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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 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

FORMAL WEAR

RECTO

Recto is named for the right hand page of a book, alluding to what is yet tobe written. The word is formal and neutral, which is reflective of the brandsidentity. The RECTO label focuses on sleek staples with neurtral tones,making the pieces ideal for a minimalist or capsule wardrobe.

Check out the Recto website here

CHECK OUT recto's INSTAGRAM

TOVE

Tove curates a collection of elevated feminine pieces that transcendseasons and transition easily between occasions. They set out to create aminimal and refined wardrobe for the modern woman using expertcraftsmanship and luxury fabrics that are of the finest quality, natural,organic, and recylced with environmental and social certifications.

Check out the tove website here

check out the tove instagram here

THE GARMENT

The Garment is founded by a duo who have been inspired across decadesand have a deep affection for vintage garments. This can be seen in theirpieces which feature impeccable knitwear and precise tailoring in achromatic palette balanced between gray, white, and black. They focus onmaking beautiful garments in a more responsible manner through sharingtheir fabric and garment makers, offsetting CO2 emissions, and usingresponsible fabrics.

Check out the garment website here

check out the garment instagram here

DAILY WEAR

ALÉMAIS

ALEMAIS is a contemporary band that focuses on artisanal techniqueswhile respecting traditional craft. They use natural, durable and organicfibres to create unique pieces with fun and colorful prints.

Check out the alemais Website Here 

check out the alemais instagram here

7115 BY SZEKY

7115 is a design studio founded in New York City with a focus on creating an artful and robust wardrobe. They create classic and timeless pieces with a minimal and raw aesthetic in a neutral color palette. With each piece being expertly crafted and tailored, the brand aims to provide functionable and comfortable clothing that will last for years to come.

check out the 7115 BY SZEKY website here 

check out the 7115 BY SZEKY instagram here

TRENDY / CONTEMPORARY WEAR

PALOMA WOOL

This Barcelona-born brand is inspired freely by the act of getting dressed. Paloma Wool blends notions of community with artisanal qualities and a distinctly elemental aesthetic inspired by land and cityscape. Pieces are locally produced and often desgined in collaboration with local artists.

Check out the Paloma wool website here

Check out the paloma wool instagram here

ESTHÉ CLOTHING

ESTHE is a contemporary fashion brand based in Greece with a curated range of unique pieces. The brand is committed to sustainable practices and invests in local communities. Their pieces are feminine and relaxed, featuring nique pleating techniques, sophisticated shapes and dynamic textures.

Check out the esthe website here 

check out the esthe instagram here

INNOVATIVE WEAR

PH5

An advanced contemporary women's brand that aims to to inspire people to completely rethink knitwear and tell the world that knitwear is more than just a winter fabric. The brand leans towards edgy with a touch of feminitiy, combining whimsical designs with architectural dimensions of knitting techniques and even features UV reactive pieces.

Check out the PH5 website here 

CHECK OUT THE PH5 instagram here

OCCASION WEAR

MINUIT

MINUIT is a combination of industrial NYC, classic Paris, androgynefeminine, past and future. Their pieces are minialmist and sophisticated, with a delicate and feminine approach. With pieces that are full of texutre and functional, the creators share their love of art and architecture through their clothing.

Check out the MINUIT website here

CHECK OUT THE minuit HERE

MIRROR PALAIS

Mirror Palais is an NYC-based brand most known for its dresses which arevintage inspired, delicate, plafyul, and feminine. The brand features piecesthat are lingere-inspired and unique yet timeless.

Check out the Mirror palais website here

check out the mirror palais instagram here

CHRISTOPHER ESBER

Christopher Esber is an Australian designer who has built a globalreputation for contemporary tailoring with a sophisticated approach. Hiscollections are innovative and radiate confidence with elegance,minimalism, and laid back sensuality.

Check out the CHRISTOPHER ESBER website here

Check out the CHRISTOPHER ESBER instagram here

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The IADS attended the 2023 edition of the Global Fashion Summit which took place from June 27th to the 28th in Copenhagen. This year’s theme was “ambition to action” and was an opportunity for industry leaders and professionals to share their knowledge, tools and experience to help shift the industry from vague aspiration towards concrete implementation to achieve a net-positive industry.

The overall tone of the summit was rather ominous - the clock is ticking, as 2025 sustainability targets are approaching quickly and seem unachievable, 2030 targets are the new focus as the global climate emergency becomes more pressing, and the fashion industry is not moving fast enough. In efforts to push the industry forward, the conference was an opportunity for industry leaders to share actionable case studies, step-by-step guides and conversations aimed to simplify complex topics. The IADS highlights the key takeaways and important resources for our members below.

Collaboration is key

The topic of collaboration when it comes to sustainability is nothing new as the industry has already established that working together is vital in order to see real progress. The crown princess of Denmark opened the first day of the summit and urged the industry to “work together locally and globally.”

Efforts to collaborate across the industry have already been established in recent years, one of the most notable initiatives being The Fashion Pact. Eva von Avensleben, Executive Director and Secretary General of The Fashion Pact, highlighted the importance of adopting unified methods and fostering a collaborative mindset throughout the entire value chain. She stated, “This means we need to include all stakeholders in conversations from suppliers and manufacturers to retailers and brands.”

Conversations regarding the inclusion of all voices from the value chain were a major talking point across both days. Hakan Karaosman, Professor at Cardiff University described supply chains as social economical ecosystems and explained how supply chains and social justice go hand in hand. In his talk, he further discussed how inclusive decision-making from retailers, suppliers and supply chain workers is vital in order to achieve a just transition in decarbonising the supply chain and an overall more sustainable and equitable industry.

Strategic partnerships were also showcased heavily throughout the summit. Integrated logistics company, Maersk, joined Puma and H&M on stage to display the ways in which these alliances have helped reduce scope 2 and scope 3 emissions by making shipping and transport logistics more efficient. Thomas Liske, Global Director of Puma, shared that even though its increase in transport efficiency would cause Maersk a 10% decrease in its business, Maersk has adopted a bigger picture vision for the industry and showed its commitment to long-term goals when it comes to its sustainability promises. For H&M, finding relevant partners, as they did with Maersk, who aligned with their goals was a necessity on the greater sustainability journey to see true progress.

Other industry alliances have come together to promote circularity and transparency, such as the Vestiaire Collective, Chloé and EON collaboration. The alliance announced earlier this year, that the Chloé Vertical initiative sets to roll out EON-powered Digital IDs for each Chloé product including ready-to-wear, bags and shoes. The Digital ID allows consumers to access information regarding the product and material, assistance for repairs and resale options with Vestiaire Collective. The initiative is an industry first, and in doing so Chloé is making resale easier for customers while also offering them the opportunity to make informed decisions about the transparency, traceability and circularity of their products.

On a wider scale, LVMH’s Antoine Arnault called for a luxury-specific sustainability pact to create a space that allows actors in the luxury sector to aggregate together to exchange best practices, share suppliers and more. He believes that if the luxury sector wants to see meaningful change when it comes to sustainability, coming together – even as competitors – as necessary.

LVMH wasn’t the only one offering an olive branch to competitors in an effort to work collaboratively. Allbirds unveiled their zero-carbon shoe, "M0.0NSHOT", along with an online toolkit, "Recipe B0.0K", which provides detailed information about the shoe's creation process to allow other businesses and rivals to draw inspiration to make their own sustainable products.

Crafting the narrative: How to communicate around sustainability

Setting targets and shifting business operations to achieve a sustainable business model is only one piece of the puzzle, and retailers and brands are now considering what the best practices are when it comes to communicating their sustainability efforts to consumers. In today’s world, taking a stand on sustainability is no longer a nice-to-have, but rather a necessity, and green hushing, when organisations stay silent regarding their sustainability efforts in an effort to avoid greenwashing accusations, is no longer acceptable.

In a talk titled ‘What comes next for communicating sustainability?’, the panelists discuss the ways organisations can properly communicate this complex topic to their consumers effectively. The impacts of greenwashing are damaging, and consumers are pushing back on greenwashing claims and are demanding to be informed by retailers.

According to Shakaila Forbes-Bell, Founder of Fashion is Psychology, consumers do not want brands flooding them with information and policies, but rather they want accurate information allowing them to be well-informed. Furthermore, she states that consumers desire the power to make informed decisions and require positive reinforcement that they are making good decisions by choosing sustainable products, and retailers who provide positive reinforcement can differentiate themselves from the competition in the eyes of the consumer.

When it comes to avoiding sharing misleading information, the panellists urged retailers that they ensure their statements are science-based and must include accurate and robust data in order to substantiate their claims.

Other panellists reiterated the importance that businesses should not treat sustainability as a marketing trend and instead need to make a commitment to make sustainability marketing systemic and to avoid getting caught in the cyclical marketing trends.

To further help businesses communicate around their sustainability efforts and actions, the United Nations Environment Programme (UNEP) and the UN Climate Change launched The Sustainable Fashion Communication Playbook, a guide designed to outline how to align fashion communication with global climate goals. It offers actionable frameworks for communicators to counter misinformation and greenwashing, reduce messaging the perpetuates overconsumption, redirect aspiration to more sustainable lifestyles and empowers consumers in their role as citizens to demand greater action from businesses and policymakers.

UNEP also presented The Eight Principles for Sustainable Fashion Communication, which includes a list of dos and don’ts, checklists and case studies for communicators to reference.

Resources like the ones provided by UNEP are key as the era of superficial sustainability claims and unethical practices are nearing its end as policies will compel companies to take full responsibility and accountability.

Regulation and profitability: An age-old question

The industry is subject to regulation coming down the pipeline, especially in Europe. The conference featured various conversations on policy, attempting to make complex regulations easier to understand.

What was of consensus, however, was that regulation is needed – the fashion industry will not change unless this happens. So now the industry acknowledges that regulation is needed what next?

Many businesses are struggling with the incoming regulations as there is a huge lack of resources. Not all brands and retailers have equal access to resources and businesses are operating in different countries with different policies coming from all directions, and many are finding it hard to stay afloat, unless they are a big industry player that has ample access to resources. So, what could help mend this unequal playing field and lack of resources? Harmonisation from policymakers can help, but a vital resource that many businesses need for survival is money. Investment and cash flow will be necessary for businesses to keep their heads above water as the slew of regulations ensues.

For brands and retailers, in a talk titled, ‘The Race to Net Zero: Decarbonising the Supply Chain’, panellists emphasised the importance of investing in tools that help measure sustainability efforts. For example, Marks & Spencer and Target are harnessing impact intelligence platform, Worldly, that delivers data specific to supply chain, products and operations to help retailers improve its product sourcing, carbon footprint and more. James Schaffer, Chief Strategy Officer at Worldly, discussed how platforms like Worldly can be the key needed to help the industry close the data gap by providing data, and in turn, insights.

We have also rounded up a selection of interesting startups that may be worth investing in for our members to support their path to sustainability:

• Carbonfact: Scalable life-cycle assessments to help brands and retailers lower their carbon emissions.
• IDFactory: End-to-end global supply chain traceability solution made to address the following challenges: lack of traceability, lack of transparency, supply chain disruption risk and supply chain sustainability risk.
• Reverse Resources: SaaS platform to match textile waste with the best possible recycling solutions, enable predictive transparency and build data-driven supply chains.
• Retraced: Platform that supports fashion and textile companies to digitise and trace their supply chains, efficiently manage their compliance data and gain full transparency down to the raw materials.

Conclusion

While we have seen little pockets of progress over recent years when it comes to sustainability, it is safe to say that the fashion industry is not moving fast enough. The overall mood of the conference was somewhat ominous as business leaders feel the pressure of facing crack-down regulations in the EU. While regulation is needed to see real progress and change, the transition to comply is no easy feat for businesses as they try to remain profitable.

2022 White Paper

Credits: IADS (Kaitlyn Lim)

DE PRATI STORE PICTURES

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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 (Coyoacan, Polanco and Perisur), the IADS had the opportunity to travel to Ecuador to discover the De Prati stores. The purpose was to understand more about the market, the company and the vision of the CEO, Priscilla Altamirano.

A rather small country when compared to its neighbours (Colombia and Peru), Ecuador is classified as an upper-middle-income country, with a developing economy dependent on exports (agricultural products, oil). The country regularly topped the South American GDP growth charts in the 00s and even ranked the second most performing country in 2022. Since 1999, extreme poverty decreased significantly, and employment increased, fueling the growth of the middle class which aspired to consume.

De Prati, which was founded in 1940 in Guayaquil, the trading centre of the country, managed to fulfil these needs, becoming the largest department store company in the country, with 16 stores and an e-commerce website. Unlike its European counterparts, which had available resources to learn from each other and innovate (thanks to organizations such as the IADS, but also through a vast array of suppliers and brands, and the lack of regulation at the time which allowed unrestricted data exchange), De Prati, while always being the leader in the country, had to invent each step of its development by itself, by developing in-house what was needed and finding solutions on its own.

The result is a company that has been posting an average EBIT margin of 20% and a net profit margin of anywhere between 13 and 15% for the last decade, with a much-loved retailer brand and strong social involvement. This is not too bad for a business that has developed almost in a closed circuit, which makes it an interesting use case to review the company’s competitive advantages, as well as the stores that we visited.

Company history and background

De Prati was founded in 1940 by Italian entrepreneur Mario De Prati and his wife Domenica Cavanna, as a fabric store, which later also included homeware and tableware. After a fire destroyed the initial location, the first department store per se opened in 1951 in Luque Street, in Guayaquil, a location still in operation today. The company was a pioneer in many ways: it introduced the first payment card in the country, Credito De Prati, in 1968, the first national private label business in 1973, with local production, and the first Ecuadorian e-commerce website in 2007 (the website had already been launched in 2002).

The Credito de Prati card proved instrumental in establishing De Prati as a leader in the market, as it allowed it to capture and retain a significant share of the clientele who has access, in addition to credit, to special offers and perks (for instance, customers get a 30-day full guarantee with the possibility to return the product with no questions asked, a much-loved option that explains why, in the country, brands such as Apple and Samsung perform 80% of their business with Credito De Prati). Today, the program involves 1m active customers (Ecuador’s total population is 17m but the truly addressable target clientele base is much lower than that).

Also, when it comes to fashion, Ecuador has long remained isolated from the international brands’ sphere of attention, for its relatively small size as a market. For instance, Inditex came to Ecuador only in 2015 (introducing a new logic in the market based on markdowns and high-frequency seasonality). For that reason, De Prati’s private label business allowed them to develop a faithful client base, looking for interesting designs at low prices. 18 in-house designers develop the Women’s, Men’s and Kids’ private lines which are then manufactured in the country.

Today, the company operates 16 stores (7 in Guayaquil, 7 in Quito, the capital city where De Prati started operating in 1986, one in Manta and one in Machala, which opened in April 2023), and a website, to accommodate the needs of 18 million yearly visitors (online and offline), all powered by 2,300 associates. 50% of the total business is made in the historical location of Guayaquil, while Quito, more upmarket, represents 40%, and e-commerce close to 6% (this does not include digital activities related to stores, such as WhatsApp sales or instore iPad ordering, which are all attached to stores).

Every single store is positive and contributes to the final result of 20% EBIT margin on average, for a total turnover of $270m in 2022 (the same amount as the previous record in 2019) and an expected $305m in 2023. The whole business is 100% wholesale, as the company does not operate concessions or consignment (for big-ticket items, such as domestic appliances, the company “showrooms” the products and dropships them from the suppliers’ warehouses). In terms of categories, fashion represents 80% of the business, home 9% and tech 8%.

During the visit in Guayaquil, it was clear that each store had been developed according to a specific context, and for that reason, was perfectly adapted to its environment, while always keeping a very identifiable layout and branding.

Policentro: making the most of the opportunities in the company’s most profitable location

Policentro is the oldest mall in Guayaquil, and by far the most profitable location for De Prati. The specificity of this mall is that locations are not rented by retailers, but owned, which means that the mall itself is very similar to a condominium in terms of management (and this can create some inertia when it comes to renovating it or making sure that the brand and product offering remains relevant which raises some questions for the future).

For historical reasons based on real estate opportunities, De Prati operates three different units in the mall, each dedicated to a category: a women’s store (RTW, accessories, shoes and beauty), a men’s and kids one, including sport and electronics, and a home & decor store, for a total of 5,000 sqm. The core business is fashion (women, men and shoes), of which 70% is done with private labels. Women’s fashion itself represents 27% of the business, and Cosmetics and beauty 11%. For that category, even though brands are supplied by third parties, De Prati keeps firm control of the brand selection, price point, quantities in stock and promotions.

All three units have been designed with standardization and flexibility in mind, in order to be able to change the store overnight. This approach proved instrumental in dealing with the Covid-19 pandemic and allowed them to transform stores in e-commerce fulfilment centres during the 3 months of lockdown-related closures.

In the women’s store (due to be refurbished next year), most of the RTW space is dedicated to private labels, but third-party brands, such as Springfield or Veromoda, are presented in either dedicated branded spaces or a multi-brand testing space for the smaller ones.  In shoes, 80% of the business is achieved with third-party brands (Steve Madden, Michael Kors).

The men’s store was recently refurbished with the help of a Mexican designer and includes more visible third-party brands, such as Springfield or Aeropostale, presented in a very dynamic and airy concept, that slightly differs in the formal section, compared to the contemporary or the sport ones. The kid’s section is a mix of branded locations and generic displays. The category is extremely competitive in the country. Finally, a small electronics location presents a selection of products, completed by an “infinite aisle” option on digital screens, where customers can order from a wider selection and then pay at the cash desk.

The home stores are located on the first floor of the mall, where many services are available (banks and post offices). The location used to be the kid’s store in the past and that was the most profitable location of the whole mall. In the home category, 40% of the business is made with home textiles.

Overall, Policentro is a surprising location as all categories are spread over the mall in different locations. The fact that De Prati was able to purchase the locations (and amortize them) explains the high profitability of these operations overall, however, the disadvantage of split spaces is felt in terms of cost of people and refurbishment.

San Marino: a “lab” store in an upmarket mall

San Marino is a mall located 5 minutes away from Policentro by car and is very different. While inertia related to the ownership is felt at Policentro in terms of overall customer experience, San Marino feels much more dynamic, thanks to a very different set of tenants (including fashion names ranging from Pull & Bear, H&M to Polo, Tommy Hilfiger or Esprit) and a permanent renovation that allows the mall to look very modern, even though the mall layout is very disconcerting in terms of brands adjacencies.

The brand assortment implies that in that mall, the competition is harsher than in Policentro, which is why the De Prati store is relatively small, 2,500 sqm (vs. 6,000 sqm on average for the rest of the stores), and pushes a “curated’ assortment, only focused on women, men and young fashion.

Here again, the store fixtures are very flexible but they allow customers to understand where they stand in terms of product categories, which is not specifically the case in Policentro.

This store, significantly smaller than the others, is mostly used to show De Prati’s relevance in terms of fashion in a mall where the brand offer is one of the edgiest in the country. For that reason, this is where the company tests new brands, and also new ideas for its own private labels. This is also where De Prati can test the adequacy of its basics offer, which is planned to grow by a double-digit rate of up to 30% of the business in fashion, in order to make the most of the fact that these items are never marked down.

Plaza Navona: build-a-store

Plaza Navona is a real estate program that has been developed by De Prati, up north in the city on the way to Samborodon, a very wealthy suburb. This is why the relatively modestly sized mall (26,000 sqm) is positioned as a family shopping centre, aimed at the posh neighbourhood but also the middle class that started to relocate to Samborodon a few years ago. The mall is managed by De Prati itself, with a new team that has been created on the spot.

This also explains why the De Prati store concept of 7,000 sqm is slightly different from the other ones visited so far, and it is the most recent one (the new store in Machala, opened in April 2023, takes on this concept). The fixtures are lower and allow visitors to embrace the whole store easily, while also giving an impression of lightness and modernity. Third-party brands are much more visible than in the other stores (and in higher proportion), including some specific to this location (Oscar de la Renta, Chaps for men).

Plaza Navona is also the store where De Prati tests its innovative processes, both in customer-facing solutions and in behind-the-scenes improvements:

-    In customer-facing solutions, digital screens allow them to scan a barcode and check the stock availability of the product in all De Prati stores, book it, and pay for it with a nearby salesperson. Also, mobile POS is being tested in the store.

-    In the behind-the-scenes improvement, the store has been the one in the chain to have real-time visibility on its stock updated every 15 minutes thanks to a system developed internally from an SAP platform. The development team is currently deploying a solution allowing store staff to be able to immediately locate a product in the stockroom, which also gives useful data in terms of forecasts and auto replenishment, in addition to significantly reducing the waiting time for customers when asking for a specific size or colour.

Plaza Navona being closer to a place where many wealthy customers live, is a store destination for them when they want to equip their homes. For that reason, the share of home and electronics is higher in that store when compared to the other ones, with the pick-up section for online purchases is on the first floor, in the home and electronics section. In terms of stock management for these two product categories, De Prati only buys on firm conditions a certain stock amount in order to be able to display products in stores, and also guarantees larger stock quantities in the supplier’s warehouse. In that way, the stock imported for Ecuador will be reserved as the first priority given to De Prati.

This store represents the state-of-the-art savoir-faire at De Prati today, as well as a first incursion in the domain of mall development and management. A larger project of 90,000 sqm, is planned for 2026 and will also be a premiere in the country with such a scale.

Downtown: where everything started

We had the opportunity to visit the first historical location of the company as well, which allowed us to measure the level of innovation and progress made by the company between its first location and the latest store in Guayaquil, Plaza Navona.

The nature of the location has changed with time, as the area evolved, from being mainly residential in the ‘40s, to being more of an office and banking area. As a consequence, traffic patterns are different from the other stores which are close to the places where customers live.

Due also to its history, the store is spread across different buildings with different levels, leading to having floor differences on some floors. Only one building has windows, which also explains why the feeling is different, less airy than the other stores, an impression reinforced by the low ceilings and the rather old concept.

The last floor of the store is dedicated to the outlet section, as well as the customer service desk.

The specificities of the business at De Prati

De Prati is special for many reasons, as it has developed its own way in several areas of operation, to reach efficiency: private labels, BOPIS, and social commitment.

Private labels represent 70% of the total business and are designed in-house, fabrics are bought in Asia and products are made in Ecuador. Collections are kept in store according to a very simple calendar: they remain at full price for 90 days (in fashion) or 120 days (in home), then they are automatically marked down at 30%, 50% and then 80%, before being taken out of stores. This scheme allows the company to avoid having seasonal sales in the store (including third-party brands): during seasonal events, it is not about product clearance, but a maximum of 30% discount off fresh products, to which customers can add an additional 10% discount if they own the De Prati card. Given the size of the private label business in the fashion category, which represents 80% of the total business, this system allows them to have a very healthy margin structure, as overall the company enjoys 70% of sales at full price and promotions capped at 30% of the business. However, in order to remain relevant with the younger clientele, the plan is to introduce more third-party brands (international labels), from 19% today to 55% in 2026.

When it comes to picking up online sales, the store pick-up is the only free option, which allows 60% of all e-commerce orders to be picked up in stores. For that reason, e-commerce operations are profitable and total logistics costs for the company are limited to 6% of total sales. Also, returns are kept at an extremely low level (less than 1% in-store and 3.3% online) thanks to this approach and in spite of the 30-days-no-questions-asked return possibilities offered by the De Prati Credito card.

Finally, De Prati is also very much involved socially speaking, in addition to remaining committed to Ecuadorian production for its private labels. In 2014 it launched the ‘Mujeres Confeccionistas’ training program which allows women to grow and become independent. The program focuses on 3 pillars:

-    Improve self-consideration and provide a way to generate new life opportunities,

-    Teach entrepreneurship and basics in management,

-    Teach how to use social media to develop a business.

This program is open in every city where De Prati has a store and less than 5% of graduates work in factories after attending it, as they prefer launching their own activity and becoming more empowered. De Prati has also made agreements with national and Latin American universities in order to help its employees to validate their knowledge with diplomas.

Going further: for the sake of evolution

The most striking point about De Prati is the notion of permanent adaptation. The context is challenging: more brands are entering the country, prices are becoming an issue for most customers, and from a social point of view, violence is increasing, to the point of influencing customer behaviour as they now come earlier in the day and avoid staying until 6:30 pm when it is unsafe in the streets.

In order to face those realities, the company bets everything on its teams and their capability to develop and deploy new ideas, from customer processes to new systems. De Prati is currently developing an app which will provide a new purchase option for its customers, while also sticking to the needs of the younger clientele it wants to attract, in complement to a new brand offering including more international labels.

That permanent capability of adaptation has created a sentiment of pride to belong to such a company, which is palpable when discussing with the teams, and reinforced by the larger commitments of De Prati, which announced in 2022 a commitment to invest $80m in the country, in order to contribute to its development. Feeling this pride was probably the most impressive during the visit, as it really appeared as a true competitive asset for De Prati in the future.

