps such as the ones found in China could emerge, however, it is more probable that different platforms might combine themselves to serve the customer differently. This is why Mercado Libre partners with content companies (Disney, Paramount, HBO…) and encourages customer interactions.

When asked about the tools used to monetize their data, and what other retailers need to know, GPA emphasized the need for technical infrastructure, full leadership commitment, and recruiting individuals with growth potential (retail media being relatively new, the perfect candidates do not exist, and for this reason, leaders must identify individuals with a vision and potential). GPA also stresses the importance of diverse support systems (like in-app and in-store media) and considers for the future sophisticated data utilization for more nuanced recommendations (for instance, instead of recommending meat, beer and charcoal to a customer purchasing a barbecue, suggesting a coffee machine based on individual preferences).They also note that retail media, in their case, has also contributed to increasing instore traffic, by increasing online orders with in-store pick-ups to a rate of 50% (this suggests also that special attention needs to be given to the instore pickup point in store and the process). Mercado Libre, on its side, highlights the necessity of a dedicated ads unit with its own resources and infrastructure, real-time data access, and collaboration with brands and agencies for both performance and awareness campaigns.

Key Takeaways:

• Understanding the customer through quality data is crucial for long-term success in retail media.
• Developing new capabilities related to content management, media, and redefining brand partnerships is essential.
• Retail media presents a significant opportunity, but it requires a blend of technological prowess and innovative marketing strategies.

The great transition: redefining retail and modern commerce

The retail landscape is witnessing a significant transformation. SSENSE, a fusion of fashion and creativity bolstered by technology, epitomizes this change. They build their e-commerce components in-house, and aim to embody a blend of fashion with tech. Furniture retailer Wayfair, initially an online-only DTC entity, expanded into the physical realm with its first store in Boston in 2022 (they now operate 5 stores and a new flagship is planned to open on 15,000 sqm). This move signifies a strategic shift from a series of microsites at the inception of the company in 2011, to a more integrated retail approach now that the turnover is reaching $12 billion.

The conversation started by redefining the terms, as the concept of unified commerce has overtaken the traditional omnichannel approach. It's about harmonizing the customer experience from end-to-end. Wayfair, for instance, strives to ensure customer enjoyment across all platforms, including its app, website, and physical stores. This unification is key to meeting evolving consumer expectations while giving them enough options and leeway to make decisions when it comes to furniture.

When asked about what changed in the past few years, both companies were very clear about what had been at stake:

• SSENSE decided to focus on customer understanding and focus its tech approach to that focus. For that reason, they decentralized the data production at the team level: each tech team is also a data team (for instance, the payment team owns the payment data). This allowed the granting of real-time data access to every stakeholder in the company and an infusion of a deep sense of understanding the customer.
• At Wayfair, since Covid-19 was a significant shift in terms of customer journeys in the furniture space, which nowadays start more often online, it was all about interconnecting each interface (stores, app, website) to reach the customers where they are and when they want.

For both, customer acquisition also goes with frictionless checkout. SSENSE's focus on performance and speed led them to develop a single-page checkout that aggregates and pre-fills customer preferences. This innovation allows them to process up to 2,000 orders per minute, while reducing checkout time by 70%. In a similar manner, Wayfair knows that when customers are ready to place an order, it often comes at the end of a long consideration journey. For that reason, when they are ready, they are offered an easy, auto-populated and trusted checkout process, complete with financing options. This process is available in each and every channel (store, app, website) and can be completed in each of them.

A significant challenge comes with the need to combat fraud, while at the same time not discriminating against loyal customers having their cards rejected for whatever reason. SSENSE has adopted dynamic payment routing to select the best payment provider in real time, aiming to enhance customer experience and minimize frustrations like card declines (this incidentally also grew the business by +5%). Wayfair reports a rise in organized fraud, necessitating continuous vigilance and adaptive strategies. They are currently exploring instant payments, and are also looking at simplifying checkout process.

When it comes to customer retention, Wayfair considers that their selection is their main asset (do they have interesting products at the right price?), and then they complete this with AI-based product filters and styling services, financing options, easy returns, and loyalty perks. SSENSE just launched its loyalty programme, but bases its retention on being a cultural player: customers are part of a community. This is illustrated by the fact that their website landing page is editorial content-only, not products. They then leverage their customers’ tastes and cultural points of interest with the help of AI to propose hyperpersonalized options.

Key Takeaways:

• Technology integration and customer focus: SSENSE and Wayfair are integrating technology deeply into their operations to enhance customer understanding and experience, shifting towards a unified commerce approach.
• Streamlined checkout processes: Both companies have developed efficient checkout systems, with SSENSE offering a single-page, fast process and Wayfair providing an easy, multi-channel checkout experience.
• Fraud prevention and customer retention: They are actively combating fraud while maintaining customer trust. SSENSE uses dynamic payment routing, and Wayfair is exploring new methods. For retention, Wayfair focuses on product variety and services, while SSENSE builds a cultural community around its brand.

Uncorking luxury retail experiences: a conversation with Philippe Schaus (CEO, Moët Henessy)

According to Philippe Schaus, Moët Hennessy, the years 2021 and 2022 showed varying trends in the US and Asia. While the US experienced a period of post-pandemic normalization after the immediate YOLO effect, Asia witnessed exuberant sales. These differences influenced stock allocation at Moët Hennessy, with resource reallocation taking place in response and sometimes making harsh choices, for instance by diminishing available stores in the US to the profit of Asian countries.

Inflation was a hotly discussed topic:

• Schaus acknowledged the lack of inflation experience within his team. However, he believes it is possible to do a thriving business even in inflationary times, provided people are ready to learn. He cited an example of doing business in Argentina, where inflation can reach three figures, emphasizing the need for constant pricing adaptation.
• To adapt to this context at the global level,  Moët Hennessy established a revenue growth management team two years ago to simulate the impact of price changes on customer demand. This team helps adjust pricing based on evolving costs and predicts demand fluctuations
• A critical point in luxury business, consideration for customer elasticity in response to price changes, is crucial. Overpricing can lead to reduced demand, necessitating careful review and product improvement.  Moët Hennessy invested in retail to transfer their product improvements to customers, through efforts on production (greener sourcing) but also experience on the point of sales.

Moët Hennessy aims to transform the way alcohol is sold by integrating luxury retail into their boutiques, focusing on conveying history and quality through presentation. They've placed Hennessy bars in prestigious locations like Harrods and KaDeWe. In short, they want to bypass liquor stores.

Chandon has elevated its brand by offering a unique experience encompassing nature, craftsmanship, and food, creating a club-like atmosphere distinct from traditional liquor stores. This approach allows for communication of craftsmanship and justifies higher prices.

When asked if he believed that Americans were prepared to pay higher prices for this experience, Schaus answered that he believes that consumers are willing to pay more for better quality and a guarantee of enjoyment (even though he does not forecast a price increase in 2024 as steep as the one that took place in 2023).

The conversation ended with his views for this new year:

• He is optimistic about the demand in the US and South-East Asia, as well as in travel retail. This will be helped by the fact that supply and inventory levels have balanced out since the initial post-COVID demand surge.
• He has noted a shift from nightlife to restaurant experiences which also explains why  Moët -Hennessy increasingly invests in local wines & spirits to become a global alcohol hub.
• Social media is key for wines & spirits, even though this could be seen as very counter-intuitive. Collaboration with artists and celebrities, such as Jay-Z and Alicia Keys, helps infuse energy and a fashion element into their social media presence, and, as a consequence, make sure they constantly have ways to interact with customers.
• His main source of concern is the geopolitical situation and the potential consequences on sea transport (100% of the LVMH wines & spirit transportation method).

Key takeaways:

• Inflation response: Moët Hennessy established a revenue management team to adapt pricing strategies in light of inflation, focusing on managing price changes and customer price sensitivity.
• Retail experience transformation: The company is moving towards luxury retail experiences, like Hennessy bars in upscale locations and Chandon's unique atmosphere, to enhance value perception and justify premium pricing.
• Future trends and optimism: Despite logistical concerns, Moët Hennessy is optimistic about growing demand in key markets and is capitalizing on social media and celebrity collaborations to enhance brand engagement.

The golden age of retail media networks: how physical retail is unlocking RMN’s full potential

In 2023, retail media revenue reached the same amount as TV in the US, and is expected to double it in the next two years. Lipsman quoted Jeff Bezos “when we win a Golden Globe, we sell more shoes” to explain that, in his views, Amazon is the model that many retailers will follow in blending content and media in their retail models in order to sell more ads. This is something that Walmart already does, with much financial success.

Offsite retail media is significantly growing, with a projected 37% Compound Annual Growth Rate (CAGR) over the next seven years. This growth can be attributed to the many strategic partnerships retailers are inking with various media companies, aimed at content creation and generation.

The fact that in-store attribution is now possible also makes in-store media extremely appealing to brands: measurements make markets. Instore retail media now brings to advertisers what TV does not do anymore: scale, brand safety and customer targeting.

Walmart shared insights about their Walmart Connect initiative. Over the past 18 months, they have been revamping their display business andemphasizing programmatic advertising, self-service options, and API-driven solutions. A notable addition is programmatic display capabilities, as well as in-store app products designed to facilitate connections between brands and in-store experiences.

Walgreens, with its vast network of 9,000 stores, found its niche in the retail media landscape. Taking inspiration from Walmart, they highlighted their unique strengths in the offsite landscape. Walmart's shopping app, which also serves as a marketplace, has been instrumental in their journey. Advertising within the app plays a pivotal role in driving search and discovery, with media partnerships rapidly growing. Transformation is then made at the counter. They emphasized the integration of retail media as an additional means to engage with customers, rather than treating it as a separate channel.

Regarding attribution, Walmart has been providing online and in-store attribution for the past four years. They also offer insights into sales lift for display advertising, allowing advertisers to measure the impact of their ads on purchasing behavior. Search advertising at Walmart focuses on direct sales attribution, providing comprehensive insights into impressions and sales, even at the product group level.

Key Takeaways:

• Offsite retail media growth: The sector is projected to grow at a 37% CAGR over the next seven years, driven by collaborations between retailers and media companies.
• In-store media developments: Retailers like Walmart and Walgreens are enhancing in-store media, offering targeted advertising and customer engagement through programmatic solutions and in-app features.
• Enhanced Attribution Analytics: Retailers are providing detailed insights into the impact of advertising on sales, both online and in-store, allowing for more precise measurement of ad effectiveness.

Interesting stores:

Note: we will add the locations below to the New York City Guide.

Wegmans, 770 Broadway

Petco, Union Square

Crate & Barrel, 881 Broadway

Credits: IADS (Selvane Mohandas du Ménil)

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Explore the pictures here

Every Baby Boomer knows the building thanks to the internationally famous cover of the Pink Floyd album, Animals. However, there are now high chances that every Gen Z and Gen Alpha also discover this iconic location, but for entirely different reasons.

Built between the ‘30s and ’50s, Battersea Power Station, located in South West London, once supplied a fifth of London’s electricity. It was decommissioned in 1983 and remained dormant for years. Finally, in 2012, the building was sold for £1.9 billion. A £5 billion investment arrived from Malaysia to start redevelopment plans (it is said to have reached £9 billion in the end). The list of investors included PNB (one of the largest banks in India), Sime Darby Property, SP Setia (both Malaysian real estate companies), and Malaysia’s Employees’ Provident Fund.

As is often the case in such commercial development, investors had to contribute to more than the mall itself and had to fund a part of the subway station, the residential scheme surrounding the shopping centre and the ‘Electric Boulevard’ construction (one of the nearby streets). Redevelopment officially began in 2014 to open on 14 October 2022 with half of the commercial units having tenants (Covid delayed the opening from 2020 to 2022).

Following the 2023 IADS General Assembly held in London in November 2023, the IADS team had a chance to visit the premises. Now that the mixed-use project is almost completed and all units have tenants, is Battersea Power Station just another shopping centre or is there more to it? Most importantly, is it viable in the long term? What can department stores learn from this one-of-a-kind venture?

What is Battersea Power Station anyway?

First of all, it’s big. This is the most expensive property deal ever done in the UK, and its dimensions are, even by any continental European standards, unprecedented. Also, it’s way more than a shopping centre as the overall project encompasses:

• A 4-storey shopping centre with a retail space accounting for 289,283 sq. ft., 100 shops including 2 car dealerships and a fine art gallery.
• Grocery with a Marks & Spencer supermarket, a gourmet store and several bakeries.
• Pop-up stores: at the time of the visit Peloton bikes, The Alkemistry jewellery and Creed fragrances had pop-up locations.
• Hospitality with around 40 cafes, bars and restaurants from burger to occasion (including a Gordon Ramsay restaurant and pet-friendly places).
• Entertainment with a 9-hole golf course, virtual reality experience, a theatre, 2 movie theatres, a ping-pong salon, a permanent exhibition space and a lift to go to the top of one chimney to benefit from a 360° view of London (£15.90 for an adult).
• Expensive housing (a 3-bedroom penthouse apartment was sold for £ 6 million). The residential spaces built around are by Frank Gehry and Fosters + Partners, and this comes at a price. Some say the area is the new Chelsea, and Tatler Magazine dubbed it the new Belgravia (considered the richest area in London).
• Services with an optician and a hairdresser.
• Wellness with 3 sports options: cycling, boot camp and a 24,000 sq. ft fitness studio (to open in 2024).
• A hotel designed by famous Spanish designer Jaime Hayon with a rooftop pool (approx. £500 per room).
• A working space offering coworking, ready-to-use flex-office options (open 24/7) and a convention centre.
• A dedicated well-connected subway station.
• Nature with Battersea Park close by.
• An underground car park with 300 spaces.
• Office spaces which include Apple UK HQ relocated to the top level of Battersea Power Station, the US Embassy relocated to the area and 200,000 sq. ft of office space (to be completed end of 2023).

The brutalist building itself is worth the visit. Overall, the quality of refurbishment is state-of-the-art and the level of execution of the whole concept is excellent. The architectural features are understated to emphasize the historic architecture. The remaining pieces of power production are beautifully restored and magnified. Every store has the same illuminated rectangular sign outside with the retailer’s logo in black, so they are easily identifiable to visitors. The design gives consistency and elegance to the brands’ signages. The shopping centre surroundings offer cute, paved alleys with free-standing stores (such as Zara for instance) and beautiful contemporary architecture.

What are the results so far?

What about traffic? According to Forbes, 11 million visitors came to Battersea Power Station in the first year. New residential space and the companies relocating to the area should help provide regular returning customers. But a year after the opening, with such expensive prices, apartments are far from sold out even though more workers should flock to the neighbourhood thanks to the office spaces opening at the end of 2023. All the amenities have been designed to transform the whole location into a destination that attracts tourists and one-time visitors.

The mall itself intends to cater to all kinds of people, needs, cravings and wallets with a rather unusual brand mix. One can find high-street brands such as a 48,000 sq. ft Zara store, Mango and Uniqlo units, but entry-price retailers such as Primark and H&M are nowhere to be seen. Most of the stores are premium such as Lacoste, Theory, Gant and Ralph Lauren. Upscale watches are part of the mix with IWC Schaffhausen, Breitling, Hublot, Rolex at Watches of Switzerland, Tag Heuer and Omega, as well as a Cartier store. The first impression (and lasting) is that the mall is more high-end than the usual mix of high street retailers that can normally be found in shopping centres. In that regard, retailers such as Primark and H&M and restaurants such as McDonald's are missing to truly cater to all. It was probably done according to the developers' plan so that there is not too big of a gap between entry-price retailers and Cartier.

With post-Covid tourism resuming, the mall has benefitted from American and Middle Eastern tourists since its opening. Battersea Power Station also bets on Chinese travellers as the number of upscale watch brand options clearly shows. But what about their spending power at a time when the Chinese economy is challenged and the British government discontinued tax-free shopping? So far, the ones visiting London are spending way less than before the pandemic: according to the New West End Company (representing stores and hotels in the area), in September 2023, Chinese visitor numbers were just 2% below 2019 levels, but their spending was down 58%. It’s unclear if those tourists have been taking a subway trip to the neighbourhood.

At a normal pace, the area should cater to a balanced mix of local, newly located and tourist shoppers. But will locals shop there, especially with inflation hitting hard the British economy? So far, only 20% of the first year’s traffic came from South West London. Also, at the time of the visit (on a weekday afternoon), traffic was extremely slow, and tourists were nowhere to be seen.

What can department stores learn?

Battersea Power Station did not open without questions over the viability of what is ultimately another enclosed mall. The project developers certainly played by the retail trends playbook: a mix of shopping, hospitality and experience, pushing the mixed-use trend to its farthest.

In some ways, Battersea Power Station can be considered inspired by some department store for all (also as the brand mix ranges from mid-range to luxury). It’s something that many operators want to be, but few truly manage. But what works for department stores doesn’t necessarily work for malls: customers are used to seeing luxury beauty and accessory brands on many department store ground floors, they might be afraid of the luxury watch stores and their security guards who are the first ones visitors see when arriving from the Battersea Power Station subway station. A Chanel beauty corner on a department ground floor can be appealing to all customers, but a security guard in front of a Rolex store is a different story.

When it comes to store concepts, some retailers are at their best. Nike opened a community store that can transform into a place to exercise with activities twice a week, yoga sessions and various sports activities. The Body Shop opened a store entirely made of recycled materials favouring loose goods.  A unique place, a unique shop: Zara opened its biggest British unit with a very high-end ‘look & feel’ and many digital options such as fitting room e-reservation, self-checkout and online pickup. It is truly reminiscent of a department store, with true corners to highlight certain ranges (sports, lingerie, home, etc). In that regard, Zara is a retailer to monitor; they are playing the department store concept by the book, they multiply interesting collaborations and, more importantly, venture into more categories (home, cosmetics, fragrances, and recently hair care).

Conclusion: Time will tell

The redevelopment of Battersea Power Station is a significant project in London with economic and social impact, creating jobs, housing, and business opportunities. The moving of Apple UK and the US embassy in the premises (or close) shows the effort put in to ensure the right mix between working, living, shopping and entertainment (which could be the definition of what a neighbourhood should be).

The brand mix remains a key question. Will wealthy local consumers and tourists cross the river to come and buy an expensive watch there rather than enjoy a shopping experience in a flagship store in the city centre where shopping options are endless? Will average Londoners enjoy visiting the shopping centre knowing there might be very few shopping options for them? Only time will tell.

Credits: IADS (Christine Montard)

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*What: IADS recently held a meeting gathering CIOs/CTOs where they shared challenges and strategies in 2023. Also, IADS partner, RetailHub was part of the meeting and invited three innovative companies to share their mission and vision.

Why it is important: The presentations highlighted the possibilities offered by AI-powered and Cloud-based solutions, from reducing return rates and cutting costs related to fit and sizing problems to real-time in-store retail media and search engine optimisation.*

3D Look: Bespoke try-on platform at your fingertips

Winner of the LVMH Innovation Award in 2019, 3DLook delivers an AI- and 3D-powered body measuring technology for better fit experiences.

3D Look helps brands and retailers increase revenue and cut costs related to product return, fit and sizing problems. The company’s patented technology allows users to upload photos of themselves as well as measurements so that the computer can create a 3D body avatar with over 80 points of measurement in under 30 seconds. The platform also enables consumers to make informed purchasing decisions by offering size recommendations and a virtual try-on process.

By simplifying sizing, the tool also simplifies sizing when customers are in-store as they can scan at home and then buy in-store. At a time when personalisation is critical for customer engagement and loyalty, knowing customers' body shape and measurements is key. For salespeople, it is also less time guessing size and more time focused on sales and customer service. Additional services are included: appointment scheduling, sending scanning links to customers at home to create a more sales-centric in-store fitting experience and body scanning for store associates' uniforms.

Results announced by the company are interesting: 80% of online shoppers using it choose the recommended size. 45% of shoppers who did not order a size recommended by 3D Look requested an exchange based on the initial 3D Look recommendation.

Why do we think this is important?

A simple tool that can greatly reduce or even eliminate costs related to fit and sizing will be able to transform the relationship with customers. Retailers and brands could also see a rise in revenue through the platform’s styling recommendations as well as the building of customer trust and satisfaction.

Learn more about 3D Look here

Advertima: Real-time in-store retail media solution

Advertima’s solution upgrades and enhances in-store retail media signage which gives an advantage to the advertiser and the retailer and creates a more relevant advertising platform for shoppers. They intend to play a big role in the Retail Media revolution with their real-time performance measurements./nbsp]

The company utilises Computer Vision and AI technology to transform physical stores into a performance media channel. Customers can be segmented instantly in-store and their movements will be tracked which will feed the funnel metrics of the shop and compute predictive reaches and segments. Relevant images are displayed according to the consumer’s identified interests. Advertima offers pilots of their solution in order for the solution to be tested. The system is able to comply with privacy regulations.

Why do we think this is important?

Retail Media is quickly gaining momentum in the industry as a prime form of advertising to consumers and is playing a critical role in the success of retail businesses. But so far, retail media solutions are mostly implemented online. By bringing the success factors of online channels to in-store, Advertima offers a solution to advertise in-store in a personalised way. Advertima’s live customer segmentation and instant performance metrics can give retailers an edge in the competitive business of audience targeting.

Learn more about Advertima here 

RetailTune: The drive-to-store platform solution

RetailTune is a Cloud SaaS platform which gathers all the tools needed for a local digital marketing strategy. The platform helps brands boost their visibility and catch users’ purchase intentions. It’s a well-known fact that users act very fast after conducting local searches, transforming to online and in-store traffic. According to Google, 76% of users who click on “get directions” on their smartphones visit the store within 24 hours. Besides, 28% of local searches translate into purchases. RetailTune aims to drive the pages of its clients to be on the first page of the Google search.  The company uses dynamic store locators and refines the GBP (Google Business Profile) of its clients to represent accurate data. During the consumer’s search phase, RetailTune makes sure the user has all the information to reach the store such as addresses, opening hours, services, promotions, photos, reviews and product availability.

Actual shopping centre case studies showed the following results: doubled views of the store locator, more than YoY doubled direct access to the store locator, individual landing pages of the tenants rank in the first positions on the first page of Google Search, store locator of the shopping centre ranks first in proximity searches on Google, +20% YoY increase in GBP  listing views and +42% increase in calls from GBP listing.

RetailTune works with many brands such as Gap, Pinko, Kiko, Liu.Jo and department stores such as OVS and Coin.

Why do we think this is important?

Search engine optimisation has become an absolute necessity for all companies as it helps to improve online visibility which leads to store traffic, more sales, and improved brand awareness. Effective search engine optimisation strategies enhance the overall customer journey, increase incremental sales and contribute to long-term success.

learn more about retailtune here 

RetailHub: IADS members’ one-stop innovation shop

Following the meeting roundup, these 3 solutions were in line with what CIO and CTOs were dealing with. Department stores’ CIOs and CTOs face an increased complexity whether it’s about choosing and setting the best platforms, systems and solutions able to increase efficiency and enhance customer experience. Innovation is really at stake as companies need to improve their organisation to generate more ideas able to make a difference. This is why the IADS has struck partnerships with solutions, such as RetailHub, that can help members find the right technology and solutions for their business needs. IADS members benefit by gaining access to RetailHub’s ecosystem of carefully curated solutions and getting connected with experts who can help them bring on the right technologies. Want to learn more about our partnership exclusively for IADS members? Contact us at iads@iads.org to get your free access.

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*Disruption has been a very fashionable word in the past years as a general way to call for transformation in many markets where digitalization has changed the rules of engagement. Retail has not been spared of course by the rise of e-commerce, and for the past decade, retail CEOs have scratched their heads on how to adapt their analogue and legacy organisations to the new world. Going beyond the fact that everybody in the industry acknowledges that changes are needed, how can these be carried out effectively?

Back in September 2020, Dr Christopher Knee tackled the topic in his article “Responding to Disruption.” In that article, he was reviewing Geoffrey Moore’s 2015 theory (explained in his book Zone to Win) that, to innovate, companies should create dedicated spaces with specific teams, in charge of leading changes. Of course, this raises many questions in terms of how to maintain a common culture, purpose and sense of equality in century-old organisations where the sense of belonging is key. In his article, Dr Knee reviewed many real-world business cases, from Rinascente to Galeries Lafayette or SKP, Neighborhood Goods and Showfields.

A recent trip to Dubai to attend a series of conferences was the opportunity for the IADS to listen to another interesting business case, from Al Tayer, on how they created their online activity from scratch back in 2016. It is remarkable for two reasons: the first one is that Al Tayer usually keeps its business initiatives private, but the second one is because the way they carried the changes within the company can be seen as a real-life application of what Dr Knee explored back in 2020.*

Presentation of Al Tayer Group

In a world where disruption is the new norm, businesses often face the daunting task of reinventing themselves before someone else does. This imperative holds for the luxury retail sector, where evolving customer preferences and emerging digital players are constantly reshaping the landscape, especially in the Middle East, as customers are overall younger and very tech-savvy.

Al Tayer is one of the leading retail companies in the Middle East, along with Chalhoub, an IADS member. While Chalhoub was founded in 1955 with a strong focus on luxury and lifestyle, Al Tayer is a much more recent company. It was founded in 1979 as a travel agency and soon expanded into fragrances and car distribution in the early 80s. Today, the group operates in retail, automotive, real estate and other ventures such as financial services and travel agencies.

When it comes to retail specifically, in addition to operating in various verticals alongside luxury, such as lifestyle (from F&B, leisure to apparel and accessories), Al Tayer is known for its Harvey Nichols franchised department store in Mall of the Emirates, opened in 2005, and its Bloomingdale’s in the Dubai Mall which opened in 2010 (we reviewed them in an IADS Exclusive from 2022). Interestingly, the whole industry recognizes that these franchised stores, smaller in size than the original ones, are also of much higher quality in terms of overall experience, and are now world-recognized luxury destinations in the Middle East.

Today, Al Tayer operates in all of the Gulf countries (namely Saudi Arabia, the UAE, Oman, Qatar, Bahrain and Kuweit), a 56 million-customer large market representing 3% of the global luxury consumption. In the retail division, department stores take a lion’s share of the activity, and are completed by joint-venture and franchised businesses as well as digital activities (local Gap, Bloomingdale’s and Mamas and Papas website), which include Ounass.com.

Ounass.com is a very recent creation, which was stirred by one single observation made by the top management at the time: while in 2016 Al Tayer was virtually non-existent in the e-commerce realm, it was increasingly clear that pure players were gaining strong positions in the Middle East, and fast. In addition, while Middle East customers represented a growing source of income for luxury brands, 50% of their purchases were made abroad, which suggested that there was an opportunity for a new player combining product curation, services and online convenience. This is why Al Tayer decided to disrupt themselves, before being disrupted and launched Ounass as a strategic reaction move.

Why Ounass.com was launched

Ounass (which means “a select group of people” in Arabic) was launched from scratch in 2016 and now represents 46% of the group’s digital activities revenue and claims to be the number one online luxury destination in the GCC. Average delivery time is 2h in Dubai and 3h in Riyadh, with the highest order to post-delivery satisfaction rate in the region, through personalization at scale (with dedicated and localized content in the Arabic language, sometimes even created independently from the brands’ worldwide campaigns).

In Khalid Al Tayer’s own words, however, “it was a very difficult journey”.

While physical stores excel at providing a unique experience, Ounass sought to differentiate itself by offering luxury convenience, as they recognized that competing solely on price was not an option. For that reason, they decided to focus on assortment and service, and initially launched with a mere 250 brands, which was a critical mass just enough to grab customers’ attention (today they list 1,300 brands). To compensate for their initially limited size of assortment, they even allowed competition to list on their website, which contributed at the same time to reinforcing the luxury positioning but also to become the go-to digital platform in the GCC (for example Skims decided to launch in the region through an exclusive partnership with Ounass.com).

From the beginning, Khalid Al Tayer wanted Ounass.com to solve a few pain points for different stakeholders:

-    For customers: Ounass.com should reduce friction and solve their time issues, through easy-to-order and highly qualitative, fast delivery options.

-    For international brands: the website should be a profitable way for them to reach a customer base which complements, and does not overlap, their existing regional one,

-    For regional brands: Ounass.com should be a platform helping them to grow in scale and acquire international visibility faster,

-    For shareholders: Ounass.com should be profitable from day one.

To achieve these ambitious goals, Khalid Al Tayer, after attending the Singularity University in California back in 2016, inspired himself from the advice of Salim Ismail, Peter Diamandis and Michael Malone, co-authors of Exponential Organisations, and created Ounass as a new entity, partially separated from Al Tayer while sharing brands and infrastructure.

Ounass.com innovates through a series of structural specificities

The “key ingredients” as described by Khalid Al Tayer are doubly interesting, first because Al Tayer is a notoriously secretive company and does not usually communicate on its initiatives, and second because they suggest an alternative approach to internal innovation:

-    Vision: Their guiding principle was to "go build and disrupt," rather than to develop a traditional business plan. This helped also foster a sense of emergency and, as a consequence, the burgeoning of many new ideas from the whole team.

-    Separate Governance: A distinct board with a digital focus was created and coordinated with the group retail board. Both boards communicated between themselves, however, the need for a digitally native one was felt early in the project and is now seen as a key factor of success.

-    Tech Native Team: While buying and merchandising expertise was transferred from the parent company Al Tayer, the rest of the team consisted of fresh digital talent recruited from the outside. Khalid Al Tayer did not expand on how he maintained corporate cohesion between all team components (including, but not limited to, pay gaps).

-    Cultural Maintenance: Ounass worked diligently to maintain its unique culture throughout the transformation.

-    Tech Operating Model: A modern technological infrastructure was essential, suggesting heavy investments that were correlated with the following point.

-    VC Fiscal Model: Khalid Al Tayer made quarterly agreements with the board, implying that the company could be shut down and people let go if key performance indicators were not met. As a consequence, this acted both as a team-building tool and a strong element of motivation. This is probably the most striking: after each board, Khalid Al Tayer would go back to his team, share in full transparency the situation and objectives, and make clear that the whole project could be unplugged if they did not deliver collectively.

Key learnings

For Khalid Al Tayer, the main learning from this adventure is that he believes Ounass.com would not have succeeded had this been part of a broader venture, i.e. if the digital teams were not dedicated to digital only.

Looking forward, Khalid emphasized the importance of continued disruption and being “paranoid” about it. Ounass plans to expand its online presence further while also venturing into physical stores for the experiential aspect. They recognize that omnichannel retail is the future, combining the best of both worlds.

Interestingly, Khalid also candidly admitted that not all experiments yielded success. While Ounass thrived, Nisnass, a middle-market sibling, faced stiff competition even though they applied the same recipe. This serves as a reminder that even in disruption, there is no one-size-fits-all formula for success.

Conclusion: Ounass.com is a working example of innovation from the inside out.

Ounass.com's journey demonstrates that internal disruption can lead to success in the ever-changing retail industry, emphasizing the importance of a customer-centric approach applied to a specific service or market (in this case, luxury convenience). But the most important is probably how they managed to build a new entity within a traditional company while preserving its unique culture highlights the importance of a visionary leadership, separate governance, and a tech-native team in navigating the challenges of digital transformation.

One can say that they almost applied by the book Moore’s vision of a successful transition from “incubation zone” to “transformation zone”, and now, to “performance zone” even if, in this particular case, it is not clear to what extent Ounass.com has “contaminated” Al Tayer with a new mindset, or remains a separate entity that could be sold in the future without consequences for the group.

Credits: IADS (Selvane Mohandas du Ménil)

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*Following the IADS CEO meeting in Mexico City last May, the IADS had the opportunity to travel to Panama to discover the Felix B. Maduro and Steven’s department store chains. The purpose was also to meet with the Felix B. Maduro leading team.

Small in size, but with a disproportionate GDP, Panama is an interesting country, standing both as a transit point between North and South America and as an entry gate (the country is dubbed “the Hub of the Americas"). While the Canal is a significant driver of the country’s economy, annually racking in $2bn and contributing 3% to the country’s GDP, it contributed to the development of a very dynamic service sector now representing 80% of the country’s economy.

Thanks to the service sector in a well-connected country, Panama was able to grow its GDP four times the regional average prior to the Covid-19 pandemic, at an average of +4.7% p.a., and in 2023 should grow +5.7%. As such, the combination of such dynamism with the fact of being a hub allows the country to attract regional and international money, which in turn favors retail.

We review our market visit below to understand how local department store companies have adapted to such conditions.*

Panama’s national retail background

The Covid-19 pandemic hit Panama’s economy hard, all the more that the country is reliant on global trade and tourism. As a consequence, the GDP contracted by 18% leading to an increase in the poverty rate. This led to a major deterioration of the labour market, impacting retail, with more than one out of five formal workers becoming informal.  Consequences remain visible today in terms of the quality of service in stores.

However, retail recovered rather swiftly, with sales growing in 2022 as high as in 2021. E-commerce took the lion’s share, as there is a growing middle class in the country, equipped with smartphones, and willing to make the most of the country’s advanced logistics and payment systems. Panama is the entry gate to Central and South America for many consumption goods, and as such, e-commerce has the advantage of being able to quickly present the widest variety of products to customers as soon as they are unloaded from ships and planes.

In addition, international brands are incentivized to open their own stores to make the most of the growing tourism taking place in the country (Panama is home to tropical beaches and temperate mountain regions, with tourism representing 15.9% of the country’s GDP in 2019), and the fact that they often already have logistic facilities there (either operated directly or via partners and distributors). Therefore, while the national airline, Copa, is clear about its ambitions to become a major regional player , tourists visiting Panama are now able to find any international brand they are familiar with, from Adidas, Lacoste, and Pandora to Chanel, Gucci and Louis Vuitton.

As a consequence, while in general retail looks promising for Panama, such perspectives are mostly about e-commerce and specialty stores, as well as the malls housing these businesses (Multi Plaza, Metromall, El Dorado, Multicentro). Unlike in other parts of the world where tourism is strong, Panama department stores do not house luxury brands, which operate by themselves their own stores. In addition, strong brands from other categories (sports, lifestyle) often do the same, forcing department stores to address B and C-level customers with a product offer which, at best, is made of relatively small brands sold in exclusivity, and at worse, a value proposition which mimics what is available elsewhere in the country and online.

Introducing Panama’s department store: Felix B. Maduro

Felix B. Maduro is the oldest department store in Panama (and one of its oldest companies), founded in 1877 by Esther Piza de Maduro under the name The Maduro Co. (then changed to Felix B. Maduro in 1928). The company initially focused on offering European imported perfumes, hats, and scarves and was the only store with an air-conditioned salon for displaying dresses, as well as the only business with windows to display products. Over the years, the company evolved and expanded its product offerings to cater to a broader range of customers: a second store was opened in Via Espana in 1972, a third one in 1985 and the first specialty retail units in 2001 (a toy store and an outlet, both under the department store name).

In 2015, after 138 years of family management, the retail chain composed of 4 stores by then was sold for $74m to Abdul Waked, a businessman who was later arrested for money laundering charges by the United States in 2016. As a consequence, the company was sold for $60m the same year to FBM Retail Corp, whose leading shareholder is Grupo Arrocha of Panama (which operates 33 pharmacies with 2,500 employees in the country), along with Grupo Diunsa, S.A. (the largest department store chain in Honduras), and A.F. International Corp (which has investments in supermarkets and real estate).

This sale allowed the department store company to continue operating (including its payment card and loyalty program schemes) and look at the future, with the objective to reach $120m revenue by 2020 and open 2 stores a year to reach 13 units. International expansion in Costa Rica and Honduras was also considered.

In 2019, e-commerce was launched, with a plan to increase the brand portfolio (including names such as Karl Lagerfeld, DNKY, Calvin Klein) and a partnership was inked with El Corte Inglés to expand its private label Sfera in Panama.

However, the difficulties created by the Covid-19 pandemic forced Felix B. Maduro to restructure its $70m debt in December 2020 by going through a bankruptcy process, which lasted until early 2022.

Numbers are not available; however, the turnover is estimated to be below $10m and today the company operates 5 locations: Via Espana, Multiplaza Pacific, Albrook Mall, Altaplaza Mall, Town Center.

A regional competitor: Steven’s

The history of the department store is more recent: in 1948, Samuel Eskenazi founded in a city outside Panama City a small shop, El Campeon, which grew to become a 9-large department store chain competing exclusively on the price point, operated by its holding, Grupo Tova. The group also opened Steven’s in 1999, and Madison Store in 2006 (7 stores in the country, also targeting the price-conscious customer).

Steven’s, contrary to its two sister companies, is competing in the same segment as Felix B. Maduro, in fashion, cosmetics, accessories and lifestyle, combined with elevated basics sold under private labels. The store chain has 5 branches and offers various services such as a loyalty program, Be You, which claims to have 135,000 members, and S Wedding, a wedding service.

It is extremely difficult to find any information about the group, which does not communicate about its financial performance.

All in all, both Felix B. Maduro and Steven’s compete in the same categories (luxury cosmetics, fashion, beauty, perfumes, makeup, toys, video games, accessories, homeware), at a similar price point, with a relatively similar brand offering.

Visiting Felix B. Maduro in Via Espana

Via Espana is the second-oldest location for the department store in Panama City, which opened in 1972 in a big box format (there is little to no architectural effort put into the building). The area was up-and-coming at that time, as Panama City has been sprawling for the past decades, and today includes many upper-end hotels located on large avenues.

The store's look, however, reflects its age: it has been built as a closed box, without windows but with large perspectives inside, reflecting the taste in terms of shopping in the 70s and 80s. As such, it looks relatively worn down today, all the more so with its surprising store zoning.

The ground floor represents the largest part of the store, and the transitions between categories can be sometimes brutal: the entrance leads the visitor directly to the men's ready-to-wear section (including a mix of brands like Jack & Jones, Nautica, Brooks, Dockers, and Levi's) and the women's shoe sections.

Both sections are very limited in terms of brand signage with a few exceptions (Ralph Lauren, and Brooks Brothers, which the group used to operate in free-standing stores in the past). Shoes are organized by brand with minimally branded wall units and lack visibility.

Then, cosmetics and Women’s RTW sections appear. Cosmetics present a selection of international brands in a very classical way (individual units with retro lit logos on black background), while women’s fashion (Michael Kors, Vero Moda, Ralph Lauren Esprit or Naf Naf ) is presented on flexible displays, just like the accessories nearby (Michael Kors, Kate Spade, and Calvin Klein). On the sides, lingerie shares the space with contemporary fashion and children's clothing.

The first-floor offers houseware items and an extensive toy section strangely separate from children’s clothing and which feels more like a supermarket display (which would suggest it is operated by a partner). A small food & beverage area managed by another partner can also be found alongside a beauty salon situated near restrooms—an odd zoning choice.

There is no Wi-Fi available within the store, making navigation difficult for foreign customers potentially visiting the store from a nearby hotel.

Visiting Felix B. Maduro in Multi Plaza Pacific Mall

The Multi Plaza Pacific mall belongs to the Salvadorian Grupo Roble company, which operates a total of 27 units in the region, but only one in Panama under the name Multi Plaza (there is another mall, Metromall, also owned by the group). Multi Plaza Pacific was built on the premises of a former airport and was designed as a “tourist mall”, including a luxury avenue including names such as Hermés, Chanel and Dior. It hosts more than 500 stores and features amenities such as valet parking and free Wi-Fi across the entirety of the premises.

The Felix B. Maduro store in this mall offers a stark contrast from the Via Espana store and is in line with its immediate environment (Saint Laurent, Dolce & Gabbana, Ferragamo), with attractive windows displaying Longchamps and Kate Spade.

The store is on two floors, and just like Via Espana, the zoning is somehow disconcerting. The entrance on the main avenue of the mall leads directly to the Accessories section, with dedicated and customized corners for brands such as Kate Spade, Longchamp, Vera Bradley and Ralph Lauren. The transition to the Women’s RTW section is more seamless than in the other store and gives brands an appealing visibility, be it through the space they are allocated, or the signage.

The floor also houses men’s RTW and accessories, as well as children’s wear, however, the transitions are often confusing from one universe to another. In spite of this, the floor has a lively atmosphere with ample lighting and is populated by efficient and accessible salespersons.

The first floor is confusing: here again, a large space is dedicated to a toy section near a home section and a café which is not particularly inviting. The confusing part comes from the fact that there is another Women’s RTW section, displaying brands also available on the other floor, such as Esprit, Vero Moda or Sfera (El Corte Inglés’ private label). According to the sales persons, this part of the store was dedicated to emphasizing both newness and large sizes, which sounded paradoxical.

While the Via Espana store gave the impression not to be tourist-ready by simple lack of Wi-Fi, here, purchasing a product proved difficult for anyone not speaking Spanish at the central cash desk.

Visiting Steven’s in Multi Plaza Pacific mall

Paradoxically, and contrary to what was expected, the Steven’s was not significantly different from the Felix B. Maduro store. The entrance leads to a luxury cosmetics section which displays the same international selection with the same type of display units. The ground floor is also home to the men’s fashion department, which has an elevated feeling with brands such as Givenchy, Perry Ellis, Carven and Oscar de la Renta. While brand signage is clear and visible, the general feeling is confusing due to crammed visual merchandising: for instance, shoes are presented in stacked boxes which gives an outlet feeling.

The Accessories and Shoes section, also on the same floor, gives the same elevated feeling with brands such as Kenneth Cole and Guess.

A buy-online pick-up instore stand was remarked during the visit, which was not spotted at Felix B. Maduro, suggesting that this service is not offered by the latter.

On the women’s floor, while the visual merchandising is as confusing as in the men’s section, brands are well put forward and the general feeling is very similar to Felix B. Maduro. The kidswear is probably a bit more chaotic. Interestingly enough, the size of the toy space is as large as in the Felix B. Maduro stores, suggesting that this is a very important market in Panama, however, the biggest difference is that in Steven’s, toys are organized and presented in branded corners, which at the same time suggests that brands are more involved, and also give a more international feeling to the store.

The home section is larger than at Felix B. Maduro and somehow ‘cleaner’, which is probably only due to the fact that a larger section of the store is dedicated to showing a similar range of products. The only true point of differentiation is the Pets section at Steven’s, a category not carried at Felix B. Maduro.

What can be remembered from such visits?

*Answering this question is complicated, and this is probably the biggest issue department stores in Panama face. Not only in both cases was the product offer, at best, standard, with a rather mainstream selection of brands available everywhere in the world, but the impressions, feelings and experiences were very similar from one to another. Neither Felix B. Maduro nor Steven’s were able to stand out of the crowd and differentiate from each other.

At the same time, it was clear when visiting the city that with tourism came an international crowd, not only from the US but also from Europe, and that this crowd was looking for surprises and different experiences no local department store was able to offer. As a consequence, both stores in the Multi Plaza Mall were rather empty during the visit while the mall itself was rather crowded (it was clear from the visit that the Felix B. Maduro store in Via Espana was a tier-2 location and treated as such).

This creates a vicious circle: by not taking risks or looking for a different positioning, none of these companies give themselves the means to attract interesting brands, which do not see the point in being in the retail environment they propose. As a consequence, the type of traffic they attract is mostly qualified in terms of price expectations, but neither in terms of expectations about selection nor brand curation, putting these companies at risk of having to face a competition better armed in the price war.