Credits: IADS (Selvane Mohandas du Ménil)

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The IADS attended the 2023 Viva Technology conference that took place from June 14th to 16th in Paris to scout the key trends and interesting startups that could be of value to our members. We have highlighted the most relevant retail trends, topics and solutions that were strongly featured in this year’s edition of VivaTech.

VivaTech 2023 reflected the current state of the world – AI is all the buzz! Meanwhile, AR and web3 technologies are also still a significant focus as businesses gain a better grasp of how to leverage these technologies properly. And of course, businesses cannot write off the topic of sustainability, as the impending regulations are looming over their heads.

AI: the main attraction

AI undoubtedly dominated the show during this year’s edition. As Artificial Intelligence, specifically OpenAI, has taken the world by storm, ChatGPT has almost become synonymous with AI. This is not surprising as many retail organisations are harnessing this technology in a variety of ways. For example, Zalando has launched a ChatGPT assistant, and Hyundai department store is testing an AI system similar to ChatGPT for their copywriting. Other retailers have also been tapping into ChatGPT to make their chatbots smarter and VivaTech was the occasion to show off some of these interesting use cases.

Case study: Carrefour teams up with OpenAI to harness the powers of generative AI

In a rather timely manner, Carrefour announced its plans to launch a generative AI-powered shopping experience with OpenAI one week before VivaTech. Inside the exhibition, Carrefour had its own booth showcasing the ways in which it aims to utilise generative AI to enhance the customer experience and transform its working methods.

The retailer introduced a new AI Chatbot based on ChatGPT, called Hopla, which has been integrated into its website to assist customers with their daily shopping. Customers can seek assistance from the chatbot when it comes to selecting products within a specific budget, considering dietary restrictions and food constraints, or generating menu ideas.

Through the collaboration with OpenAI, Carrefour is also employing AI to enhance its product descriptions and streamline internal procurement procedures. These initiatives form a crucial component of Carrefour’s plan to enhance overall customer satisfaction and revolutionise its operational practices.

Although ChatGPT and AI are somewhat synonymous, AI overall should not be reduced to ChatGPT alone. Below is a selection of AI-powered startups scouted at VivaTech that may be of interest to our members.

• ChatLabs: AI-powered social experience platform that generates a unique, personalised journey for each customer based on the creative context of social media and level of engagement with brand content. ChatLabs was a finalist for the 2023 LVMH Innovation Award.
• Safira.ai: AI-based solution that generates, optimises and enhances online retailer’s product data to create an engaging shopping experience. It automates and professionalises the steps required to run an e-commerce shop.
• Vrdrobe LLC: Mobile app that harnesses AI technology to enable the user to try on clothes, shoes and glasses with their camera, thanks to AR models.
• Neobrain: Digital platform with three solutions based on AI to help companies match talent to opportunities, turning skills into collective performance. The platform was awarded the number one talent marketplace solution in Europe.

AR and virtual experiences: the future is digital

Augmented Reality and other digital experiences were also heavily present throughout the exhibition, likely due to the fact that businesses now have a greater understanding of how to leverage the Metaverse and other Web3 applications. Notably, many luxury brands like Dior, were showcasing their digital experiences as a means to provide distinct consumer experiences.

Case study: Emperia: Creating an immersive virtual store for Bloomingdale’s

Emperia is an immersive virtual store platform for retailers and fashion brands to create their own virtual and Metaverse experiences. Some of their clients include Ralph Lauren, Lacoste and Dior Beauty, as well as a department store client – Bloomingdale’s.

Bloomingdale’s launched their first-ever virtual store with Emperia in celebration of the company’s 150-year anniversary. The virtual store featured games, special surprises and a Bloomingdale’s exclusive collection for its anniversary celebration.

It also included rooms dedicated to brands, allowing Bloomingdale’s to sell virtual spaces to brands such as Chanel, Ralph Lauren, Nespresso and others. Essentially, it recreated the traditional retail concept of the concession model and transformed it into an e-concession in the virtual world.

Launching a virtual experience proved successful for Bloomingdale's as it was crucial in creating a new, innovative online shopping experience for customers and providing a platform for concessions.

It was evident that digital and innovative experiences remained at the forefront of businesses' minds at VivaTech, as AR and other virtual experiences were prominently featured in the exhibition. Here is a selection of intriguing startups in the sector that we discovered at this year's salon:

• Kivisense: AR-powered solutions that provide hyper-realistic try-ons for various store categories, including clothing, footwear, watches, handbags, eyewear and jewellery.
• BryanThings: Digital ‘retailtainment’ company that designs digital point of sale solutions for global and luxury brands, counting L’Oréal, Dior and Le Bon Marché among its clients.
• Cobalt: Merges digital and physical retail through a 3D immersive Metaverse experience for VR, desktop and web. It links real products to NFTs with NFC C-link chips, ensuring authenticity, supply chain transparency and data integration with logistics and CRM systems.
• GK Concept: Agency that creates bespoke interactive experiences in-store, strengthening the connection between consumers and brands. They design, develop and manufacture their own retail technologies.
• Veris Behavior: Develops VR, neuromarketing and data technology to conduct immersive consumer studies, assisting companies in the retail, consumer goods and hospitality sectors in validating their commercial and marketing strategies before launching to the market.
• Vyking: 3D and virtual try-on technology with an end-to-end platform, enabling fashion retailers to seamlessly create, scale and track 3D and AR shopping experiences both online and in-store.

Sustainability: still a pressing topic

Sustainability remains a pressing topic across all industries, with upcoming regulations driving businesses to prioritise their Scope 3 emissions and daily operations. However, the focus on sustainability was somewhat less prominent at this year’s conference than the last.

Kristen Davis, CEO of CinqC, chaired the panel discussions titled ‘Shifting to a Sustainable Business Model’. The panel included Julie Linn Teigland, Area Managing Partner EMEA at EY, Marie Ekeland, Founder and President of 2050.DO and Claire Martin, VP of CSR at CMA CGM. Together, the panelists discussed the importance for businesses embarking on a sustainability journey to look beyond individual countries or specific sectors and to consider ecosystems. Why? Examining ecosystems offers greater access to talent, resources and knowledge, and serves as a crucial avenue for businesses to observe how larger companies are collaborating with startups and other organisations to pave the way towards achieving a more sustainable business model.

Here is a selection of interesting startups in the sustainability sector that we pulled together from this year’s edition:

• EON: A product cloud platform that delivers business value with a digital ID for every product. This enables retailers to trace products from end-to-end, unlock and scale new business models, instantly authenticate their products, and engage customers long after the sale.
• Finds: A solution that serves as an overstock matcher, connecting fashion brands with surplus inventory to resellers, NGOs, and recyclers. Its aim is to maximise monetisation and achieve circularity.
• Carbon8: A circular impact company that converts carbon and industrial residues into sustainable value streams. Through its solution, it seeks to assist heavy industries decarbonising while transitioning to a more circular operation.
• Woola: A company that takes waste wool, material that would otherwise be discarded, and transforms it into a sustainable alternative to plastic bubble wrap.

Other retail solutions

Department stores are complex, centuries-old organisations who are constantly on the market for new solutions to help them stay relevant and work efficiently, here is a selection of startups that we scouted at VivaTech that we believe are relevant for department stores:

-    Alpha: A clienteling platform that simplifies and enriches the sales associate-client relationship. Sales associates can offer a "Red Carpet" like shopping experience to their clients thanks to a communication channel filled with product inspiration, client requests, style sessions and one click buy & try capabilities.

-    Fabriq: An app that combines digital tools for improving shop floor management, aiming to enhance the efficiency of shop floor staff, expedite the resolution of operational issues, enable seamless information flow, and leverage operational data to enhance daily decision-making.

-    Bloom: A business intelligence platform that analyses discussions and engagement and harvests data on social media to generate strategic insights for decision-makers to help brands leverage opportunities and detect risks.

This year’s VivaTech was also an opportunity for influencers to discuss the major advancements taking place in the wider technology industry. Among the overall 150,000 attendees, influencers such as Elon Musk, Bernard Arnault and Marc Benioff were in attendance, including French President, Emmanuel Macron, who discussed the AI landscape in France. This is a small piece of the fruitful exchange that VivaTech 2023 offered, and we can't wait to see what the next edition of VivaTech holds. See you in 2024 VivaTech!

Credits: IADS (Kaitlyn Lim)

THAT CONCEPT STORE PICTURES

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The IADS recently had the opportunity to visit THAT Concept store, located in the Mall of the Emirates, which represents a new breed of retail in a region dominated by malls and department stores.

THAT Concept store, taking on many of the concept-store codes known elsewhere in the world, includes many of the recent innovations spotted here and there across the planet, often made by department store companies looking to reinvent themselves through smaller formats, acting as showrooms located closer to communities of customers. Interestingly enough, this concept store is owned and operated by the Majid-Al-Futtaim Group (MAF), which uses it both as a window of its retail savoir-faire and also as a testing ground for brands.

For all these reasons, we review our store visit below, in order to understand how a mall owner turned franchise operator is using a concept store to deepen its retail expertise in all formats and test brands for further expansion, and share learnings for department stores across the world, especially for the ones currently experimenting new formats.

Company history and background

The eponymous individual founded the Majid Al Futtaim group (MAF) in 1992. Majid Al Futtaim (1934 – 2021) was the cousin of Abdulla Al Futtaim, head of the Al-Futtaim group, founded in 1930, an integrated commercial, industrial and services organization in the UAE, Qatar, Egypt, HK and Macau, and specialized in automotive, consumer electronic retail, and franchised retail (Robinsons, IKEA, Toys’R’Us and Marks & Spencer). Both cousins split in 1992 with Majid willing to focus on retail real estate.

MAF is now divided into 4 divisions:

-    Properties, including ownership and operations of 29 malls (including the Mall of the Emirates in Dubai, the Mall of Egypt in Cairo, the Mall of Oman, the Mall of Saudi, City Centre Bahrain, Mirdif City Centre, City Centre Muscat and City Centre Suhar commercial centres) for a total of 1.8m square meters, and 13 hotels and communities,

-    Retail, including 450 Carrefour franchised hypermarkets and supermarkets,

-    Entertainment, including 580 cinemas and 4 brands such as Ski Dubai,

-    Lifestyle, including a selection of brands ranging from Lego to Lululemon, to All Saints, Hollister, Abercrombie & Fitch, and THAT Concept store.

MAF reported in 2022 a revenue of AED 36.3bn (€9,96bn, +12% vs 2021) and a net profit of AED 2.4 bn (€0.6 bn, -2% vs 21), of which the lifestyle division, to which THAT Concept store belongs, represented a revenue of AED 801m (€199m, +38% vs ’21) and an EBITDA of AED 25m (€6.24m, +317%).

The Mall of Emirates was opened in 2005 and boasts 245,000 sqm of retail spaces, with an occupancy rate of 98%. It includes 630 retail outlets, 80 luxury stores, 250 flagship stores and more than 100 restaurants, as well as Ski Dubai, a 500-seat capacity Community Theatre and Arts Centre, as well as Magic Planet, an indoor family entertainment centre.

THAT Concept store initial promises

THAT concept store was opened in January 2021 on 4,500 sqm and two floors, in an area of the Mall of the Emirates (Via Rodeo) which was previously dedicated to luxury mono-brand stores, now relocated either on the ground floor or in a new luxury section.

The promise of this opening was to bring a new perspective in terms of the shopping experience, in a market where immersive retail is omnipresent. Just like a true concept store, it is all about bringing a very special experience, combining fashion, beauty, art, and lifestyle products under one roof, completed by a full set of services, in order to cater for the needs of a demanding clientele. For those reasons, THAT Concept store is built on the following 6 key pillars:

1. An innovative shopping experience: the goal is to provide a fresh and immersive shopping experience by showcasing a wide range of handpicked products from both international and regional brands, usually (but not systematically) not available elsewhere in the UAE.
2. A curated selection: the store features a carefully curated selection of fashion, beauty, home, and lifestyle items, with the ambition to cater to a diverse clientele.
3. A platform for local talent: local and regional designers are able to showcase their work and connect with shoppers.
4. An art and culture scene: Art exhibitions, cultural events, and other interactive experiences are hosted, fostering creativity and promoting a sense of community.
5. Personalization and customer services, such as styling consultations and beauty treatments, are here to enhance the overall shopping experience and cater to individual needs.
6. Design and ambience: The store boasts a visually appealing interior design, with contemporary aesthetics that encourages exploration and discovery.

In addition to that, according to the store CEO, MAF also uses this store as a lab to test brands candidates for further expansion in case of success. Potential successful brands are assessed by gathering data in terms of try-ons, selection and purchases so that the group can engage in conversations with such brands in terms of distribution enlargement (MAF has the possibility to engage in franchised development in the region).

Visiting the store: how to bring something new on an oversaturated market?

First of all, one can say that the location of the store is not exactly the easiest, even though MAF (which owns the whole commercial centre) has implemented clear signage across The Mall of The Emirates in order to guide customers: THAT Concept store is located at the end of Rodeo Drive, in a space which used to host luxury boutiques flagships.

In that area, one can find a mix of luxury and fashion brands, such as Isabel Marant, Roger Vivier, Etoile, as well as gourmet food such as Ladurée, so the issue is not so much the immediate adjacencies, which all make sense. What is more problematic is on the one hand the series of hoardings still installed (Thom Browne, Bvlgari or even generic hoardings) which suggests that the revamping of the area is not yet finished and on another hand the proximity of Harvey Nichols (which has a clear high-end positioning) and Bloomingdale’s (more mass), which makes it difficult for something intermediate to position itself and capture market shares. In other words, it is difficult to get there, and there are many distractions on the way including competing value propositions.

However, once customers are in the store, the look and feel is radically different from anything available in the mall and probably in the whole of Dubai, with a profusion of innovative and edgy brands (more than 150 fashion brands such as JW Anderson, Simone Rocha, Paco Rabane or Vetements) all displayed in a holistic, proper and specific concept that reminds a bit of what Galeries Lafayette did in their Champs Elysées location.

The store concept is all about contemporary décor, making nods to the Arabic culture in a giant suspended display designed by local artists. It can be a little disconcerting as it is thought to be a space for exploration, so many retail codes have been reshuffled. The goal is to display a great edit in a uniquely designed space, thought to be versatile and adaptable to different situations (brands, popups, new spaces, etc..).

The store, which opened on January 21, was initially designed to be fully genderless and tried unprecedented ways of displaying products (e.g. shop by colours), however, this proved tricky for the region, which is why this approach was dropped during the summer of 22 when a new management team took over. The new GM, who boasts an extensive experience at Al Tayer Group and Emaar, worked closely with the Creative and Visual Director at MAF (also an Al Tayer alumni), and reviewed the zoning, with areas divided into categories and brands sometimes mixing gender (a nod to the initial intention).

The first floor directly leads to the jewellery area (the second best performing area after fashion, which represents 70% of the business) where brands are presented with THAT-specific signage (a common trait across the store which again reminds of the Galeries Lafayette Champs Elysées location). The product category is coupled with the very large and extensive sunglasses area, both presented on generic wall units and coloured carts, which really encourage customers to touch and try the products. A sushi restaurant completes the space, which will be replaced by a tea room with sweets in order to encourage all-day long lounging.

On the other side of the floor (as the very large Atrium divides the space and provides a great visual perspective on both the upper floor and the ground floor giving access to the carpark, even though it also complexifies the in-store journey), women’s fashion, shoes and accessories are presented in clearly divided spaces, with a special mention to the shoe space, which encourages try-ons and product exploration.

Private shoppers and salons are also available in this space and can be booked for now on the premises. An app allowing customers to book such services and also to connect THAT Concept Store to the MAF group loyalty program is on its way.

A very surprising element on this floor is the access to the elevator: to enter it, customers have to go across the recreation of a local supermarket (a ‘baqala’) selling only very typical brands resonating with every Middle East young customer (Oreo cookies, Lay’s and Pringles snacks, etc…). As a consequence, it really is a visually enticing magnet, and a smart way to upgrade this otherwise dead space. For now, the monetization of the whole installation is still to be fine-tuned, and ideas to connect this space to MAF-operated Carrefour hypermarkets were discussed during the visit.

The second floor is dedicated to unisex and male fashion, including streetwear and sneakers, beauty & cosmetics, as well as the home and design category (the third-best performing category). Again, special care has been brought to the overall experience and feeling, with strong visual designs and attention to detail (such as decorations integrated into the concrete flooring). The home and décor area, in particular, is extremely appealing and presents a selection of products and brands which is unmatched in the country.

On that floor, customers can also find an on-site hair salon, a barber, a nail and brow bar, as well as a yoga and fitness studio, with classes starting as early as 6:30 am in order to cater for working customers. When it comes to services, THAT proposes a very wide palette of options, from the tailoring service to the possibility to drop off laundry or ask for dry cleaning.

Finally, tech is all across the place, with smart mirrors in fitting rooms (allowing shoppers to ask for other colour or sizing options from the cabin), and interactive pop-ups for shoppers to try new tech. The idea is to further invest in tech in order to gather more data about brand successes and be able to leverage that data to consider further investing in brands (for instance, Santa Maria Novella is being tested that way).

Like it or not, one must say that the value proposition of the store is very different from what can be found elsewhere in the market, and would not even be out of place in any European capital (a feature that could raise the question of knowing if such a proposition is not too edgy, or perhaps early, for Dubai).

Are all promises fulfilled?

There are some elements in the concept that might be questionable, such as the location of the store as already mentioned, but potentially also the name itself, which might prove difficult to market on a larger scale (and which made writing this article difficult).

But the special sauce at THAT concept store is that it is run as a department store (in terms of back-of-store operations or brand purchases, all merchandise being own bought) but creatively managed like a concept store. This, completed by the size of the space (4,500 sqm), puts THAT Concept store in a category of stores which include department store companies-backed concept stores, such as Galeries Lafayette Champs Elysées as already mentioned, but also SKP-S, Coin Excelsior in Italy, U-Plex in Seoul, WOW in Madrid, Showfields in NY or, to some extent, the concept-store part at la Samaritaine in Paris or Bloomie’s in the US. THAT Concept store captures this current trend within department stores of having smaller formats, thought to be fully immersive and experiential, with a special display that takes distance from the traditional approach.

Having said that, the store promise is yet to be completed, as the perspective of being a lab to test brands is great but not yet fully operational, and probably very expensive to run if the purpose is only to test them. This is why it will be interesting to follow the evolution of the space in terms of tech equipment and additional experiential spaces, such as F&B offers, to assess to what extent MAF is ready to innovate in a market which is not particularly in demand of such innovations.

THAT Concept store is not a department store and does not claim to be. However, its approach in terms of the customer journey (especially by proposing a lifestyle approach rather than a category one) and store feeling is resonating with department stores’ efforts to reinvent the way they curate and present their offer, as well as their efforts to create a concept store feeling in order to assess their fashion credibility. It is a great inspiration for companies looking for ways to revamp their multi-brand areas with a specific brand identity and a compelling customer journey and visit.

For that reason, the store is an interesting visit, even though a bit frustrating when it comes to its present capability to gather data and truly act as a lab for brands, which is now the main focus of the managing team. However, it already managed to propose a radically different way to sell brands on the market, which has not gone unnoticed. While some are wondering if this is not too innovative for an otherwise conservative clientele, THAT Concept store provides a new option on the market and a refreshing take on how brands can enter Dubai and the GCC countries

Credits: IADS (Selvane Mohandas du Ménil)

AHLENS STORE PICTURES

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The IADS travelled to Sweden last April to meet with the new CEO and owner, Mr Ayad al-Saffar, almost a year after his inception at Åhléns. The purpose was to discuss and understand his plans and vision for the century-old department store company.

After a first year spent reviewing the fundamentals of the company, Mr Al-Saffar started to operate significant and structural changes to the business model, and they might very well be a game-changer in this part of the world. Rather surprisingly given the fact that Åhléns already operates 47 stores in a country with 10.42m inhabitants and ranked second in Europe in terms of retail density (after Monaco), he also detailed his plans to open more stores in second and third-tier cities, thanks to his new approach to business.

We review our store visit below to understand to what extent Åhléns will revolutionize the Nordic market with its new approach.

Company history and background

Åhléns was founded as a mail order business in 1899 in Insjön, a small town north of Stockholm, by two associates, Johan Petter Åhlén and Erik Holm. Within 10 years, Åhléns was a 1.5m SEK business (€128k in today’s money) with 255 employees, and the founder decided it was time to move to Stockholm in a newly acquired 7-story building.

Diversification started in 1932 with the opening of a first department store chain, Tempo, promising the lowest prices possible to customers. The physical retail activity of the company grew consistently, leading to the closure of the mail order business during the ‘60s, the opening of Åhléns City, the current flagship store, in 1964, and the progressive conversion of Tempo stores into Åhléns until 1985.

In 1988, the Åhlén family sold the company to Axel Johnson AB, a Swedish family business specialized in trade and services in Europe and part of the Axel Johnson Group, a Swedish international conglomerate. Åhléns was the only department store business operated by Axel Johnson AB, which portfolio also included Kicks (an beauty & fragrance e-commerce pure player which mutualized purchases with Åhléns), Axfood (a 300-large grocery stores chain under various names), an investment company in retail businesses, a restaurant wholesaler and an IT reseller. At Åhléns, the owner focused on developing the brand portfolio (mainly through concession deals and private labels development), automating the operations with a new warehouse, developing an outlet offering, and pushing the e-commerce business. Investments were made in both existing stores (Åhléns city stores were refurbished in Stockholm and Gothenburg in 2018) as well as in expanding the network (including outlet stores).

Åhléns reached a total turnover of SEK 5,019 (€431m) in ‘19, compared to SEK 4,809m in ’18 (€412m) and posted a net loss of SEK -116m (-€10m), compared to SEK -131m in ’18 (€ -11.2m), with 1,806 employees at the time. Just before the pandemic, the main focus of the company was to expand the outlet stores network, push private labels, and, more importantly, continue its heavy investments in IT to support e-commerce and marketplace expansion, which explained at the time the losses posted. The Covid-19 pandemic took its toll on the company, which saw sales decrease -15%, and losses almost tripling, even though Sweden never went into a lockdown and stores never closed. These difficulties, combined with Axel Johnson AB’s strategic focus on turning away from consumer goods, led to the sale of Åhléns in ‘22 after 34 years of ownership to a group of investors led by Mr Ayad Al-Saffar.

Al-Saffar, a seasoned retailer, came from Lebanon as a refugee to Sweden in 1984. Incarnating the “Swedish dream”, he started as a salesman on markets, before founding a watch wholesale company in ‘91 and being offered to purchase loss-making Ur&Penn, a 40-store-wide watches and jewellery specialist then owned by the H&M group. Al Saffar managed to turn the company around in one year by reviewing the assortment and the price point, and the company grew to 100 stores today. Al Saffar achieved a similar turning-around performance with Dutch loss-making retailers Lucardi in 2006 and Kijkshop in 2007.

Today, Åhléns as a whole achieves a total turnover of SEK 4.7bn (€403m), with 47 stores and an e-commerce platform, operated by a total of 3,000 employees accommodating the needs of some 60m annual visitors (in a country with 10.43m inhabitants). It concentrates on fashion, beauty and homeware, and has a loyalty program (Åhléns club) with 2.5m members.

Åhléns positions itself as “the department store with a smart mix”, providing solutions for time-pressed customers to simplify their lives by mixing the right brands, including sustainable ones (Åhléns issues ESG reports in Swedish every year).

Visiting a Tier II location

The first Åhléns store visited is located in Östermalmstorg, a posh neighbourhood 500m away from Birger Jarlsgatan, an avenue planted with luxury and fashion free-standing stores, from Chanel, Louis Vuitton and Prada, to Zadig & Voltaire, Max Mara and Zara, and faces a square with significant traffic in terms of local customers (this is not a touristy place).

By European standards when looking at a city centre unit, the store is disconcerting: windows are not fully utilized, as it was chosen instead to allow customers to see through them and see the store, and the small size of the store appears at first sight when entering (1,500 sqm).

The ground floor is dedicated to cosmetics, displayed with standard brand fixtures and name reminders, while fragrances are presented behind a closed glass wall, forcing customers to ask an operator to access them. The floor also displays summer wear and accessories (all with generic, middle-priced, local brands) and a para pharmacy section. The cash desk does not offer additional services.

The basement is connected to the subway system, and the entrance is also equipped with Post Nord pickup stations, allowing customers to retrieve parcels and click & collect items, not far from the cash desk. The floor displays kids wear and toys, as well as the home category, rather well-staged. However, overall, the experience lacks inspiration, and each retail space has a visible reference number, likely to help retail operators and brands to locate where they should set up their stores but instead impacts the customer experience.

The upper floor is mainly dedicated to women’s fashion and lingerie, with a mix of generic concepts and branded shop-in-shops. For fashion brands, shop-in-shops are more detailed and immersive than for lingerie brands where in reality they are only dedicated and delimited spaces with a brand reminder on the walls. A section is dedicated to activewear with brands such as Esprit, Levi’s and the Åhléns private label, and there is also a tiny men’s underwear section.

During the visit, the clientele was exclusively composed of middle-aged women.

Even though the visit was, somehow, disappointing, when discussing with Mr Al-Saffar, it appeared that this store, which was to be refurbished and modernized, was profitable, just like 100% of the 47 stores currently operated in the country.

Visiting a flagship location

The second store visited was the massive Åhléns City store, right in the centre of the city, at the same distance from the Royal House, the museum island, the train station, the Culture house and the high street. Talk about a flagship: the department store, built in 1964 and now rented from a real estate company, occupies an entire block of 40,000 sqm, and represents 20% of the company’s total revenue (125m€) thanks to very significant traffic for such a small country: 15m people visit the location every year (more than the Stockholm train station and airport).

The massive façade is windowless in red bricks as the initial objective was to make sure it would be easily recognizable and become a landmark. Åhléns uses this space to advertise collections and brands.

The ground floor is dedicated to cosmetics, fragrances, shoes and accessories. However, the plan is to move the shoe section and increase the space allocated to bags. The CEO explained that the first year of his tenure was dedicated to stabilizing and structuring operations (especially in terms of brand supplies) and that the new zoning of the store was next on the plan.

The luxury usual suspects (Dior, Byredo, Chanel) are operated in concession, in a high-traffic section at the entrance of the store (in semi-personalized spaces) with the purpose to increase the brand portfolio there. A Joe & the Juice bar, still present at the time of the visit, is planned to be removed and replaced with a watches section, in order to not interfere with the fragrance space. The rest of the product offer is a mix of private labels (such as Carin Wester, a private label developed by the previous management with a local designer celebrity, which Al-Saffar has repositioned both in terms of image and price point, and decided to design internally), and foreign brands operating in consignment, with good margin rates for Åhléns (more than 60%).

An upscale café completes the experience, which is overall very nice, as the store, in spite of its huge dimensions, is airy and the sight gives an impression of unconstrained space.

The first floor is dedicated to women’s fashion (luxury, contemporary, denim and activewear) as well as lingerie. The fashion section is mostly an alignment of shop-in-shop with each brand’s concept, with the exception of Åhléns Studio, a multi-brand section right in the middle of the floor (similar to the SKP-S multi-brand sections at SKP in Beijing) with a specific in-house concept. Most of the floor is operated in wholesale terms, which allows for negotiating discounts against immediate payments, with the exception of a few brands (Tiger of Sweden, Filipa K and others). This has been one of Al-Saffar’s main points of focus in the past 12 months as his goal was to reduce the number of brands operating in concessions, in order to regain control of the assortment and increase the operating margin, by reverting to a 90% rate of brands operated in wholesale.

This is why, for instance, the denim section was under construction at the time of the visit, as the new brand assortment (a mix of labels already in Sweden and exclusive ones) was being finalized. Switching from a concession business to a wholesale business obviously requires acquiring the needed savoir-faire (buying team), which means time in terms of recruitment and training.

The second floor is dedicated to home and kids. The Home section is rather beautifully staged with a very Nordic taste, and both this section and the kids one (apparel and toys) offer a selection of international and local brands, completed with private labels either developed by Al-Saffar or redeployed (such as the Rikiki kids line). A family room is available for customers willing either to relax from the shopping heist with their families or have their kids under supervision while they are in the store. The family room is astutely located near a café and the toys section.

The third floor is dedicated to menswear, services, such as a barber, and personal shopping services. Just like for women, menswear is a mix of international, local and private labels, and the target is to increase the number of brands operated in wholesale terms. The barber is quite well-executed, albeit not really visible from the floor and only customers in the know might find it easily.

The personal shopping service space is very welcoming and spacious, dotted with products in double exposure in order to entice shopping. The space can be booked in advance and is connected with the club membership program, with a system developed in-house and based on purchase value, with 3 different membership levels. The software developed by Åhléns teams also includes a system in which customer feedback received via email is collected, compiled and reviewed with the adequate teams on a daily basis.

The fourth floor is currently rented by Muji but the plan is to replace them with a new offer that remains to be defined. It could be either an extension of the Gourmet section which already occupies a side of the building, or a new upscale F&B section taking full advantage of the terrace, or a flex office space based on what Saks Fifth Avenue has developed in New York with WeWork at the time.

Interestingly, there are also many questions about the corporate offices, which are also on that floor, with offices enjoying incomparable views and a huge private terrace which is completely underused while avoiding demotivating employees who have been used to these offices since the 60s.

The Åhléns project is a work in motion, and the visit came at the right time to fully grasp the size of the transformation Mr Al-Saffar has started for the company.

What’s next for Åhléns?

Al-Saffar's most important plan is to review the way the department store company has worked with suppliers so far.

Historically, and for various reasons (non-aligned seasons, high import duties, different currencies), retailers in Nordic countries have always relied on third parties acting as importers and distributors to bring in brands and operate them. We already reviewed what it implied with NK, also in Stockholm: until the pandemic, NK was acting as a mall and leased spaces to brands and operators. When one of those operators went bankrupt in 2021, NK had no choice but to purchase its operations and learn how to operate fashion instead of simply managing real estate. Al-Saffar, a seasoned retailer, wants to go much further than that, and this is why he spend the past year cancelling concession agreements and reverting to a 90% wholesale model.

*While such a model theoretically allows to keep a much tighter control on the product selection and therefore the store positioning, Al-Saffar also states that it allows him to take a greater share of the pie, as he does not share the margin with anyone. This is also the reason why he wants to expand the private label business from 20% today to 35%, and his approach is very simple:

-    Either source products in Asia and label them adequately,

-    Or negotiate with foreign brands the exclusive rights of distribution in the whole of Sweden (the 47 stores fleet is an argument in that kind of conversation), as exemplified with the cosmetics brand Inglot

-    Or purchase the rights of an individual and build a brand accordingly. For instance, he made a deal with a Swedish chef to be able to use his name and face on a new line of kitchen accessories he will develop and sell in his stores.*

This approach allows him not only to consider keeping all 47 stores, which are all profitable but to plan expansions, including in second and third-tier cities and smaller ones, where the new stores will present 65% of private labels in their product offer.

That new approach, in which third parties are eliminated from the equation, is quite new in Sweden and in the Nordics in general and might very well be a game-changer for Åhléns and the region. While it is some kind of normalization as this move would make the Nordics more in line with usual business practices in the rest of Europe, it might also contribute to a more general movement for brands to see Scandinavia as a new market, as they could expand there with fewer constraints than in the past. As a consequence, the hype we noted last year when visiting the region could be very well fuelled by a new gold rush for brands looking for European pockets of growth.

Credits: IADS (Selvane Mohandas du Ménil)

PRINTABLE VERSION HERE

The IADS helps members address multifaceted issues from answering their most operational questions or coordinating information flow to helping them address future challenges by questioning their methodologies and providing a different perspective.

This is the reason why the IADS invited Demet Ikiler, COO EMEA at Publicis Group, to discuss the white-hot Retail Media topic. Retail Media Networks (RMNs) are making the headlines for their ability to generate an additional flow of revenue with high margin yields, while making the most of department stores’ most prized assets: their own sales channels. However, since the press often emphasizes big players’ actions, such as Amazon and Walmart, the purpose of this conversation was to give all department store CEOs a good understanding of the situation and the stakes at hand while discussing what would be needed for a department store company to launch its own RMN.

Demet Ikiler was appointed Chief Operating Officer of Publicis Groupe EMEA in January 2023. She joined after over two decades at WPP, where she was a member of GroupM’s global leadership team as CEO of GroupM EMEA and WPP Country chair, responsible for scaling and delivering more innovative cross-culture solutions for clients. Demet has been recognized by Fortune and The Economist as one of the ten most powerful female CEOs and as an Empower 100 Executive Role Model in 2022. She is also a board member of the United Nations Global Compact, leading its diversity and inclusion chapter. Prior to WPP, Demet Ikiler worked at Zenith and Saatchi & Saatchi.

Introduction: Defining Retail Media

Publicis Groupe defines Retail Media as selling advertisers the possibility to operate online campaigns aimed at the retailer’s own audience, on both its onsite platforms (own website) or offsite (on publisher premise), as a major evolution from pure trade marketing.

The development of retail media has been catalyzed by the progressive disappearance of third-party cookies, as, thanks to this move, retailers’ infrastructures gain more value in the eyes of advertisers (brands): it is no longer only about near-term sales on the platform (the purpose of trade marketing), but also a way to generate visibility, awareness and raise consideration as well.

In short, retail media answers more marketing needs than trade marketing and can provide much more precise ROI evaluation than ever before. CPG brands, for instance, need to reinvent their whole performance marketing approach, and retail media allows them to do so very precisely.

Also, the fact that retailers operate both e-commerce and stores enables advertisers to target customers during their whole journey, starting offsite on a publisher’s website with a co-branded retailer/brand display, continuing in-store with a digital screen, then to social media, and in product search results, all which is happening in real-time.

Ikiler explained that the net new revenue to be expected is capped: 60% to 70% of retail media revenues are new, an already significant and sizable new share. While a fraction of the money comes from the trade marketing budget (30% to 40% maximum for Publicis), its biggest share comes from a reallocation from other digital or traditional channels (print, TV/radio, social media...), i.e. a net gain for the retailer.

An opportunity first seized by the largest players

Retail media is in the headlines now and is generating a lot of noise, justifiably so: Arthur Sadoun, Publicis Groupe CEO, expects retail media to surpass traditional TV advertising spend by 2025, i.e. in 18 months (Ikiler notes that this new budget allocation dispatch is already happening for some of Publicis’ customers).

Such a rise is linked to the continuous e-commerce growth from the past 20 years in an exponential manner, transforming some retailers into “audience hubs” with massive scale:

-    Amazon, which moved early, is the first retail media network to have emerged, and by combining its other assets (grocery and supermarkets) was able to take a dominant position with advertisers.

-    Walmart has an addressable audience (expressed in millions of monthly viewers or users) that surpasses Google’s and Facebook’s. Therefore, they can gather massive amounts of consumer data, which opens opportunities to monetize this audience.

The stakes are high: while there is a ceiling in terms of margins when it comes to retailing physical products (10 to 20%), it can go as high as 40-45% offsite and 80% onsite when it comes to selling advertising inventory, due to the low cost of production. Amazon’s advertising services, which started in 2020, already represent almost $40bn in 2022, i.e. half of AWS, the largest non-retail activity within the company. The advertising activity’s margin is estimated between 70 and 90%, which explains why this activity drew a lot of attention.

Publicis Groupe believes that retail media, even though it is massively growing (US digital media budget allocation to retail media has increased from 16% in ’19 to 25% in ’21, to reach $77bn in ’21 and $95bn in ’22), is still on the rise.

At some stage, Europe (and the rest of the world) will be closing the gap and should contribute to the global growth of this industry. It is not a US and China-only phenomenon, and new players are appearing in other countries, such as Carrefour and Intermarché in France, Boots and Tesco in the UK, and Falabella in Chile. While everybody has Amazon’s success in mind, there is room for other types of retailers, in terms of businesses and sizes, for them to monetize their platform.

Retailers should not take customers’ adhesion to RMN for granted

Some might be wary that customers might not be very happy with retail media, as clients could get annoyed to see a bunch of ads on retailers’ platforms across their journey. 70% of product search results on Amazon are sponsored. While this might not be much of an issue for Amazon, other retailers whose reputations lie on curation and selection might see this, justifiably so, as a risk.

This is why Publicis Groupe advises being extremely careful of the onsite customer journey and leveraging data to target consumers off their platforms, in other words, on publishers’ sites. Retail media is, in that sense, a great way to attract and capture new customers, in a more subtle way than hammering them on the retailer’s website itself. The cherry on the cake is that such customer acquisition is funded by suppliers.

The scale effect: how to compete with giants

Most retailers, especially in Europe, present a very fragmented offer, with a variety of products and different measurement tools, when compared to giants such as Amazon or Walmart. In that perspective, being able to compete with them can be seen as an illusion. However, Publicis believes that this fragmentation might represent an opportunity, and they have already started exploring it through new ventures, such as Citrus, a white label offering for a variety of retailers.

Ikiler argued that retail media is a reality that will end up hitting every market and vertical. Brands will increasingly ask to have access to such capabilities, which is, in itself, a very good reason to get prepared. In other words, this represents an opportunity that should not be shed for fear of competition. The reason is that retail media is inserting itself perfectly in the omnichannel transformation that all department stores are currently going through, as the physical stores themselves represent a competitive advantage compared to Amazon.

CEOs interested in retail media should focus their attention on two vital topics:

-    Systems: the market is increasingly gearing towards self-service proposals, i.e. SaaS offerings to brands, in contrast to managed services in the past. This requires a very significant tech investment. However, this will allow being able to deal with more brands at the same time, with a lower marginal cost. Also, retailers entering this space now will have access to all-in-one solutions available off-the-shelf and already up to date, which will reduce the time to market.

-    Organization: while the trend is moving towards in-house sales teams to have more strategic conversations with brands, which can be resource-intensive, new offerings on the market allow outsourcing services to optimize the ramp-up of activities, which is then progressively transferred to internal teams.

Ikiler concluded by observing that, given the relative similarities of department store companies in terms of size, nature of the business and offering, there would be some logic in teaming up and harmonizing technology and ROI calculation, while tracking across the board  to generate a common approach with brands. In other words, she recommends retailers team up together to generate new revenues out of their current existing assets.

Is the topic of retail media network a strategic one for department stores? There are so many priorities to deal with that it could be tempting to disregard this subject as it is more an opportunity than a necessity (digital transformation, human organizations, addressing AI or dealing with the sustainability requirements are examples of vital necessities for department stores). However, we also believe that any topic helping department stores when it comes to their productivity is crucial to know and to consider, which is the reason why the IADS will be dedicating its 2023 White Paper to Retail Media, in order to dive deeper into the topic and understand in full its ins and outs, and what’s in for department stores.

Credits: IADS (Selvane Mohandas du Ménil)

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The IADS joined cybersecurity professionals from various retail businesses at the RH-ISAC conference hosted by Nestlé in Barcelona in April ‘23. RH-ISAC provides a trusted forum for its members in the retail, hospitality, and related industries to share cybersecurity threat intelligence, best practices, and mitigation strategies. IADS attended on behalf of its members in order to get a better understanding of what is happening in the space.

The two-day workshop was an occasion for industry leaders to share the latest information and challenges around the cybersecurity landscape. Retail experts discussed the latest cybersecurity trends and threats especially in regard to advancements in ChatGPT, AI, Machine Learning, as well as the importance of implementing fusion centres.

ChatGPT: Cybersecurity risks vs business opportunities

To kick off the workshop, an icebreaker question was raised: How will ChatGPT impact cybersecurity? The answers varied from opportunities to warnings. First of all, ChatGPT offers opportunities for the task force of a company, especially lower-level employees, that want to learn new skills and received AI assistance. However, its performance is not always perfect and has even been proven to adopt biases based on its training. And as ChatGPT is susceptible to the information it is fed; it can also be taught to be bad. Therefore, attackers have even more opportunities to automate or expand their attacks.

One cybersecurity expert brought up the point that ChatGPT is technically the new-gen Google or Facebook because when these platforms came around, users were openly sharing their private and sensitive information. Without thinking people share their location, post photos of themselves, and search for information that should be treated privately. ChatGPT users are doing the exact same thing, but now also including private company information. For example, a software engineer might copy and paste code into ChatGPT to ask it to fix any problems with it. But within the code, there could be proprietary or sensitive information.

The more the workforce relies on AI to complete their work, the harder it is for companies to control and ban its use. ChatGPT is not the only AI tool, as now there are various iterations of ChatGPT’s power thanks to the APIs that have been released by OpenAI. Banning all of these tools would be impossible for companies. Therefore, reactive organizations will need to create policies and promote best practices, while also reviewing NDAs (Non-disclosure agreements) with the teams to ensure there are no risks with the AI tools being used in terms of data breaches.

Despite the red flags, ChatGPT and generative AI technology should be seen as exciting opportunities that can be harnessed for the good of a company. There are ways that organizations can use these solutions to scale and automatize their business to create more efficient operations.

Maximizing cyber resilience with AI and Machine Learning

Ignasi Paredes-Oliva, Data Science Project Manager at Nestlé shared how he is using AI and Machine Learning (ML) to automate the company’s threat detection and response. ChatGPT is integrating itself in almost every business unit thanks to various solutions harnessing its technology. For example, Microsoft has introduced Security Copilot to respond to incidents faster using AI. AI is becoming so advanced that tools such as AutoGPT are even allowing users to give an objective to a machine that then runs fully autonomously to complete a task.

As such technology advances, it is important for companies to keep in mind that threat actors will increase as tech barriers decrease. Attackers will be better overall, especially in terms of effectiveness, automation, and scale. But from a defense perspective, companies can also use the same type of technology to empower themselves to better counterattacks.

Historically, threat detection has been set by static rules, past incidents, and user behaviour. So currently, companies are protected against known attacks, but AI can help defend against future types of attacks that have not been seen before.

Nestlé is experimenting with AI to be able to anticipate threats while also automating processes. One solution that has come up with is a machine that automatically categorizes incidents into low, medium, and high risk and then, therefore, assigns a task to it. For example, all low-risk incidents are closed automatically, medium-risk ones are sent to the 24/7 incident response team, and high-risk incidents are escalated to the right people. Another AI machine can detect phishing emails based on language used within the text and warn the user. A third example is a machine that can detect brand impersonation of Nestlé’s logo across other sites so they are aware of any trademark infringement or impersonations that could negatively impact the brand.

Nestlé has already developed 10 to 15 AI solutions within their security business. So far, these solutions have resulted in increased threat detection and better operational efficiency. This suggests there are massive opportunities to boost cyber resilience with AI. Nestlé found that in this domain, the focus should be on building software products that actually bring real ROI to the business. Finally, in order to push such solutions through the business, there will need to be clear alignment with the management team as well as constant communication across all stakeholders.

Fusion centres: Bringing efficiency and communication to cybersecurity teams

Ahold Delhaize shared the process they undertook with Booz Allen Hamilton to build their Cyber fusion roadmap which is a framework that outlines the process of integrating and coordinating cybersecurity operations across the organization. Cyber fusion is the unification of all security and related functions—such as orchestration/automation, data analysis, incident response, and threat intelligence—into one operational group in order to better integrate threat detection, management, and response processes, and facilitate security collaboration between people, teams, and devices. For example, the September 11th terrorist attacks in NYC could have been prevented if the right information had been uncovered in the data and shared. Therefore, governments are now creating fusion centres to anticipate and prevent major issues such as attacks on the country from occurring.

The same can be said about retail. The 2013 Target data breach where hackers stole credit card information from millions of customers also could have been prevented if they had a better grasp on their network security environment. These tragic and damaging instances have led to the importance of getting fusion centres implemented across every business type to be able to respond, escalate, and communicate during incidents.

Implementing a fusion centre takes a lot of planning and evaluation. In order for a fusion centre roadmap to be built out, there needs to be a complete understanding of who needs to do what and when. A very detailed blueprint of the fusion centre maps out the organization of people, processes, technology, and governance. Implementing the fusion centre typically takes 3 years to build out the core functions, enhance and expand the opportunities to other areas and to deploy proactive measures.

Each company's fusion centre will be unique but aims to make headcount more efficient while eliminating redundant work or gaps between silos. Transforming operations can be challenging, but convincing employees to abandon inefficient practices is crucial for success. Ultimately, fusion centres allow staff members to have more bandwidth for tasks they are passionate about but previously lacked time for.

Conclusion: Cybersecurity teams are transitioning from defense to offense

According to ENISA (European Union Agency for Cybersecurity), which was created to enhance the EU’s cybersecurity capabilities and assist member states in addressing cyber threat vulnerabilities, the Commerce and Retail sector faces major threats that are targeting monetization services. For example, such threats can impact booking and payment capabilities, which are key components of the core business.

Retail businesses are also being hit with data leakage, ransomware, and malware which can occur through website infections, skims or stolen payment card information, among other things. For example, in 2020, South Korean conglomerate and retail giant E-Land suffered a ransomware attack causing 23 of its retail stores to suspend operations while they dealt with the attack. As retail businesses rely more and more on technology, the opportunity for threats increases, but so do the opportunities for advancement.

Specifically, the cybersecurity space has been hit by major technological advancements thanks to progress made in AI and ML solutions that are bringing new challenges to businesses. As technology advances, so do the techniques and capabilities of attackers. But the ‘bad guys’ are not the only ones that are becoming more empowered, cybersecurity teams can now leverage advanced AI tools to be able to build machines that can anticipate future attacks and automate processes to better manage, categorize, and escalate the various threats.

As such technologies advance, the human side of the business remains key. Cyber-attacks can be prevented through the implementation of proper communication channels.  Therefore, fusion centres are being built out to create a unified security team that addresses gaps and removes redundancies, thus making each position more efficient and reactive.

Historically, cybersecurity teams have played defense – addressing threats and incidents as they occurred, and responses were based on past events. But now, thanks to generative AI and ML and efficient communication hubs, a company’s cybersecurity team is able to anticipate future issues in order to put out a flame rather than face a fire.

Credits: IADS (Mary Jane Shea)

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To the relief of many retailers, Chinese borders reopened in January 2023 after 3 years of closure. While they learnt how to survive during and after the pandemic by addressing local clients and other nationalities, they eagerly waited to see Chinese tourists back in stores, especially in Europe, where they represented 50% of luxury sales before the pandemic, according to Altagamma.

2022 was not bad for continental European retailers: Galeries Lafayette and Printemps in France almost fully recovered to their 2019 levels, while La Rinascente in Italy, Breuninger in Germany and El Corte Inglés in Spain all exceeded either their 2019 sales revenues or profits. This can be attributed to several factors, the strength of the US dollar (an incentive for US tourists to splurge into luxury purchases in Europe), European tourists criss-crossing the continent to spend their Covid-19 savings, the UK decision to scrap VAT relief channelling clients to Paris, Milan and other destinations, among others.

However, these conjunctural factors are not expected to last. In parallel, while the Chinese appetite for luxury has not faded, overseas retailers wonder if they will be able to get a piece of the pie, which is why anxiety about Chinese tourism is mounting. Knowing when exactly they will be back, and what they will be looking for, is key to make sure stores are properly prepared to welcome such customers again.

This article was first released on MindRetail as an op-ed.

Will Chinese customers be back on time to save the next season?

According to various sources, a large-scale return of Chinese tourists should be expected in Europe only during the second half of 2023 (either during the summer or the Golden Week in October), while the most pessimistic reports mention early 2024.

It’s not that they do not wish to travel, on the contrary: just after the borders reopened, Fliggy (Alibaba’s travel branch) reported an increase of 200% in travel bookings, while Chinese travel agency Trip.com noted that outbound travel bookings multiplied by 18 times last April. However, long-haul international trips are another story:

-    A backlog of passport renewals and visa applications in China after 3 years of closure explains why closer destinations such as Hong Kong, Thailand, Japan and Singapore are easier to visit (not to mention the efforts these countries actively pursue to court Chinese tourists, such as Hong Kong giving away free airline tickets and food vouchers to encourage visits),

-    Airline tickets are scarce, as ramping up the frequency of flights takes time and people. For instance, Air France opened 6 weekly flights in May, up from 1 in January, far from the 30 operated pre-pandemic. Add to that diplomatic arm-wrestling since Chinese companies are not restricted to fly over Russia to come to Europe, while European companies see their operational costs increase by more than 20% to go around Russia (due to the war-related restrictions), and this is the perfect cocktail for high flight prices and a lengthy return to normal,

-    In addition, China developed its own luxury market during the pandemic, as illustrated by Hainan, the duty-free national mecca, where overall sales doubled in 3 years and customers can find prices which are competitive even with France (while, in the past, the price difference could justify a trip there).

Consequently, the sight of Chinese tour-operators in European city centers is still a distant idea. On XiaoHongShu (the “Chinese answer to Instagram”), out of all cities mentioned from September 2022 to April 2023, only London made it in the top 10 destinations (Paris is ranked 13th).

This does not mean that Chinese tourism has not resurrected at all. LVMH’s CFO mentioned that a new breed of Chinese tourists, travelling as individuals and not in tours anymore, was spotted across the globe. This raises another question about the very nature of these post-pandemic Chinese tourists.