In short, both companies are swimming in the same pond of blandness with a very similar selection of brands, which is not enough to attract a new type of clientele. In addition, their lack of differentiation does not particularly encourage loyalty to one name or another. If Panama was an inaccessible country, or isolated from the rest of the world like how Chile has been in the past, this would not be an issue, but at a moment when, on the macro level, it is expected that Central and South America grow thanks to their structural strength, and on the national level Copa is determined to transform Panama City in a world-class hub, this is seems strategically dangerous.

This is why the partnership that Felix B. Maduro has inked with El Corte Inglés in 2019 to promote and develop their fast-fashion private label, Sfera, was a strategic step. It seems clear that there is a maximum ceiling in terms of price point that department stores can sell in their premises (both due to the nature of local demand and traffic, but also due to the fact that luxury brands are, so far, not incentivized to join them). For that reason, developing an exclusive fashion offer, with desirable labels at the right price point only available in their stores, is key. It addresses a growing demand from local customers that we have witnessed in the whole region, for new fashion labels at the right price. In that perspective, Felix B. Maduro has a card to play with Sfera, and, why not, could also benefit from a deeper collaboration with El Corte Inglés in order to sell more of their privately-branded products, including the El Corte Inglés homeware line (that Almacenes Siman in Salvador started to sell with great success).*

Credits: IADS (Selvane Mohandas du Ménil)

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IADS recently held a meeting all about the men's fashion brands to look out for in 2023. Based on market research, IADS and NellyRodi presented a curated selection of 17 brands that are trending right now.

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

MUST HAVE

AMI PARIS

Ami is a versatile brand that offers a wide range of clothing for everyday wear and special occasions. Their collections redefine Parisian elegance with each release, incorporating a touch of international flair. With a blend of classic and contemporary elements, Ami provides stylish and sophisticated options for individuals to express their personal style.

Check out the AMI Paris website here

CHECK OUT THE AMI PARIS INSTAGRAM

CARHARTT WIP

Carhartt WIP is a versatile and high-quality brand that offers products for all occasions. With a strong presence in Parisian department stores like Galeries Lafayette, Citadium and Printemps, it has become a popular choice for fashion enthusiasts.  From pet coats to working boots, Carhartt and Carhartt WIP offer a comprehensive range of products. .

Check out the CARHARTT WIP website here

check out the CARHARTT WIP instagram here

ARTE ANTWERP

Arte Antwerp offers accessible and stylish apparel at a wide price range. It is rapidly gaining popularity in department stores and becoming a wardrobe essential for men. Drawing inspiration from various arts, the brand combines contemporary and minimalist elements, catering to fashion enthusiasts and those seeking a chic yet simple style.

Check out the ARTE ANTWERP website here

check out the ARTE ANTWERP instagram here

NUDIE JEAN

Nudie Jeans is a retail brand that prioritizes sustainability. With an annual sustainability report, they showcase their eco-friendly practices. Through the Re-Use initiative, customers can purchase repaired pre-owned denim with patches and quilting. They specialize in mono-fabric and is committed to creating tomorrow's denim with upcycling techniques and innovative designs, all while maintaining an eco-conscious approach.

check out the nudie jean website here

check out the nudie jean instagram here

ISABEL MARANT

Isabel Marant, an established brand since 2017, has brought a fresh breeze to men's wardrobes by offering a blend of styles and colourful pieces. With a strong commitment to sustainability and durability, the brand consistently delivers high-quality products.

check out the isabel marant website here

check out the isabel marant instagram here

COMEBACKS

GANT

GANT made a surprising and audacious comeback under the leadership of Christophe Bastin, who revitalized the brand's preppy cool Ivy League heritage with a fresh perspective. GANT's new image communication embraces modernity and incorporates new generation codes for a contemporary and relevant appeal.

Check out the GANT Website Here 

check out the GANT instagram here

LACOSTE

With 90 years in the market, Lacoste has successfully reinvented itself through a GenZ and modern artistic direction. The brand has introduced a new line and a more fashionable collection to cater to evolving consumer tastes. Lacoste is also committed to diversity and inclusion, fostering an inclusive and welcoming environment for all.

check out the Lacoste website here 

check out the LACOSTE instagram here

AIGLE

Aigle, with its new visual identity, exudes modernity, freshness, and style. Under the artistic direction of Études Studio since October 2022, the brand demonstrates a strong commitment to sustainable fashion. Find Aigle at La Caserne, the esteemed hub for responsible and CSR brands in Paris.

check out the aigle website here 

check out the agile instagram here

RISING

S.S.DALEY

S.S.Daley embodies a poetic and delicate vision of men's fashion, crafting a wardrobe that exudes sensitivity and artistry. Their innovative designs have earned them the esteemed LVMH Prize 2022. With their unique aesthetic, S.S.Daley is riding the wave of the New Fashion Movement, redefining the boundaries of contemporary menswear.

Check out the s.s.daley website here

Check out the s.s.daley instagram here

BODE

Bode showcases a one-of-a-kind creative vision, revitalizing old fabrics from across the globe and infusing them with newfound vibrance. With their presence in Men's Fashion Week in February 2023 and the introduction of their new women's line, Bode promises to be the next ultimate brand to watch and follow closely.

check out the bode website here

check out the bode instagram here

ELEVENTY

Eleventy brings a fresh perspective to the world of tailoring, offering a range of versatile options designed to take you from morning to midnight. It presents a diverse colour range that exudes sophistication. The brand prides itself on delivering exceptional quality, craftsmanship, and value, with a perfect balance of style and affordability.

check out the eleventy website here

check out the eleventy instagram here

THISNEVERTHAT

Thisneverthat draws inspiration from the vibrant K-waves, creating clothing and prints that reflect this cultural influence. The brand is known for its numerous collaborations with renowned names such as New Balance and Casio, adding a unique touch to their collections.

check out the thisneverthat website here

check out the thisneverthat instagram here

DE BONNE FACTURE

De Bonne Facture effortlessly combines style and quality, delivering garments that never compromise on craftsmanship. Paying tribute to various local manufacturing cultures, the brand embraces a rich textile tradition that is artfully modernized for the demands of contemporary life.

check out the debonne facture here

check out de bonne facture instagram here

HIDDEN GEMS

CHERRY LA

Cherry LA brings a fresh and contemporary perspective to the classic American west wardrobe, offering a unique take on timeless styles. Their collaboration with Dover Street Market L.A in 2022 showcases their innovative approach. Handcrafted in Los Angeles, Cherry LA exemplifies exceptional quality and craftsmanship.

Check out the cherry la website here 

CHECK OUT THE cherry la instagram here

OUEST PARIS

Ouest Paris presents a modern and boundary-breaking vision of streetwear, challenging conventional codes by celebrating sexual freedom, diverse bodies, and life. With its new oversize forms, cutting-edge designs, and a distinctive blend of upcycled materials, Ouest Paris allows for endless mix and match possibilities, making a unique statement in the world of fashion.

CHECK OUT THE ouest paris WEBSITE HERE

CHECK OUT THE ouest paris INSTAGRAM HERE

MANASTASH

Manastash, born in Seattle and raised in Japan, is a brand that seamlessly blends functionality and style. They specialize in crafting outdoor clothing that not only serves its purpose but also prioritizes environmental consciousness, utilizing eco-friendly materials, offering a new and refreshing alternative to Patagonia.

Check out the manastash website here

check out the manatash instagram here

BAZISZT

Baziszt is a dynamic wardrobe that pays homage to Mediterranean craftsmanship. Their garments are perfectly suited for long summer nights and exude a vibrant and stylish aesthetic. Recognized for their excellence, Baziszt was featured in French Vogue's esteemed "Fashion: 18 Lovely French Brands to Know" ranking.

check out the baziszt website here

check out the baziszt instagram here

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*Following the IADS CEO meeting in Mexico City last May, where IADS members were able to visit the latest developments in El Palacio de Hierro’s flagships, the IADS had the opportunity to travel to Salvador to discover the Almacenes Siman stores. The purpose was to discover the market, know more about the company and meet with the leading team.

Siman is a 102-year-old company, operating in 4 countries with 15 stores, in addition to an e-commerce channel. It is almost fully covering the Chortis Block, the continental fragment where Honduras, Nicaragua, El Salvador and Guatemala are located (even though the company does not operate in Honduras but in Costa Rica instead).

Through an astute mix of clever business steering, opportunistic alliances and smart investments, the company managed to become the largest department store company in Central America throughout its history. As Siman is currently involved in a strategic business transformation in order to address the 21st-century challenges in the best position possible, the timing was perfect to discover this company which has become with time a driving force in the region and intends to stay the same in the coming years.

We review our store visit below to better understand this retail giant which is quietly growing on highly dynamic albeit not on the world map markets.*

Company history and background

Almacenes Siman was founded as a small shop in 1921 by J.J. Simán, an immigrant from Palestine, in downtown San Salvador. The business grew quietly with time, as Simán’s sons joined him in the development of the company, which incorporated into a limited company during the 60s under its current name. During that decade the company turned into a department store business, with the development and opening of the largest department store in Central America in 1970, downtown San Salvador (the store remained operational until its relocation in 2010). This 7,000 sqm location was the first store to display an escalator in the whole of Central America.

The company was dynamic, the store expanded and was equipped with a parking lot in 1974. A second location opened in 1983 in Metrocentro, the largest shopping centre of El Salvador at the time and outside of San Salvador city centre. Due to the 1986 earthquake, which damaged the original store in the city centre, a temporary location opened, La Casona which was by then a historic house located in the Escalon neighborhood of San Salvador. This location, which was originally temporary, was never shut down, and a real department store opened into a mall literally build all around the house, the Galerias Escalon shopping mall, in 1994.

The third department store opened in Santa Ana, the second-largest city in El Salvador, on an original surface of 1,500 sqm, in 1990. It was relocated to the Santa Ana Metrocentro shopping mall eight years later. The third-largest city in the country welcomed a Siman branch in 1994.

The coverage of El Salvador continued with time, especially with the opening of La Gran Via location, a large location in an open-air mall, which was a premiere for the country when it opened in 2004.

International expansion started in 1993 with the opening of a store in Guatemala City, followed by Nicaragua where the company bought an entire mall in 2002 to open a department store branch there. Both countries expanded: 3 stores were built in Guatemala in 2003, 2008 and 2015, and a second location opened in Nicaragua in 2008. Costa Rica operations started in 2009 where 2 stores are currently operating.

As of today, Almacenes Siman operates 15 stores in 4 countries, including 6 in El Salvador itself. In terms of stores, they represent on average a surface area of 10,000 sqm, with the smallest units ranging in the 5,000-8,000 sqm area. As a whole, the department store company welcomes 80m visitors a year, including 60m in their e-commerce channel, and reaches a turnover of $400m a year, of which 13% is achieved via e-commerce (composed of 8% of sales via infinite aisle systems available in stores, 5% of sales via the website, and 4% via WhatsApp). Usually, the website is the privileged destination for the Salvadorian diaspora living abroad (2M people, representing a third of the Salvadorian population) while WhatsApp is a channel for locals.

Interestingly, the Siman group is not only about department stores, as, in its natural evolution, the company tackled other types of business (the diversification came much more naturally than for similar companies in Chile, for instance, where expansion was financially motivated). This is why Grupo Siman also includes:

•    A real estate branch involved in developments now independent from the department store activity (the Galerias Escalon mall which Siman built is now the only one owned by the company),
•    Financial services with a credit card system, Credisiman,
•    Non-department store-owned retail activities, such as La Curaçao, Artefacta specialty stores chains, XClaim multibrand beauty chain or Prisma Moda, a down market Zara-like format of 1,800 sqm selling fashion and cosmetics,
•    Franchised partnerships, such as MAC cosmetics (9 stores in the region), or Inditex: it operates as a franchisee the Zara, Pull & Bear, Berksha, Massimo Dutti and Stradivarius in the whole region (18 stores in 5 countries including Honduras where there are no Siman department stores).

Of course, this gives the group a significant edge in terms of negotiation leverage with mall locations, which is completed by the number of private labels they operate also often available in free-standing stores in the country, such as Sabrina, Orange or Nicole. For instance, in the Multiplaza mall, one of the only upscale malls in El Salavador where Siman does not have a location, 25% of the mall offer are Siman’s private labels’ free standing locations, and a higher proportion of the brand offer also relates to Siman’s controlled brands portfolio: in total, in all Multiplaza malls of the region, Siman rents 70,000 sqm of retail space (including the Inditex locations).

Almacenes Siman also took great care to be perceived as an attractive and trustworthy name in the region, and not simply a place to shop. This is why the group made partnerships with regional artists and singers in order to promote a modern and socially-minded image of the company as early as 2010, especially by insisting on women’s rights, which should not be taken for granted in this part of the world.

Visiting the Almacenes Siman store in Galerias Escalon

Galerias Escalon is the only real estate property owned by Almacenes Siman for the last 30 years, as the company decided then to focus on the retail part of the business rather than on property development. It is the only mall in the world which has been built around a house, La Casona, which dates back to the 30s. La Casona used to be a temporary Siman store following the 1986 earthquake and was then restored while the mall was built all around, to be today a cultural place with exhibitions.

The mall now spans over 115,000 sqm and hosts 133 retail units, after a renovation which started in 2006, adding a fourth floor and a cinema theatre. The new Millenium Plaza 24 floors-high tower, which is connected to Galerias Escalon and includes offices, apartments and a hotel, has been built recently and is about to be inaugurated (Siman is involved in this new development).

There are now 2m inhabitants in San Salvador (out of 7m in the country) which explains the lack of large international luxury labels such as Chanel or Dior. The most high-end available in the country would be brands such as Carolina Herrera, in which operations Siman is involved.

The Siman department store spans over 4 floors and 11,000 sqm. 100% of the business is done in the wholesale model with the exception of some jewelry brands and the café / deli operators.

The ground floor is dedicated to cosmetics and accessories. Cosmetics are displayed in classical black-and-white, low-rise stands, with a few exceptions such as Elizabeth Arden. Accessories are displayed in 2 separate zones surrounding the cosmetics part, with the men’s section on the right and the women’s section on the left (a curiosity according to Siman as it would normally be the contrary). All accessories stands are built with the brand concept, be them large international ones, or private labels (70% of the men’s offer, with a price-conscious approach). Shoes are in the centre and more space is planned to help their development as the category is growing. The floor is dotted with Creditsiman stations allowing to access the credit card account on-site and managing operations.

The first floor is dedicated to fashion, from high-end to contemporary, for men and women. More accessories and shoes are available here. Also, private labels represent a significant share of the business and mix heavy branding with accessible prices on all product categories (polos are sold at $20). Design is made in-house and then produced abroad. They also consider other companies’ private labels as international names, such as El Corte Inglés’ Sfera, which boasts a 70 sqm space. Special categories (petite, maternity, curvy) are perfectly integrated in the shopping journey.

The second floor leads to a gourmet section and a deli (operated in concession), linking to the street entrance, which is not on the same level as the atrium where La Casona and the main entrance are located. This allows to direct the traffic to the nearby kids’ section, nicely set up with décor, and which allows to also push forward Orange, a private label addressing babies, kids and teens.

On this floor, customers have access to tactile screens giving access to more stock than what is displayed in the kids, sports and furniture categories. It works: 4% of the store sales are achieved via this channel (the target is 8%) with variable results from one category to another (kids are 2%, furniture is 10%).

The floor also hosts the Click & Collect space, including the front desk but also the back office, which houses the company’s WhatsApp sales team and the gift wrapping unit (the WhatsApp team was located in this store and in these premises as, since Siman owns the real estate, they do not cost as much as they would do in terms of lost retail space in a rented store). An astute system allows to serve 200-300 customers per day (in the Gran Via location there are 400 daily click & collect orders picked up).

The third space hosts the home & décor category, domestic appliances, sports and toys. A small café neighbours the “club bodas” and the “club de regalos”, two service points where customers can organize their weddings and parties.

The Credisiman options are heavily advertised in the furniture section, where the Customer Service desk is also located. 70% of the total customer service activity is dedicated to Credisiman.

Visiting the Gran Via mall

Gran Via is located on the Panamericana highway (which goes on the whole continent from North to South), next to two other malls, Cascadas (which is successful thanks to its Dollar City point of sale) and Multiplaza, as smaller location with a strong F&B and mid-range offer (Lacoste, Kenneth Cole, Mango, CH..) traction, where Siman does not operate a department store but many of its private labels and direct retail operations (such as Prisma Moda). A Sears is also nearby, operated by Mexican billionaire Carlos Slim.

While both Gran Via and Multiplaza opened in 2004, they are extremely different as Multiplaza insists on entertainment (with a giant slide in its entrance) while Gran Via is an open-air mall, giving the feeling to stroll in a new part of the city, and tends to be more perceived as a “lifestyle” centre.

The Siman store is currently extending on 2 floors and 10,000 sqm but an extension project, currently ongoing, will add 4,000 sqm extra within November 2023 (900 sqm retail space for each floor, more stock space for shoes, accessories and women’s fashion, and a set of new offices which will be built on an entirely new floor). In addition, a brand-new entrance will be built, with a completely new façade. This should change the dynamics of the store's traffic, as, for now, 20% of the traffic only goes through the entrance on the open-air part of the mall, and the rest from the inside, especially from the parking access.

In terms of general approach, the original store was built with a set customer path, materialized by the flooring and fixed lamps. It has been decided that the path should disappear, in order to let the traffic flow infuse in the store, which also implies that the whole store has been re-lamped in a totally new way. All product displays will be removable and flexible, in order to encourage mobility and rezoning when needed.

The whole ground floor will be dedicated to cosmetics (14% of the business), beauty and women’s universe, with the full fashion range from young adult and contemporary to high-end. Here again, private labels will be emphasized, as Sabrina will be displayed on 120 sqm, as much as the space dedicated to El Corte Inglés’ Sfera.

The first floor is dedicated to Men’s, kids, home & décor including appliances and furniture (home and electro domestics represent altogether 30% of the business) where El Corte Inglés private label is also displayed, and electronics, as well as a café, La Barrica.

In this store, the click & collect section is almost adjacent to the customer service, both located in the furniture section (click & collect pickers roam the store to fulfil their orders and can be recognized with their specific outfits).

In terms of services, the infinite aisle shopping service represents 4% of the furniture category turnover. Customers also have access to automated machines allowing them to access the website’s e-commerce section. In the electronics section, some experts are here to give advice on Apple’s Genius bar model.

Going further: what is next for Siman?

Siman has identified the following 5 challenges for the coming years:

*-    The regional challenge: how to thrive in Guatemala and Costa Rica, where the store coverage is significant but lower than in Salvador, therefore not bringing in the scale synergies one could expect,

•    Talents: similarly to IADS members who have decided to dedicate the 2023 Academy program to this topic, Siman is aware that they will need to attract new talents (sometimes in new areas) in order to remain competitive, and this will imply many organizational changes (which started with the appointment of the first CEO not coming from the family, Mr. Juan Pablo Galvez, last June).
•    The need to double down on Siman’s strength, Creditsiman and how to increase its penetration.
•    Some categories have to be addressed: shoes as their growth potential in terms of topline contribution is obvious, but also electronics, in order to contribute to the development of Credisiman. In the same way, the private labels business could also contribute to either the top line (by selling them to other companies) or the bottom line (by purchasing private labels from other companies such as El Corte Inglés).
•    The need to refurbish 5 stores which are all 20 years old in the coming 5 years.*

As a consequence, in order to tackle these highly interconnected challenges, the secret will lie in the combination of resource allocation and capability to innovate, both in terms of systems (a new POS system is being implemented, and new OMS and CRM systems are planned, in order to address the 500k customers in Siman’s database – another area of potential progress -), and organizational mindset, which is why Siman has signed a partnership with the IEM in Madrid to foster innovation within the 6,000-large team.

In a country that had been riddled by a civil war not so long ago, and where the crime rate used to be very high, the good fortune of Siman is impressive, as nothing is taken for granted and there is a constant preoccupation to make sure tomorrow’s challenges are addressed. Given the growth potential that is expected in the region in the coming years, chances are that Siman as a name will become more familiar to international players in the future.

Credits: IADS (Selvane Mohandas du Ménil)

Printable version here

*Improving Private Labels’ profitability is crucial to the department store business and is a top-of-mind priority for CEOs (this is why the 2022 Academy worked on this topic). Two major strong trends can be seen here:

-    Organisations (including the supply chain) have been reviewed and changed to be more cost-efficient as well as more agile.

-    Secondly, whether they are under an umbrella brand or not, Private Label portfolios have been reshuffled, which often resulted in the discontinuation of some brands to maintain margins, but also in opportunistic ventures.

Besides these 2 major sources of optimization, new questions are emerging lately. Improving branding and awareness is key to developing the business. The pricing strategy offers 2 different directions: the lower-price path, or a possible premiumization of Private Labels which is increasingly considered to grow margins. In addition, department stores and retailers sit on a data treasure as they know who’s buying what, where and how. With the emergence of the retail media business, it seems data could be leveraged to improve Private Labels’ efficiency and relevancy. However, some questions remain, and the Private Label digital strategy and the communication on CSR efforts are among the most important ones.*

Transforming Private Label organisation towards cost optimisation and production efficiency

Changing the model: ‘Coopetition’ and ‘Integration’?

There’s no one-size-fits-all model when it comes to Private Labels. Retailers rely on a variety of operating models, ranging from highly centralized organizations with dedicated resources (including brand management, product design, sourcing, marketing, and consumer insights) to decentralized operating models in which merchandising teams own much of the strategy and execution. The organisation question comes down to 2 organisational options:

•    Coopetition: the Private Label team is in charge of sourcing, style and product development, while the buying function is taken care of by the buying team in charge of national and international brand purchasing.

•    Integration: the buying responsibility is part of the Private Labels team’s duties.

The benefits of the ‘Coopetition’ model: the example of an IADS member

In 2021-22, an IADS member changed its organisation from Integration to Coopetition with several significant benefits:

•    The team downsized from 58 FTEs to 28. As an example, the kidswear team was reduced from 12 to 6,5 FTE thanks to management responsibility mutualised with another product category and fewer people in sourcing. Also, the buying responsibility went to buyers in charge of national brands. Finally, designers are now working freelance.

•    More efficiency at the design level thanks to a collaboration with a local creative intelligence agency defining clear creative directions for the season. Also, designers are now freelancers and are more eager to bring relevancy to the table.

•    National brand buyers are providing detailed and accurate feedback to challenge the product’s appeal.

Reorganising the supply chain: finding the balance between a more secure production and higher retail prices

In January 2021, the IADS offered to participants to compare their production schemes. At the time of this research, members’ production lead time (from offer definition kick-off to first date in-store) ranged between 37 and 61 weeks. With the Covid-19 impact on China, the war in Ukraine, and the energy shortage, department stores had to rethink their production schemes as explained in the IADS Merchandising dedicated to Private Labels end of 2022. Their main initiatives include production planning starting earlier, which saves up to 2 months on the production lead time. Also, nearshoring in the Euromed zone allow some members to save up to 8 weeks: however, it comes at a price, as production costs can vary by as much as +3% when switching from China to Euromed, while they can decrease by -4 to -8% in other South East Asian countries (but raising new operational and logistic questions). In any case, reliance on Chinese suppliers was reduced, sometimes by up to 6%, in favour of South East Asian countries (+6%) and the Euromed zone (+1.5%) to improve lead time and dilute the risk linked to producing in China. Finally, raw materials are 100% booked in advance with members committing to suppliers and paying later. As a result, compared to 2019, members had to increase their retail prices from 5% to 27% to secure margins.

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Optimizing the Private Label portfolio: downsizing, product efficiency, and a dose of opportunism

Cancelling brands is efficient

Cancelling inefficient brands is a widespread strategy coming with 2 options. The first one is about working under a single umbrella brand to avoid product overlapping and product gaps. For instance, Manor cancelled brands to only operate a Manor-labelled transversal brand. Despite a very different size and scale of the business, Magasin du Nord now also operates under a store umbrella brand. Both retailers see the umbrella brand as an opportunity to enhance the store brand itself. Knowing that having several brands requires dedicated investments, a single umbrella brand is also considered a way to be more cost-efficient. On its side, Galeries Lafayette reduced its brand portfolio to focus on one umbrella brand but kept an additional brand in womenswear, menswear and kidswear.

The second option is about relying on several Private Labels. IADS members such as El Corte Inglés and El Palacio de Hierro are not working with a single umbrella brand but with different brands, each of them having a clear DNA and a focus on a specific consumer group. Still, El Corte Inglés reduced from 41 brands in 2019 to 21 in 2022 to increase the initial margin, secure EOS sell-through close to 100% and a minimal turnover per label per year. At El Palacio de Hierro, 3 brands (out of 6) accounted for over 75% of sales. As a result, 2 inefficient womenswear brands were discontinued.

Favouring a mono-product strategy

As discussed with member IADS-1, mono-product categories have proved to be more easily profitable (men’s shirts, women’s soft accessories, cashmere sweaters, and linen during summer). SKU efficiency is key here, and a smaller number of them doesn’t mean success: to a certain extent, having fewer references and more colours in one reference has a positive impact on turnover (with an average of 5 colours). Also, the 2022 IADS Academy group analysed members’ anonymised figures: they found out that the number of SKUs is on average 5 times higher for the brands with the highest gross margin.

Expansion through opportunistic additional business

Agile expansion of Private Labels could possibly rely on product trends. Surfing the huge athleisure wave, Target’s brand All in Motion launched in 2020 is a good example: a year after it launched, the label achieved the company's goal of generating USD 1 billion in its first year. It was developed in-house, with an eye toward sustainability, quality, inclusivity, and consistent with the “more for less” Target mantra.

Buying out existing brands is also an interesting option favoured by Marks & Spencer. First, they reduced the number of Private Labels. Now, the company is buying out existing brands (such as Jaeger) to muscle its offer. Results seem promising: third-party brands account for 4.1% of the clothing and home sales, bringing in GBP 70m of revenue in 2021.

At some point, acquiring a brand and operating it collectively or developing one together was considered by some IADS members. In that regard, the example of Farfetch acquiring New Guards Group (Heron Preston, Opening Ceremony…) and the cosmetic brand Violet Grey is interesting but raises questions. The brand price point should be quite low to fit all department store members but right now such brands are facing huge difficulties as they can’t scale up to become omnichannel. Besides, even though customers are increasingly attracted to the same international brands, cultural differences still exist with the products local customers might favour.

Leveraging Private Labels: branding, pricing strategy and… data?

Brand image: building awareness to attract younger customers

When it comes to muscling the brand image and attracting Gen Z, partnering with external brands or influencers can be a winning strategy. Several examples are interesting to look at. Magasin du Nord had a collaboration with a major Danish influencer: a capsule of 11 styles priced at EUR 40-120 led to an impressive sell-through rate and net margin as well as important net sales. 54% of the customers were new customers and the number of online searches increased 5 times. Also, Fred Segal can represent an example of ultimate Private Label branding: benefiting from a certain coolness, the US lifestyle retailer betted on printing the store name and logo of its first Private Label t-shirts and hoodies (retailing at USD 390). Also, JCPenney recently partnered with the infamous brand Juicy Couture at a time when it was on trend again.

Pricing strategy: going low or going up, that is the question

Price has always been a key component in the success of Private Labels. John Lewis’ Anyday brand, positioned 20% to 40% lower than John Lewis' other own brands, recently expanded to reach new, younger customers. Promotional efforts worth GBP 500m (including the opening of an experiential free-standing store) seem to be working: 25% of Anyday shoppers are either new or reactivated customers, as well as younger, yet less wealthy shoppers. However, this strategy comes with the risk to fight de facto against powerful low-price competitors such as Primark. On its side, El Corte Inglés’ ambition is to transform some of its lower-price Private Labels into real brands. To continue with this strategy, UNIT (entry price vertical RTW and accessories brand) will soon launch brick-and-mortar stores in malls, close to Primark stores.

On another hand, premiumization includes higher price point, elevated marketing tactics and sustainability. Overall, consumers think that Private Labels are extremely good value for money which doesn’t mean being the cheapest they can be. Besides, for less powerful department stores, there is no interest in trying to be the cheapest. The price of the Private Labels is no longer the primary factor for some customers. This is the case at Target, where product quality is gaining more importance than price in building customer loyalty. Some retailers already tackled the idea of a premiumized Private Label: with Monoprix Gourmet‘s success (700 products), Monoprix (the French urban “variety” store) shows that the key factor is not about being the cheapest but offering quality to urbanites willing to pay more. In 2022, Printemps introduced a make-over of its Private Label fashion lines (men’s, women’s RTW and accessories). The Private Label was rebranded Saison 1865 (from the year the department store was created), hence decorrelating the store name. The claim is to offer transgenerational wardrobe essentials with excellent value for money and sustainable options. This premiumization comes with a 15% retail price increase overarched by a sustainable claim, more elaborated communication and marketing, which could help in building a true identity for the Private Label./nbsp]

Some IADS members’ department stores are already tackling higher price segments: Breuninger’s Ms & Hugs is successful with EUR 250 dresses for instance, and Manor performs well with rather high-priced items such as cashmere coats at EUR 600. Manor, Galeries Lafayette and El Palacio de Hierro are considering launching a premium Private Label, knowing that premium might have different meanings and price points from one department store to another. For instance, at Galeries Lafayette, the price point would be similar to Sandro’s and the inspiration would take cues from premium consumer aspirations (responsible, slow life, craftmanship). On its side, Manor would favour quality basics using fabrics such as Supima cotton.

Is data the next big lever for Private Labels?

Farfetch’s decision to launch a Private Label (dubbed There Was One, offering minimalist basics for women priced between USD 95 and USD 2,000) was informed by consumer shopping data. Data showed that since the start of the pandemic, shoppers were investing in long-lasting and sustainable pieces. Among the key factors to Private Label success, Alix Partners mentions that customers’ insights should be injected into all steps of product development processes. Firstly, this should be eased by the access retailers have to their own customers’ data through their various payment and loyalty schemes. This strategy already proved its efficiency: Amazon is famous for leveraging data to build several of its Private Labels, sometimes to the dismay of marketplace sellers. Secondly, retailers and department stores are currently entering the retail media business, putting store data at the brands’ disposal through dedicated platforms. This could serve the Private Label business as well as other brands.

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Private Label success is a complex combination of an effective and agile organisation, the right portfolio articulation, positioning, planning, and a dose of opportunism. While ensuring Private Label profitability and relevance remains a never-ending concern for department stores, additional levers for growth – if not all new – could be considered. Among them, doubling down efforts on branding and brand awareness could help create a true identity able to attract the younger generations, much needed to rejuvenate the customer base. The right pricing strategy is also key: in that perspective, department stores are assessing the possibility of a premium Private Label, which could be an additional way to grow the business and increase margins. While the latter has not proved to be broadly efficient yet, using sales and consumer data increasingly grows as a way to develop retailers’ businesses. The possibilities offered by new retail media ventures could be expanded to benefit Private Labels.

Also, additional questions are still unanswered. The digital strategy for Private Labels appears to be a work in progress for many department stores. It seems most members are not differentiating their online and offline product offers and didn’t truly build omnichannel strategies yet. Some department stores are more advanced though: for instance, El Corte Inglés’ Private Labels have their own landing page on El Corte Inglés’ website. This might lead the company to eventually create a specific website for each Private Label in the future. Also, Manor’s website promotes and prioritizes Private Labels products as soon as they are strong enough: this is the case with cashmere and ‘essentials’ sections putting Manor products first.

Another tricky question is about department stores' CSR efforts in Private Labels. Often more ambitious than national brands, department stores face issues when it comes to communicating information to customers: they have a hard time deciding on a “communication” umbrella efficient both offline and online. Risks for department stores are to appear as they are lacking credibility and of course, they could be accused of greenwashing. Overall, department stores didn’t find yet the right balance between providing precise information and being simple, honest, catchy and inspirational (including for their international consumers).*

Credits: IADS (Christine Montard)

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*Following the IADS CEO meeting in Mexico City last May, the IADS had the opportunity to travel to Chile to visit Paris Department Stores’ and Falabella’s flagships, located respectively in the Alto Las Condes center and in the Parque Arauco mall.

Chile is considered one of South America’s most prosperous nations, in terms of competitiveness and income per capita. Before the pandemic, with consistent GDP growth of around 3% to 4% annually, the country enjoyed economic diversification across sectors like mining, agriculture, manufacturing, services and tourism. The nation's stable institutions, market-oriented policies, extensive trade agreements, and high global competitiveness rankings attracted foreign investment.

The COVID-19 pandemic had a profound impact on Chile, affecting various aspects of society, the economy, and public health. The country witnessed a significant number of confirmed cases and fatalities, placing immense strain on the healthcare system. To curb the spread of the virus, strict measures such as lockdowns, travel restrictions, and social distancing were implemented. Being one of the leading countries in terms of vaccinating its population as early as December 2020, combined with the massive adoption of digital technologies and telecommuting, Chile was able to weather the crisis earlier than other countries, and this showed in Falabella’s numbers, then a member of IADS. While GDP shrank by -5.8% in 2020, it grew +23% in 2021, exceeding the previous record of 2018. While normalization took place in 2022, this led to an extraordinary expansion for retailers, both in nominal and in terms of e-commerce growth, a channel already well implemented in the country.

Falabella opened in great fanfare its newest flagship store in November 2021 (our report here) and it was hailed as a perfect integration of omnichannel practices into a physical store. The IADS took the opportunity of a visit to the region to go and review the store, and to compare it with its competitor’s neighbouring flagship store, Paris.*

History and background: Cencosud and Falabella, two multifaceted and similar giants

Almacenes Paris (Cencosud)

Almacenes Paris, a former member of the IADS (2000-2005) was established in Santiago in 1900 by José María Couso as Mueblería París. The store originally carried Italian merchandise copied from French models, and evolved into selling copies made by local artisans, before expanding into home (rugs, tapestries, mattresses, bed furnishing) and accessories (glassware, china, porcelain, cutlery and bathroom supplies). Fashion came later and the business was sold to Antonio Gálmez in 1910. The company changed its name to Almacenes Paris in 1950.

Almacenes Paris started to branch out from Santiago city centre by opening in the metropolitan area (Providencia) in 1983, in spite of a poor national economic context. It then continued expansion through a mix of opportunistic moves (the bankruptcy of Brazilian department store company Muricy in Chile in 1990, after 19 years of operations, allowed Paris to acquire their Parque Arauco and Mall Plaza Vespucio stores, both in the metropolitan region of Santiago ) and pure expansion (Plaza Oeste in 1994 and the first store outside Santiago in Concepcion in 1996), reaching a total of 7 department stores (each of a surface comprised between 8,000 and 15,000 sqm) by 1996, second to Falabella in terms of store number, and addressing middle-class customers.

It went public that same year and immediately engaged in diversification: real estate (by taking shares in Plaza del Trebol and Plaza Oeste existing malls, but also in new projects in Puente Alto and La Serena ones), speciality stores (by acquiring Tecnopolis, a chain of computer stores). It also doubled down on financial services: Almacenes Paris was the first retail company to introduce a credit card, Tarjeta Paris, in 1970, in Chile, and boasted 1.3m credit cards by 1998. They also kept on investing on a new venture, Paris Express, a virtual store enabling customers to purchase online, in 1999. By 2002 Paris was selling a third of its merchandise online.

The retail chain also kept expanding: 3 new stores were built, soon completed by the 1999 acquisition of failed Chilean operations of JCPenney (which had entered in 1994), allowing Paris to reap its Alto Las Condes mall store and to reach a total of 14 stores by 2000. A new corporate headquarters tower (Torre Paris in Providencia district) and 3 more stores allowed the chain to reach a total of 150,000 sqm of retail space disseminated in 16 stores in 2002. However, analysts worried that the company was falling behind its rivals Falabella and Ripley, which led to a corporate reorganisation into 4 subsidiaries: retail, industry, real estate and financial services. The leading source of income, however, was not coming from retail activity, but credit (75% of the group’s total sales were financed by its own credit cards).

As the retail division kept on lagging behind its rivals, the Gálmez family sold 52.4% of its shares to a group of various investors in August 2004, who implemented a turnaround plan. However, the country was shocked to learn that Cencosud, the largest retailer in Chile and Argentina with Jumbo and Santa Isabel hypermarket chains, made a surprise offer and was able to purchase 72.67% of the company in February 2005. As a consequence, Paris was no longer a public company and became a subsidiary of Cencosud.

Cencosud today is the largest retail company in Chile and the third largest in Latin America behind Companhia Brasileira de Distribuição and the Mexican Walmart de México y Centroamérica. It operates 3 supermarket brands (249 units), the Easy home improvement specialty chain (37 stores), 35 shopping centres, and the Cencosud Card (2.5m users in 2015) in addition to 49 department stores in the country for a total of 286,000 sqm of retail space (Cencosud also operates in the rest of the region, but Paris remains limited to Chile).

The department store company offers a mix of private labels (Alaniz, Attimo, Greenfield, among others), with international brands distributed in exclusivity (Brooks Brothers, Lacoste..) presented in brand corners, and is the third largest department store business in the country, behind Falabella and Ripley.

Falabella

A former member of the IADS (2006-2022), Falabella was founded in 1889 by Salvatore Falabella as a tailor shop in Santiago. Operations started to expand in 1937 when Alberto Solari joined, incorporating new products, opening new points of sales and revising the business model as a whole, until becoming a true department store in 1958 including home goods.

They opened their first store outside of Santiago in 1962 in Concepcion, however business development was slowed by the political and economic context of the country. Following suit in Almacenes Paris’ footsteps, Falabella launched its own credit card in 1980, called CMR Falabella. In the 80s, Arnaldo Falabella, the son of the founder, passed away, and Alberto Solari retired, leaving room for new management under the helm of Juan Cuneo Solari, his nephew. He led a group of investors and purchased 75% of the company, marking the beginning of diversification into finance, insurance, real estate and tourism.

Falabella took stakes in the Mall Plaza group, which opened 7 malls (Plaza Vespucio, Oeste, Talaba, Norde Santiago, El Trebol in Concepcion, La Serena and Los Angeles). By 1996 Falabella was operating 22 stores and had started international expansion in Argentina and Peru, when it became public the same year. Similarly, to Paris, expansion accelerated in various retail activities (through partnerships with Home Depot and a national drugstore chain), travels and insurance, and the launch of Banco Falabella.

They also jumped the Internet bandwagon by launching e-commerce activities in 1999, adding the final touch to a whole ecosystem where customers were able to find products from Falabella’s various divisions in many different places and stores, and financed by the retailer group. As a consequence, it held 43% of department stores market share in 2001. Expansion accelerated: the group extended its reach on the DYI market by purchasing Sodimac, the market leader, among others. The expansion was financed through capital increases, leading to the practical disappearance of the remaining family members on the map of significant shareholders. At that time, just like at Almacenes Paris, half of the company’s profit was coming from credit card operations.

The Falabella group today is present in Peru, Chile and Colombia (both Paris and Falabella took the opportunity of the Covid-19 pandemic to exit Argentina). Its activities encompass department stores, hypermarkets (Tottus, 72 units), DYI (Sodimac, 85 stores in Chile), real estate (in malls), banking (Banco Falabella), a travel and insurance company, a credit card service (7.2m active customers), as well as an Internet and mobile service provider company. In 2022 there are 47 department stores in Chile, of which 19 are in the Santiago metropolitan region.

Interestingly, the department store division has been renamed ‘omnichannel retail’ in 2021 after it was decided that www.falabella.com (launched as early as 1999) would integrate e-commerce and marketplace services in a division separate from the physical department store operations.

Similarities

Both groups started online operations quite early, and often earlier than their international counterparts. Through a mix of in-house developments and external acquisitions, they both completed their digital capabilities in terms of product distribution, logistics and payment capabilities. As a consequence, both are able to offer a real ecosystem to their customers, similar to the Asian “super-apps”, but different in terms of how the various components are articulated and presented to customers (to respect privacy rules which, in Chile, are in line with the rest of the Western world).

Another similarity is linked to the fact that the metropolitan area of Santiago is saturated with department stores. As a consequence, growth came from services, such as travel and insurance first, but rapidly, banking appeared as the most interesting way to capture customers in the developing ecosystems. The financial strength of retail groups is extremely important: in 1998, 21% of all Chilean customer credit came from Falabella, Almacenes Paris and Ripley, representing 2% of the country’s GDP (this represented by then 10m credit owners out of 14m total population by then). They have then largely contributed to the progress of debit card, credit card and digital wallet ownership in the country.

Today, Falabella and Cencosud’s banking services are ranking high in a country where 74% of the population (19,4m people in 2022) have a bank account (vs. 49% in the region). This financial evolution helped Falabella and Almacenes Paris to develop large customer databases early, which in turn explains why they were able to enter the e-commerce and digital world early.

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Visiting the Almacenes Paris store in Alto Las Condes

The Alto Las Condes 231,000-sqm-wide mall is a medium to high-positioned mall, catering for the needs of the posh Las Condes neighbourhood (which may be why the mall is surprisingly not accessible by public transportation). While there are Falabella and Ripley units in the mall, the highlight is for sure the 4-floor Paris store, which used to be a JC Penney store  and is now a flagship for the company, headquartered in the mall itself.

The ground floor is dedicated to a strange mix of categories, as it presents fragrances, women’s shoes, kidswear and toys, as well as lingerie. Transitions from categories to categories are harsh and immediate, this is a feature that is also common to Falabella, and product universes are often simply juxtaposed next to each other.

The first floor is dedicated to women’s fashion. The floor is mostly dedicated to private labels (another common feature with Falabella), with a concept store section including brands such as Hoss Entropia (a Spanish brand) and more anonymous labels such as Tienda de Carolina or Club Mol. Overall, it is obvious that there is a glass ceiling in terms of price point but also in the types of styles presented to Chilean customers. The purpose is more to sell garment than pure fashion, and international brands are hardly visible apart from names such as Springfield, Allsaints or Esprit.

Interestingly, sustainability is a very visible and outspoken topic, through various aspects:

-    Some ceiling decors that remind the ones at Galeries Lafayette Re-Store,

-    A vintage shop-in-shop, well merchandised and fully integrated in the omnichannel processes (customers have the possibility to return products within 24 hours from home after purchase, and access more second-hand products online, through an infinite aisle accessible with a QR code),

-    A denim recycling point, “Foster”.

In spite of the product offer not being very fashionable, customers can customize their purchases at a “Paris lab”.

The second floor is dedicated to men’s fashion, and tech, which is literally next to the sport section. Tech brands are heavily branded but tend to be more seamlessly intricated in the RTW environment than the categories on the ground floor. The floor is designed with a category approach in mind rather than lifestyle: everything is available (RTW, shoes, underwear, accessories) in dedicated spaces next to each other, and poorly transitioned. The sport section, near the Tech category, also presents women’s products.

The third floor is dedicated to home & décor, as well as services and a gourmet section. The scenic effort is more visible here, in order to help customers project themselves with the displayed products. The travel agency is located in the middle of the tableware section, and white goods are presented in front of the sofas and other home furniture rather than being connected next to the kitchen and home accessories section.

Overall, the store has an impression of being mostly dedicated to selling private labels, in a rather straightforward approach that still relies on a category approach rather than thinking in terms of universes. Two elements were however noteworthy: the sustainable communication as already mentioned, but also and more importantly the omnipresent omnichannel capabilities across the store:

-    On all floors, customers have access to barcode readers that allow them to get price information about the product they are scanning thanks to their loyalty card,

-    Other readers also allow reviewing the points left and the available credit limit on the store card. Those readers encourage the use of the Paris app, luring customers with specific and tailor-made promotions only available on their own app.