Who are the Chinese tourists currently travelling to Europe?

So far, they are wealthier, with a higher education background, and probably more demanding than the ones that came to Europe in tours before the pandemic. This is not to be taken lightly:

-    They favour safe and Chinese-friendly places, i.e. countries that offer easy access to visa and security. For instance, Italy is taking the lead over France when it comes to visas. While French retailers are pressuring the government to speed up the flight frequency, Italy lowered the visa application cost, a smart move given that the first country visited usually pockets a significant share of tourists’ budgets. Security also explains the rise of newcomers, such as Balkan countries (Montenegro, Croatia, Georgia), as they are being seen safer than traditional destinations.

-    They are highly digital, well-informed, and unresponsive to clichés (such as rabbit-shaped products for the year of the rabbit). They favour experience and discovery over products and are also extremely interested in wellness and health-related options. Some of them even combine business trips and leisure travel, which raises questions in terms of how to accommodate such customers.

In short, recipes of the past won’t work. First, retailers’ attractivity should not be taken for granted, and the ones who invested during the pandemic to overhaul their shopping experience (such as Printemps’s revamp or the Galeries Lafayette flagship store renovating its cupola) will reap the benefits of their patience. Second, Chinese customers will be expecting a very different set of products and services, which should come as a justification for such travel. In other words, European retailers are now facing competition from China itself when it comes to tourists visiting their stores, and the risk of disappointment is real.

How are retailers preparing themselves?

The reopening of Galeries Lafayette’s Shopping and Welcome centre last month, a 2,800 sqm space dedicated to Asian clientele after 3 years of closure, is only the visible part of the iceberg on how Europe is preparing itself to welcome back Chinese customers. It would be misleading however to believe that retailers rely on old recipes to welcome these new-gen tourists.

First, they are preparing through a total reinvention of their product offer:

-    While they had to cap that category during the lockdown, stores are muscling their ultra-luxury offer, mirroring what brands are doing either at home (with the opening of a mega-flagship such as Dior or Cartier in Paris) or in China (with salons only opened to ultra HNWI in the Chanel, Louis Vuitton and Gucci stores at SKP). This has translated into new and larger spaces (such as with the new Rolex boutique in Galeries Lafayette or the double-decker stores in El Corte Inglés) but also the multiplication of takeovers, as seen in Harrods (Louis Vuitton, Dior, Celine) or KaDeWe (Dior). When it comes to the category, it is all about stocking up bags and hard luxury goods over RTW, which implies difficult negotiations with brands who prefer to keep these high-margin products for themselves.

-    They also focus on curating new brands, to provide younger customers (84% of Chinese travellers are Millennials and Gen X) uniqueness and originality with niche product offering. This is why Breuninger has opened B-Spaces, designed to provide a radically and highly curated selection of products.

-    Surfing on the growing interest from Chinese customers for fragrances, perfume bars have been reinvented:  Printemps and KaDeWe both redesigned their spaces. More generally, wellness is growing in China, as Covid impacted mental health. As a consequence, gyms are opening everywhere in the country, and wellness is now a trend meaning that new offerings, such as Galeries Lafayette’s Wellness Galerie, could prove to be a master move.

However, as mentioned, retailers also adapt to the fact that Chinese customers look beyond products (8 out of 10 favour experiences):

-    They crave for in-store experience (a common sight at home in places such as SKP-S). This is why luxury brands’ flagship stores and initiatives (such as the LV Dream restaurant) should attract crowds, and retailers should develop new concepts, such as WOW in Madrid. Also, culinary experiences are now key in department stores, which is why the first Michelin-starred restaurant opened in a department store, at El Corte Inglés.

-    Services are crucial, as Chinese customers no longer wish to queue for hours outside of a store. They prefer to connect with a local sales associate who knows them and can advise them personally. This pushes retailers to invest in their CRM, such as with Magasin du Nord. Also, being able to deliver products to their hotel, or offering them click & collect for products selected when in China for pick up while in the store, are services that are being developed. Every detail counts: La Samaritaine’s automatic tax-free kiosks are a competitive advantage for customers valuing speed and convenience.

-    Overall, retailers are developing “China-ready” teams, including Chinese speakers, translating point-of-sale material, and offering Chinese payment systems (China UnionPay, Alipay, WeChat Pay). Such teams are also trained to learn the culture codes and avoid any misstep.

Conclusion: standing out of the crowd will not be a question of products, but systems

The most difficult will be, however, to stand out of the crowd not only by being perceived as the “must-be” visited place, but also by being visible where Chinese customers look for information, i.e. the appropriate social media (60% of wealthy Chinese customers research a product online before buying it). Retailers have to make a choice, as there are significant differences between WeChat (where Harrods launched branded stickers), Tmall (where El Corte Inglés has a store) and others. That also implies having a dedicated content and marketing team, understanding the market to partner with the right KOLs, and a Chinese-focused promotional calendar (while CNY and Golden Week used to be the main events, Single Day, Couple Day and Women’s Day are now significant opportunities).

Finally, CRM systems that companies have rushed to deploy in the past few years will be delivering their full value, especially trans-national ones. Central Thailand’s unified system, which allows customers to accumulate points when indifferently shopping at la Rinascente (Italy), Illum (Denmark), Globus (Switzerland) or Selfridges (UK) represent, a good use case that should appeal to Chinese customers when travelling in Europe.

Credits: IADS (Selvane Mohandas du Ménil)

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The IADS attended the latest edition of the World Retail Congress in Barcelona, during which the Association had the privilege to moderate a roundtable dedicated to the future of department stores, with the CEO of Steen and Strøm in Norway, the CFO of Matahari in Indonesia, and the Deputy Chair at John Lewis in the UK.

This edition was also the opportunity to listen to great leaders and hear their insights. Below is a selection of the most interesting lessons we took home.

The WRC is one of the global events where every retail professional gathers to hear about the latest trends and grasp the industry mood. This year’s theme was dedicated to resilience and the leadership needed to navigate the “extraordinary times” we live in. It was the occasion for 750 attendees from 40 countries to listen to compelling presentations from leaders, sometimes disarmingly honest when it came to acknowledging the toll taken on them by the role today.

During his opening speech, the chairman and CEO of Tendam set the tone, as he advocated for leaders to embrace every change, be it customer behaviours, technological disruptions or sustainability issues, and find very agile solutions to face these challenges, in the most efficient way possible, but not at any cost. He insisted in a very compelling way on the fact that leaders should never lose sight of their ethics, as they should lead by example. This is all the more important that the retail leaders’ role now goes beyond the P&L: they have a responsibility in changing society and contributing to its transformation, a clear evolution from the past (and a Herculean one, when combined with the need to ensure business continuity and prosperity).

After an overall presentation of the global economic situation, three main themes emerged from the various presentations the IADS attended:

-    How brand storytelling is evolving from a purely growth-oriented purpose by showing how brands offer the best options to customers, to a broader message explaining how they are contributing to the general evolution of societies and well-being,

-    How tech is impacting businesses, with down-to-earth use cases, but also some messages of caution,

-    How retail leadership has transformed in order to help organizations navigate troubled times in the best way possible, involving sometimes that leaders themselves should question their approach and change.

Introduction: a global overview of the world situation

The Global Chief Economist at Deloitte drew a rather extensive picture of the world situation and the impacts on retail.

While inflation has increased in the past 2 years to the highest levels in 40 years due to various factors (pandemic, supply chain impact, durable goods prices surge, war in Ukraine), he was confident that the peak was behind us and that inflation should decrease. He was wary however that the labor market had not contributed to inflation so far: technically, a situation where there is a demand for labor should have led to a surge in wages, not the contrary which is what is currently happening, as prices are decorrelated from salaries.

He also addressed the risk of recession for the US, which was low in his opinion thanks to the stability of customer spending (fueled by their savings), and the strong balance sheets of businesses. On the contrary, Europe was more at risk, due to the much higher levels of inflation, and with Russia weaponizing gas and raising prices, thus forcing governments to increase public spending to support populations. Italy and Germany were, in his views, the countries most at risk. With the ease of Covid-19 restrictions, China had started to recover, even though there were some headwinds (weak global economy, supply chain disruptions, demographics and trade disputes) which could lead to a pivot in globalization, with global companies shifting assets from China to Southeast Asia, reflecting the decoupling that is already taking place in tech.

He concluded by reminding the audience that 2022 was the first year during which climatic events truly disrupted the world economy on a large scale, and that should become a norm in the future.

The brand storytelling evolution: from a business competitive advantage to a social involvement

The Chairman and CEO of LVMH’s Selective Retailing Division (which includes Sephora, DFS and La Samaritaine, Le Bon Marché department stores) explained that he did not see his role, and his businesses, as being a retailer, but rather a brand builder. In other words, the more stories he was able to tell the world, the more affinities he could create with the customer.

This rather classical approach to storytelling was twisted when the CEO of The Body Shop dynamically reminded the audience that being sustainable, the DNA of the brand since its inception, also involved concrete measures impacting how the company was interacting with society at large. An example of this was shared through the company’s recruitment process, (The Body Shop boutiques accept any person willing to work, especially the ones excluded from the job market), which he made part of the brand storytelling. For him, the social involvement of the company (and its public promotion) is a way to “appeal to customers who embrace the values we embrace too”.

Rather surprisingly, the Executive Vice Chairman of Shein had a similar approach to explain how his “on-demand retail business”, involving small factories, production on demand and promotion through social media was actually impacting society in a positive way:

-    From an environmental perspective, by reducing production waste (in terms of material consumption but also unsold products) and encouraging customers to engage in circular consumption,

-    From a social perspective, by proposing + size collections and promoting diversity,

-    From a job perspective, their different business model was seen as a strong element of motivation for their staff, who believed that Shein’s new approach could change the industry.

He concluded by mentioning that Shein was seeing itself as an agent of change, and that they were ready to influence other players in the market so that the industry could change. The audience’s reactions to those remarks were mixed.

Tech is a necessity, but not an end-game

AI and ChatGPT were the stars of the show in many presentations. The Chief Technology Officer of Zalando explained that ChatGPT was already used for product recommendations as their motto is to “use the new tech before the user does.” He shared that AI should be taken very seriously, as it will force businesses to rethink the way they operate, what they want and can do with the data they collect, and how they make sure it makes sense for the customer. For instance, he mentioned that call centres were clearly disrupted as Zalando was considering replacing them with chatbots.

However, he insisted on the fact that tech evolution is, in essence, a cultural change. This means that teams have to be motivated in the process of change, with full transparency, making sure they understand the goal, and share the same ambitions. He was very wary to remind the audience that AI would never help to solve all the issues by itself.

This is a view that the CTO and co-founder of Uber shared, while encouraging the audience to test, try and learn. For him, we live in the best moment to innovate, and retailers anyways do not really have the choice: if they do not do so, someone else will do it for them. This is the reason why many initiatives are taking place, from metaverse (which he saw more fit for gaming than anything else), to VR/AR, or NFTs (even though the current applications were disappointing).

A Doctor of Machine Ethics at UC Berkeley echoed that encouragement to test and try, explaining that this was the approach Microsoft or Google had when developing Large Machine Learning models. They sense that Generative AI is going to replace part of the tech stack, that they can learn and customize at scale, but for now, what is possible to be done and how is not yet fully understood. For that reason, every player, from the largest retailer to the smallest start-up, has a chance to run the race (a position echoed later by Bill Gates about the fact that AI could kill both Amazon and Google in a Tweet last May).

The human aspect of tech was left behind during these presentations, which made IKEA Retail (Ingka) Chief Digital Officer’s speech very interesting. By reminding that the company’s DNA was to “create a better everyday life for the many people (they serve), through affordable, sustainable and accessible products”, he explained that the company had the will to “responsibly approach automation”. In other words, make sure that automation and tech is used to improve IKEA’s employee’s employability in the long run, because the company believes that talents and people are scarce.

While IKEA started their digital transformation late (in 2012, with a dedicated digital organization only emerging in 2018), things advanced very quickly: 80% of IKEA customers start their journey online, and e-commerce represents 20% of the business (vs. 9% pre-pandemic). This is why they have developed many new innovations:

-    The paper catalogue was ditched, and replaced with 3D creative apps that allow phone users to virtually visualize the products they want in the actual locations where they want them to be,

-    Store inventory was tracked with autonomous drones, which improved security at work, self-replenishment, as well as contributed to reducing overwork,

When it comes to data and artificial intelligence, he candidly mentioned that they wanted to leverage AI to improve business efficiency, but without losing sight of workers. This implied that they did not have clarity on what this meant or how, yet.

The transformation of leadership and how to manage customers and teams

During a roundtable involving the CEOs of AWW Group (Pepe Jeans, Hackett, Façonnable), the President of Aerie (American Eagle Outfitter Group), the CEO of Marks & Spencer, and the CEO of Wumart, a 2,000-large Chinese grocery and supermarket chain, the evolution of leadership was discussed, and in particular how to convince loyal customers in a change process.

The conversation was very hands-on and honest: Marks & Spencer shared that the message about their new loyalty program was confusing customers who believed that the app itself was the program. Another example was the cashless cafés introduced by M&S to show its technological advancements, which were not understood, let alone used, by its traditional customers. The CEO of Aerie reminded the audience that whatever tech was on the table, people are needed to operate it, and that involved an inertia that had to be taken into account by leaders during the implementation process. During another talk, the CEO of Primark described his role as to “challenge technology and make sure the company does not move too fast for the customer”.

The chairwoman of The Lane Crawford Joyce Group tackled the other side of the coin, the people in retail organizations. She described her organization as “a business where you pay people to grow.” In other words, her job is to create a platform where people learn and grow. This translated into a retail academy where Lane Crawford employees can learn basic retail maths, manage 1:1 relationships, learn how to make content creation and use AI, but also have access to mental health and wellness programs.

The most emotional talk however was with Frasers Group’s CEO. While being honest about the fact that the context was challenging, he was candid about his role and how he had to make the right decisions about distributing brands and operating stores:

-    Are they relevant for the business?

-    Do they positively contribute to the distribution?

-    What do they bring to the structure?

He was honest about the fact that such filters were difficult to apply, especially when he had to close stores and lay off workers. To do that, it required being fully transparent about the economic conditions leading to such a decision. He reminded that the “P&L does not prime over moral and support for people.”

When it came to the department store format, he mentioned that for him, the model is far from being broken, but it can become very unproductive past a certain size as he discovered with House of Frasers. This is why in 2nd and 3rd tier cities (<100,000 people), he renegotiated leases with landlords and brought Sport Direct at the entrance in order to boost traffic.

Finally, he also mentioned the launch of Frasers, a loyalty program combined with payment capabilities, that will be available across all store formats (House of Fraser, Sports Direct, Flannels) which will also be sold under a white-label solution to other retailers.

What to remember from this WRC edition? The key takeaways were centred around calls to more transparency, collaboration and cooperation between retailers. The Chairman and CEO of Tendam even mentioned it in his introduction speech, by reminding the audience that “retailers cannot move alone” and it was the time to “develop alliances, as the world is becoming too complex to succeedalone.” This is exactly what the purpose of the IADS has been since its inception, and what we have been trying to bring to our members since the reinvention of our activities in 2020 into a more business-oriented and hands-on expert structure tackling topics together.

Another interesting thought was also the amount of risk that retailers had to willingly take if they wanted to succeed, as reminded by Mindy Grossman, who was inducted at the WRC Hall of Fame, and who said that taking risks was better than not taking risks and trying to cope along the way. Such an approach could be lethal for retailers today.

Extraordinary times indeed!

To go further:

WRC CHAIRMAN REPORT

Credits: IADS (Selvane Mohandas du Ménil)

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Private shopping is nothing new to retail. Think high jewellery and watchmakers, they have always traded in discreet ways. More recently, luxury flagship stores have increasingly developed private lounges. While they used to be opulent rooms with comfortable sofas, they have transformed and expanded into private floors, private apartments, and finally, full private stores that are only accessible to a limited list of VICs. This comes as an evolution for big spenders’ shopping habits. On one hand, top customers tend to spend more, hence expect to be treated accordingly. On the other hand, the pandemic created a new demand for one-of-a-kind or, at least, special experiences.

Besides, in an environment where luxury brands intend to increasingly go direct-to-consumer and where resale is gaining traction and is considered a more responsible shopping behaviour, private retailing represents an additional and crucial strategy for brands to make a difference in the way they consider their best customers.

While Covid accelerated luxury consumption, the private retailing trend is here to stay. Many options are available from full private stores, private suites and salons inside of the stores, to confidential retail spaces. The IADS pulled together the most relevant examples of what private retailing offers at the moment.

Private retailing in department stores

In close partnership with luxury brands, a few department stores were early adopters of private retailing. In different ways, Harrods and SKP are fair examples, both happening in China.

The Residence: Harrods outside of Harrods

Back in 2020, at a time when Chinese consumers were unable to travel to the UK, Harrods started a new format in China. Called ‘The Residence’, the concept was tested first with a 3-day pop-up store initiative during Shanghai Fashion Week, which soon transformed into a permanent space. The project, strictly invitation-only to its top-tier clients, consisted of stockless VIP lounges and showrooms, including personal stylists, exclusive collections and areas for customers to invite and meet with their friends, and even host dinner parties. The concept soon expanded to Beijing.

The reasons for such a strategy were to keep in touch with wealthy customers and increase brand recognition. Also, the company anticipated that, with the degrading relationships between the US and China, the UK might become a more enticing destination for affluent Chinese in the future. It was also a smart move since there is no physical stock to be found at The Residence: the department store counts on its relationships with brands to locally supply the products sold.

Luxury brand ‘social clubs’ at SKP

A few months ago, Chanel revealed its plans to open private boutiques dedicated to their VIP customers, starting in Asian cities in early 2023. The long queues in front of every Chanel store hardly represents a nice luxury experience so the news of this new exclusive experience didn’t come as a surprise. Besides, with only 250 stores worldwide (compared to 400 Louis Vuitton stores), Chanel has a relatively limited retail footprint, hence the need to take measures to accommodate the upper part of its growing customer base. To support its retail expansion, Chanel plans on hiring more than 3,500 new employees, many of whom will be sales associates.

In Fall 2022, the initiative was first implemented at SKP in Beijing where Chanel (along with Louis Vuitton and Dior) took over the third floor of the building to open a VIP-only store. What’s more interesting is that it is not as visible as one would expect, as the store is not dubbed Chanel but ’31 Cambon’: the reference to the historic boutique in Paris is highly challenging for non-Chanel shoppers to grasp, and that’s obviously the goal. The collections are displayed as if in a lavish art gallery with artisanal tools demonstrating the brand’s know-how and craftsmanship.

At Dior, the private boutique consists of 3 rooms only accessible upon reservation for a limited number of loyal customers. As for Chanel’s ’31 Cambon’, Dior’s salon concept is totally different from the usual boutiques. To showcase and emphasize the brand’s culture, the concept takes cues from an art gallery reminiscing of the Designer of Dreams wall created for the namesake exhibition. Besides sales service and consulting, these private stores are also meant to entertain VICs: private trunk shows and pre-orders, friends’ gatherings, birthday surprises, and educational courses. One VVIC (very, very important customer) of Dior shared her retail routine. Whenever she wants to buy something her sales assistant books her one of the 3 salons. She is welcomed with pre-selected items in her size, but also with her favourite sweets and drinks. Big spenders become addicted to such swanky treatment. And since being a VIC is not forever, the top customers are pushed to keep up with their purchase volume to maintain their status.

Private retailing as developed by big names

Brunello Cucinelli’s hidden Casa Cucinelli

Following the opening of a similar space in Milan before the pandemic, Brunello Cucinelli opened an invitation-only store in New York in December 2021 to emphasize private shopping for its most loyal customers. Located on 689 Fifth Avenue, the space at street level is not occupied by the Cucinelli store (but rather a Canada Goose). Actually, one will find it hidden on the 9th floor of the building. The Casa Cucinelli apartment space is designed so that top customers feel like they are at the designer’s home. Guests are first invited into the lounge, immediately leading to the kitchen. The rest of the apartment includes a living room, a study room and a dressing room where everything can be acquired.

From Dior to Cartier: renovated Paris flagship stores develop unprecedented private spaces

In 2022, Dior and Cartier in Paris offered 2 versions of a luxury revamped flagship. In Spring 2022, Dior reopened its store on the opulent avenue Montaigne. On top of haute-couture and private salons, the ‘Suite Dior’ is a private apartment whose keys give guests the full run of the building, with dedicated staff of six to eight people around the clock, ranging from chefs to personal shoppers.

Cartier’s 6-floor, 3,000 square meter newly renovated historic store located on rue de la Paix, is also a relevant case for private retailing. The 5th floor of the building is a completely private floor called the ‘Residence’, an apartment consisting of a dining room, a lounge, a large kitchen and a winter garden. It is designed to host exclusive events, a party for a client, or a product launch with VICs. The 4th floor is also dedicated to top customers: it hosts an archive space where they can discover old drawings, mood boards, books and old photos. The other floors’ breakdown is quite classic, with each floor having at least 2 private salons. Called ‘Prestige’ and dedicated to high jewellery and made-to-order, the 2nd floor has a special salon for bespoke jewellery: customers will decide on their projects there thanks to an inspirational library and archive pieces, and they will discover their unique creations in a rather impressive cabinet.

Private retailing is a key part of Gucci's turnaround strategy

Gucci opened its first private store in April 2022 in Los Angeles’ Melrose area. Accessible only by appointment, the ‘Salons’ exclusively show the most elevated products, including made-to-order collections. Privacy is key here: windows are tinted so clients can see out, but passers-by can’t see in. Private appointments are flexible and can be booked for 2, 3 or 4 hours, or all day, in which case a special menu is available from the Gucci Osteria restaurant on Rodeo Drive. The store has been designed to be flexible and host special events: the racks can be easily removed to use the store as a fine jewellery or watch salon, for example. Nine private stores are set to open in the coming months (New York, Paris, Milan, London, Dubai, Hong Kong, Shanghai, Taipei and Tokyo). They will support Gucci’s turnaround strategy and product elevation, with its average selling price rising double-digits last year.

Tiffany’s The Landmark has to both accommodate 2 million visitors per year and top VICs 

Tiffany’s Fifth Avenue store is a cultural destination and New York City’s fifth-largest tourist attraction. Now fully renovated, ‘The Landmark’ (as LVMH dubbed it) will probably be even more attractive than before, especially with tourism booming. The challenge will be to cater to the expected 2+ million visitors annually and to design remarkable shopping experiences for top-tier consumers under the same roof and at the same time. To that end, each floor is equipped with private salons, starting on the ground floor with consultation tables coming with panels to create private spaces. On the third floor (the Love & Engagement floor), 4 private shopping rooms are available for couples to have a more intimate shopping experience. The seventh floor (the high jewellery salon) offers spaces to reveal pieces specially curated for visiting clients. Finally, the 10th floor is a full VIP private selling salon only accessible to Tiffany’s top clients. It features 4 VIP salons and a private dining room that can host up to 60 people.

Confidential retailing: an efficient alternative to flagship stores to capture loyal customers

Intimate, more confidential – but not private – stores are also considered by luxury brands as a lucrative strategy to tie affluent loyal customers to their favourite brands knowing that they don’t necessarily want to shop in huge stores anymore.

Balenciaga’s couture store

In July 2022, before the media storm hit the brand and its artistic director, Balenciaga opened a ‘couture store’ located at 10 Avenue George V’s historic address, just below the brand’s couture salon. The store is not private per se but is dedicated to top customers, as it offers limited-edition high-price clothing and accessories (EUR 3,500 eyewear, EUR 8,500 to 15,000 bags and up to EUR 100,000 clothing that can be personalised by the ateliers upstairs). To refrain from random customers wandering around, the store is only accessible upon reservation on Saturdays, usually retail’s busiest day of the week. The store also serves as a “gateway to couture” as said by Balenciaga’s CEO Cédric Charbit: it’s a smart way to push the brand’s top clients to upgrade their spending and buy couture.

Thom Browne’s resolute alternative to a flagship store in Paris

When Thom Browne opened its first retail store in France in 2022, it was surprisingly not in Paris, as one would have expected. Rather, the brand opened a small 50 square-meter store in Saint-Tropez inside the member-only beach club Épi. The US label, whose ambition is to become a global brand, obviously cannot afford big flagship store locations yet. The idea here was not to cater to as many random customers as possible, but rather to develop close relationships with a few top ones. In that sense, the new outpost acts more as a clubhouse than as a billboard. Overall, the new Thom Browne stores are the opposite of the usual ‘mega-store’ that luxury big names are investing in or relaunching. On the contrary, they are on average less than 150 square meters and in locations that are more interesting than visible.