-    Most of those readers are available in zones also presenting banking services allowing customers to draw cash, manage bank accounts, and use other services.

-    Tactile screens give more product options to customers, especially in the Home & Décor section.

-    When it comes to paying for the purchases, customers have the choice of either walking into the staff cash desks or using the Express cash desk, a self-service check-out where customers have to remove the anti-theft systems by themselves, under the supervision of a distant staff.

-    The Click and collect pick-up space is located on the 3rd floor, either in the customer service section or in the “Retiro express” one if customers have chosen the speedy option.

All in all, the store gave a strong impression of being well equipped and connected in terms of systems, which are all designed to help customers with their purchases.

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Visiting the Falabella Parque Arauco store

The Parque Arauco mall is not especially new, as it opened in 1982, and constantly evolved, through territorial expansion, with for instance the open-air luxury district, which opened in 2013 with the likes of Louis Vuitton and Armani. Falabella entered the mall in 1983 when it purchased the failed Sears department store, and Paris in 1991 when Muricy went bankrupt. Ripley also joined the mall later on. Today, the mall is 110,000 sqm-wide and aims at an international and touristic clientele, even though there is no public transportation connection as the subway connection is only planned in 2027.

Falabella relocated its Parque de Arauco store in the mall in 2021 to a new and larger location, on 25,000 sqm and 4 floors, which makes it the largest of its kind in South America. The store was hailed as an omnichannel proof of concept for Falabella when it opened, as it is equipped with the latest available tech and systems.

The ground floor is dedicated to men’s and tech. The overall impression is the omnipresence of a specific design, which gives the store more identity than the Paris one in Alto Las Condes. However, the surprising and sometimes brutal lack of transition between categories is also very present here, as they are simply juxtaposed and not designed to merge into each other, in the framework of a customer journey.

The men’s section is quite extensive and includes a mix of private labels and mid-market international brands such as Dockers, Polo or Lacoste in RTW, Clark’s or Aldo in shoes, Levi’s and Nike in denim and sportswear. It is all about customer experience: sport attire can be customized, and outfits can be made to measure in the formalwear section.

The electronic section includes a gaming zone, obviously aimed at the younger generation, but surprisingly located very near the store pop-up activation section, which was dedicated at the time of the visit to Carolina Herrera (women’s offer). As a consequence, the commercial animation felt a bit disconnected in this specific location.

The whole store has a backbone of automatic staircases framed with giant screens, on which seasonal animations and promotional messages are displayed. As a consequence, moving from floor to floor feels very dynamic and energetic.

The second floor is dedicated to women’s cosmetics and accessories. The staircase brings customers immediately next to a café as each floor has a F&B offering in the customer landing one. Here also, the zoning feels surprising, with shoes in front of lingerie and next to cosmetics (the cosmetic one feels very luxurious thanks to the use of heavy lighting and low-rise display furniture). The accessories section feels busy in terms of product density with a mix of private labels and brands such as Bimba y Lola. Here again, there is a feeling of a glass ceiling in terms of maximum price point and brand type offered to customers.

The third floor is dedicated to women’s fashion. Brands are presented in lightly decorated shop-in-shops, which makes them slightly more attractive than in the men’s section. The circulation plan is a bit more complex as the space is also dotted with small lounge spaces mixing RTW and accessories, with dedicated cash desks suggesting they are operated in concessions.

Significant spaces are allocated to international mass brands (Mango, Maison 123) and Falabella’s private labels: Sybilla, University, Basement. A personal shopper service is located just next to the fitting rooms, and in the case of Sybilla, the space is so large that it has its own cash desk (both staffed and self-check-out).

Across the floor, many messages related to sustainability are made extremely visible and insist on Falabella’s various commitments.

The fourth floor is dedicated to Home & Décor, and kids. In the kids section, an ice cream zone and a Samsung store make the connection with the home section.

In the home section, next to the heavily branded and decorated electro-domestic section, a virtual showroom displays on a huge screen any piece of furniture selected on an Ipad and allows customers to see its full-size rendering. Once visualized, the product can be sent to the customer’s shopping cart.

Just like at Paris, omnichannel capabilities are everywhere:

-    Screens allow customers to browse the website (which raises questions in terms of internal organization and incentives as instore and online operations are operated by 2 different business units),

-    QR codes on tags allow to have access to in-store ordering, asking for help or advice. However, those services are accessible via a Wifi system that cannot be used without a Chilean PIN number, which is not possible for a tourist,

-    The click & collect space, in the Men’s space, is beautifully executed and has been designed to make the potential waiting time painless,

-    All Falabella services, including banking, insurance and other, are available on dedicated machines across the store.

Here also, the store feels modern, well-equipped and fully integrated into a real omnichannel ecosystem placing the customer at the centre of the model.

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Going further: the job is done?

*Overall, the technology demonstration and its full integration in stores are impressive at both retailers. While the Falabella store is newer, and therefore its design is more modern, when it came to the range of services made available to customers, both Falabella and Paris felt on par.

However… in both cases, the selection made available in-store, both in terms of price point, types of products and brands, was relatively uninspiring and felt mundane. While Chile is a relatively closed country with specific states, it is nonetheless a fact that the younger generation is more connected everywhere in the world and more aware of the trends. For that reason, it felt very hard to imagine that both stores were able to draw a younger crowd, and during both visits, the clientele felt rather middle-aged, with a middle-class income, and not really looking for something fancy.

In addition, the product and brand offering felt very similar from one store to another, even though there were many private labels presented. One may only wonder if, while Chile is more advanced than others in terms of omnichannel capabilities, it is not lagging behind in terms of product assortment and desirability, a key feature to remain competitive in front of large pure players and disruptors such as Shein, all looking for such new rich markets.*

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Credits: IADS (Selvane Mohandas du Ménil)

Printable version here

*In recent years, inventory tracking has become increasingly sophisticated and popular. In that regard, RFID (radio frequency identification) is being used to provide real-time location tracking of inventory items. In 2021, a study conducted by Accenture revealed that the use of RFID in North American retail was booming with 93% of store chains saying that they are using RFID, especially as e-commerce grew so quickly with Covid. In addition, RFID can be coupled with endless other technologies, such as the Internet of Things (physical devices embedded with technology and connected), to offer customers more unique experiences.

Also according to Accenture, information captured from RFID technology can be used in collaboration with blockchain, supply chain analytics, self-checkout, supporting omnichannel fulfilment, reducing stockouts and improving customer engagement.

In addition to more efficient inventory management, RFID can help reduce supply chain waste and help businesses to grow more sustainably at a time when consumers are increasingly asking retailers for more responsible operations.

So, what’s not to love about RFID? It happens that successful case studies are plenty, but as discussed during the IADS Supply Chain Meeting held in June 2023, there is no consensus about RFID among IADS members. Let’s understand why.*

How RFID can help reduce the cost of supply chain waste

Avery Dennison came as a guest speaker for the Supply Chain Meeting to explain the benefits of RFID technology in reducing supply chain waste. To measure the real cost of supply chain waste, they conducted 2 global surveys covering 5 markets (UK, US, France, China and Japan) and 5 industries (apparel, food, beauty, pharmaceuticals and automotive): no less than a total of USD 163bn worth of revenue is lost every year in discarded inventory. In the apparel industry alone, 6% goes to waste due to overproduction and damage, representing USD 15.3bn worth of inventory. In the beauty and personal care industry, waste represents over 10% of products.

More in detail, RFID provides solutions to the challenges arising from supply chain waste:

• There is a disconnect between sustainability concerns and supply chain initiatives: 58% of businesses surveyed are actively tracking supply chain waste but not aligning sustainability with supply chain initiatives. Efficient inventory handling is a solution as it reduces overproduction and therefore cuts down on CO2 emissions and packaging waste, allowing companies to reach ESG targets more quickly and efficiently.
• Overproduction is a major issue as companies are investing in additional inventory to avoid product shortage and consumer dissatisfaction. Overproduction occurs due to a lack of clarity on the amount of stock already being produced, distributed and purchased. Inventory visibility is a solution: item-level end-to-end visibility of inventory negates the need for safety stocks and companies can better implement FIFO (First-In, First-Out) policies.
• Damage is triggering inventory waste: 4.3% of inventory is wasted globally due to the accidental damage or destruction of goods, representing a total of USD 81.6 billion of global inventory value wasted across the five sectors. Data can pinpoint where damage occurs and by knowing exactly where and how damage occurs, supply chain teams can work with suppliers to solve issues.

Companies recognize these problems, and those surveyed said their use of key technologies such as blockchain, RFID, AI, robotics and drones will at least double in the next two years (54% currently track unique items within their supply chain, but this will rise to 100% in future, which could help to reduce waste). According to Auburn University, apparel retailers currently have 65% inventory accuracy but with RFID, the rate improves up to 99%. On its side, McKinsey identified ‘more than’ a 25% improvement in inventory accuracy by using RFID in retail.

Case studies: from back-of-house technology to customer-facing enhanced experience

There are several ways to use RFID. Uniqlo has extensive technologies in place from item tracking to ultra-fast stock take (they can inventory a pile of clothes in seconds) and seamless self-checkout. French sports retailer Decathlon also took advantage of RFID, and the company is said to have profitable operations. They started RFID implementation with one product category and then, step by step expanded to additional ones. The process was successful, and this is also the method Avery Dennison would recommend. Implementing RFID depends on volumes: it usually requires a 3-month pilot to implement, test and adjust. Depending on volumes, implementing RFID on one product range per year could be a safe and efficient pace.

Grupo Boticario, a beauty brand in Brazil, uses on-metal RFID tags as they seek end-to-end traceability across its increasingly complex supply chain. Thanks to these tags purpose-built for beauty, stockouts were reduced by as much as 97% and the identification of hidden stockouts increased by more than half. For the company, a key use for RFID is FEFO (First-Expired, First-Out), which eliminates most product expiration and allows them to balance inventories between the front and back-of-house.

Adidas is using RFID for its Infinite Play circular programme in the UK. The solution allowed them to deal with reverse logistics, scale their ability to buy back products and give them a second life. RFID also allowed Adidas to be certain of the product’s authenticity.

Etam (French lingerie brand) adopted digital ID technologies to drive omnichannel innovation and transparency. The brand’s ‘Try @ Home’ initiative leverages RFID as a way to increase consumer convenience. Also, clients can scan the QR code on product labels to get instant access to short videos that provide insights into the actual factory where the item was produced.

As explained during the Shoptalk retail conference held in May 2023, H&M’s COS smart store’s ambition (currently in a testing phase) is to serve both the staff and the customers as well as to connect the digital and physical worlds using RFID technology. Overhead RFID readers are set up in the store, fitting and stock rooms allowing the store staff to have a constant view of where products are on their mobile app. On top of showing a map of the store to see where the item they are looking for is located, the mobile app also provides style suggestions able to help sales associates increase turnover. The RFID technology also helps with store replenishing and merchandising. For COS, it represents a true competitive advantage as new employees can be very productive in a reduced amount of time. On the customer side, once the item is brought to the fitting room, the RFID tag automatically connects to the screen in the fitting room: style suggestions are proposed, as well as additional products. Using the screen, shoppers can also request different sizes and access mobile checkout. Overall, according to COS management, their smart store based on RFID technology is said to significantly elevate the customer experience and increase sales.

IADS members’ experience with RFID technology

Why is there no consensus about the technology? It seems the potential provided by RFID is not used to its maximum, proving that efficiency is limited. Also, as mentioned by members, the technology has been here for a while now and many retailers have not yet embraced it. Besides, many questions need to be answered, such as at which stage of the operations should RFID tags be added to the product. It seems ideal to have suppliers putting them on products but in case it’s not negotiable, is it still beneficial and efficient enough to add them to goods at the department store’s DC? Besides, RFID implementation is in essence more challenging for a retailer than for a brand. Let’s also remember when Walmart announced that all of its suppliers needed to have their pallets tagged with RFID in under two years. This forced adoption ended up leading to RFID’s demise when the project resulted in the realisation that the costs, at the time, outweighed the benefits. Then the project was deemed a failure in the retail industry.

One IADS member has been using RFID quite extensively for 7 years (especially with their Private Labels). Digital IDs are put at the suppliers’ facilities. The department store convinced some external brands to include RFID in their products, but it can sometimes come with insoluble problems:

If a brand is only doing it for a single retailer and not implementing the technology as a strategic move, the quality of information can be very poor.

So far it has been impossible to put RFID on very small items, FMCG and bulk items.

Companies, such as luxury brands which are essential to many department stores, are refusing to invest in RFID technologies.

Also, and out of security reasons, this IADS member decided not to use the technology in payment processes and as an anti-theft device. Tags can be too easily removed compared to hard EAS anti-theft tags. While they are reviewing the possibility of mixing both technologies in soft tags, their security department feels that these tags can be cut or damaged very easily.

RFID costs can be an issue: they are difficult to evaluate as they depend on volumes. Still, Avery Dennison estimates that RFID tags are roughly USD 50 per 1,000 whereas fabric tags are USD 20 per 1,000 and paper tags are USD 30 per 1,000. RFID technology can be put inside the price label, so retailers can optimise the cost of the tag. Also, the information embedded in the RFID tag can include any information such as product composition, traceability facts and instructions for use, showing multiple ways of optimising product tagging. In the end, retailers could only have one tag including all related product information from the origin of materials to the price tag for customers.

Ultimately, the technology is pricey, but the ROI could be fast and straightforward. The IADS member using it identified the main RFID benefits:

The cost and productivity of the physical stocktake management. With RFID, it’s possible to inventory 5,000 tags in one minute. Since it’s so much faster, it reduces the in-store inventory cost and labour management. Stores can easily run weekly stocktakes whereas they could only do 3 per year previously. Some retailers see QR codes as a cheaper, yet efficient alternative to digital IDs, but QR codes don’t give the possibility to scan multiple products at the same time.

It is also critical to omnichannel business growth: with quick commerce delivery options, a very accurate inventory is much needed.

There are benefits on lost products as RFID technology works better than any relevant IT system. Sales also increased since the stock is more accurate and products are easy to locate and retrieve.

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| --- | --- | --- |

| Pros of RFID | Cons of RFID | RFID benefits acknowledged by IADS members |

| Reduce disconnection between sustainability concerns and supply chain initiatives | Lack of security as tags can be too easily removed compared to hard EAS anti-theft tags | Item tracking allows frequent ultra-fast stock take |

| Reduce overproduction | Time-consuming implementation process | Accurate stock, needed in quick commerce |

| Reduce damage to products | Onboard suppliers and brands | Increase in sales |

| Item tracking for ultra-fast stock take | Cost |  |

| Increase stock accuracy, needed in quick commerce | More challenging for a retailer than for a brand |  |

| Increase sales |  |  |

| Efficient store replenishing and merchandising |  |  |

| Seamless self-checkout |  |  |

| Reduce waste thanks to FEFO (First-Expired, First-Out) and FIFO (First-In, First-Out) policies |  |  |

| Helps with reverse logistics for returns and buying back products |  |  |

| Increase customer convenience with product suggestions and information |  |  |

| New store employees are quickly productive |  |  |

Pros and cons of RFID and what IADS members think about the technology

*Whether it’s at the DC or in-store, having an accurate inventory is an obvious RFID’s ROI. The technology can also be used to source products for delivery or for stores from the best places depending on factors such as time, location, or sustainability. At the store level, faster and more frequent stocktakes, more proper replenishments and the easy localisation of products can automatically increase sales but also give more time for sales associates to take care of customers and sell.

Finally, at a time when crises are coming more often, RFID technology allows users to support the many disruptions in the supply chain by providing visibility and efficiency. For example during Covid, many shipping containers were backed up with lots of products in them. With RFID-enabled products, retailers could scan the container to prioritize the ones to unload and the ones that could wait without disrupting the business even further.

Despite such benefits, retailers are tiptoeing when it comes to extensively using RFID technology. Costs, long implementation process, collaboration with brands on the topic and in-store security issues seem to represent obstacles.*

Credits: IADS (Christine Montard)

El palacio de hierro store pictures

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*The Mexican member of the IADS, El Palacio de Hierro, is one of the largest in the world by turnover. Founded in 1891 with a store in the centre of Mexico City, the company was the first Public Limited Company in the country’s retail industry. El Palacio de Hierro, owned by Grupo Bal, is also the owner of shopping centres in the country.

Lately, the introduction of experiences to generate traffic and answer customers’ expectations has been key to El Palacio de Hierro’s strategy. Whether it is Polanco, Perisur or their new Coyoacan store, each of them offers something unique, from architectural features (such as Coyoacan’s huge 1,270 square-meter glass dome on the top floor) to product offerings and unprecedented and tailor-made services. Celebrating Mexican history, culture, and art, each store reflects the group’s strategy of offering different designs inspired from their direct environment.

The IADS travelled to Mexico for the CEO mid-year meeting in May 2023, an opportunity to visit the Coyoacan store and the recently refurbished Polanco and Perisur stores.*

Coyoacan store: storytelling and ‘retail-tainment’ at their best

Architecture and design

A year ago, following a US$140m investment, El Palacio de Hierro reopened its Coyoacan store located in the Mitikah shopping mall. The Coyoacan area is Mexico City’s second most visited place in Mexico, thanks to its cultural and historical importance. The Coyoacan store design takes cues from its neighbourhood’s architecture and famous inhabitants such as the actress Dolores del Río, the photographer Gabriel Figueroa, the artist Frida Kahlo, the actor and filmmaker Emilio "El Indio" Fernández, the architect Miguel Ángel de Quevedo Zubieta and the poet Salvador Novo. Spanning 5 floors, each floor is dedicated to a cultural icon. For instance, embroideries from Frida Kahlo's dresses have become reliefs on the ceiling. Also, the typical doorways and facade textures of the Coyoacan area are replicated in the separation of spaces and on the doors. Frida Kahlo’s house’s, Casa Azul mosaics are reinterpreted on the floor of the ground floor atrium. Others are more subtle and show rare and amazing attention to detail: for example, the iron structures separating spaces in the restaurant atrium subtly form the letters of El Palacio de Hierro. The store also includes eighteen murals inspired by Coyoacan and designed by Mexican artists, the most striking being the ones covering the escalators.

Wandering the floors

With a part of the mall still under construction, the store is not fully finalized yet: when finished, it will be 46,000 sqm, an expansion from its current 38,000 sqm surface.

The ground floor gathers the luxury accessories and beauty department. Some displays reproduce the staircase of the home of Dolores del Rio. The atrium gives the feeling of a village and the terrazzo reproduces the Casa Azul house. The luxury department emphasizes quality jewellery and watches with a mix of Mexican and international brands in a space inspired by one of the most renowned cinematographers and directors of Mexican cinema.

The beauty department features the cosmetics brand on the periphery and mass-market brands on the back. More interestingly, Origen (El Palacio de Hierro’s new beauty and wellness space) gathers niche, green and clean brands. Designed to compete with Sephora, the concept was imagined to be able to attract and test new brands. It is independent from the rest of the store but feels fully connected. Not brand-personalized, the space is by essence very flexible and looks luxurious. The space is elegant and modern, reflecting the product and brand curation. It is divided into four categories: clean, vegan, organic, and positive impact. The concept will be rolled out with the same ‘look and feel’ to encourage recognition. A hair studio and nail bar complete the space. Also, Sisley opened their first spa in LATAM in the space.

El Palacio de Hierro’s ambition is to be the leader in niche fragrances. The perfume department features palm trees replicas and is inspired by Mexican actress Lolita. The space combines California landscapes with Mexican architecture with simple white displays and mirrored details. A concierge to advise customers is available close to this section.

A ’Hello Yellow’ section completes the ground floor. The space is offering a selection of yellow products anchored to El Palacio de Hierro’s identity. Overall, a lot of effort is put into storytelling.

The first floor gathers women and kids categories. The women’s department has an elegant and modern feel, with florals, geometric patterns, and silver and gold details. From casual wear to a space dedicated to special occasion dresses, the department’s ambition is to serve every need. The space beautifully mimics cobblestone streets as well as colonial houses, and also integrates coffee shops serving as transitions between the escalators and the shoe section. Personal shopping services are connected to the elevator for easy access. With a very homey feeling, the fitting rooms are not far and can be privatized for VIPs.

Vibrant colours, geometric patterns, and flowers fill the children’s department which was inspired by the Casa Azul house. In a creative and playful environment, kids are guaranteed to be entertained in this space which also features the Kids Lab and Candy Shop. The Kids Lab is a fun hair salon which includes toys to keep children entertained. Kids up to 16 years old can have their hair or nails done with non-toxic dyes and accessories. Next to the hair salon which is cleverly located, visitors will find the Candy Shop. Here, kids and adults alike can indulge in candy, pastries, chocolates, ice cream, and more.

With a sophisticated, sleek aesthetic, and the use of wood and darker colours, the second floor is the home for men’s shopping and entertainment. The floor gathers a dynamic selection of RTW brands (including casual and formal wear but also a multi-brand store dedicated to Mexican brands) and men’s shoes with a very smooth transition between sneakers and formal offerings. In the shoe section, cleaning and maintenance services for sneakers and other footwear are available to shoppers: professionals can diagnose shoes and have them look brand new in two weeks.

Entertainment and services are at their best with a bookstore (including notebooks, travel gadgets, stationery and fun objects) and a barber shop with traditional aesthetics such as wooden furniture and vintage chairs. Services include haircuts, classic shaving, and beard and moustache styling. A tattoo parlour is adjacent to the barber shop: fathers and sons are confident to come together thanks to the El Palacio de Hierro brand power.  Also, the second floor is the home of a mezcaleria: emphasizing the mezcal culture, the bar provides a collection of more than 100 brands. Finally, the tech space reproduces the trees of the Coyoacan village. Products are demonstrated with iPads and customers are encouraged to touch and try out the various devices to ease the purchasing process.

The home department located on the third floor is a comforting and inviting space, with light wood, exposed brick, and shades of pink. Also, the floor gathers pet products, luggage and the following services: optics, click & collect, customer service, insurance, travel and a dedicated service for celebrations.

Decorated by Mexican contemporary artists, the fourth floor is for F&B (on top of a variety of gourmet food and drinks throughout the store). Zubieta is the department store’s first contemporary Mexican restaurant. It has a natural atmosphere with wooden chairs and tables, green accents, and tree decorations. El Gran Café Palacio is also an option for customers to take a break from their shopping spree. Visitors will also find La Terraza Palacio which features a variety of cuisines that can be enjoyed under the big glass dome. Restaurants are accessible outside of the store opening hours.

Polanco and Perisur stores are offering a good balance between products and services

Polanco store

Opened in 2015, Polanco is a very different experience from Coyoacan which shows a much more immersive strategy. The store entrance can initially give the feeling of a mall with a lot of luxury shop-in-shops. El Palacio de Hierro wants to make sure Polanco’s customers would not feel they are in a mall but in a store with its own identity, which is why they are progressively challenging the brands’ designs, asking for more transparency and see-through. Some shop-in-shops have 3 floors and are connected (Gucci, Louis Vuitton with 475 sqm, Chanel). 90% of Polanco’s customers do not shop in Masaryk Street (100 meters away) which explains that brands have a store in Polanco and another one 500 meters away. The interior design is inspired by the city centre, with reference to Paseo de la Reforma (the main street in Mexico City). Pop-up spaces are reproducing the railings of the street, the atriums are decorated with lamps inspired by the ones on the street, and the canopy is reproducing the Camino Real Hotel symbol, Finally, the ceiling is a homage to the Anthropology Museum in Mexico.

The ground floor is dedicated to beauty, luxury and accessories. Overall, the customer journey is being adjusted and oriented towards more fashion and luxury: for instance, Saint Laurent is taking additional space and absorbing Aristocrazy space. Brands are increasingly encouraged to have see-through stores to maintain harmony. A Moreau (leather goods) pop-up store is at the crossroad between the luxury and cosmetics spaces. Nearby, there are soft corners for bags and accessories displayed in a double exposure with other store locations. The cosmetics area reproduces the Alameda area, another part of the Mexico City centre, and its trees. Also, there is a new writing accessories space, which is working well and a new fine jewellery multi-brand space. The VIP room is used for brand presentations. Designed by a local artisan, benches are available throughout the floor and can be moved around. The atrium has a coffee shop which is an exclusive concept. Its roof is covered with LED screens reproducing the Chapultepec area.

The first floor is dedicated to women and kids. The women’s fashion categories include contemporary (with tree reproductions to separate spaces, and a seating area) and nightgowns (with a salon feeling). A huge shoe department includes a multi-brand space at its centre, shop-in-shops on the periphery and a sneaker maker. In the middle of the fashion space, there is a huge spa (for men and women) located in the middle of the fashion department, as well as a section dedicated to leather RTW and personal shopping services (accessible to all customers).

The shoe area leads to a second atrium where the kids’ department is located, decorated with palm trees as a reference to Chapultepec. The kids’ department is built with reference to a local amusement park, including a rollercoaster track decorating the ceiling.

The floor is also home to unique offerings: Chanel Privé for massage services and La Maison Dior for fragrances. Also, ‘La Suite’ is a 120 sqm apartment dedicated to receiving customers. Interestingly the space is not only used for hosting VIPs but also families for bridal try-ons or ceremony outfit buying. Brands can use the space to present their collections to customers, in which case 50% of the customers are invited by El Palacio de Hierro. This service is not charged (neither to customers nor to brands, the latter only paying for their catering). The space is also open at night.

Inspired by the Chapultepec area, the men’s department as well as F&B offerings are located on the second floor with the escalator leading to restaurants, a whisky and tequila bar and a terrace with a city view. The men’s department includes a barber shop operated by a very old and well-known company from the Mexico City centre. Finally, the third floor is for the home department with a showroom space where customers can try beds. The space is equipped with curtains allowing shoppers to get some privacy.

Perisur store

The store has a completely different feeling and takes cues from the volcanic stones and the sculptures from the 1968 Olympics which were held in the neighbourhood. The store is dedicated to Lance Wyman, the designer of the Mexico 1968 logo (there is a café named after him on the ground floor). The atrium offers a huge mobile moving with the air and the canopies reproduce the Perisur logo.

The ground floor gathers cosmetics, luxury and accessories. Boutiques are all see-through. The accessories multi-brand space is equipped with a luminous ceiling, reproducing the aesthetics of Pedregal houses (the name of the area). The fragrance multi-brand space is equipped with video columns. Close to the escalators, the Lance coffee shop is a destination point for people all around the store. There is also a champagne room treated as a boutique and a small VIP room also used for brand presentations.

The first floor gathers women and kids categories. The transition between women’s RTW and shoes is very wide and easy, only separated by cash desks. This is the most profitable area of the store. Kids are offered a cookie space just near the click & collect space. There is a thoughtful transition towards the women’s section which is completely open to the mall. An escalator leads to a Fauchon café, right in the middle of the fashion section. Personal shopping services are also near the escalators, in a space decorated as an apartment.

El Palacio de Hierro’s men’s customer base is very loyal. The second floor is their home and also offers sports, electronics and services. As in Coyoacan, there is a sneaker cleaning service. Shoes can be shipped to customers’ homes for 3 or more products. There is a bar located in contemporary fashion and a restaurant close to the pet section.

The third floor is for home categories, food and restaurants. The home section is offering a space dedicated to “solutions” (architects, designers, etc…). The food section is decorated with typical tiles from Pedregal houses. The standard restaurant concept Cantina Palacio is available here, only with a different feeling from Coyacan’s. Overall, El Palacio de Hierro’s F&B activities represent 300,000 customers per month. Restaurants (30 POS) are welcoming 13,000 customers per month, food halls welcome 107,000 customers per month and canteens (19 POS) serve 1 billion meals per year. Product sourcing is directly coming from farms.

El Palacio de Hierro’s services: a customer-centric vision

Palacio Contigo: maximizing contact with customers

Palacio Contigo is the name for both the loyalty card program and a customer-focused team. The team centralizes all customer services (before the pandemic customer service was dispatched per BU). There is a unique phone number for customers and call centres have been converted into contact centres operating through phone, WhatsApp, social media, website... Customers can ask any question via WhatsApp and book a product, but the purchase has to be in-store. This new organisation allowed El Palacio de Hierro to serve customers when stores were closed. It also helped reduce the complaints and increase NPS.

Suites and personal shoppers for all!

Not only dedicated to luxury shoppers, suites are available in all stores and used to help customers organize parties, buy products, and have meetings with specialists for special services such as house refurbishing. Basically, they can be used for anything to maximize the business. Due to the pandemic, customers learnt about this service and are increasingly using it. To run these suites, El Palacio de Hierro relies on 40 personal shoppers dispatched throughout the company. They are trained by the brands which send them information about the collections. The personal shopping team is not attached to one of the 14 stores but is independent. A manager oversees Mexico City and operations, another one manages the office and figures. Two drivers and a van are also part of the team to serve customers. Finally, two beauty concierges are available in 6 stores.

Optimization is on the way

Some challenges remain when it comes to data. El Palacio de Hierro misses the connection between POS transactions and the database. They use Salesforce and several different software which do not always work well together. The goal for the end of 2023 is to achieve a full connection able to offer the company a unique and holistic customer vision.

El Palacio de Hierro also works on how to convey personal shopping online. A new team was created in March 2023. For now, a bot pops up on the e-commerce website in all sections except for luxury (as for luxury products, it appears when customers start to scroll down). Also, they have to make sure that only the right people on the staff see and use the database at the right moment.

El Palacio de Hierro’s stores are remarkable in many ways. Firstly, and with incredible attention to detail and storytelling, they are purposely very different from one another as they intend to be truly part of their environment by using interesting neighbourhood architectural features or by paying homage to local cultural figures. Secondly, experiences and services, whether it is a personal shopping suite, a restaurant, a candy shop for kids or a barber shop in the men’s department, are efficiently and seamlessly embedded into product offerings. As a result, El Palacio de Hierro stores can be seen as great examples of customer-centricity.

Credits: IADS (Christine Montard)

Printable version here

*The IADS attended the GDI 73rd International Retail Summit held in early September 2023 in Zurich. Lecturers discussed the decisions retailers should make in uncertain times when costs rise and margins shrink. Money is now becoming scarce, the pandemic destroyed supply chains, and the war in Ukraine is causing energy shortages and high inflation. Consumers are becoming more price-sensitive. And while some companies are downsizing their workforce, others are desperately looking for employees.

What should retailers do when costs rise and margins shrink? Streamline offerings, robotise services, stop sustainability initiatives? Optimise the present now – or invest in the future? What to do? And even more importantly, what not to do?

"More focus!" is the magic formula according to GDI. For retailers, this means setting bold priorities, implementing rigorous decisions and taking responsibility: not just for the shelves, but also for the people – customers and employees – to build trust. The IDAS put together a sum up of the conference lectures and talks.*

*Table of contents

1. The world ahead: geopolitics and inflation, generative AI, purchasing power, the needed rebirth of shopping and the future of retail
2. The state of retail: trends, opportunities and the power of storytelling, experiences and reputation
3. How can retailers act more responsibly: building and showing efforts, and engaging in repair solutions*

1. The world ahead: geopolitics and inflation, generative AI, purchasing power, the needed rebirth of shopping and the future of retail

a)    Economic outlook: what comes after inflation? How geopolitical conflicts and economic changes affect economic and purchasing power. - Max Kunkel, Chief Investment Officer, UBS

The past 2 years were all about inflation with 3 different waves:

1. Inflation started with the huge post-Covid demand for goods (especially in the US).
2. Then, additional inflation came from the increase in commodity prices.
3. A third inflation wave comes from businesses’ reaction to geopolitical woes, scarcity of some materials and bottlenecks in the supply chain. This inflation wave still impacts retail now.

In the coming months, inflation will not cool down in the EU as it currently does in the US. Countries won’t rely on the US and EU’s central banks to predict the future as they are not considered reliable anymore.They lost their credibility after saying that inflation would be temporary. It might have been true by then, but they were unable to properly communicate the impact the second wave was going to have.

In the US, consumers are not deterred from consuming thanks to job security, a steady job market and a regular increase in wages. However, fiscal policies will not be supportive anymore, hence credit card debts will increase.

What about China in this context? Reopening won’t have the booming effect Western countries are expecting. Measures taken by the Chinese government are about getting the current growth rate stabilised instead of providing stimulus to generate higher growth. Also, China is in a deflation phase one could expect it to export to the rest of the world, but it won’t be the case.

b)    Next tech: a future outlook. What current technological developments such as generative artificial intelligence implicate for companies, employees and customers. - Marianne Janik, Chairwoman of the Executive Board, Microsoft Germany

Generative AI is a huge step in tech. Each step that happened in the tech sector generated wealth (internet, mobile phones…), so this should be an incentive to take the topic seriously. OpenAI, a non-profit partner of Microsoft, launched Chat GPT, which reached 100 million users in 3 months without any marketing. The speed of spreading among society and business is unprecedented.

People are now quite aware of Generative AI (GenAI) use cases: creating content, summarising texts, combining text and images, coding… When it comes to retail, GenAI allows to:

•    Process customer feedback thanks to a GenAI-powered chatbot to answer customers.

•    Offer shopping assistance to help customers find what they are looking for (equivalent to an online sales associate).

•    Speed up the product description process, usually a time-consuming task (can be implemented very quickly).

•    Generate personalised marketing messages.

•    Create complete store magazines with texts, pictures, recipes, etc.

•    Have a supply chain copilot: GenAI gathers data from different sources and helps the company understand where it stands to make the best-informed decisions.

•    Create shopping lists and provide recipes (as explained by Cyrille Vincey about Carrefour during 2023 3rd CEO meeting in July 2023).

•    Support category management and sourcing.

c)    «Going shopping» is dead: why time design is a crucial success factor in retailing. - Johannes Bauer, Head of Think Tank, Gottlieb Duttweiler Institute

People in Western countries work less and have more spare time than ever before thanks to increased productivity. Research shows that the more you have time, the happier you feel with your life, with both time and happiness factors being tightly intricated. Despite this, people feel under stress because of time pressure (in Switzerland, 45% of people wish they had more time for themselves).

Why time-related pressure is important for retailers? Shopping faces a lot of competition from other activities making people happier, seen either as more entertaining (TV) or meaningful (time spent with families and friends or learning activities) .

How is shopping now considered? Is it still fun? Can it be meaningful? Shopping is in an existential crisis as it is increasingly perceived as adding to people’s stress levels (especially when it comes to grocery shopping). The amount of time women spend shopping has decreased over the last 25 years from 180 to 110 minutes per week. Shopping is not considered a fun activity anymore because of limited financial means. Besides it is now seen as a time-consuming, complicated and boring chore.

From that perspective, it seems that retailers' efforts towards more convenience, experience and purpose haven’t hit customers yet. Also, customers increasingly favour repair over buying, owning is not as crucial as before and socialising is more important than shopping. Inspiration, experience and identity have become some of the key values of shopping as well as speed and efficiency. As a result, retailers should develop:

•    Promptness: for instance, offering no lines at the cash desk, seamless payment and an accelerated shopping process.

•    Proximity: be closer to customers, physically and mentally. For instance, shopping is moving from city centres to the periphery of cities with retailers such as Nike and Nordstrom opening local small-size concepts.

•    Pleasure: coming mainly through inspiration as customers are expecting to find new ideas while shopping. This doesn’t necessarily mean retailers must offer that many products, the most important being to know what their target customers perceive as a great time spent shopping.

•    Purpose: with increasing expectations for CSR commitments and mixed-use retail to allow more activities besides shopping (restaurants…).

d)    The future of retail: trends and opportunities. Exploring the key trends and innovations shaping the industry. - Scott Galloway, Professor for Marketing, Stern School of Business, New York University

Galloway introduced a collection of ideas and trends that were not necessarily linked to each other •    Concerns emerge despite a positive economic outlook in the US: consumer demand is coming down and supply chain issues are currently being solved. Wages are increasing faster than inflation, pushing consumption, and the job market is robust. Despite these positive factors, people expect economic disasters. But they never happen: the more we worry about them, the less they happen (Y2K, Greek debt domino effect…). Work-from-home is an enduring trend (less in the EU than in the US) that impacts both residential and office real estate.

•    When it comes to tech companies, their new strategy to improve profit is to lay off staff: lay-offs range from 80% of the staff at X (Twitter), 24% at Meta to 5% at Microsoft.

•    Luxury continues to surge. The number of billionaires has multiplied by 5 over the past 2 decades. It is also good to be rich as fiscal pressure has decreased everywhere since the ‘70s. Ultra-luxury aggregates more and more wealth: quiet luxury brand Brunello Cuccinelli posted a YOY H1 +31% growth and Hermès now has a larger market capitalisation than Nike.

•    Customers are craving for experiences. The post-Covid You-Only-Live-Once mindset is still present, and people are spending a lot of money on travel and culinary experiences. As a result, e-commerce is decreasing. When it comes to experiences, gated communities are gaining traction: for instance, the Soho House number of members grew by +91% from 2021 to 2023. Luxury hotel fees can now reach USD 28,000 per night as is the case in Dubai.

•    When it comes to the road ahead in retail, innovation efforts are put into the supply chain with the development of solutions like BOPIS. Consequently, customers are less satisfied buying on Amazon as many other retailers offer the same delivery services with a better shopping experience.

•    There is no real innovation happening in-store even though stores are crucial to the business. For instance, Apple’s greatest innovation for their future growth was to open stores: they are Apple’s best ad. Apple is ranked #1 in sales per sqm. Tiffany is #2. Stores, as well as the price point, are the only difference between Apple and Android phones.

•    AI will create more jobs. Automation will generate wealth as it’s the case with Starbucks which will be able to make 400 lattes per hour instead of 20.

To conclude, Galloway predicts that the biggest innovations to come in retail will be the disappearance of gas stations and retailers entering the healthcare sector to transform it into better experiences.

2. The state of retail: trends, opportunities and the power of storytelling, experiences and reputation

a)    Experience retail: integrating content, community and commerce. How storytelling turns a shop into an experience. - Rachel Shechtman, Founder, Story, and Member of the Board of Directors, Camp

In 2011, Shechtman founded the Story store concept with the idea that it should act as a magazine with displays and brands changing every 2 months thanks to renewed stories (as if the store was a gallery), but also selling products like a normal store. In 8 years of existence, they had 43 different stories:

•    They were telling these stories by merchandising products and brands and by creating events.

•    They were making money by selling products and related sponsorships: for instance, the Cigna health care company as the sponsor for the wellness story.

Shechtman sold the company to Macy’s in 2018 and worked with them for 2 years to scale the Story concept: 36 locations opened across the country. Besides adjusting the concept to a department store, scaling it required to rethink who and how to hire the people who were going to work in the Story shop-in-shops. It was new to Macy’s to favour mindset over skillset.

Then Shechtman opened Market by Macy’s in February 2020 which she defines as a lifestyle centre (spanning 2,000 sqm). The main ideas behind Market by Macy’s were the following:

•    Editorialise products: for instance, by including Marc Jacobs’ Daisy floral-shaped perfume products in the floral dresses department.

•    Instead of a traditional customer service counter, offer a happy-to-help desk including many services and develop the idea of a community store,

•    Open a coffee shop based on the local consumers’ real taste,

•    Create a multi-brand beauty shop-in-shop, Getchell’s Apothecary,

•    Set up an event calendar to offer activities ranging from cooking classes to book signings and fun for kids of all ages.

When it comes to Camp, the store used to only feature theme-related bookshelves and fixtures in the beginning. Then they started to develop experiences, and now shelves are magic doors to access paid experiences such as Disney's Little Mermaid (with dynamic pricing from USD 35 to USD 65). Camp now is a theme park in a store.

Camp is also eager to develop a great vendor experience. To that end, they offer a single point of contact to avoid having 3 persons from accounting and 3 persons from buying, etc… in cc of the emails. They also send hand-written thank you notes for instance.

b)    Let's get phygital: the next frontier of department stores. How to use digital and emotional connections to attract the new "Generation C". - Dimas Gimeno Álvarez, CEO, WOW Concept

The Wow concept was opened by the former El Corte Inglés president. It is a new department store concept with no legacy, hence no constraints (besides money) and no limitations. Gimeno defines it as a marketplace with a store, a phygital concept store which business relies on:

•    Curation: what a store is selling is more important than ever. They look for the newest brands that are not present in the Spanish market yet: these brands should be new, difficult to find, trendy, exclusive, desirable and forward-thinking. Wow is a connector between consumers and brands.

•    Experience: a great one should involve convenience, ease, flexibility, a frictionless journey, speed, personalisation, and everything in real-time. The in-store experience is digitally based.

•    Mindset: involves difference, innovation, entertainment, exploration (back to the department store roots) and F&B on the rooftop.

According to Gimeno, the path from physical to digital retail offers retailers the possibility to humanise physical and digital through personalisation. This in turn leads to an increase in the conversion rate and cross-selling, a decrease in customer acquisition costs and return rate, and the ability to acquire small data.

On another hand, the path from digital to physical retail allows a superior customer journey which requires an extensive use of technologies with many advantages: increased qualified traffic and conversion rate, improved customer loyalty and big data.

It took Wow 1.5 years to know who their customers are. It was a tough path paved with a lot of mistakes, but they are now on track with the opening of a second store in Madrid.

c)    Sports retail rethought: the path to the experience brand. When platform and community are more important than shelves and clicks. - Matthias Rucker, CEO, SportScheck

Sports practice transformed a lot since Covid: it now conveys enthusiasm, involves networking and requires experience at the retail level.

SportScheck has 34 stores in Germany and is a leader in omnichannel sports retail as their e-commerce turnover represents 28% in 2023. It intends to be an experiential brand and be an authority in running and outdoor activities, omnichannel excellence and cost discipline.

Being perceived as an authority in a discipline is difficult for a multi-category retailer, and SportScheck is struggling a bit more with outdoor than with running activities. When it comes to running, they offer brands in width and depth (from niche to mainstream, from highly technical to more basic options), they have built an identity and find innovative ways to reach out to customers. Communicating about running is often very serious: instead, they decided to include more fun (life is more fun when you run) and invite people to be themselves.

In terms of experience, they also launched many runs and so far, they have had 40,000 participants. They also created a running academy offering courses to learn how to run well depending on the customer’s level and ambition in terms of distance. Also, the Munich store had a 24-hour run on a treadmill: a distance of 380 km was achieved by several runners, and it is now in the Guinness Book. They have a new store format in Stuttgart featuring surface-practice areas, a live workout area with courses offered along the day, physiotherapists and an optician as services in addition to a more traditional advisory service. The concept is due to roll out to other cities. The website also offers an experience platform connecting events and activities with the necessary products.

All those activities are great material to enhance the communication with the community of customers as well as live streams, social media activities and PR buzz creation.

d)    The power of storytelling: building trust and creating value. How to shape the 24/7 conversation to protect and enhance a company's reputation. - David Shriver, Chief Reputation Officer, Ocado Group

Reputation is the key to reaching customers, suppliers and financial stakeholders. Emphasizing a story around a brand is difficult as people will more likely focus only on daily figures and operations rather than the conversation around your brand. But if there is no conversation, there is no brand.

Stories create conversations. These conversations constitute the retailer’s reputation. The conversation has changed in the digital era, and there are 5 factors shaping digital conversation:

1. Disintermediation: the last time technology had the same impact as the digital revolution was Guttenberg’s press printing.
2. Velocity: it has a major impact on storytelling and on the speed of spreading. For instance, in 2013, fake news was reported by the Associated Press agency that President Obama was injured by a bomb in the White House. It immediately provoked a major stock market drop. Even though the news was removed in minutes, the impact on the stock market was still there.
3. The end of silos: de-clustering who has access to what.
4. Loss of control.
5. Permanence: the internet never forgets anything even though nobody ever goes on the second page of a Google research.