It’s no surprise SKP was the first to dedicate a floor to private luxury brand stores as the department store accounts for the highest sales in China. Besides, Asia is the continent where most of the future growth in luxury consumption lies (despite recent worries in China). Asian customers are also more eager to participate in exclusive and entertaining shopping experiences.

If Chinese VVICs will probably favour shopping at the most exclusive freestanding flagship stores when they are back in Europe or in the Americas, VICs and other big spenders are still to be caught by department stores. Assuming these consumers will revenge-shop when they resume travelling, department stores should consider opening private luxury brand shop-in-shops to make sure they will cater to these tourists’ demands. The surface allocated to such new stores could be made profitable thanks to higher average baskets. Even though questions remain on the business agreement to negotiate with brands, the initiative could be an additional tactic for department stores to retain luxury brands at a time when they are increasing their DTC operations.

Another option is to double down efforts on personal shoppers, private lounges and extend the services and experiences offered. This is what Harrods will do in 2023 as mentioned by CEO Michael Ward during the NRF big show in January 2023. He is planning to multiply fourfold the resources allocated to private shopping (people and systems) while focusing on managing relationships with luxury brands and making sure that Harrods will be able to satisfy the demand for luxury products.

Credits: IADS (Christine Montard)

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The IADS’ role as an expert platform is to be aware, explore, and inform its department store members about every aspect of innovation in retail, in order to help them address the future challenges with the best cards in hand. This involves taking a step back from fads and fashion, and addressing innovation with a cold head to report what is going on.

This is the reason why the IADS invited Sandra Gasmi, founder of Demain Beauty, an innovative clean beauty brand, to present the Metaverse initiative she has developed with her team in partnership with Chafik Studio, an architect company founded by Chafik Gasmi, her husband, that has worked with Sephora, Lancôme, LVMH, in addition to having experiences in the hospitality sector.

Is the Metaverse still relevant in 2023?

While the Metaverse was such a hot topic in 2022, the hype has died down a bit as AI technologies steal the limelight. But this does not mean focusing on the Metaverse as an extension of a retailer’s brand is to be completely set aside. According to Coresight Research, retail spending on technology is expected to reach USD 229 billion in 2023, a slight increase from 2022. The Metaverse is still seen as a place for growth as an extension of the omnichannel offer.

While the Metaverse is still in its early stages, it represents new revenue channels and opportunities for retailers, which is why many of them are continuing to invest in it in 2023.  For instance, L’Oréal’s venture capital fund, BOLD, participated in a USD 4 million funding round for French metaverse developer Digital Village as the technology enables a 3D world for brands to engage with customers. Also, a retail survey conducted by retail solution company Avalara found that omnichannel investments are top of mind for retailers, and the metaverse is seen as a priority in strategies going forward.

The Metaverse, applied business case: Demain Beauty

In order to get a first-hand look at what retailers can do with the Metaverse, IADS welcomed Sandra Gasmi, CEO of Demain Beauty, and her architect husband Chafik Gasmi, founder of Chafik Studio to showcase a brand experience in the Metaverse which trains and informs employees and consumers about the various products offered and active ingredients through an immersive and interactive experience.

Chafik and Sandra Gasmi brought their two worlds together of brands and architecture to offer an immersive experience that can help people discover the brand in new and fun ways. The tools and experiences that were developed are meant to create brand engagement and brand loyalty, as well as increase the conversion rate because consumers will better understand the brand.

Using the Metaverse to educate

If a person sees and feels a product, they will remember 20% of what they have seen. But if they have the opportunity to interact with the information in the real world, they will memorize 75%. This is what the Demain Beauty Metaverse experience aims to do. Users are fully immersed in a world that requires their full attention allowing them to be fully focused on what they are doing and what is going on in their surroundings. The Demain Beauty Metaverse experience has incorporated gamification tools to boost the attention of the user even further so that as they learn they feel a sense of pleasure that positively impacts the learning experience. The tool can be imagined in two ways: as a retail animation tool and as a training tool.

The Demain Beauty Metaverse experience

Within the Demain Beauty Metaverse experience, customers start their journey in a lobby, from where they can shop and learn more about the products. They always have a shopping cart attached to their avatar in this space so that they can continuously increase their basket size when desired.

The lobby is in the centre of a circular structure that is suspended in the air. Around the circle, there are various galleries that have games the user can interact with. The games are focused on educating the consumer about pollutants, good and bad bacteria, and that Demain Beauty does not use single-use plastics as a way of respecting the oceans.

The Demain Beauty Metaverse experience is still in its early phase, but they hope to eventually have it online and, on an app. The total cost to build out the experience was EUR 200,000 and took 7 months to complete.

What makes the Metaverse attractive to retailers?

While Web2 brought on major advancements in communication tools and social media outlets, Web3 has the potential to augment these applications even further. First, the new technology has the capacity to treat larger amounts of data. Second, this data all belongs to you which gives you more control over how you are seen or how your experience is dictated.

The Metaverse allows a brand to use the architecture and the offer of their experience to attract users to their brand. The difference between physical selling space and the Metaverse offering is that in the Metaverse, you can be more creative, not only in the physical build-out of the experience, but the brand can also be infused through communication, education, and the shopping experience. While inventing digital and immersive experiences that are meant to wow consumers, it is still important to focus on elevating physical experiences as well.

With the Metaverse, the technology can be used to create a “digital twin” of the physical store, which is something that has already been done in the hospitality industry, and which allows one to see and model any planned changes in the retail space in advance. It also significantly creates more fluid interactions between development teams and can even be used by marketing and communication teams for planning and simulation purposes.

The Metaverse can seem like an unknown technology that can easily suck up corporate research and development funds, but brands that act early gain the advantage of understanding how it works, which will be crucial once trends develop further. Brands that have tested the Metaverse so far see the potential, but warn that controlling brand image in the Metaverse is not easy and there can be higher risks of IP and trademark infringement. This proves that the relationship between the virtual and physical worlds for a brand is very important and must be carried out with caution.

Conclusion: The Metaverse is an experience worth experimenting with

Bringing customers and employees from the physical world into the metaverse might raise some challenges, especially in the sense that there is a learning curve when using new technologies, especially those as radical as the metaverse. Customers crave experience, and experience is centred around the senses. These sensory experiences are not as easy to capture in a virtual world as there are some limitations as to what can be mimicked online.

But what the Metaverse can offer is an out-of-world experience, one that consumers can only imagine. This is a great way for retailers to experiment with new ways of showcasing their products and educating their customers in a more memorable way. While the Metaverse offers some limitations, if executed well, it can transport customers into an immersive thought-provoking experience that can build up the brand power of a retailer.

Credits: IADS

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The IADS is at a crossroads when it comes to helping its members, by at the same time addressing their most operational questions and coordinating the informational flow, but also helping them to address future challenges, by questioning their methodology and providing a different point of view.

This is the reason why the IADS invited Eugenie Rives to share her view on the management of innovation and transformation, as the Early Project Managing Director at  Project X, Alphabet’s “moonshot factory”. Before joining X, Eugenie led Operations for Google in France and Sub-Saharan Africa. Before Google, Eugenie worked for Alcatel in Mexico city, managing projects to connect cities and public infrastructure online.

Alphabet’s moonshot factory is the place where uncomfortably ambitious, world-changing ideas are developed. These early-stage moonshot teams are exploring radical new ways to solve some of the world’s biggest problems using breakthrough technology. She explained how a moonshot project works.

Introduction: Google Project X’s purpose

Google Project X was created 10 years ago by the Google founders, Larry Page and Sergey Brin, to develop the Google of the future. In that framework, Project X’s mission is to invent and launch “moonshot” technologies where world-changing ideas are developed to make the world a better place. Moonshot teams are exploring radical new ways to solve some of the world’s biggest problems that cannot be solved with conventional, incremental ways of thinking and behaving.

A moonshot is a project which sits at the intersection of the 3 following ingredients:

1. A huge problem affecting millions or billions of people,
2. A radical, sci-fi-sounding solution that may seem impossible today,
3. A technology breakthrough giving hope that the solution could be possible in the next 5-10 years.

Managing such projects requires a different thinking process as well as alternative management methods which could inspire retailers.

The “moonshot” factory: a few examples to understand Project X and its variety

Waymo, formerly Project X’s self-driving car project, is the perfect illustration of a “moonshot”. 1.4 million people dying each year in car accidents is a huge problem. LiDAR (machine learning and smart sensors emitting pulses of infrared light instead of radio waves) is a true breakthrough technology which will empower a radical solution: a self-driving car.

Tapestry is a “moonshot” for the electric grid that aims to speed the transition to a resilient, carbon-free electricity system. It develops new computational tools that will create a holistic and dynamic picture of the grid.

Intrinsic is a robotics software and AI “moonshot” working to unlock the creative and economic potential of industrial robotics for businesses, entrepreneurs and developers. The team is developing software tools designed to make industrial robots easier to use and more flexible so that more people can use them to make new products, businesses and services.

Using beams of light, Taara is working to bring high-speed, high-capacity and affordable internet access to the 4 billion unconnected and under-connected people around the world.

Tidal is developing new tools to protect the ocean while preserving its ability to support life and help feed humanity, sustainably. To that end, the team is working with ocean farmers to develop an underwater camera system and a set of machine perception tools.

How does Project X work?

Filtering ideas and building projects 

Teams at Google Project X don’t want to work respecting processes. As a result, there is only one process: filtering. Each potential “moonshot” starts with an idea. A rapid evaluation (a few weeks) of the very interest of the project is done and a small team is created to enter the project’s early stage phase (lasting a few months). If all goes well, it becomes an X project which will last several years. During that phase, the team evaluates the risks and possible applications of the project. The incubation phase lasts 1 to 2 years before ‘graduating’ to become a 100-people project.

There is an additional filter to decide which project to work on, considering there 2 types of projects:

•    The ones with 100% chance of helping 10 million people.

•    The others with 10% chance of helping 1 billion people: this is the kind of project Google Project X is focusing on.

Six principles relying on people and culture

Project X is a “moonshot” in and of itself. Its breakthrough idea isn’t technology: it’s the people, culture, values and practices that can make radical, purpose-driven creativity the path of least resistance. Breakthrough innovation happens when passionate teams of people have the audacity to challenge each other’s perspectives and aim for what seems impossible.

To that end, 6 work principles are applied at every step of the way. Some are counterintuitive to how projects are often managed in companies:

1. Aim for 10X, not 10%: the surprising truth is that it’s often easier to make something 10 times better than it is to make it 10% better. Applying this principle is also more exciting for people involved in the project and forces them to free themselves from existing assumptions, always questioning the status quo.
2. Work on the hardest things first, even if it can be seen as counterintuitive. If someone was asked to train a monkey to stand on a pedestal and recite Shakespeare, most people would start by building the pedestal, because it’s easier even though training the monkey is a crucial task. When taking “moonshots”, it’s almost always best to take on the hardest, most important part of the problem first, rather than waste time on relatively simple tasks that can be achieved later on. Working on the hardest thing first is basically the opposite of what companies usually do: look for the ‘low-hanging fruits’. At Project X, small wins are not considered fulfilling while overcoming significant challenges quickly is.
3. Make contact with the real world. The outside world will always teach things which cannot always be anticipated. The key is to get out and test in the field as early and often as possible. The real world quickly tells what doesn’t work and what can be improved.
4. Fall in love with the problem, not with the solution or not even with the technology. Technology is ‘just’ a tool, not the end game. The starting point for any new challenge should be to focus on the problem and seek to gain a deep understanding of it. That way, people can be more open to new approaches to find the best solution possible. This is a paradigm shift as people to run away from problems as fast as possible.
5. Build in diverse perspectives: innovation happens when creativity is fuelled by diverse teams, communities, cultures, and disciplines, challenging each other to spark even better ideas.
6. Embrace learning, not failure: people should be able to kill the project they are working on, hence killing their jobs. Society has conditioned us to see failure as shameful and best to be avoided at all costs. But taking “moonshots” isn’t possible without failing. So it is crucial to create a culture that makes it psychologically safe for people to fail and reframes each failure as an opportunity to learn. Celebrating such failures as much as successes and valuing each mistake for its lessons is the purpose of ‘Dia de Los Muertos’ events organized to celebrate the death of projects. It is also noted that failures are an intrinsic part of future innovations (what Google calls the “moonshot compost”: every innovation comes from an earlier project that had been stopped). In order to enable teams to be able to kill their projects in a reasonable manner, management is defining with them the bare minimum to be achieved and the no-return points, which are all reviewed at every management checkpoint.

What retail companies can learn: breaking predictability and a few rules

Sometimes counterintuitive, such principles can be interesting to companies in the midst of a transformation process. A lot of CEOs are coming to Project X to know more about the principles and how to apply them to their own teams. Innovation and transformation are not just a team’s problem, they are a company problem. Ikea is a fair example of a company transforming itself by hiring many talents coming from the tech world, bringing them together with the other teams, and empowering them with autonomy and trust. Executives should probably do it first, but the key idea is to have all employees on board to avoid a company working at 2 speeds: the ones innovating and the others. In that sense, CEOs are expected to lead by example as well as be ready to learn from “technical” people.

Innovation can be difficult to implement in companies where resources are limited. Project X’s point of view is that innovation should be a mindset. People and teams should innovate in their own jobs: this is not easy and requires a profound ability to change, but in the end, innovation doesn’t require that many resources.

Trying to break as many rules as possible, Google Project X asks employees to spend 20% of their time on any creative activities (from the doorman to the HR or the CFO). As a result, employees -not only do it- but come back to work with better ideas and feel empowered. It works, as Project X employees are eager to learn and want to make an impact. As a result, they truly use this time in stimulating activities.

When assembling a team, Project X makes sure each person’s background leads to a unique point of view or might mirror someone else’s. People who have wildly divergent paths can break each other’s routines and generate creative connections that aren't likely otherwise. People are encouraged to use ‘and’ instead of ‘but’: it encourages value and constructive feedback.

Finally, the performance management and the incentive scheme are quite different from the ones usually put in place in retail companies. Project X splits incentives as follows:

•    50% on ‘how’: team development, how people are helping others. Of course, it’s more difficult to manage as it’s more impalpable.

•    50% on the what, the result.

Conclusion: innovation is all about shifting perspectives

Being agile by shifting perspectives can be more powerful than being smart. Very often, people think that the answer to a difficult problem has to be complex or expensive. But simply looking at it from a different perspective could uncover simple and efficient answers: working on the hardest things first and spending more time understanding the problem rather than running away from it can make a difference.

As far as transformation is involved, whether it’s about digital or sustainability, it has to infuse the entire company and all the employees to bring actual innovation. Agility has become an important value and skill (even more since Covid): in its own way, Project X is an agile company, shifting paradigms to achieve true innovation.

Credits: IADS

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Digital transformation remains a central topic of discussion for department stores. The IADS already dedicated its 2021 White Paper to the topic, trying to understand what was at stake and what was needed within department store companies to fully embrace the change. In order to bring a very down-to-earth angle to the conversation, the IADS invited Laurent Raoul to explain his views on digital transformation in heritage organisations in a new global context.

Laurent Raoul is the founder and managing consultant of XLc Consultancy Company, specializing in Supply Chain, Operating Models and Back Office IT systems dedicated to the Fashion Industry. He has run development or restructuring projects for brands belonging to main Fashion Groups in Europe or in the US, and for mass market and bridge brands or retailers.

Introduction: there is no such thing as “back to normal”

Retailers now live in a systemic world, which means that anything happening anywhere can have a worldwide impact. It is even estimated that a crisis is likely to happen every 12 to 18 months. As a result, retail operations are impacted by increasing chain reactions. ‘Heavy weather’ management becomes the norm, whether it’s to deal with natural disasters, financial crises, geopolitical uncertainties (if not wars) or the next pandemic.

In this troubled environment, past certainties fall short: it is no longer about being “big rather than small”, but about being “fast rather than slow”. Even though size will still matter, upcoming changes won’t be about the big companies eating the small ones, but about the fast companies overpowering the slow ones. To that end, they have to quickly change their methods in all aspects of the value chain and focus on raw data and back office operations, with extra attention put on IT management and knowledge.

Finance, planning, management, sales: it’s all about new agile methods

To manage companies’ transition and transformation, the most important words are resilience (obviously much-needed to mitigate crisis) and agility. While the word “agility” has become an overused blanket word, it still does mean something crucial for companies: the ability to go from situation A to B with both celerity (speed of transformation) and magnitude (depth of transformation).

The new finance: rolling budgets

In an unpredictable world, in which the coming year will probably not have much to do with the past year, is the usual yearly timeframe still important or even relevant for operative finance? Since Laurent Raoul discussed this matter with IADS member CEOs, the French newspaper Les Echos explained that the dogma of the budget completed at the end of the year to set the objectives for the following 4 quarters is over. Furthermore, it is increasingly considered that the usual budget management is becoming a growth inhibitor for companies.

Since Covid and even more so since the geopolitical and energy crisis, many companies have been calling for a more up-to-date and reliable forecast of their finances. Transforming management methods and tools is now a priority for many finance departments. Rolling budget tools develop as an answer: a few key indicators such as turnover, gross operating surplus, working capital requirements, etc… are updated each month or quarter. The method may vary as everyone has their own recipe and applies it totally or partially, generally keeping the annual budget exercise as a safety measure.

New ways of planning: the thinner, the more wrong

Should organisations better forecast or better react? As Eisenhower put it: “plans are useless, but planning is indispensable”. Nowadays in forecasting, it’s overall useless to go into details: the thinner and deeper they will go into details, the more wrong retailers will be. Still, forecasting remains very much relevant these days, but companies should not spend that much time and money on it in advance (no more planning quantities per SKU, store, and season) as situations are changing often and very quickly. Then a new concept emerges: “forcasgility”. It involves a better plan, better reactions and progressive engagement.

There are also 2 contradictory constraints to take into consideration, especially for finance teams. Procurement and production require early engagement to secure upstream supply, but distribution and retail increasingly engage as late as possible to better stick to sales. To tackle and anticipate the consequences of this contradiction, the supply chain should reverse. In short: we go from a front-to-back to a back-to-front system.

Velocity in transformation management

From a transformation perspective, unicorns’ work methods can inspire department store management teams. Such methods are making bureaucracy or heavy processes disappear from project and transformation management. New principles, work methods and tools should be promoted among teams.

The well-known ‘test & learn’ method is still relevant. Meetings should only be 4 people and never exceed 1 hour to ensure efficiency and decision-making. The ‘quick & dirty’ could even be used for some critical situations. KISS (Keep It Simple & Stupid), war rooms should also be considered. Also, POC (Proof of Concept), a demonstration of a product, service or solution in a sales context, could help show that the product can fulfil customer requirements and also provide a compelling business case for adoption.

Cross-channel operations 

The pre-tail (VICs, VIPs, influencers) is now a channel as much as a department store can be: B to C becomes a business in itself as B to B is. This means assortments and allocations have to be more precise and accurate than before, so working on arbitration is key. In that perspective, AI will be of some help to decide the most efficient product allocation, even more in case of product shortage.

Brands are also trying to build cross-category assortments, which is especially difficult as product categories work with different IT systems. Previously built in silos, operating models and IT systems tend to converge: it’s now visible in luxury brand collections with cross-category aesthetics, animations and market events, but also with seasonal and seasonless, short or long lifespan product cohabitation.

Raw data is the most important asset for the future

Back-office data for front operations

There are now countless CSR regulations to comply with. In France for instance, if retailers are not ready, fines will go up to €50,000. The level of information that should be provided will go up to tier 4 (at the animal level for wool for instance). The needed information for the front operations will come from the back-office supply chain data, using brands and retailers’ direct communication, partners, social media and apps, but also through governments and customs as well as coalitions and lobbies -up until the end consumers.

It’s a big change, as such information used to be kept in the back office. Strong agility and organisation in operations and IT will be required to bring data from back to front, in order to comply with the high number of rules and regulations. The fact that the product might be in licensing or sub-contracting won't make any difference when it comes to the data required. Of course, private labels will be considered the same way as national brands.

Regulation requirements and claims will be based on calculated KPIs such as the share of recycled and recyclable materials, main origin, etc… That is only the tip of the iceberg that we (consumers and retailers) see now. In fact, such information is rooted in the raw data: material scientific names, weight per unit, reference ID, batch ID, serial ID… All this data will have to be available, organized, and aggregated, to be available to consumers and regulators.

Which system for raw data?

From that perspective, an important question is to know in which system this raw data should be stored. For retailers, could it be in tier 1 and 2 internal applications such as their ERP? For brands, could it be in the internal applications such as PLM (Product Lifecycle Management) and the TMS (Transport Management System) for instance? Actually, none of them is able to aggregate all the countless information needed from the thread used in a piece of clothing to the garment’s overall carbon footprint. As third part upstream SaaS applications are already very much involved in retail companies, an aggregator is needed such as PIM (Product Information Management), data lakes or data hubs. It means the most critical information might be stored outside of the companies./nbsp]

Companies like Elementum (the provider of Apple, and considered as the potential successor to AWS) could become competitors for retailers and should be looked at. Elementum could lead the market upstream. In 2040, there might be a B2B equivalent to Uber, having no factory, and no physical business, but ruling all the business between brands and factories. Retailers could become a sort of taxi managed by Uber, with another company owning the most critical information needed to operate the business.

The importance of IT: people, knowledge and speed

A critical role in the digital transformation: the CIO

Companies are increasingly dependent on IT knowledge and IT teams. This is why the CIO position plays a pivotal and critical role in the transformation process. First of all, the CIO has to sit at the board and grasp what is going on. As a consequence, the CIO has to be a human being, which means he/she should be able to talk to the CEO and other stakeholders and make technical things clear to everyone. As a kind of teacher, he/she should give the appropriate wording and KPIs for the transformation project.

The KPIs assigned to the CIO should include speed, which is almost never taken into consideration, compared to cost or risk KPIs. The CIO also has to promote agile methods and avoid bureaucracy in IT: it is really toxic as IT sometimes ends up spending more time managing the process, rather than making sure the target is met.

In IT, the position and role given to consultants should be carefully considered. Even though they can help and provide important insights, consultants can be very dangerous if they manage architecture as it should be managed internally: it is too serious to be given to external companies.

The example of ERP implementation: speed and ‘state-of-the-art’, the double road map

A real-life case comes from companies looking for a new ERP system, like SAP, to transform their IT. SAP implementation is at least a 12 to 18 months project whereas speed is a key to success. But if speed is the only key, why would people work with SAP which is the slowest ERP? It might mean companies should pick the quicker solution rather than what is assumed to be the best one: it’s a paradigm shift.

In reality, retailers constantly need to adapt when it comes to digital transformation, which somehow forces them to invest in overpriced IT systems that they don't fully know how to use. It seems there is no alternative but there is an agile way to proceed with ERP implementation. Having a double road map works: this means running 2 projects at the same time. One team works in the short term with a first roadmap: it is not about being ‘quick & dirty’ here, or not even about quick wins, but it rather means quick solutions, first and second steps. In parallel, a second team is working on the medium and long term. Both teams are coordinated and discuss almost every day. The long-term team can use short-term quick solutions to help with the following steps of the project. Companies using this method have seen very good results.

Conclusion: agility in digital transformation is about speed

Laurent Raoul explained how digital transformation implies a paradigm shift in many ways. This shift involves new methods in all steps of the value chain: more flexible operative finance and planning, new management methods and cross-channel selling. At the time, the importance of data grows and is now necessary to front operations, only emphasizing the CIO’s critical role.

While agility has become an important value and skill (even more since Covid), speed is not taken into consideration enough when running digital transformation projects. Considering the inevitable crisis retailers and their teams will have to go through in the near future, and mandatory compliance with countless CSR regulations, speed might be the ultimate key to transforming a business and succeeding.

Credits: IADS (Christine Montard)

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The IADS invited Green Pea to address member CEOs. This exclusive covers the most important takeaways from the meeting.

As shown in the latest IADS White Paper on Sustainability and Department Stores, the topic of converging towards an environmentally and economically durable and sustainable model is extremely complicated. The more retailers dive into CSR and ESG commitments, the more complicated questions they have to face. In addition, the majority of IADS department stores do not have the luxury of starting from scratch to create a ‘green’ or ‘sustainable’ business from the ground up. They have to pivot their centuries-old organisations to be able to meet the standards of today’s regulations and expectations while keeping business-as-usual operations.

However, it is still possible to find inspiration from new business models. In order to provide IADS member CEOs another angle, the Association invited Francesco Farinetti, CEO of the Green Pea department store in Turin, Italy to present the first “Green retail park” in the world.  The department store has been constructed sustainably and considers the impact that its business has on its community as well as the earth. Farinetti, who has been CEO of Eataly prior to this experience, presented his company’s radical take on a retailer that puts sustainability at the core of the business.