It’s difficult to determine the outcome of the conversation, but companies can shape it. To that end, they need to own the story, believe in it, take every opportunity to tell it and sell it.

3. How can retailers act more responsibly: building and showing efforts, and engaging in repair solutions

a)    The foundation of action: success requires responsibility! Why retailers must act on behalf of their customers. - Markus Kaser, Chief Purchasing, Marketing and IT Officer, Spar Austria

Spar operates in food (supermarket), sports and owns 37 shopping centres. They posted a USD 18.63bn revenue in 2022 and they dedicated USD 690mn to investments. 91,300 employees work for the company.

How is Spar gaining customers’ trust, from the bottom with product quality up to communication with customers? This is articulated in 6 sets of initiatives:

1. Reducing sugar: they started the project by building a scientific advisory board gathering paediatric doctors and diabetes specialists. Then they partnered with the industry and suppliers. It required time and investments as customers had to get accustomed to less sugar, hence Spar had to develop pricey new recipes. Today, customers don’t feel a difference between yoghurt with only 9% sugar compared to 14% before. In parallel, they reduced the sweetener usage.
2. Saving biodiversity: first, they promoted biodiversity in the product offer (pushing for alternative products) and then discontinued selling species in danger of extinction (fish).
3. Protecting bees: they built a bee council with experts.
4. Communication: they showed the actions they took against glyphosate usage and asked suppliers to discontinue its usage (or at least to offer clear labels). They are also fighting against the European ‘Nutri Score’ on food products as it doesn’t show the real quality and impact on health (an industrial frozen pizza is B-graded whereas olive oil is C-graded and butter E-graded). This needs to be urgently revised.
5. Conveying information: by sorting out and explaining facts and myths.
6. Enjoying food sustainably: to that end, they develop meatless food (they now have 120 own products) without sacrificing taste.

b)    Tool sourcing: the infrastructure for repair in retail. - Ingvill Kerob, Co-founder, Repairable

First, Repairable investigated to understand why people stop using products:

•    Products expire or run out of fashion (30%): in that case, renting products instead of buying them and resale products can be solutions.

•    The product changes in fit and/or in colour (30%), in which case repurposing is a good option.

•    Damages such as holes occur on the product (30%): repairing it is the solution here.

•    Other reasons (10%).

The company has tried to scale repair in retail for 7 years. They want to build a large community of repair companies to make repair part of the retail industry. Such initiatives are an opportunity for retailers to be compliant-ready, get rich data, reduce costs, improve topline and retain customers thanks to a great after-sale experience.

But extending the product lifetime means changing the retail business model, KPIs, people and budget. In the end, the challenge is to move the retail industry from product selling to service selling.

Unfortunately, the competence of repair is scarce. People who are in the know must be creative enough to find a custom solution for almost every product. It is a difficult job with small wages. Besides, the repair margin is smaller than the one for selling products. There are additional hurdles:

•    The product's original value should be at least EUR 100.

•    The cost of repair should not exceed 50% of the product's original value (logistics costs included).

•    The physical infrastructure is difficult to build and requires precise mapping of all the local professionals and their specific skills.

It seems repair solutions are not ready to scale yet whether it is because of the scarcity of competence or the economic model.

c)    Second life: community building by fixing stuff. - Martine Postma, Founder, Repair Café International Foundation

The foundation promotes repair worldwide in a different way than Repairable. They advise and allow people to open Repair Cafés for clothes, toys, furniture, white and brown goods… (repaired 65% of the time). Usually, it acts as an eye-opener for customers as they don’t know or think the product could be repaired (collaborative work with experts in the Repair Café). People also discover that repair can be fun and rewarding.

They provide a digital starter kit available in 5 languages on their website, repaircafe.org, including a step-by-step manual to build the project and communicate around it. 2,824 Repair Cafés have already opened across the world.

Repair Café calls on governments to allow repair options to be cheaper than new products, by cutting VAT and providing more information. They could also reduce consumption by putting a flat tax on fast fashion. Governments could educate people starting from school, but they are very reluctant to do it so far.

Postma urged retailers to acknowledge that customers don’t need that many new products. They should help repair become a cheaper option than new products. They could also benefit from repair thanks to a better relationship with customers and a better in-store experience as well as the collection of data.

*The ability to focus is one of the most important management competencies in retailing, especially at the moment. Thought leaders, retail pioneers and top managers should ask themselves the following questions:

•    Less is more: how does streamlining the focus help retailers to become more employee- and customer-centric?

•    Curating versus reacting: do successful retailers shape customers’ preferences through their assortments – or do they merely address existing customer needs better than the competition?

•    Product, service or experience: what do retailers need to focus on when customer journeys become immersive experiences between physical and digital worlds?

•    Human versus machine: how does a human-centred approach focusing on customers’ and employees’ needs unlock the true potential of automation?

•    Way out of the crisis: which innovations truly help retailers thrive in the recession?*

Credits: IADS (Christine Montard)

Printable version here

Back in March 2021, Dr Christopher Knee shared his views on cultural goods, specifically books, in an IADS Exclusive. Two years later, the cultural goods footprint in retail is growing in renewed ways, justifying a new look at the topic.

Several reasons are underlying the cultural goods trend. On one hand, the cultural goods business at large is growing as explained by Bain & Company and Altagamma in their 2021 luxury report: with the reopening of art fairs, the art market recorded a post-Covid renewed interest in art with an increasing participation of new and younger consumers buying in the mid-priced segment. Besides investment and speculation purposes, this phenomenon is also sustained by the new pivotal role of home and the intertwining of living and working. On another hand, many luxury brands are morphing from high-quality product manufacturers to cultural actors, offering consumers ‘on steroids’ value proposition and raising the bar for other retailers.

This expanded value proposition is an additional way to answer new consumers’ expectations for more experiences beyond the traditional retail transactional relationship. From that perspective, increasing the retail’s cultural component and the cultural goods offerings represent an additional opportunity to drive traffic in stores and possibly generate additional turnover.

High-end art is a traffic and brand builder, but could art selling generate turnover?

Many department stores display art in their stores. For more than 30 years, Le Bon Marché in Paris has supported the contemporary art scene by acquiring paintings, sculptures and drawings as well as exceptional design pieces. Visible everywhere in the store and in parts of displays for some design pieces, the store is now giving its collections an additional experiential value by monetizing visits (for a EUR 20 fee).

Galeries Lafayette also ventures into exhibiting art: since 2016, they are showing a massive ‘Light Machine’ by French artist Xavier Veilhan in the Haussmann men’s store. More recently, and now that the famous cupola renovation is completed (a cultural attraction in itself), they brought an art installation called ‘Time to Breathe’ by the Korean artist Kimsooja, which offers a new vision of the cupola. By covering the inside historic dome with a film that diffracts the sun's rays, Kimsooja creates ephemeral luminous effects on the exterior surfaces and in the interior spaces of the dome. To create a new experience, visitors can even book a visit to the in-between dome.

Since 2020, South Korean major department stores such as Shinsegae, Lotte and Hyundai are venturing into the art market in 2 ways. Firstly, they jumped into the art market by collaborating with existing art fairs: for example, Hyundai and Lotte’s Busan branches are partnering with local art fairs. Secondly, they are incorporating art pieces in their stores to enhance the customers’ shopping journey (up to 250 pieces for Shinsegae). As for other Western countries, interest in art grew during Covid-19, particularly among the Millennial and Gen Z generations. Overall, the purpose of art displays in department stores is about enhancing company branding and not trying to make a profit out of selling art pieces.

But art also increasingly enters department stores in transactional ways. In May 2023, Lotte announced they would open a pop-up store showcasing 200 different kinds of merchandise from the National Museum of Korea (replicas, limited editions). Here, this museum ‘gift shop’ overlaps with national pride amid the Hallyu cultural wave. Similarly to Lotte, La Samaritaine opened a 5-month ‘gift shop’ run by the international art gallery Perrotin at the time of the store reopening in June 2021. The 200 sqm pop-up store offered cultural goods such as art books, artists’ limited editions, replicas, goodies and decorative objects. Besides product selling, offering cultural goods was a great way to make the offer dedicated to younger customers more dynamic and attractive.

Finally, in May 2023, Galeries Lafayette Nice Massena store hosted a performing 50 sqm pop-up store dedicated to controversial, yet very successful, French artist Richard Orlinsky. The space was selling limited editions of the artist’s famous gorilla sculpture and an exclusive highly commercial capsule collection including items priced under EUR 100 such as t-shirts, pens, puzzles, suitcases, iPhone and AirPod cases.

Selling cultural goods thanks to partnerships

As explained by Dr Christopher Knee, some department stores have not abandoned books but run this business in partnership with bookstore partners. Harrods in London partners with WHSmith to manage their lower-ground bookstore. De Bijenkorf in Amsterdam has handed its book department over to AKO, part of Audex. In 2021, Manor signed a partnership with FNAC (a legacy French retailer specialised in cultural goods) to open 27 shop-in-shops to provide books, audio, video and electronics. There are business limits to partnerships though: having limited brand awareness in the German-speaking part of Switzerland, FNAC and Manor recently decided to close 10 shop-in-shops.

As part of their turnaround strategy launched in March 2022, Printemps announced that cultural goods would be part of their revamped product offerings. Pursuing their existing partnership with the famous Parisian bookstore Gibert, they opened a 490 sqm bookstore located on the 7th floor of the Haussmann men’s building. The space offers more than 20,000 books including 20% of second-hand books and also a very large selection of Japanese manga books. This is a smart move as the category is highly praised by Gen Z who is massively buying manga (France is the second market for such books). Filled with natural light and offering a great view of Paris rooftops, the bookstore is coming along with appealing food and beverage offerings, making the entire space a relaxing and engaging place. Whether profitable or not, this type of offering can generate traffic when shrewdly targeted and create the kind of lifestyle experience and ecosystem that consumers are currently looking for.

Being part of the Zeitgeist: cultural prizes and sponsorship

Brands are increasingly embracing culture to be visible to additional groups of consumers and to be a player in the Zeitgeist. Supported by the Loewe Foundation, the brand created a Craft Prize to support international artisans who create objects using materials such as ceramics, metal, leather, textiles, glass, wood, etc. To emphasize its cultural impact, the latest edition of the Loewe Craft Prize award ceremony was held by Fran Lebowitz (a famous New Yorker intellectual leading figure) at the Noguchi Museum in New York at a time when the brand is willing to grow its footprint in the US.

The world of department stores also participates in cultural prizes or acts as a sponsor. In the US, Neiman Marcus has 3 fashion awards which were given to Brunello Cucinelli, Loewe’s artistic director Jonathan Anderson and shoe designer Amina Muaddi. The department store will invest in merchandising, brand marketing and in-store experiences to promote these brands to its customer base. Closer to the IADS, the Manor Cultural Prize offers an opportunity to discover a wide range of emerging artists throughout Switzerland. For more than 40 years, the prize-winning artists have had exhibitions of their work throughout the country.

In terms of sponsorship, in 2022, Galeries Lafayette Group renewed its support for the international contemporary art scene by becoming a partner for emerging art galleries during the first-ever edition of Paris+ by Art Basel. The Group supported and boosted the visibility of 16 galleries and artists. Also, the group runs Lafayette Anticipations, a foundation supporting contemporary creation. The Foundation acts as a catalyser, providing artists with unique conditions to produce, experiment and exhibit their art.

Beyond retail: becoming a cultural ecosystem

Big luxury brands have always had privileged relationships with the art world in many ways, from product offerings (think Yves Saint Laurent’s Van Gogh sunflower jacket and Mondrian dress) to brands sponsoring art institutions (Chanel and Rolex being Paris Opera’s major sponsors) or art museums (Pinault Foundation in Venice and Paris and Louis Vuitton Foundation in Paris). Art and commerce have always been a great match and it’s only growing.

Since December 2022, the Louis Vuitton Dream exhibition is held in their Paris HQ, celebrating 160 years of creative exchanges with artists such as Jeff Koons and Yayoi Kusama. The exhibition includes a curated gift shop and a famous pastry chef restaurant offering logo-stamped cakes. Overall, Louis Vuitton is doing more than ‘only’ transforming into a luxury lifestyle brand: the value proposition is now to dress, eat, drink, sleep (they will open a hotel), and soon read and watch Louis Vuitton. It’s a complete mental ecosystem. And speaking of watching, Kering’s Saint Laurent launched a motion picture production company in 2023 with a first venture financing the latest Pedro Almodovar movie. Also, LVMH’s Loewe entered the world of high-end design with an exhibition held as part of the 2023 Salone del Mobile in Milano: building on their reputation for craftsmanship, they showed different weaving techniques in various materials to reinvent humble chairs. Chairs were sold out in minutes.

In the word 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 at the end of May 2023, Flannels X had a pop-up store showing a big part of the Beyoncé x Balmain couture collection for the first time, and also selling merchandise from Beyonce’s Renaissance World Tour. This initiative positions the store at the intersection of luxury and pop culture to offer more experiences and reach younger audiences.

In Hong Kong, on top of their art village, art collection, art space and events, K11 malls launched its Art Foundation, a non-profit organisation dedicated to fostering the development of Chinese contemporary art. Committed to supporting artists and young curators through exhibitions, artist residencies, and educational programmes, the foundation also established partnerships with leading art and cultural institutions around the world, Centre Pompidou in Paris, and the Metropolitan Museum of Art in New York among others.

Since their inception, department stores have always been cultural stakeholders. Their remarkable architecture, the size of the stores, the unprecedented abundance of products and the revolution they initiated in buying and selling made them an essential part of the Zeitgeist.

They lost a bit of their grip over the past decades. While fashion usually is department stores’ main source of revenue, cultural goods and footprint can for sure contribute to improving the shoppers’ journey (if not generate turnover), not to mention how acting as a cultural player can contribute to creating the experiences consumers are looking for.

Credits: IADS (Christine Montard)

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ChatGPT constantly made the headlines for the past 9 months and its adoption was massive (it reached 100m monthly active users in January 2023, 2 months after its launch. For comparison, it took 9 months for TikTok and 2,5 years for Instagram to reach the same amount of MAU). However, ChatGPT is just the tip of the iceberg, more precisely a ‘demo’ product showing to the general public the capabilities of Generative AI (a system able to answer queries, or ‘prompts’, after having been trained on large amounts of data, and therefore capable to bring answers which are going further than simply mimicking the data it learnt).

Generative AI has already started to disrupt many industries and retail is no exception. This is the reason why IADS invited Cyrille Vincey, Partner in Advanced Analytics at Bain & Company, to provide IADS member CEOs with more information and give a few examples of use cases in retail.

Cyrille Vincey has been in data science for 25 years in various industries, always obsessed with bridging business matters on one side, with technology and data science on the other.

After having started his career at a software publisher, applying operational research and graph theory approaches to supply chain optimization, he founded a data science startup, later acquired by an e-commerce player. He then took on a CDO role and shipped a large-scale audience-sharing platform used by 8,000 e-retailers.

As a consultant, Cyrille has been working primarily in the retail industry and assisted on most of the tech M&A deals in Europe, including ad tech, digital trust and enterprise software. At Bain, he fosters the next generation of data-enabled consultants and works closely with Open AI in the framework of the Bain x Open AI alliance.

He defines himself as a ‘data nerd’, a ‘tech guy’ who has been in tech entrepreneurship for 25 years and half-jokingly opened his presentation by mentioning that, now that AI is a commercially available product, people like him are not needed anymore, as businesses and organizations now only need software engineers to plug pipes and coordinate the new AI-powered tools available at hand.

Generative AI: landscape and perspectives

What are we talking about?

Generative AI, and large learning language models (LLMs), represent a new paradigm of artificial intelligence, which unlocks advanced capabilities to replicate human capabilities (perceive & understand, communicate & create, reason & plan, act & use tools). For instance, ChatGPT can complete a poem when fed with the beginning of it, based on the probability of the words’ occurrences.

The 2 root causes for this breakthrough are a 2017 research paper from Google describing a new architecture for deep learning models and the fact that IT costs for training this new type of model have been consistently falling for the past 3 years, by a factor of 100 (even though a training iteration for a large company would still cost EUR 20m today, that’s still a bargain when compared to the cost 3 years ago).

Vincey remarked that while OpenAI made a big splash with ChatGPT, the winners of this new arms race might be very well Google and Microsoft, who have the pipelines needed to integrate and scale this tech, make it available to the general public, and disrupt the way companies operate by providing them with new tools.

He also stressed the fact that ChatGPT is just a demo layer of a larger model, GPT, a text-to-text model. There are also other OpenAI products: Co-Pilot (text-to-code), Whisper (speech-to-text), Dall-E2 (text-to-image), Clip (image-to-text). This product portfolio will be questioned in Q4 2023 with the release of a general model proposing a multi-modal convergence (users will be able to use whatever form of input, text, image, speech or code, and to choose the form of the output they want as well). Vincey is convinced that this first general model will encourage the appearance of new applications still unheard of today. For instance, an entire PDF can be analyzed by this new model, and relevant parts can be extracted for use in a specific given context.

An impactful breakthrough in all industries

These new-gen AI-powered tools are fundamentally built with a general purpose in mind, while the previous models (IBM Watson, Einstein…) were built with a specific purpose. Generative AI models can be used out of the box by companies and applied to every internal use case. Therefore, AI innovation projects within organizations now take weeks, if not days, and not 6 months anymore like they used to. This allows industrializing innovation and experimentation with very limited time and costs. Companies who are late in AI-powered decision-making process investments, use Gen AI to leapfrog and do quite advanced things.

Generative AI does not, however, replace the existing quantitative AI-based decision models relying on machine learning and operation research, as it is not, by no means, a one-size-fits-all solution. Instead, it completes them by providing the possibility to bridge the decision taken thanks to the quantitative model, to stakeholders (partners, suppliers, clients, employees…), with adapted context. Gen AI is the ‘last mile’ of the decision-making process. For instance, if a company has invested in a quantitative AI tool to monitor prices and define the best price to be offered, Gen AI will generate ready-to-use pitches for negotiation with suppliers supporting the commercial team in charge.

How does it change business?

The shifts created by the rise of Gen AI have impacted all aspects of businesses and organizations. From a tech perspective, there are no more barriers. Now that AI is a commercial product, in-house development

does not make sense anymore and is not a strategic advantage. The focus now is on the use case play, rather than ensuring that the use cases can be powered. Companies are rushing to find applications for this new capability.

From a general business perspective, all industries are impacted. AI is a mature and business-ready tech, and finding the right way to use it is a competitive advantage, especially in low-margin sectors such are retail. Vincey mentioned that only 1/3 of the use cases developed at Bain are customer-facing solutions, while the remaining 2/3 are backstage efforts on productivity.

Now that tech is just a product that can be bought off the shelf, companies have only one strategic asset: their proprietary data. The urgency is to define the best opportunity how to combine AI products with company data. In that game, companies can either decide to be the first mover or the fast follower. All options are valid.

The impacts in terms of new needed mindset, capability to test, risk and encourage innovation within organizations, are heavily felt and visible. This is why phasing is key:

• The first phase is to develop and deploy Gen AI tools in employee assistance, to save time, limit errors and increase productivity (for instance, to help employees better recommend products to their customers),
• The second phase is to see AI as a co-pilot, proactively making propositions. For instance, AI can manage real-time customer engagement.
• The third phase is to consider full automation. Carrefour’s new chatbot takes over the relationship between the e-commerce website and the customer.

A tectonic shift in retail and for department stores

There are 4 current archetypes across industries on how Gen AI is used:

• Content generation, including images and assets. Coca-Cola now uses a platform based on GPT-4 and DALL-E to create artwork based on company archives and A/B test them at scale (millions of copies are created and tested automatically, vs. 2 in the past, which were developed by a third party). Carrefour uses Gen AI to deal with product data management (product descriptions).
• Advanced analytics, such as a predictive NPS based on conversations. Morgan Stanley has developed a model to help their advisors with AI ‘listening’ to their conversations and making product suggestions in real-time.
• Personalized chatbots, such as Carrefour which has developed a conversational grocery shopping chatbot, are able to make recipe proposals according to customers’ needs, adjust them and propose a full cart of

products needed to make such meals.

• Information retrieval, where syntheses are generated from unstructured data. Salesforce is developing a tool which generates AI-powered content for CRM across the data available in all Salesforce clouds. The Carrefour case perfectly illustrates the capability offered by Gen AI to leapfrog and quickly implement new services and usages: the chatbot, addressing a website with 15m MAUs, has been developed in 6 weeks between kickoff and going live. It can propose a list of menus according to the dietary requirements of the customer, adjust them, and suggest a shopping cart with the right quantity of ingredients needed, in a given budget. Only 10% of the whole development needed specific information from Carrefour, the rest came from the learning capabilities of GPT.

Where in the value chain Gen AI can impact retail?

The answer is simple: everywhere, both in customer-facing operations and backstage.

• In the outreach part, marketing is enhanced with tailor-made propositions customized at scale, which in turn provide the company with a smart view of the customer (for instance, Carrefour has now access to the

customer’s decision-making process easily as it can monitor it in real-time thanks to the client’s interactions with the chatbot), while, in terms of internal processes, Gen AI can help in RFP creation, vendors communications and negotiations, as well as category recommendations.

• In the “decide & buy” part, Gen AI impacts personalized targeting, product information (which is dynamically managed), checkout & payment, and customer service. It also impacts operations (employee enablement,

report generation, product design…) and HR.

• In the “receive & return” part, AI can help with the delivery scheduling and tracking, and provide help with returns, which are also more easily processed internally.
• Finally, in the” use” part, AI impacts customer connectivity and loyalty, and efficiency.

For Vincey, the impact of Gen AI is virtually unlimited. Some tests have been made on the supply part of Carrefour’s business, and GPT proved able to analyze and score RFPs on a quantitative and qualitative basis and recommend modifications that proved correct to buyers.

Bain noted from their own experiences with their customers that the productivity gain is on average +30% in the back office with the use of Gen AI.

Reimagining product categories and customer experiences

For department stores interested in beauty and fashion, he mentioned that Gen AI was specially adapted to 5 main use cases:

• Marketing campaign booster,
• Website content optimization,
• Community management,
• In-app beauty coaching,
• In-store beauty advisor personal assistant for salespersons

When it comes to customer experience exemplifications, Vincey showed a few demos of actual use cases:

• The US-based insurance company USAA uses a combination of GPT and DALL-E to create dozens of personalized ad copies according to a specific customer profile and a problematic, and A/B test them at scale,
• Adidas uses GPT in social media, where Gen AI makes proposals of answers to be sent to customer comments, in order to generate interaction,
• USAA uses GPT in up-sale and cross-sale with the analysis of credit card history, it can make mass-personalized emails (that can be also tweaked with external information) to be sent to customers.

*How can retailers move forward?

As of now, there are three ways for companies to address the challenges and opportunities created by Gen AI:

• Some decide to go into a full 360° transformation journey, based on a leap of faith, and the purpose is to go fast in the transformation in order to reap market share and reduce the cost of operations. This is the case with Coca-Cola or Carrefour.
• Some see Gen AI as a use case acceleration and adopt a test & learn approach with 1 to 2 use cases, which are developed and implemented quickly, to prove out the opportunity and identify the requirements for scale. This bottom-up strategy allows them to act and then strategize.
• Finally, some companies are voluntarily slower in their approach and decide to identify the value at stake by looking at their most critical use cases opportunities compared to their business strategy, and then implement those projects with a top-down approach.*

Whatever the option is chosen, no retailer has the choice to ignore what is going on now with AI, as the risk would be to be left on the side of the road. The change is equivalent to the 1990s when PCs and Internet invaded office spaces, with the difference that this change took place in 10 years, whereas now the timeframe for adaptation is much more reduced. For instance, at Bain, the technology component of the organization involves 1,500 technologists, including 400 data scientists, of which 150 specialized in text mining and analytics. In the course of only one year, these 150 people got rid of their in-house toolbox of natural language processing techniques, and now exclusively use GPT. The disruption in the consulting field is huge, and retail should expect a similar shift.

Vincey also reminded the audience that Gen AI is a great way to catch up with big tech as the leverage effect can be huge, not only in terms of business approach or organizational processes but also in terms of company mindset. It is all about granting the right to the teams to innovate, test and learn, sometimes at the risk of making mistakes.

For that reason, change can only happen if CEOs show the way and encourage such behaviour, if these tests do not take place in the mission-critical part of the business.

Credits: IADS (Selvane Mohandas du Ménil)

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Europe is on a mission to become the world’s first climate-neutral continent by 2050, but this is not a small feat. To achieve such a status, the EU is having to crack down on the way businesses are run and how people conduct their everyday lives in Europe. As a way to reduce the environmental impact caused by retailers, the European Union has started to define and impose new regulations that retailers must comply with. These directives are coming in waves and impacting certain players differently than others, thus raising questions and needing clarification. There are many of these sustainability regulations already in effect, but they are continuing to develop and become more stringent as the EU strives to become more sustainable and environmentally conscious, especially as it seeks to lead the world on the road to a more sustainable future.

Rules, regulations, and directives...the next wave of change

The number of directives, regulations, and reporting standards are multiplying faster than businesses and retailers can keep up. All of these codes are being set up to tackle ways to reverse the damage done by businesses with large value chains that touch various corners of the world. Overall, the objective is to ensure that there is visibility of their operational impacts and measurable metrics that can be used to benchmark and improve. While the number of regulations are many, and often they are being continuously rewritten and replaced as things evolve, IADS members have shared a few key ones that are already impacting their decision-making and investment processes.

The Corporate Sustainability Reporting Directive (CSRD) forces companies to publicly disclose detailed and transparent information on how sustainability issues affect their own business (covering Scope 1 and 2 emissions) and what impacts a business has on people and the environment (covering Scope 3 emissions). To achieve the latter, CSRD will soon require a double materiality assessment which identifies all potential negative and positive impacts connected with the company’s operations and value chain. CSRD aims to create a standard framework for companies to report on their sustainability efforts, thus enabling investors and stakeholders to make informed decisions about investing in sustainable businesses. The CSRD encourages companies to reduce their environmental footprint and contribute to the EU’s green economy.

The EU Deforestation-Free Regulation (EURD) was adopted to ensure that companies curb the impact their operations have on deforestation as well as protect indigenous people’s rights. This regulation mandates extensive due diligence on the value chain for all operators and traders dealing with products derived from cattle, cocoa, coffee, palm oil, rubber, soy, and wood. Risk assessments will have to include a broad view of whether the goods were produced in compliance with relevant local laws and with the informed consent of indigenous people. As the EURD requires a lot of communication and collaboration around the world with remote communities, it will be challenging to achieve compliance without the proper traceability tools (which are not mature yet).

The EU Green Claims Directive aims to set rules on how companies can market their environmental impacts and performance in order to eliminate misleading environmental messaging. As department stores pull together various brands and labels in one marketplace, it is very difficult for them to ensure there are zero misleading claims on the products across all their categories. This directive might eventually require retailers to educate and set their own guidelines for the brands in their stores.

The silver lining: sustainability regulations also present opportunities

Despite the uneasiness that new regulations can bring thanks to the many unknowns and new boundaries set, there are still many ways that businesses can play these new standards to their advantage. There are three main areas of opportunity with the upcoming sustainability regulations that are going into effect: innovation, collaboration, and financial opportunities.

First of all, in order to meet the new guidelines and reporting standards that require traceability and tracking of Scope 3 GHG emissions for benchmarking, there will need to be a lot of innovation. Retail supply chains are disjointed and will require a complete overhaul in order to be able to achieve what these new regulations set out to control.  Unfortunately, this means that the number of solutions and ‘quick fixes’ are multiplying, making it difficult for impacted businesses such as retailers to sift through the noise to understand which tools to adopt and which processes to invest in. While this may seem unclear at the moment, there will be a time when a winning solution will emerge, and it will probably be thanks to a successful use case from a player such as a mega-retailer.

Secondly, department stores and other types of legacy businesses will need to rely on communication and learning from each other's successes and failures in order for the industry to make advancements in these uncharted waters. Collaboration is the next key opportunity to help the industry grow and develop. With the current regulatory landscape, compliance is not simply black and white. Therefore, all businesses need to come together to work towards a common standard which can hold retail adjacent stakeholders accountable for their business practices to ensure everyone is on an even playing field in the journey to advancement. The road to achieving such a standard seems daunting, but there are coalitions and associations such as the Sustainable Apparel Coalition and Amfori that are leading the way in how such benchmarking can be achieved. It is not perfect, but it is an important first step in regard to setting the foundation for collaboration among all players in the retail value chain.

The third major opportunity that retailers should jump on is financial opportunities thanks to low-interest government loans that are being issued to help businesses make their operations more efficient which in turn makes them more sustainable. This kind of financing can allow retailers to significantly reduce energy consumption, leading to lower utility bills and an improved property value. Such investment plans are also key to innovation as technology plays a large role in operation efficiency, therefore the loan can also support digital transformation milestones.  Some IADS members have already taken advantage of such opportunities and found that it is a great way to get the C-Suite on board as it is an opportunity to invest in the business while also meeting regulatory requirements.

As new opportunities emerge, it is important to act now

Overall, the problem that retailers are facing is that regulation is moving faster than technology at this point. This means retailers are having to scramble and rely on piecing together data from various sources and tools in order to come up with the right information to put on their non-financial sustainability reports. Since the regulatory landscape is moving at such a fast pace, it is important for retailers to stay on track, or even better, get ahead of the curve.

A number of IADS members have found that addressing regulatory requirements before they go into effect has been a great strategy to ease the process. For example, CSRD does not require double materiality assessments until 2024, but some IADS members have already started to conduct this evaluation to be sure that the business runs smoothly in the coming year. Acting in advance has also helped ease their minds as the process was much easier than anticipated and they can now focus on ’business as usual’ projects rather than chasing after being compliant.

It is no secret that keeping up with and complying with regulations is extremely complex, but some members have noted that it is especially helpful to build a relationship with EuroCommerce, a retail and wholesale association that informs their members about EU policy and legislation, among other things. This highlights yet again the importance and need for collaboration across industry players.

Conclusion: there is a such thing as first-mover advantage

What is the lesson learned? We continue to echo our latest White Paper ‘Reinventing department stores through sustainability’ in saying that the most important step is to get started and get started now. It is important to recognize that there is no clear path to take, but the longer businesses wait to tackle the new regulations, the harder and more expensive it will be to transition the business.

*Department stores should use these sustainability regulations as ways to make their core business more efficient while taking advantage of government handouts such as low-interest loans, especially while there is still a bit of flexibility in how activities are regulated. It is also key to start building collaborative relationships with all players to not get left out of the important conversations and decisions as to where the industry goes next.

In the retail sustainability landscape, it pays to be a first mover.*

Credits: IADS (Mary Jane Shea)

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IADS recently held a meeting all about the Women's Fashion brands to look out for in 2023. Based on market research, IADS and NellyRodi presented a curated selection of 15 brands that are trending right now.

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

Explore The brands and pictures here

OUTDOOR

ECOALF

Ecoalf is a new-era brand the is pioneering ethical fashion by producing clothes made from plastic waste found in the ocean. Their clothes are made for surfing, yoga, pilates, running, cycling and post-workout.

Check out the ECOALF website here

CHECK OUT THE ECOALF INSTAGRAM

ROA HIKING

ROA employs crossover, experimental techniques to shape a product that reflects a hybrid attitude towards the landscapes. ROA takes the sportswear attitude and applies it to outdoor footwear. The brand exalts the

values of functionality through the use of avant-garde materials and construction techniques of performance derivation.

Check out the ROA HIKING website here

check out the ROA HIKING instagram here

ALK PHENIX

A new era of functional fashion. The brand produces Japanese minimalist style products that combine functional materials to create its own technical materials. Innovation and an adventurous philosophy are at the centre of the brand.

Check out the Alk Phenix website here

check out the Alk Phenix instagram here

MATEK

With an atypical aesthetic and style, Matek creates clothes for skiing and snowboarding. The brand has a unique combination of fashion-forward designs and functional performance. Products ensure protection, comfort and mobility even in harsh weather conditions.

Check out thematek website here

Check out the matek instagram here

ACTIVEWEAR

RAPHA

Renowned for its stylish and refined designs that combine style and functionality in its cycling apparel and accessories. Technical innovations are embedded into its products, such as breathable fabrics, ergonomic cuts and reflective detail to enhance comfort and cyclist safety.

Check out the RAPHA Website Here 

check out the rapha instagram here

GIRLFRIEND COLLECTIVE

Known for its body and sporty positive brand attitude. Each pair of leggings are made from approximately 25 recycled plastic bottles. The brand prioritises transparency regarding its supply chain and offers inclusive sizing options promoting body positivity and inclusivity.

check out the GIRLFRIEND COLLECTIVE website here 

check out the GIRLFRIEND COLLECTIVE instagram here

UNRUN

Activewear made by Olympic champions. Effortlessly cool, versatile and edgy products available in a full range of colours. Unrun also has curated a strong community of feminine athletes.

check out the unrun website here 

check out the unrun instagram here

CARDO PARIS

Luxury and premium poolwear brand. Products are an extension of the poolwear style territory into more fashionable and casual products: sophisticated skirts.

check out the cardo paris website here

check out the cardo paris instagram here

ATHLEISURE

VAARA

Contemporary wardrobe tailored to the active body that exudes comfort and elegance. Products are versatile and made with fine materials that are soft and recycled.

Check out the vaara website here

Check out the vaara instagram here

NINEPINE

Swedish brand that produces minimal, aesthetic and technical activewear made out of organic cotton. Clothes are versatile and can be worn both to do sport or relax in the city for any occasion.

Check out the ninepine website here 

CHECK OUT THE ninepine instagram here

7 DAYS ACTIVE

Versatile athletic clothing made of organic cotton. Product design is technical and stylish with bold colours and cuts, graphic prints and retro aesthetics. The brand motto is to inspire individual stories of motion.

CHECK OUT THE 7 days active WEBSITE HERE

CHECK OUT 7 days active INSTAGRAM HERE

COLORFUL STANDARD

Products made in Portugal out of organic cotton and merino wool. The brand embraces an eco-responsible approach to creating sportswear essentials with neat cuts and a wide range of colours.

check out the colorful standard website here

Check out the colorful standard instagram here

TECH-IPMENTS

STARCK X BALISTON

Baliston by Starck is the first collection of AI-augmented shoes to capture biometric data straight from your feet. It is made with just five materials: castor bean yarn, sugarcane, organic cotton, natural rubber and recycled plastic.

Check out the STARCK X BALISTON website here

check out the STARCK X BALISTON instagram here

SUNNTO

World renowned sports watches that are high quality with advanced featured, making them popular among outdoor enthusiasts and professional athletes. The watches are equipped with GPS navigation, heart rate monitoring and activity tracking.

check out the sunnto website here

check out the sunnto instagram here

COWBOY

An electric bike made for urban riders with a sleek design and connectivity capabilities. Each bike is outfitted with its electric motor enabling riders to travel longer distances or tougher terrain with minimal effort.

check out the cowboy website here

check out the cowboy instagram here

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IADS recently held a meeting all about the cosmetics, beauty and wellness brands to look out for in 2023. Based on market research, IADS and NellyRodi presented a curated selection of 10 brands that are trending right now.

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

explore the brands and pictures here

SKINCARE

TOPICALS

Topicals is skincare designed for flare ups. The effective, science-backed formulas address specific skin problems such as hyperpigmentation and eczema. The brand creates an inclusive environment by representing imperfect skin and designing their products to support every skin type and shade.

Check out the TOPICAL website here

CHECK OUT THE TOPICAL INSTAGRAM

DIEUX

Dieux is a clinically vetted skincare company that wants its consumers to know exactly what they are buying and how it works. Their products are rooted in science, price transparent, and responsibly sourced. .

Check out the Dieux website here

check out the Dieux instagram here

HERBAR

Berlin-based skincare brand, Herbar, takes a holistic approach to beauty that values plants and their benefits for skin, mood, and health. Using fauna, flora, and fungi-only formulations the brand champions sustainable beauty and the establishment of a responsible and transparent production and harvesting system.

Check out the HERBAR website here

check out the HERBAR instagram here

MAKEUP

YOUTHFORIA

Youthforia is a clean and sustainable makeup brand that creates makeup that acts like skincare. The brand has innovative and playful makeup that customers are able to sleep in thanks to its high quality, unique formulas.

Check out the YOUTHFORIA Website Here 

check out the YOUTHFORIA instagram here

ECLO

Eclo is formulated from vegan, organic, 100% natural ingredients that mostly come from regenerative agriculture. Their product range includes blushes, foundations, eye shadows, and lipsticks that come in compostable packaging. Not oly are their products good for the planet, but they are also good for the skin.

check out the Eclo website here 

check out the Eclo instagram here

19/99

19/99 is creating a new narrative in the beauty industry where individuals can define their own image of beauty. The brand has multi-use essentials that are easy to use, designed for people of all ages, and made with clean ingredients

check out the 19/99 website here 

check out the 19/99 instagram here

HAIR

OWAY

Oway uses naturally derived solutions for a variety of hair solutions. Their concentrated and multisensory hair and scalp products are rich in active ingredients and formulated according to the brand’s agrocosmetica principles which are put in place to improve the wellbeing of the Earth and others.

Check out the OWay website here

Check out the oway instagram here

PERFUME

NONFICTION

This lifestyle beauty brand sells products that offer moments of intimate well-being on a daily basis. They encourage customers to reset, refresh, and create a space for self. All products are formulated with high-quality and carefully curated ingredients to create unique scents that are inspired by natural environments, and the cultural traditions and lifestyle of Korea.

Check out the NONFICTION website here 

CHECK OUT THE NONFICTION instagram here

THE NUE CO.

The Nue Co. is an interhealth brand that is bridging the gap between health and the environment. With sustainability at the root of everything they do, Nue Co. is pro-science, pro-clean, and pro-planet. They are on a mission to redefin supplements, but also sell functional fragrances that have scents with proven efficacy on the body and mind, as well as skin and haircare products.

CHECK OUT THE NUE CO. WEBSITE HERE

CHECK OUT THE NUE CO. INSTAGRAM HERE

OTHER CATEGORIES

GESKE

Geske is a Germany beauty tool brand that is launching soon. They offer a wide range of multifunctional beauty tech tools at an affordable pricepoint that are designed with dermatoligists and aesthetic doctors. Additionally, the tools offer a personalized experience as they connect to the brand’s smartphone application.

Check out the GESKE website here

PRINTABLE VERSION HERE

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. The presentations had a large focus on tableware as it is the top-performing segment in home and decor at the moment.

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

explore the brands and pictures here

FURNITURE

MAISON DADA

Created in Shanghai, Maison Dada creates products that are bold, playful and daring. The brand fuses ancestral Asian influences, such as lacquer and ceramics, with a modern and colourful style to produce decorative furniture inspired by Surrealism.

Check out the Maison Dada website here

CHECK OUT Maison Dada's INSTAGRAM

HOUTIQUE

Houtique is a furniture and lighting editor that defines itself as a design incubator. Several designers work together to create its bohemian, colourful and joyful aesthetic. Products are subtly inspired by nature.

Check out the Houtique website here

check out the Houtique instagram here

POPUS

Popus furniture utilises vibrant colours, vintage prints and elegant materials. They allow customers to compose their own furniture with the opportunity to choose colours, fabrics and patterns.

Check out the Popus website here

check out the Popus instagram here

TABLEWARE

STUDIO ARHOJ

Fusing together Scandinavian and Japanese minimalism, Arhoj offers handcrafted creations made with passion. Designed to enhance the functional aspect of tableware, each product is hand-made and hand-decorated in Copenhagen.

Check out the Studio arhoj Website Here 

check out the studio arhoj instagram here

LA DOUBLE J

The Milanese brand offers its tableware line that consists of vintage patterned plates and maximalist ceramics and linens. The brand edits the very best of Italy and what was originally a shoppable magazine selling vintage clothing and jewellery, became a full lifestyle label now offering its own fashion and tableware.

check out the La double j website here 

check out the La Double J instagram here

MARIE DAAGE

Marie Daâge creates elegant and modern tableware to make every table a work of art. Each piece of porcelain is hand-painted and custom-made in local workshops, making it the haute couture of the table. The brand is an ode to the French art of living.

check out the Marie Daâge website here 

check out the Marie Daâge instagram here

ARTSENIAS DEL ATLANTICO

A collection of handcrafted pieces made by craftsmen in Colombia. Products are 100% made with local raw materials and artisan labour. They offer tableware, trays, placemats and more.

check out the Artsenias del Atlantico website here

Check out the Artsenias del Atlantico instagram here

MAISON FRAGILE

Maison Fragile produces porcelain tableware, made in France. The brand seeks to re-enchant the French art of living and the labour process consists of fifteen steps to make every piece. Maison Fragile has partnered with prestigious Michelin-starred chefs and the Élysée Palace.

check out the maison fragile website here

check out the maison fragile instagram here

MINVAL LIVING

Sophisticated pieces with sleek designs and elegant curves inspired by the art of the table of medieval monarchies. Minval uses noble and luxurious materials such as silver and marble to give tables a sense of royalty.

check out the minval living website here

check out the minval living instagram here

DECOR

ANNA + NINA

Anna + Nina use colourful designs to bring joy to interiors. The founders use inspiration from their travels to Bali and Thailand to bring rich colours and complex patterns into everyday life. The brand values every step of creation, from the manufacturing process to design to ensure all collections are made with love and attention.

Check out the anna + nina website here

Check out the anna + nina instagram here

PAPERMINT

Produced in Paris, France, Papermint offers made-to-measure and customisable wallpaper. The brand values creativity and explores all types of styles.

Check out the papermint website here 

check out the papermint instagram here

MATTINA MODERNA

Matina Moderna creates colourful lamps that bring life into every interior. Each lamp is handcrafted and hand-painted by a ceramist in Portugal and crafted in France by an artisan. The brand is a mother-daughter project and every product is one-of-a-kind.

check out the mattina moderna website here

check out the mattina moderna instagram here

ARETI

Areti is a collaboration of Swedish and German craftsmen to produce high-quality furniture and lighting. Areti values elegant and simple shapes and lines.

check out the areti website here

check out the areti instagram here

HOME APPLIANCES

STEAMERY

Steamery is a Scandinavian textile care brand. They make clothing care products such as steamers, fabric shavers and clothing brushes. On a grand scale, Steamery aims to slow down unsustainable processes and inspire a slow fashion lifestyle.

Check out the sTEAMERY website here 

CHECK OUT THE STEAMERY instagram here

ELECTRONICS

AMIBOT TECH

Amibot offers different types of robots adapted to the needs of every individual, ranging from vacuums to window cleaners. The brand is committed to local and eco-responsible production and all robotic vacuums are recyclable.

Check out the AMIBOT TECH website here

CHECK OUT THE AMIBOT TECH INSTAGRAM HERE

TRANSPARENT SPEAKER

The Swedish brand has made an innovative and differentiating design with a commitment to product circularity - all of its modules are forever upgradeable. They aspire to be the first circular tech brand and firmly believe that companies are responsible for removing electronic waste from the world.

Check out the transparent speaker website here

check out the transparent speaker instagram here