Introduction: Green Pea- Challenging the retail business model

Green Pea department store was born from the same family that created Eataly. Eataly’s offer encompasses everything that people put in their bodies, while Green Pea focuses on what people use outside of the body from furniture to fashion. In other words, it aims to be the “Eataly of things” and provide a new set of options when it comes to how people consume and buy.

Consumers are paradoxically demanding more information from retailers regarding the impact of their consumption but not actively looking for it, which is why Green Pea focuses on products storytelling. It is common knowledge for instance that fashion contributes to pollution, contributing up to 10% of water consumption and 20% of CO2 emissions, but customers hardly read the labels, so they need to be nudged. Such stories need to clearly describe where goods come from, what they are composed of, and their impact.

Green Pea asks challenging questions: Should we stop consuming altogether? Or should we consume in a new way that respects the environment? The issue in the retail business is that as soon as a good is produced, there is an impact that must be measured. Not only are goods creating impacts, but retail real estate also has a lasting impact on the communities they serve. This is why Green Pea has created its own “Manifesto” in order to create a set of guidelines for itself and its partners to shop and sell differently.

The Green Pea Manifesto

When the Green Pea project started in 2010, sustainability was not yet a major topic. But soon the team realised that there was no such thing as “green products”, therefore the road to sustainability would be long. It was not possible to be 100% green because every action taken by a retailer had a footprint, leading to the need for close collaboration with its suppliers with the objective to create a community.

Green Pea has decided to address the issues raised by creating a Manifesto, signed by all of the retailer’s partners.  The Green Pea Manifesto details the department store’s strategy which is focused on respecting the planet. The document is meant to create clarity for all stakeholders including suppliers, management, employees, and the final customer in order for them to all remain aligned on the same vision and rules that should be upheld.

The Manifesto hopes to contribute to the improvement of human life on Earth through its 10 pillars which detail a self-constraining set of guidelines for their present and future actions. While Green Pea is a seller of products, from furniture to fashion, the Manifesto ensures that all partners are in line with the company’s beliefs. This is why almost all partners are Italian or fully produce in Italy, as locality has a major impact on sustainability.

Green Pea’s Manifesto can be seen clearly in their 15,000 square meter store that spans 5 floors. Green Pea’s building has been created so that it could be taken apart with a screwdriver and a 24mm wrench in case the building structure needs to be taken apart and reused for other buildings or projects. The wood on the outer shell of the building comes from trees that had naturally fallen in a storm. The paint used in the building turns the walls into purifiers that reduce air pollution by 88% and kill 99.9% of bacteria. All sources of energy are green and include innovative energy capture opportunities with decorative wind turbines at the entrance of the store and electric floor panels that capture the energy of foot traffic to be reused to power the store. It is important to note that building the store sustainably created added a 20% cost to the building structure than it would have been if done traditionally.

Green Pea also highlights the importance of second-hand offers, and this is especially important for their fashion and home businesses. Green Pea sells second-hand items with relative success and sees this part of the activity as alignment with their Manifesto and a strong marketing vehicle. They even offer repair services and encourage customers to bring back items that need to be fixed up.

A new vision of a store, the ins and outs of Green Pea

The first thing seen by customers entering the store is a museum which aims to educate customers about complex to simple problems. The ground floor is also dedicated to cars, energy and services, all carefully curated to offer green alternatives to customers.

The first floor is dedicated to furniture (starting at €2.500, up to €50.000 and more) and appliances (it is possible to have a fully equipped kitchen for as low as €4.000). It took 5 years for Green Pea to build partnerships with brands, from artisanal companies to international labels.

The second floor displays more than 60 fashion brands, of which 80% are Italian, in addition to a book and a cosmetics area. The following floors are also dedicated to fashion, while the rooftop is only open to Green Pea loyalty card holders and aims to be a communal space.

In the fashion area, there are 2 kinds of brands:

-    The ones which have built themselves with sustainability as their DNA (Patagonia, EcoAlf),

-    The ones with which Green Pea has made partnerships, encouraging them to produce in new ways for short product series (Superga, K-Way…) creating a sense of exclusivity for the department store.

It is not limited to mid-range: Cuccinelli, Zegna and Herno are present in the store. The brand portfolio grew from 20 to 65 brands between 2020 and 2022, which shows the attractiveness of the model, and the vast majority of them are operated under concession terms (in other categories such as cars, leases are also used). There is also the possibility to generate financial revenue by setting up sponsorships with brands willing to use Green Pea as a spot to be sustainable (Mastercard, Unicredit…).

The store is completed with a wide selection of restaurants (from a bistro to a Michelin-starred restaurant) and a congress area.

During the first full year of operation, in 2021 (when weekends were closed due to Covid-19 restrictions) the store welcomed 20m visitors, of which 10m visited the ground floor, 5m the restaurants and leisure, 3m the home section and 2m the fashion one. Green Pea expects to welcome 30m visitors in 2023 with strong growth in the home and fashion sections.

Green Pea’s customer

Green Pea’s customers are 60% 55 years old and above with 60% female and 40% male shoppers, which happens to be the same audience demographic as Eataly. The retailer offers its space as a place to host more than 250 events a year as a way to attract younger customers. Events include pizza-making classes, informative courses on sustainability, as well as venues for companies that want to host events. The events are targeted to attract customers aged 28-35 years old. Green Pea will also hold some vintage sale events in order to attract Gen Z shoppers.

The department store also offers a membership programme at a cost of EUR 50 per year which allows members to enjoy 10% off on everything in the store. Currently, there are around 5,000 members that come to the store at least once a month. Unfortunately, the whole database had to be built from scratch as it was not possible due to Italian regulations to synergize the Eataly customer database.

What is next for Green Pea?

Green Pea has big plans to expand and grow their business internationally. Green Pea is currently in talks with Amazon to build out its e-commerce offer from scratch. For the retailer’s physical footprint expansion, they are first focused on expanding internationally with a store in Dubai. Then they would like to open the next Italian store in Milan. The department store is also starting to work on becoming a certifying body that could offer a sustainability certificate to brands and partners.

Conclusion: How can other retailers be inspired?

Green Pea’s Manifesto can be of great inspiration to retailers around the world, especially retailers in the EU that are facing waves of sustainability regulations. Legacy retailers will need to deeply analyse how the business can be rejuvenated from the ground up in order to account for better practices and incorporate new ‘green’ operations. This overhaul will not be easy, but the sooner action is taken, the easier it will be to comply with future laws and regulations.

Green Pea’s positioning as a retailer that prioritizes consumer education is very revolutionary. As transparency becomes a more important topic, communication and information sharing with customers will be key in order to own the company’s brand and messaging.

Credits: IADS (Selvane Mohandas du Ménil)

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It is no secret that relational shopping is becoming very important to grow a retail business from local to international clients, and anyone not aware of it learnt it the hard way during the pandemic. Mobile and web solutions are now helping sales associates understand their customers better and increase sales thanks to a single tool pulling in consumer data points from various channels. The IADS’ role as an expert body is to be aware, explore, and inform its department store members about every aspect of innovation in retail, which is why the Association invited Arnaud Barbelet, COO of Clientela, and Thomas Meyer, CEO of Mobile Now Group to share the importance of relational shopping.

Clientela is a software company based in New York City, with global operations. They aim to reinvent the store as an engine for growth, with a complete suite of Acquisition, Loyalty and Retail Operations solutions. Arnaud Barbelet is COO and co-founder, in charge of European markets. He focuses his expertise on clienteling, consumer experience and product strategy for key brands and retailers including Chloé, Diptyque and Magasin du Nord.

Mobile Now is a leading, full service, mobile development studio, with a focus on digital experiences, products, and platforms. Founded in 2009, it is now present in Shanghai, Hangzhou and Changsha, China and Singapore. An international team of 90, Mobile Now provides consultancy through to UX and UI design, as well as development across all the key mobile platforms. Thomas Meyer, CEO and co-founder, started the company in 2009 after realizing to what extent mobile phones could disrupt consumers’ and retailers’ existences.

Together, they presented examples (Magasin du Nord, Lane Crawford) in order to generate a very lively conversation.

Clientela business case: Magasin du Nord and relational shopping solutions

Overall presentation

Clienteling is seen as an opportunity to provide every tool that a sales associate needs to help clients buy products in a more automated and seamless way.

Magasin du Nord decided to implement Clientela’s solution in order to drive digital innovation around business needs, especially in the middle of the pandemic when there was a need to build bridges between online and offline (through online booking features, for instance). Following the pandemic, there is a need to focus on better understanding clients and prospects to improve their experience online and in stores.

Clientela offers rich data capture, an advanced booking engine and scheduling service, event management, 360-degree client profile details for store staff, and full integration with other applications. These key features allowed Magasin du Nord to get a comprehensive view of data related to sales and their customers.

Clienteling allows retailers to get to know their customers

Clientela’s in-depth data capture capabilities allow retailers to understand why customers are coming and thus generates more opportunities to create value so customers will return. The system implemented enables customers to book personal shoppers for any occasion. Historically, this service was reserved for weddings and special occasions, but now retailers can extend this service to help shoppers find the right products they will need to start a new job or go to a party.

Communicating with customers across various channels and frequencies helps build relationships with them and fosters loyalty. Communications can include sending personal messages such as reaching out to them on their birthday, if they haven’t visited the store in a while, or if the products they have bought need to be refilled soon.

All of these communication channels help sales associates gather more information about their customers in order to offer efficient advice that is valuable, through one single set of tools which are simple to use.

Since Magasin’s partnership with Clientela, the department store has seen year-over-year bookings increase by 17%, returning client engagement up 13% and staff engagement up 68% on the app.

Future challenges

Clientela is now working with Magasin du Nord on a few problems aiming to simplify the processes even further:

-    Online bookings need to be easily configurable in order to adapt to a variety of product categories, client typologies and languages,

-    Data should simplify the life of the sales associate, and be also easily used by the marketing department to create dedicated communication and event without too much complexity,

-    Personal touch should be injected into the processes: the current solution allows the connection of two people (a customer to a sales associate) and, the future one should focus on how to always connect to the most qualified person in a given customer context. All in all, taking context into account is the next step for the solution in order to enrich the variety of responses and possible interactions.

The aim is to move from a Customer Relationship Management to a Prospect Relationship Manager:  the question now is not to help “if” the customer is buying, but to anticipate “when” the customer will do so. In other words, work on occasion automation (for instance, the system remembers when the customer last purchased a cosmetic cream and is able to send a reminder when the product is reaching its end of life).

Mobile Now business case: Lane Crawford WeChat O2O Commerce & CRM in China

Thomas Meyer shared how technically advanced the Chinese market is when it comes to its digital climate. WeChat, is mistakenly seen as similar to WhatsApp by Western observers, and is much richer as it offers users many capabilities within the app that allows users to even browse the internet and access apps without leaving WeChat. This integration allows retailers to serve their customers better.

WeChat Mini Program Membership and Loyalty Service

The example of Lane Crawford’s WeChat loyalty program allows synchronization between clients and sales associates. Clients can easily access and edit personal data while the tool continuously learned more about the customer as they use the tool. The sales associate can also contribute to a client’s profile by creating prospecting cards and can better serve their audience by accessing their personal data, transaction history, and communication preferences.

The sales associate is able to share recommendations via email, SMS, chat apps, or social media. Clients can then buy online and engage with the sales associate through the various channels while all the information is retained in one singular place. There is also the possibility to livestream events and commerce events to learn more about products and services. Sales associates even have the possibility to craft a shopping cart that customers can validate with a few clicks.

Lane Crawford has managed to achieve 1.5 times what they used to do with e-commerce during a full year, in the first 6 months of the launch of their WeChat account. In 2022, each month so far has doubled the 2021 performance on similar periods, with May 2022 even multiplying the sales by 6 times compared to the previous year.

Relational shopping can help global brands prepare for the return of Chinese shoppers

When Chinese customers return to shop internationally, they will be expecting WeChat-level connections and capabilities from retailers on a global scale. The rest of the world needs to be ready in a variety of ways: retailers will need to have an advanced technical landscape, and sales associates will be expected to speak Chinese. It is also important for retailers to understand that in Chinese culture, consumers shop to celebrate travel. European retailers will need to be ready to welcome Chinese customers and serve them in the same mediums that they have become accustomed to in China.

Retailers that are wanting to welcome Chinese shoppers when they return will need to focus on their customer experience, make sure that technology and digital innovation are at the core of the business, and the business needs to be ready to innovate in order to keep up with expectations.

Thomas Meyer mentions that most of the issues to overcome are cultural (this was the case at Lane Crawford, which is first and foremost a retailer which owns real estate) and human, and not technical. It is all about making sure that these projects are supported by a key sponsor close to the CEO, with an organisation able to deal with legacy systems and salespeople’s new incentivization. It also includes:

-    A shared understanding of the available tech and what it can offer,

-    Linguistic competencies,

-    Specific product offerings.

Conclusion: Customer data can create new opportunities for existing customers

Relational shopping data empowers brands and sales associates with all of the information needed to create new sales opportunities. Whether it be serving a loyal customer in a new market (as seen for Chinese customers that tend to shop while traveling) or for local customers that frequent a shop only when they need to repurchase a good, relational shopping allows brands to offer upscale services to ensure the customers are always thinking of the brand and the experience. By harnessing customer data to communicate effectively with clients, retailers can save a lot of time and effort on prioritizing the right products to ensure a five-star experience through all channels and store visits.

Credits: IADS (Selvane Mohandas du Ménil)

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The IADS attended the latest edition of the Retail Summit in Dubai, during which the Association had the privilege to moderate two roundtables, one centered on customer centricity (with the CEO of AWW group, owner of Pepe Jeans, Hackett and Façonnable, the CEO of WHP Global, owner of Toys’R’Us, and the President of Fashion, Beauty and Homeware at Chalhoub), and the second one on the future of specialty retail (with the CEO of Fred Segal, CEO and co-founder of The Latest Concept Store, and the CEO of Al Sulaiman Group).

This edition was also the opportunity to listen to great leaders and hear their insights. Below is a selection of the most interesting lessons we took home.

Overall, the Retail Summit is a rather surprising event when compared to the NRF in New York or the WRC. Its regional dimension makes it an ideal event for any organization or business interested in the Middle East, but it is also a great opportunity for networking, as guest speakers and high-ranking visitors are easily reachable thanks to its intimate and smaller format. Bumping into CEOs is easy during lunch breaks and conversations are casual.

While the first day was focused on functional approaches to the business, the second day was star-studded with retail legends, bringing the audience into another dimension. Three ranges of topics were discussed:

• New ways to address the notions of customer lifetime value, mass and scalable experience customization, and customer-centricity (a key topic in the Middle East),
• Sustainability and how it translates into fashion and retail,
• Keeping legacy businesses (either brands or retail formats) relevant for the future.

New ways to address the customer

Upon joining the company, Tom Athron, CEO of Fortnum & Mason, explained that he focused on the top 10 customer complaints collected during the previous Christmas campaign, to prepare for the upcoming one. He incentivized managers on those specific complaints. This helped him set up the right priorities, establish a climate of change and prepare for new challenges:

Taking inspiration from the hospitality sector, he created a new team, the “red coats”, whose role is to dedicate themselves to better serve customers, either by helping them when lost or providing assistance and information. Their role is really to provide high-level service and promote Fortnum & Mason as a brand. This also creates an emotional connection both with customers, but also within the staff, who increasingly sees the Red Coat team as a very desirable position, highly valued and accessible with hard work.

To better address customers’ needs, he also reviewed the product offer, making sure it was relevant to a different & younger clientele. For instance, arguing that customers were not coming to Fortnum & Mason to buy menswear (Jermyn Street, dotted with historical shirtmakers, is situated behind the store), he decided to replace the category with “supper clubs” instead, to reinforce both the retailer brand’s credibility and increase customer loyalty. In these clubs, customers can book exceptional food experiences in-store, and enjoy those experiences with their friends.

The CEO of Kiko Milano, the cosmetics brand, echoed Fortnum & Mason’s view on the fact that employees are crucial in creating and maintaining a great relationship with customers if salespersons are turned into actual brand ambassadors. For him, this is by far the most difficult part to perform. The director of Consumer and Retail Excellence at Zegna agreed, and this is why they use tech according to 3 key pillars to help teams focus on the experience and nothing else. Their systems help sales teams to:

• Show the right product at the right moment to the right person in the right channel (45% of Zegna turnover is performed online),
• Use tech at best to fine-tune and customize the B2B purchase experience,
• Have the possibility to stock, and re-stock, in a minimal time thanks to the fact that Zegna is both a brand and a manufacturer for other brands and owns factories.

When discussing customer lifetime value maximization, Majid Al Futtaim’s (MAF) Head of Customer Engagement explained that they stopped mass marketing based on promotions, after they realized that granting customers discounts, even if it could drive positive results in the short-term, was toxic. Consumers became addicted to receiving discounts and stopped purchasing at full price, while retailers ended up spiralling down and killing their brand equity. Instead, MAF believes in the importance of being an early adopter when it comes to marketing channels, in order to remain relevant to each customer according to their preferences. In turn, this requires being able to find the right marketers per channel (someone in charge of Instagram or mailing campaigns might not deal as easily and efficiently with TikTok). This is why the company massively invests in education in order to stay on top of current trends and have innovative employees, even though there are some risks involved in trying everything new.

Michael Ward, the CEO of Harrods closed the conversation by mentioning that, independently from the level of fortune owned by its customers, all of them were obsessed with their points acquired through the loyalty scheme, and the richest were probably the more vocal on this topic. After all, every retailer likes to look at tech in order to find new ideas or possibilities to increase customer loyalty, but having a sound and solid loyalty program, easily available online and offline, is the first goal to achieve.

Sustainability and retail

A panel allowed brand leaders and new-generation retailers to exchange their views about sustainability and fashion. It was interesting to hear German brand Lala Berlin CEO explain that she was hoping to learn from the other participants as she found the topic of social governance very difficult to address alone (this echoes one of the key messages from our 2022 White Paper on sustainability, in which we advocate for more cooperation and transparent exchanges between department stores). This panel was also the opportunity to hear from English social shopping platform, My Wardrobe HQ, which launched in 2019 and offers brands, but also customers, the possibility to rent and sell their collections or wardrobes, in addition to proposing a subscription model. They also provide their solution under a white label model to Harrods, Burberry and Tommy Hilfiger in the UK, and offer access to 500+ brands, including designers and luxury, from Maje to Gucci and Saint Laurent.

Addressing specific topics such as returns and fabrics, the panel shared several interesting points of view:

• To limit returns, it is key to give customers an accurate and precise set of product pictures, and the maximum information about the sizing (not only a sizing grid) to help them buy in full confidence. Asking about the reasons for returning the product is also a psychological way to make sure that customers are not simply having whims.
• Another important point stated by Lala Berlin (and which is already being applied by department stores’ private labels) is to make sure education goes both ways, with customers but also in the company’s mindset, and translates into very concrete results, such as a strict reduction of prototyping and production batches, to maximize the marginal value of each reference.
• Eyebrows were raised when new materials were mentioned, and it seemed that no one around the table was convinced that customers were either properly informed or paid a significant amount of attention to that topic. Instead of wondering about the ROI of such an operation, the CEO of Jigsaw mentioned that it was the responsibility of brands and retailers to make such efforts even though they were not directly demanded by customers.

During another talk, Chalhoub Group, the CEO of Anabela Chan, a jewelry brand, and Walpole, the UK’s association of British luxury brands, discussed the tricky question of how to include sustainability at the core of the business. For new brands, it is easy: Anabela Chan uses diamonds manufactured with carbon captured from the atmosphere or recycles aluminum from soda cans instead of using gold and silver. But for already existing businesses, the story is different as the idea is not only to go green while making sure this is not hurting the business but on the contrary look for positive outcomes for both the business and the environment. Chalhoub gave the example of their sustainable packaging project, which helped reduce the number of suppliers from 15 to 4 and costs by 20% while reducing their carbon footprint. In the same idea, Chalhoub identified that their commitment to gender equality (translated into a specific leadership program) helped the group increase its productivity, recruitment rate, and decrease its turnover within specific categories of executives.

How to keep legacy brands relevant in the 21st century

For the CEO of Manolo Blahnik, to remain relevant the company had to stop being a fashion company and focus on messages based on tradition and know-how, as Fashion, for her, is by nature transient. This view is not incompatible with a hi-tech approach, but choices have to be made: she mentions that AI is almost fully embedded in their ERP system now, while she does not believe in VR, the other hot topic among analysts, as for her this does not help convey a luxurious experience.

Zegna provided a very interesting point of view by reminding the audience that, in addition to staying on top when it comes to service excellence and luxury experience, remaining relevant also imposed remaining rooted in society and making sure to give back. This is why Zegna is the only brand in the world to own a national park, located in Italy, initially a strip of land purchased by Ermenegildo Zegna and then transformed into a park opened to the public.

The CEO of Fortnum & Mason mentioned that his biggest challenge was to “innovate everywhere while not changing anything” given the degree of public love for the iconic London-based flagship store. It was a true balancing exercise between keeping the brand alive and seemingly not changing anything, while at the same time making the needed structural changes to make sure the company would survive:

• For instance, while the store was only achieving 5% of online sales, they have grown that part of the business to 35% through a much stronger presence online and in social media, and a true digital transformation which he defines as wearing the customer’s shoes and considering the journey with a holistic approach. That translated into a subscription model for biscuit refills in a packaging that allows shipping via Royal Mail. As a consequence, this kind of new initiative allows the store to have a broader reach and use online as a true acquisition channel, for overseas or distant customers willing to have the Piccadilly Circus experience, rather than cannibalization of its in-store sales.
• Another example of subtly instilling changes in the organization is the level of attention put into hospitality, with champagne bars and restaurants operated at Heathrow airport or St Pancras train station, or in Hong Kong’s K11 art mall. Interestingly, Athron explained that hiring professionals with a hospitality background helped change the company’s retail mindset in a way which makes it much more modern and adequate to current customers’ needs. For him, keeping Fortnum & Mason relevant means being aware of what modern luxury is, and how it differs from its past definition: luxury should be, in his own words, “not for everyone, but for anyone”.

Harrods also mentioned that hospitality was the best way to remain relevant to very demanding and modern customers, as the iconic store aims to become part of their lifestyle through this new category (Harrods has more Michelin chefs than anywhere else in the world).

There were many other topics tackled during the series of interviews and conferences held during the event, and the reported selection of talks and speakers is, in essence subjective. While the sheer size of the event, much smaller than the NRF, does not provide space for more technical talks, it was interesting to hear retail leaders reflecting on their activity, always taking into account, or mentioning, the Middle Eastern customer in their talks.

After all, 16% of Harrods’ clientele comes from GCC and a recent article highlighted the fact that the region could very well be a reservoir for the growth of luxury brands in the near future.  For that reason, the Retail Summit is not as regional of an event as it may seem and it will be interesting to see its future development for next year’s edition.

Credits: IADS (Selvane Mohandas du Ménil)

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Retailers do not need to be reminded that disruption in the space has been numerous with up-and-coming tech (Web3 and AI), figuring out the “new normal” following a global pandemic, a war in Europe, as well as inflation. These are only a few of the things that have impacted retail businesses between 2020 and 2022.

The role of the IADS as an expert platform dedicated to the department store world is to be able to step away from the immediacy and the constant stream of news and be able to analyse the situation based on actual and reliable numbers.

This is the reason why the IADS launched the first edition of its exclusive Department Store global observatory, the IADS 100, in May 2021. This list, capturing data from a number of department store companies around the world, is intended to track the changes in the retail format and see how players in various markets are able to adapt to challenges and change. It is exclusively based on first-party information that the IADS sources itself.

In the latest rendition of the IADS 100 monitor gathering 2021 fiscal year figures, it has been clear that compiling comparable information across markets has proven to be more and more difficult. Many retailers are forecasting against ‘normal’ times and looking to beat 2019 figures rather than 2020 results. This is fair as department stores were forced to operate in limited ways or not at all for long periods of time, therefore typical KPIs from 2020 are no longer reliable when moving the business back to ‘usual’ times.

What is hard about referring to 2019 figures rather than 2020 data is that there might not be a ‘business as usual’ reference to compare to anymore. It seems as if retailers are having to constantly adapt, therefore year over year comparisons need to be deeply analysed to be fully understood.

This report will attempt to understand some of these major changes across global retail markets. In order 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.

2021: retailers are not out of the woods yet

Before breaking into the numbers, it is important to first look at what happened in retail between the years 2020 and 2021 as a reminder of the times that these department stores are operating. 2021 started as a year of hope and recovery, but many could not imagine the impact that the global pandemic left on the world.

In March of 2021, the Suez Canal was blocked for 6 days, disrupting the global supply chain that was already weak due to Covid impacts. If the shutdown of factories was not enough to showcase the risks for retailers to operate with a global supply chain, this 6-day disruption brought even more awareness of the impact of having reliable and locally sourced products. The shipping delays caused by the Suez Canal block and from Covid interruptions led to a number of fully packed shipping cargo being stranded in ports. By the time some products arrived, they were out of season and no longer relevant, leading to too much inventory and major markdowns at the end of the year.

These supply chain disruptions also heightened the awareness of consumers as to where their products actually come from. They started to ask more questions about where brands are sourcing their goods, how the products are made, the impact supply chains have on the environment, and what the ‘made in’ label actually means. This even led to sanctions imposed by western countries on Chinese goods as a response to the alleged use of forced labour in Xinjiang, China.

The year 2021 also saw the re-emergence of social interactions with the release of the Covid vaccine. After being locked up at home during the pandemic and shifting to a more permanent work-from-home scheme, consumers started valuing personal interactions more, and their expectations for how retailers can entertain them are higher. Shoppers are looking for personalised and experiential shopping which has shifted the role of the physical store, meaning department stores need to make the most of their square footage and prime locations to capture the interest of consumers.

Working from home also changed what products consumers needed to buy. There was an increased need for home office furniture and technology and a reduced demand for work attire and formal wear. In fashion, loungewear took over sales from suites and dresses as formal celebrations like weddings and holiday parties were pushed or completely cancelled.

Understanding that selling to consumers where they are also grew in importance, especially when it came to reaching Gen Z customers. Retailers needed to successfully add social media platforms to their omnichannel strategy. Keeping up with the latest technology to stay relevant in the eyes of young shoppers is neither easy to implement nor cheap. New platforms beyond TikTok and Instagram started to emerge, and retailers realized the importance of fully understanding how to achieve sales across such channels.

Was 2021 a year of false hopes for retailers? What the final numbers tell us

Asia: struggles to bounce back due to waves of lockdowns

Asian department stores continued to be up against strict lockdowns and Covid measures in 2021, especially seen in China and Hong Kong. In China, BHG, Wangfujing, Rainbow, Parkson Retail Group, Maoye, and New World all saw a slightly positive sales trend in 2021 compared to 2020 as stores began to occasionally reopen and citizens were allowed to leave their homes. Travel has been heavily restricted, therefore Asian tourists that typically buy luxury goods in Europe have been forced to use this money at home rather than abroad. Despite the redirection of funds to local stores, Chinese department stores such as Wuhan and Golden Eagle continued to report losses in 2021 versus 2020. And in Hong Kong, Lifestyle Sogo reported positive turnover while Wing On saw losses.

Japanese department stores also saw a range of results with Takashimaya, Daimaru Matsuzakaya, H2O, Marui reporting relatively strong positive turnover between 2020 and 2021, while Isetan Mitsukoshi, Tokyu, and Tobu reported losses. Sogo Seibu in Japan reported a major loss from 2019 to 2020, but rebounds have yet to be reported as figures for 2021 are not available yet. It is important to note that Japan was closed to foreign tourists for two and a half years due to the global pandemic, thus the reopening in 2022 is sure to help sales figures for retailers in the coming year. This will be for sure a much-needed breath of air in the market, as all Japanese department stores reported lower sales in 2021 compared to 2019, including Tobu, where sales halved, and Isetan Mitsukoshi, which lost 66% compared to the 2019 sales level.

The rest of Asia saw a variety of results. In India, Lifestyle Landmark Group and Shopper’s Stop reported positive earnings. Matahari in Indonesia reported a slight increase in turnover, which was the same case for SM in the Philippines and Hanwha Galleria in Korea. Finally, Odel in Sri Lanka reported a loss of turnover from 2020 to 2021. The whole region was affected by relatively severe lockdowns, which explains why no retailers from this group were able to recuperate the 2019 sales levels, despite the stimulus checks granted by some governments.

With the goal being to outperform 2019 numbers, the only department stores in Asia that reported higher sales in 2021 than in 2019 are BHG, Wuhan, and Golden Eagle, all of which operate in China. BHG in particular grew an astounding +62% vs 2019, thanks to its exceptional positioning in the country when it comes to luxury brands and experiences. Such a performance allowed the Beijing location to secure the title of the most profitable department store in the world, which Harrods lost in 2020.

This indicates that department stores in Asia still have quite a journey to make to return to usual operating times and they might be heavily dependent on the reopening of Chinese borders, that was decided early 2023.

Europe: mostly a recovery story

The year 2021 was seen as a time to get back on track for European department stores. In the UK, John Lewis, Marks & Spencer, Selfridges, Harrods, Fenwick and Liberty all saw positive, but almost flat, results compared to 2020 figures. While Fortnum & Mason was not as fortunate and saw a continued downward trend in their sales figures. Harvey Nichols has not shared 2021 figures, but the department store shows the same 2019 to 2020 trend of a -67% drop in sales during the 2020 fiscal year.

Other European players such as Kaubamaja from Estonia, Stockmann from Finland, El Cortes Inglés from Spain, Ahlens and NK from Sweden, and Coop and Jelmoli from Switzerland showed positive but almost flat sales results from 2020 to 2021 that prove the road to recovery will not happen overnight. Europe is not only recovering from the direct impacts of Covid but also have new challenges which will make the bounce back even more challenging. This will be discussed further in the section below dissecting what is to be expected from 2022 results and beyond.

Only Marks & Spencer, Coop Group, John Lewis, and NK beat 2019 ‘normal time’ KPIs in 2021, making a swift recovery from the 2020 decline. The remaining European department stores will be looking to close the gap in the coming years with many barely missing the mark.

Interestingly, in the 4 department stores that increased their sales in 2021 compared to 2019, 3 of them (Marks & Spencer, Coop Group and John Lewis) include large food sections and a strategy based on prices, which explains their resilience in tough times thanks to their proximity with their customers (El Corte Inglés also belongs to this typology, however, the business in the company is also very much based on touristic flows, especially in Madrid, Barcelona and the Balearic islands).

NK is an anomaly as a luxury department store (hence also very much dependant on tourism), which is explained by the fact that it changed the nature of its business between 2019 and 2021. In 2021 NK bought the Departments Stores Europe AB company, a brand importer, and started de facto to purchase and manage product flows, while prior to this acquisition NK was only managing the real estate space within its department store.

Finally, the variable gap between 2019 and 2021 sales for the companies who did not pass also gives an idea of their sensitivity to tourism. For instance, in the UK, Selfridges and Harrods are much more dependent on tourism than Fortnum & Mason, which explains why returning to normal is harder for the two former companies.

Americas: 2021 sees positive growth

Department stores in the Americas (the sampling including United States, Mexico, and Chile) all saw positive sales trends between 2020 and 2021. In the United States, Macy’s, Kohl’s, Nordstrom, Dillard’s, and Neiman Marcus all saw a strong recovery in 2021 sales figures. While the United States was also hit by the global pandemic, stores did not shut down as drastically in the US as in other parts of the world such as Europe or Asia. US retailers were also able to reap the benefits of numerous stimulus checks granted to US citizens in 2020 and 2021 that boosted the economy.

In Latin America, positive sales trends were also noted from El Palacio de Hierro and Liverpool in Mexico, and Falabella, Ripley, and Cencosud in Chile. These countries have not only faced the pandemic but also lived through drastic political changes in government leaders that have shifted right winged regulations to more left policies since 2018. These changes might prove to bring more challenges in the upcoming years.

Compared to 2019 figures, most US department stores neared the 2019 target but slightly fell short except for Dillard’s and Neiman Marcus which reported figures just over 2019 figures. In Chile and Mexico all department stores in the sample outperformed 2019 turnover. This shows that at the end of 2021, the Americas retail markets were showing strong signs of recovery from the pandemic, but this might not be enough to get them through the next set of challenges that 2022 is to bring.

What to expect from the 2022 fiscal year and beyond

While fiscal results for 2022 are still being calculated and modelled, we can already predict what the data might reveal. While most of the world is rebounding from the global pandemic, China and parts of Asia are facing waves of lockdowns that have impacted travel and store operations. Beijing was also the host of the 2022 Winter Olympics which typically welcomes international travellers and is a major economy booster, but the event was strictly limited to citizens living in China to avoid any further spread of the Covid virus.

Chinese consumers being stuck in Asia has also impacted European department stores, especially the French ones that dedicate a lot of resources to selling to Chinese tourists. These department stores have had to shift to appeal to locals and US tourists to try to get their sales figures back on track. But with restrictions starting to lift for Chinese tourists, Europe could record a major bounce back in 2023 sales reflecting the return of these prized consumers. Across the English Channel, the UK faced the death of Queen Elizabeth in 2022 which closed shops for a short period of time and the country is dealing with an unstable government representative and heavy criticism of the leadership.

Another major headline in Europe in 2022 has been the war incited by Russia’s invasion of Ukraine. As countries and businesses show their support for Ukraine, many retailers had to pull their operations out of Russia, including department stores which were previously selling their private labels on the market, for instance. Russia and Ukraine are also both heavy exporters of goods that have impacted the global supply chain and created scarcities in a wide array of goods and increased the price of goods worldwide. Energy scarcities have led to a crisis that has heavily impacted the overhead costs of retail operations.

Between the Covid recovery and the war, the increase in the price of goods has led to painful inflation. Governments are now weary to respond with raised interest rates for fear of causing a recession. If a recession is in fact in the near future for 2023, this will greatly impact sales figures for retailers as consumers will stop spending on unnecessary goods and products.

Finally, regulations surrounding climate change and sustainability are starting to become more concrete with mandatory steps that are needed to be taken by brands and retailers. At the beginning of 2023 regulations will be enforced by Europe and the US that will heavily disrupt how they operate and communicate with consumers. But with the threat of inflation and a recession, it will be interesting to see if such sustainability issues will still be prioritized as profits and recovery take precedence in the eyes of governments and business leaders.

The ultimate test for department stores is not merely to encounter these disruptors, but to be able to make it out on the other side and learn lessons along the way. The unknown challenges that retailers face year after year are never black-and-white topics and each market has its own unique set of hurdles in their own time. Facing these obstacles alone is the greatest challenge, but difficult times can be eased by understanding how similar business cases have been dealt with by department store partners around the world. Exchange associations such as the IADS give global retail leaders an opportunity to ask hard questions when facing difficulty and share the lessons of their triumphs.

<u>IADS Note*</u>

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.*

Read the financials from 2020 and 2021 here:

2020 and 2021 FINANCIAL RESULTS

Credits: IADS (Mary Jane Shea)

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Sucharita Kodali is the Vice President and Principal Analyst at Forrester Research, where she addresses e-commerce, omnichannel, and consumer behaviour topics. She is also an authority on technology developments that affect the online commerce industry and vendors that facilitate online marketing and merchandising and authored “The World’s Most Future-Proofed Brands” report, which reviews global consumer-facing brand manufacturers.

At IADS, we know that sustainability is increasingly a burning topic for retailers, and this is not expected to change in 2023. As we demonstrated in our latest White Paper on the topic, “Reinventing department stores through sustainability”, the pressure grows and comes from all stakeholders. Customers might not be the only ones asking for more action in this field. In addition, retailers who already started their journey also realized that with actions came more complexity, as there is for now no charted path. This is the reason why the IADS asked Sucharita Kodali, who boasts experience in the department store retail format, to talk to the IADS CEOs earlier in 2023. This IADS Exclusive is an excerpt from this talk.

The rise of the conscious customer

Like it or not, the rise of a new conscious customer over the past decades was inevitable. Starting in 2000, when China joined the WTO, the cost of manufacturing soft goods considerably decreased, allowing the category to literally explode: in the fashion category for instance, prices deflated, allowing customers to buy more products, and generating a never-ending hunger for new garments (with the United States losing their predominant position as a clothing manufacturer along the way).

The rise of e-commerce fueled this hunger even more, as it brought the convenience of being able to order products from the living room, and customers became avid.

It took some time for everyone to realize the environmental cost of shipping products from a given warehouse instead of purchasing them at the store, and, when becoming aware, customers started to ask brands and retailers to steer towards more sustainable practices.

Tackling sustainability: three sides to the story

However, the topic became complicated fast, as sustainability, at least in the US, quickly included a social dimension (employees’ health, fair wages…) as well as a backlash against the negative externalities of businesses (including, for instance,  privacy management or data confidentiality).

Kodali suggested considering the notion of sustainability according to three angles.

The first one is to acknowledge that customers have radically changed.

In a study conducted by Forrester, 4 segments reflecting customers’ shift towards more “consciousness” were identified.

The identified profiles are the following:

-    “Non-greens” (14% of the respondents), for whom environment comes second and who are not looking for green products,

-    “Dormant greens” (36%), who might be looking for green products and who are unsure if the environment comes second or first,

-    “Convenient greens” (26%), for whom the environment comes second but who are actively looking for green products,

-    “Active greens” (24%), for whom the environment comes first, and who are actively looking for green products.

All in all, this segmentation shows that at least half of the consumers (convenient greens and active greens) are now receptive to finding ways to make their consumption greener.

This implies new attitudes toward recycling (38% of positive answers), opting for higher quality (26%), and purchasing second-hand (21%), which in turn suggests that customers will, at some stage, reduce their overall consumption, which will require retailers to adapt.

The second angle to consider is regulation. 

Many countries are eyeing (and for some, voting or enforcing) new laws which can either encourage new behaviours, through tax incentives or, more frequently, be restraining. Kodali believes for instance that surcharges on packaged deliveries are coming, as well as extended producer responsibility (i.e. surcharges allowing to address the product afterlife and finance its recycling or destruction, as South Africa decided at a national level).

This raises new questions (How to finance it? as a levy on the final price point? a tax on the manufacturer? or on the retailer?) which will anyways impact retailers. This is a norm in electronics across the planet now, and highly probable that soft goods will follow suit soon.

The third angle is to understand that sustainability is not only for consumers.

Investors are now also fully utilizing CSR and ESG tools and KPIs in their decision-making process, even though there are still some disparities at the global level due to uneven regulation (42% of European investors are required to invest in socially responsible products, vs. 15% in North America). There still are some investors (especially in the Americas) that might think that such commitments are a waste of time and energy, however, Forrester thinks that this is a disappearing breed as investors are increasingly encouraged to measure the ROI of their actions also taking into account CSR KPIs.

In that context, how can retailers thrive?

Opportunities for retailers and brands

Kodali suggests looking at the current e-commerce practices and seeing how these practices could be twisted and mirrored in a way that makes retailers more sustainable than the industry leaders such as Amazon. In fact, in many cases, this is equivalent to coming back to the traditional usages in physical business:

-    No additional packaging coming on top of the product, just like when customers go to the store and bring back their purchases,

-    Encouraging customers to receive all their purchases together and not in a fragmented manner the same way that they do only one trip to the store and bundle their purchases,

-    Restrict returns in the same manner.

Whatever the case, the landscape has evolved and change is now required. But Kodali points out that some retailers might be in a more urgent situation than others, as the proportion of green customers might vary from one brand to another.

For instance, while Chanel or Adidas have more than 70% of green customers overall (i.e. sensitive to sustainability), this proportion falls to 37% for Home Depot, suggesting that, in the latter case, sustainability efforts might make less sense (unless new regulation or investors are coming in the game).

Brands also have to keep in mind that customers are, by default, suspicious that any of the actions might be only greenwashing, as many empty claims were made in the past.

To go further, Kodali cites a few opportunities for retailers to consider:

•    Repair Café in the Netherlands, where customers can bring back any product that needs a repair (adding new services and facilities to department stores),

•    SOEX in Germany, which recycles raw materials,

•    Initiatives going beyond extended producer responsibility laws, with some initiatives even charging the customers for taking back their old products and recycling them (based on the belief that convenience can always be charged).

She also encourages retailers to adopt stricter sustainable standards than the ones imposed by law (this was also a discussion during the last IADS General Assembly): once a law makes something standard, being compliant with it is not a competitive advantage anymore. Also, Forrester expects regulators (especially in the EU), investors and NGOs to be increasingly demanding, so anticipating their requests makes sense.

Finally, retailers should expect a revolution similar to what took place in tech. Kodali points out that Amazon, Apple, Google and Microsoft all radically shifted the nature and source of their income between 2000 and now, and for that reason, looking at new revenue streams in retail (third-party marketplaces and retail media) makes sense as the whole sector might go through a transformation in similar dimensions in the future.

Credits: IADS (Selvane Mohandas du Ménil)

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Highly regarded by many key players in the retail industry, EuroShop is a trade fair founded in 1966 at the initiative of the EHI Retail Institute and takes place every three years since the 1975 edition. The 2023 edition took place from February 26 to March 2, and the IADS attended the session to understand the remarkable trends emerging from this year’s EuroShop fair, as the first post-pandemic edition.

In the same manner that department stores are houses of everything customers need, EuroShop is truly the warehouse of everything retailers need. From hangers or cardboard boxes to advanced customer recognition systems and startup tech, the variety of topics is impressive. This year, 1,830 exhibitors from 55 nations gathered on more than 120,000 sqm, disseminated across 17 pavilions and covered 7 areas of interest: Retail Marketing, Retail Technology, Lighting, Shopfitting & Visual Merchandising, Store Design (including materials and surfaces), Food Service Equipment, and Refrigeration & Energy management.

81,000 trade visitors attended the session, of which 50% were retail professionals (from manager to C-level) and 68% came from abroad (especially from Southeast Asia, Africa and North America). In comparison to 2020, just before the global pandemic outburst at the end of February, 2,300 exhibitors welcomed 94,000 visitors, which suggests that, although the world has reopened, the fair industry has not yet fully recuperated to its pre-pandemic levels (this is probably due to the subsisting difficulties for Chinese nationals to travel in spite of being authorized to do so).

At first sight, the fair is overwhelming, and it is difficult to know what to explore. This is why we asked IADS partner Retail Hub’s CEO Massimo Volpe for his opinion and angle. Together, the key learnings that we took home were the following:

-    Autonomous (checkout-free) stores are developing fast. This raises an interesting point for department stores, as they may have to adapt to customers who are increasingly used to buying in checkout-free stores for a certain type of goods. Even though checkout-free systems might not be adapted to the nature of the business in department stores, customers may be expecting new and frictionless experiences while shopping and at checkout in department stores.

-    Computer vision is now used for any type of store analysis and most retailers are embracing (or claim to do so) this technology. Given the fact that AI is the next stop for retailers, and as such, it needs to be fed with data, equipping points of sales with tools, enabling computer vision is becoming absolutely critical.

-    AI makes the headlines in the newspapers and is poised to give birth to an increasing number of commercial applications, either through off-the-shelves products or via tailor-made solutions. We identified three interesting business cases as a very subjective selection.

-    Sustainability was a very important topic of discussion during the fair, with many different technological approaches provided to retailers.

The IADS wandered along all the aisles to identify the most interesting suppliers and exhibitors. The following list is, in essence, subjective and not exhaustive.

What are the potential consequences of the checkout-free frenzy for department stores?

Autonomous store initiatives are a topic that we closely follow, as the technological value proposition is great (improved customer experience, reduced costs), but can also come with downsides (mistakes inherent to the system or lack of interest from customers). The industry is reported to have grown by +11% in 2021 in terms of systems shipped globally.

All visitors paid a visit to the “Just Walk Out” stand from Amazon, a technology launched in 2018 that is now available in 40 Amazon Go and Amazon Fresh stores in the US (and other destinations too). The technology is also made available to other brands, such as Starbucks or WH Smith.

Amazon is reportedly the retailer that is operating the largest number of checkout-free stores globally but is not the only one in the game. Tesco opened its first checkout-free store in London end of 2021, through a partnership with computer vision start-up Trigo Retail which uses a combination of cameras and weight sensors to define what customers have picked up, and then charge them directly through the app when they leave the store (Trigo is also behind the scenes for grocers REWE and Aldi in Germany and the Netherlands respectively).

The interest of this technology is that nobody has to scan products (customers or sales assistants) and, in the most optimal use case in which customers have to “log in” via an app to enter a store, this equates for the retailer to have as many data collection points as on its online interfaces (and often leverage its online technical capabilities and apply them to the store). However, this raises questions when it comes to potential customers’ resistance to such data collection, not to mention customers who are actually coming for advice and interaction with salespersons (which would also explain why, for now, this technology has mainly spread among grocers). Analysts believe that this technology is mostly valid for products involving low engagement, which is often not the case in department stores.

As a consequence, department stores often focus on the cash-desk experience, as most of them have, so far, developed self-check-out capabilities, as a middle way to reduce waiting time at the cash desk and give customers options in terms of the interaction they want to have. It is therefore all about going frictionless, but with some limits.

Shopreme, for instance, offers a scan & go solution, for now mostly available at grocers and hypermarkets, but the solution is also available in white label and can be integrated into any retailer’s shopping app. The point of the solution is its real-time feature: customers can see in real-time the value of their basket, while retailers can see their selection, and nudge their purchases, or offer on-the-spot promotion (or cross-selling purchase selection), through live actions. As a consequence, it is interesting to note that Shopreme’s selling point is not to be ‘simply’ a purchasing app or a smart-cart solution such as Cust2mate, but insists on its relevance as a part of larger retail media solutions.

Regarding the payment aspect, it was interesting to see that some suppliers were pushing the reasoning a bit further in terms of leveraging existing online e-commerce capabilities and the need for modernization in stores, by merging the payment experience online and offline (in other words, processing instore customers’ payments through the same platform of online customers). Adyen’s technology, or the “smart checkout” from Vivawallet, a European neo-bank, were two good examples.

Monitoring your store through the eyes of your computer

Smart checkout (or cashier-less stores) is in most cases powered by computer vision (a technology that enables machines to see and understand images and videos), which explains why this part of the business was also quite visible at Euroshop, given the keen interest for smart checkout. However, computer vision is now central to many more applications:

-    Retail heat maps, showing visual representations of customer behaviour and preferences in stores, and footfall analysis tools, to understand customer traffic patterns, peak hours, dwell time, and conversion rates. They can help retailers optimize store layouts, product placements, merchandising, and marketing strategies. Going further, the combination of computer vision with AI allows some suppliers to propose on-shelf availability improvement tools with real-time fulfilment, such as Envelope OU.

-    Image recognition, or the ability to recognize objects, brands, logos, faces, emotions, etc. in images and videos. It can help retailers enhance customer experience, loyalty, personalization, security, and analytics. For instance, Blimp proposes a technology that is able to recognize uniforms in order to exclude salespersons from real-time analysis of the store.

-    Virtual mirrors coupled with recommendation engines allow customers to try on clothes or accessories in fitting rooms and receive personalized recommendations based on customer preferences, style, or body shape.

Computer vision does not only mean equipping the store with cameras and physical sensors, but combining any device and system interacting with the customer to make sense of the data collected, as proposed by various suppliers such as InPiazza, combining data collected from cameras, Wi-Fi routers, beacons, sensors and databases, to provide real-time analytics, reporting and marketing activities.

Given the importance of this topic and the jungle of suppliers available in this field, we will closely collaborate with our partner Retail Hub in order to identify the most valuable potential partners and their competitive advantages over their peers.

Three interesting examples of AI applied to off-the-shelf solutions

AI is all the rage in the media since OpenAI released ChatGPT, which acted as an eye opener not only for individuals but for businesses also. We have recently attended a conference held by Bain, which announced a strategic alliance with OpenAI, and will release our report on this conference soon. The current state of the market implies that retailers have two possibilities when addressing AI:

-    Either as a built-in feature in their core operative model (as suggested by the OpenAI and Bain alliance), with the associated costs and risks, and any CEO who had to reinvent their ERP system would easily draw a parallel in terms of benefits – risks aspects,

-    Or as a product feature already integrated in a specific tool addressing a special and well identified need. The key selling point when it comes to these proposals is usually the ease of implementation (edging to plug & play) and return on investment in terms of time saved.

Falling into the second category, we came across three different examples:

-    Velou, which acts as an automated co-pilot for e-commerce, reviews each category and product performance in real-time and produces reports, but also identifies missing product metadata, suggests new products additions and generates product descriptions automatically, adapting the tone to the platform (mail, social media, website) and profile.

-    Miros, a ‘wordless search tool’ for fashion brands. AI analyses browsing behaviour and past searches and then translates the results of this analysis into product suggestions based on untold words. Given the fact that, for instance, the OpenAI GPT-3 model is based on guessing the next word to write, the Miros solution is a commercial application of this feature and is already used by online retailers such as Debenhams.

-    Brame, which is in the very specific niche of gamification and allows retailers to easily (and quickly) design and produce games for customers, in order to generate interactive experiences and, hopefully, increased loyalty and conversion rates.

Interestingly, in all three cases, AI was advertised at the same time as a key feature of the product, but also as a reason for extremely easy implementation within existing systems, Miros even mentioning being as sensible to implement as Google Analytics.

Retailers have an increasing number of practical options when it comes to sustainability

Sustainability is a major topic in retail, and this is the reason why the IADS dedicated its 2022 White Paper to it. At EuroShop, there were many stands presenting new solutions to enhance sustainability at the point of sales level, and what was interesting was the variety of options available. Of course, many exhibitors advertised their energy-saving lighting systems, sustainable material for shopfitting (such as UCGE), or other virtuous initiatives. But what we found interesting was how existing technologies or customer-facing devices were re-invented with sustainability in mind.

For instance, RFID-specialist Checkpoint Systems advertised its solution for reusable packaging, suggesting that it could help trace packaging consumption and waste, inform customers, but also potentially help set up a deposit refund process in order to encourage customers to return their packaging (to be used again).

Reverse vending machine manufacturers Tomra, Envipco or Recyclever advertised the new capabilities of their devices to be able to recognize (thanks to machine learning) the waste returned in bulk in their machines, and separate it by typology, easing waste sorting, in order to create a recycling loop. While department stores are not the usual place where people would bring back their waste to have it sorted and recycled, such machines would nonetheless be advertising their commitment to sustainability while also helping clean waste in their food halls or F&B zones.

There are many other lessons learnt during this visit, and IADS will continue to review them with Retail Hub, in order to keep providing interesting, up-to-date and relevant content on innovation to IADS members. As a closing thought, it was interesting to note that, just like at the NRF event, Retail Media, which is an omnipresent topic in the media (as it is seen as the future for margin-strapped retailers), was under-represented at EuroShop. This suggests that while everyone is aware of its importance and potential, there are not yet any actual off-the-shelf solutions for players, so they are unable to develop this capability in-house by themselves.

See you in 2026 EuroShop!

Credits: IADS (Selvane Mohandas du Ménil)

PRINTABLE VERSION HERE

OpenAI, a research laboratory based in Los Angeles dedicated to Artificial Intelligence technology,  is the parent company of groundbreaking AI technologies such as DALL·E 2 which creates original art and images based on a text description, and Whisper which is a speech-to-text AI solution that can very accurately transcribe speech across languages.

ChatGPT is OpenAI’s latest release that has turned heads. ChatGPT is a chatbot technology that has the ability to generate human-like text, which could bring value to businesses that want to add a layer of sophistication to their digital communications. The solution offers human-like responses to a variety of questions, admits when it makes a mistake, and can even help write or correct code.

ChatGPT has been creating a lot of buzz since OpenAI released the free version, and the company has also shared that they will be monetizing the tool by offering it as a cloud-based API (Application Programming Interface) that businesses and developers can integrate into their own applications and services. But what does this mean for retailers and businesses? Will such sophisticated chatbots bring added value to businesses in the short term or will the technology need more time to learn and be applied in a way that serves consumers and businesses without the fear of impacting brand image?

What are we talking about? Testing ChatGPT

The funny thing about ChatGPT is that the Association could ask it to write this exclusive for us, as many analysts and commentators did as a test this year. Unfortunately, the results from various tests and approaches were not quite as detailed as we hoped. We started out by first feeding it text from past IADS exclusives so the AI could capture the tone we typically use. From there we requested that the bot offer an introduction text sharing why department store leaders need to pay attention to ChatGPT and AI solutions. The result was an eloquently written paragraph of fluff listing the key highlights of ChatGPT for retailers: improved customer engagement and targeted product recommendations. Not a very insightful start, but remember we are talking to a machine, so we decided to dig deeper.

We then guided ChatGPT to list 5 specific areas that retailers have used AI in the past. The response was a little more detailed than before: personalization, pricing, demand forecasting, inventory management, and in-store navigation. And we followed up that question with what retail leaders should consider when planning to use AI in their future business. The response once again highlighted the benefits of AI from a customer engagement and product recommendation point of view, but the reply also came with warnings. These warnings included reminders that AI solutions are only a piece of the puzzle and AI models can have biases, stereotypes, and errors if not properly evaluated and monitored. Therefore, it is very important that companies use AI as a tool but not as a replacement for human interactions.

Where ChatGPT failed in our trials was in sharing specific examples and references. When it shared information, we requested sources of where the information comes from so we could read further, but the bot does not have access to search the internet (it finished its training in early 2022, which also provides some limitations taking current events into consideration).

Work smarter, not harder: AI as a personal assistant

AI (Artificial intelligence) is not a new concept to retailers as the whole purpose of automation is to increase efficiency and reduce costs. With such golden promises, smart retail leaders started to implement AI across their businesses with a variety of use cases from running inventory operations more efficiently to accommodating clientele in a more personalized approach. Department stores are especially versed in AI’s capabilities as retailers around the world have hired the power of AI to enhance their store experiences and capabilities in order to better serve their customers.

Pre-ChatGPT, department stores have harnessed AI solutions that offer inventory management, personalization, chatbots, visual search, marketing campaigns, product localization, analytics, virtual stylist services, and logistics. So what is it that ChatGPT can really bring to retailers that they already have not experimented with?

In its current iteration, retailers are hoping that ChatGPT can bring more intelligence to current chatbot functions that have already been put in place. ChatGPT has the ability to react in a more human-like way which can boost customer service capabilities and can free human employees from repetitive admin tasks. Outside of customer service, ChatGPT can help create product descriptions, website copy, employee notice emails, and company HR notifications.

It seems that embedding the AI capabilities of ChatGPT is where the trend is turning. Around the same time that ChatGPT was released, many other companies started to release similar AI functions within their existing tools and products. For example, Notion, is releasing a beta version of Notion AI which will help users with content creation. And Canva has also released Magic Write which offers an AI text generator. Such integrations can be an inspiration as to how department stores and retailers can use AI text generators to enhance product descriptions, marketing materials, and personalization campaigns to ensure all content is optimized.

When it comes to customer service, ChatGPT can be used to personalize the shopping experience for each individual customer by recommending products based on past purchases and browsing history. It can also be used to share important information with customers such as the status of their order, delivery details, and personalized promotions and offers. If used well, AI chatbots can increase conversions and reduce cart abandonment, and the more that the chatbot collects data over time, the more benefits it can bring.

Will chatbots impact retail jobs? The jury is still out

As mentioned, AI tools such as ChatGPT are able to harness large amounts of data and can be taught to mimic human responses and feedback. Such a tool could be very powerful for businesses, giving them the opportunity to optimize their human teams with AI tools. Giving employees tools that can automate their daily jobs and that can increase their productivity should in turn reduce the number of full-time employees, right?

According to the World Economic Forum's "The Future of Jobs Report 2020," there is a potential for 85 million jobs to be displaced by 2025 thanks to AI. But the same report shares that another 97 million jobs could be created as well. This means that while AI might replace some jobs and roles, it is more likely that it will shift the skills of workers that are impacted by such changes. The CEO of OpenAI warned that there is still a lot of progress to be made on the robustness and truthfulness of what ChatGPT can offer, so companies should not base mission-critical projects on it at this time.

All good things come with time: ChatGPT is still in its youth

Based on tests conducted by the IADS team on separate occasions and with differing goals in mind, we can conclude that in its state as of early 2023, ChatGPT still has a lot of ‘learning’ to do in order to offer more specific and relevant information. But what the tool promises is even greater than what it currently lacks, therefore innovative and patient users have been able to learn how to manipulate the tool enough to reap the benefits. Most use cases shared thus far have centred around content creation, SEO implementation, code generation, and personal assistant-type manual work coverage.  While ChatGPT can help bring human-like responses to customer service functions, consumers are still expecting real human empathy behind responses and not bot-generated speech. This is going to be a major hurdle for retailers to overcome in the short-term.

Currently, there are still a lot of red flags about ChatGPT that might make retailers weary to adopt the solution as it is now. Unlike other chatbots that will admit when it cannot answer a question, ChatGPT has been trained to give a confident response to almost any request even if the information is false. AI tools are limited to the information that it is fed and can result in outdated information or even biases that could negatively impact the brand image of a business. This is why those that are ready to use AI tools for customer-facing applications need to be sure to have a human audit.

Despite its many flaws and warning signs, AI tools are the future, and those that shy away from implementing them will be left in the dust. Innovative companies must respond to disruptive products in order to stay relevant. In the beginning, there will be tradeoffs such as accuracy, but in return, companies can benefit from lower costs, speed, and simplicity that the tool can bring to their businesses. Also, the good thing about investing in AI early is that the more information that it is fed over time, the more accurate and valuable it becomes. While ChatGPT lacks critical thinking, creativity, and strategic decision-making, it makes up for these flaws by improving efficiency and productivity through its automation features.

What’s next for retailers? Learning from big tech’s response to ChatGPT

ChatGPT is one of those innovative technologies that will inherently change the tech landscape. Companies such as Google and Microsoft have had to completely rethink their AI strategies to ensure that they will not be left in the dust as newer AI native solutions pop-up to steal some of the market share. As big tech players have been the first to act, it will be important for retailers to note what changes are on the horizon.

For example, big tech players are having to consider how AI solutions such as ChatGPT can plug into their current line of products and operations. They will need to make swift decisions and take risks to implement the technology as a basis for new products or as an integration for existing ones and to claim their position in the market. According to LionTree LLC, an investment and merchant bank that focuses on the global digital economy, so far big tech has taken four major approaches when implementing their AI strategy. Microsoft has partnered with OpenAI to integrate key production into their products, Google has invested in R&D to be able to leverage AI solutions, Apple has focused on localization in order to offer AI software for Apple hardware products rather than on the cloud, and Amazon is betting on the infrastructure play as they sell GPU compute power on AWS and have invested in assets within autonomous vehicles and IoT devices.

As large organizations start integrating ChatGPT into their business foundation and establishing their position in the market, retailers need to be doing the same. ChatGPT and AI can be very powerful tools that can help large retail businesses, especially department stores, provide even more unique services to their various clientele from loyal clients to newly converted GenZ customers. AI solutions only get ‘smarter’ as more information is fed to them, therefore the sooner it is implemented, the better the output.

But despite the various promises that ChatGPT and AI can bring, companies that are willing to integrate such revolutionary and innovative technology into their business need to be careful that bots do not completely take over the human experience. While advanced technology can help free human workers from redundant tasks, it is very important to consistently audit them to be sure the built-in bias and unknowns do not negatively impact the overall brand image. To sum it up: proceed, but proceed with caution.

Going further on ChatGPT:

Companies tap Chat GPT to make their chatbots smarter

How retailers can use Chat GPT

Credits: IADS (Mary Jane Shea)

PRINTABLE VERSION HERE

*Galeries Lafayette made headlines earlier in 2022 when the “Wellness Galerie” opened on 3,000 sqm in the Paris Haussmann flagship. It was a step forward in terms of space allocated and percentage of services offered, compared to products. However, the French department store was not the first mover, as the wellness category had already been explored by other retailers in the world. Shifts in customer behaviour, focus on sustainability at large including self-care, and the need for retailers to diversify and explore new categories to stick to trends or generate new revenue streams… these are all reasons why retailers that are increasingly exploring or expanding their offer in this new category are multiple. Let’s review how department stores are currently addressing wellness.*

What are we talking about?

The wellness market is a growing category that includes products and services designed to improve or promote physical and mental health and well-being. It includes gym memberships, healthy food and supplements, beauty products, mental health services, and more.

The exact definitions of the market differ, which is why the size estimates of the market can significantly vary. While McKinsey evaluates it to be around $1.5 trillion in 2020 for what regards wellness consumer goods (encompassing fitness, nutrition, overall physical and mental health and appearance), the Global Wellness Institute (GWI), a non-profit organization based in the US, evaluates the total market at $4.4 trillion for a total of 11 sectors, of which personal care & beauty, healthy nutrition, and physical activity-related goods represented $2.6 trillion in 2020. However, here again, it is difficult to properly evaluate the size of the market addressable by retailers, as they are continuously creating new services and offers, and therefore blurring the boundaries. For instance, if we take the 11 sectors as defined by the GWI, should Mental Wellness and Spas be added to the addressable market, for an additional amount of $199m?

Whatever the numbers, they are sufficiently significant to make that category attractive, all the more that wellness as a whole makes sense for a department store:

•    There has been a growing focus on health and well-being in recent years, with more and more customers becoming interested in living healthier lifestyles. While studying the market in 2021, McKinsey found out that 79% of respondents believed that wellness was important, and 42% considered it a top priority,

•    It can be a profitable business when looking at the customer profiles interested in this category. Most of these customers are willing to (or already used to) pay a premium for wellness-related products and services, which is a good incentive for margin-squeezed department stores to look at this category,

•    Finally, wellness can help to differentiate from the competition. Offering a wide range of wellness products and services can help department stores to position themselves as destinations for health and well-being, which can be attractive to consumers looking for a convenient, one-stop-shop for their wellness needs. It is also a way to regain market share from specialty stores and specialized retailers, such as Sephora, that ended up taking the lion’s share of global beauty (a flagship category for department stores usually displayed on the ground floors for the vast majority of them). By looking early at wellness, department stores are able to take a position at the right time and make sure they can reap the first mover advantages.

In order to address this category, department stores can either:

•    Reorganise their existing offer to create new “wellness-branded” sections merchandise and brands already available in the department store offer, but regrouped and presented in a novel way,

•    Create new departments from scratch, with newly sourced brands and products such as wearable devices or ingestible cosmetics, and also introduce new services enhancing customers’ well-being (gym, yoga studios, etc..),

•    Some, especially in the US, go even further by including health services and light medical acts with injectables. This echoes the historical role of department stores as social hubs in city centres, accessible to anyone and housing everything under the same roof. Of course, such a strategy heavily relies on local regulations as performing light medical acts in a department store might not be allowed in every country.

To be noted: wellness is new and trendy, and it can lead to abuses, as it has also been the case in sustainability. Just like some retailers have been accused of “greenwashing” by heavily advertising their sustainable actions, others have used wellness as a blanket word to sell any kind of product (regular beauty brands, jewellery or even lingerie) in order to lure in customers.

Department stores initiatives typologies

We could empirically define five different types of initiatives led by department stores:

•    The “2.0 beauty salon”,

•    The bit-by-bit upgrade approach,

•    The specific case of the US and how healthcare is a selling point,

•    The digital approach,

•    The holistic set of solutions.

The 2.0 Beauty salon

Department stores began to offer a variety of beauty services as a way to attract and retain customers in the early 20th century. These services could include services like hair styling, makeup application, and skin care treatments.

Beauty salons are today a common sight in most department stores, as they offer convenient access to a wide range of services and products, including products from the store itself (a great incentive for department stores to operate salons themselves at the beginning). In addition, beauty salons perfectly fit into the “everything under one roof” initial proposal of department stores. This is why they can be found in department stores across the planet, usually in locations which otherwise would be less performing from a strict retailing point of view: the second basement in Corte Inglés Castellana (Madrid), a side part of the ground floor at Magasin du Nord (Copenhagen), higher floors in Stockmann (Helsinki) and NK (Stockholm), the top floor at Harrods (London) or a side floor in Steen & Strom (Oslo).

It is therefore easy for most of them to consider either upgrading spaces or increasing the offer available in such salons. However, due to their history in any given city, they might be perceived as old-fashioned and not attractive by the younger generations (for that reason it is interesting to note that KaDeWe in Berlin, which staged a total revamp of the store for the past few years, has not created a beauty salon per se, but instead opened a 200 sqm “beauty lounge” where brands’ shop-in-shops propose an vast variety of services).

This is why some department stores decided to create new-generation beauty salons in new locations, to make sure the novelty is fully perceived by the customers.

For instance, Le Bon Marché opened L’Institut, a 152 sqm space on the top floor of the store, in September 2022. The space is operated in partnership with brands (providing products, services and expertise) and the accent is put on intimacy and privacy. Equipped with 6 cabins, this new space is a new, and rather high-end, interpretation of the traditional beauty salon, however still very much focused on services based on beauty and care (in partnership with brands such as Dior and Guerlain).

Le Printemps went further when finishing the revamp of the Haussmann store in March 2022 and the new beauty space was unveiled:

•    On the Beauty floor, large areas were dedicated to beauty services (manicure, pedicure, brows, hair care). Such services were already available prior to the revamp but scattered in the store. Gathering them in one single location allowed Printemps to communicate about a new generation of beauty salons, in addition to making the offer visible, powerful and efficient,

•    Expanding beyond traditional beauty services, a partnership was signed with Face 2 Une, a spa proposing manual massages and machines,

•    In order to also propose unprecedented brands, Printemps has also made a partnership with a crowdfunding platform, aiming to contribute to the development of new brands and sell them in the store,

•    Finally, in addition to the traditional beauty offer, a section is dedicated to food treatments coming in complement to beauty products.

All in all, the ‘2.0 beauty salon’ is all about upgrading the offer, marginally adding related services, and making sure that the new location is perceived as new and as distant as possible from the traditional salons, unattractive to the new generations. However, even though they are making sure products and services are upgraded when compared to the previous offer, these department stores are not specifically going beyond the ‘traditional’ beauty and care offer at large.

The bit-by-bit upgrade

Some stores are venturing into uncharted territories and literally going beyond beauty to propose new services, one step at a time. Flannel’s in the UK has been an interesting watch for the past years, as they use wellness to attract Gen-Z customers. For instance, they have dipped a toe into the very light medical approach by opening a “social media-ready clinic” in partnership with a DTC cosmetics brand specialized in non-injectable treatments for lips in their Liverpool store last May. The space includes a live streaming screen and a champagne recovery room, and customers are also able to physically buy products which otherwise are only available online.

Going a step further, Flannel’s inked a partnership with Barry’s, a gym club, also in the Liverpool store. The 700 sqm club proposes fitness classes, protein shakes, and the possibility to test clothing and equipment from the nearby “World of Active” space. Interestingly, this partnership allows Flannel’s to enjoy collaboration in terms of customer base, but also propose highly specialized services and machines provided by Barry’s.

At this stage, Flannel’s has limited its experimentations to the newly opened Liverpool store. It is interesting to see that they are flirting both with the idea of suggesting customers come and do their work out in the store itself, but also to enjoy paramedical services (which can stay only this way: the UK regulation would prohibit the sale of injectable products in the store).

The interesting case of the US and how healthcare is a selling point

The US regulation is less restrictive when it comes to this particular point compared to Europe, which is the reason why US retailers have been getting closer to the healthcare market, adding up new products and services to their initial beauty and care offers. Even though some therapies might be available online, when it comes to in-person treatments, there is no possibility to bypass the store visit. For that reason, retailers see medical treatments as a great way to generate footfall and repeat visits from high-margin customers.

For instance, Saks Fifth Avenue offers medical-grade beauty treatments (botox and filler injections) in their Manhattan flagship. 3.4m women got an injection of Botox in 2021 in the US only, 41% of them aged 36 to 50. For that reason, such non-surgical procedures can be extremely profitable and this is why SFA was reported to consider expanding this service to Miami and Houston. In 2021, Nordstrom had also introduced injectables in the New York store for the same reasons.

However, it is not only about non-surgical medical acts (which anyways are limited by what local regulations allow from state to state, even in the US), but also venturing in new territories: mental health, and sexual well-being.

Mental health proved to be an important topic for customers during and after the Covid-19 pandemic (in the US, the number of people reporting anxiety or depression quadrupled in 2020). This is the reason why CVS, the largest retail pharmacy in the country, has added licensed social workers trained in behavioural therapy in 13 locations in 2021, offering mental health assessment and counseling, either in person or remotely, on a 24/7 basis (which is more flexible than what usual therapists might offer). Such staff is also able to make prescriptions. Rite Aid, a competitor, has opened “virtual care rooms” in 13 locations offering teletherapy, which Walgreens also offers in partnership with specialized companies. Walmart has acquired an online medical and mental health care operator, to complete its Walmart Health services.

Sexual well-being is also a territory being explored by retailers, even though for now the category is somehow a catch-all term. It can go from lingerie, sex toys and jewelry at Nordstrom, to shaving products, massagers and lubricants at Bloomingdale’s. Interestingly, it is systematically packaged under the umbrella of body positivity and inclusion in order to relate to the broader notion of well-being.

Outside of the US, some retailers also ventured into the paramedical market. The IADS reported the interesting case of the French supermarket chain Monoprix which opened a new concept in 2021 in Paris. It is a mix of reworking the offer, and proposing new services:

•    Clear sections cover many well-being health-related topics: sleep, relaxation, nutrition, feminine case, sexuality, junior and senior care, even going to Ayurvedic and CBD products (remember that Monoprix is a supermarket, not a concept store),

•    Customers also have the possibility to connect to a distant GP in 20 minutes maximum, a strong novelty in France, where practitioners are increasingly difficult to access,

•    Finally, they are also able to have an ophthalmologist service, with examinations, prescriptions and frames done on-site.

But wellness should not be considered as an in-person-only, OPEX-consuming category (in space and people). It is also possible to synergize digital capabilities in order to make the most of the online platforms that were built or revamped during the 2020 pandemic.

The digital approach: what to do online with wellness?

It is obviously possible to sell the wellness offer online, as e-commerce is a great way to both test the trend and attract new customers. Saks Fifth Avenue did so at the beginning of 2022 and reported that it attracted 25% of new customers to SFA. However, the biggest challenge is to merchandise and animate properly the digital space:

•    For instance, Nordstrom categorizes wellness in the Beauty online section, while SFA and Macy’s have dedicated specific independent sections (in the case of Macy’s, with a focus on “wellness at home”, allowing to unify categories which would be otherwise separated),

•    Online platforms have to be animated. For instance, SFA proposes live fitness workout classes with celebrities, or branded seminars, in order to make sure customers are well aware of the new services available overall within the company.

Some retailers have gone further and used wellness as a way to reinforce the retailer brand equity and generate additional sales, such as Walmart, which launched a specific shop-by-diet app, in order to target the 200m customers following specific alimentary diets in the US. The app, which is separate from the other Walmart apps, allows customers to scan grocery items when purchasing to verify that they align with their dietary needs.

As seen so far, the various typologies show that department stores as a whole are quite active in wellness, however, their actions are still fragmented or touch specific aspects of the business. We have identified 2 specific examples where department stores approached wellness from a holistic point of view: Selfridges and Galeries Lafayette.

The Holistic approach

According to McKinsey, customers define wellness across 6 dimensions: health, fitness, nutrition, appearance, sleep and mindfulness. This broad compass is the reason why the category is difficult to address as a whole by retailers. Some of them have already started, such as Kohl’s in the US, which announced in 2020 the launch of the Kohl’s Wellness Market, which was however still very much based on goods only.

Selfridges’ early 2022 wellness program, “Superself” (as a seasonal animation) was another notable attempt. It gave the possibility for customers to enjoy therapeutic experiences such as sex counselling or confidence coaching sessions, for both couples and individuals. It was also possible to use VR sensory pods to “facilitate a deeper connection with the self”. Selfridges doubled down on wellness during summer 2022 by transforming their Corner Shop (the store’s most profitable space on the ground floor dedicated to seasonal animations) into a “Feel Good Bar” proposing products, services and access to professionals to advise customers on improving sleep, overall health, and sex. The product offer included at-home health tests allowing customers to inspect their blood, thyroid and genes, and they had access to acupuncture, IV drips, and oxygen therapy, while the Selfridges cinema was temporarily transformed into a sleep session area.

Galeries Lafayette significantly raised the bar in September 2022 when they opened the Wellness Galerie. The 3,000 sqm basement space, formerly used for shoes (which shows the leap of faith made by the management), was transformed and dedicated to a permanent offer mixing products (40% of the offer) and services (60%). The move was timely: already in 2020, McKinsey noted that of all customers, who were spending 30% of their wellness expenditures on services and 70% on products, 37% of them were expecting to spend more on services at 37%, vs. 23% in products. Unprecedented services in a French department store are proposed, such as physiotherapists, a hyperbaric chamber, a sauna, a hammam, a studio and gym, private salons that can be hired to test products with friends… and a “wellness receptionist”, here to advise on the variety of services and products available. The gym, for instance, remains accessible outside of the store opening hours.

Conclusion: is wellness a must-have for department stores?

*The new approach to wellness is increasingly making traditional beauty salons look old-fashioned, and they will have to adapt to remain relevant. For that reason, it is probable that department stores in the world will have to embrace the new trend while being fully aware of the challenges waiting for them:

•    Competition: The wellness market is highly competitive, with many companies and organizations offering products and services related to health and well-being. Differentiation will be key.

•    Customer demand: Department stores will need to accurately gauge and respond to customer demand for wellness products and services in order to be successful in a market where they lack experience (for instance, in physiotherapists’ time management).

•    Expertise: The wellness market can be complex and multifaceted, with many different products and services falling under its umbrella. Expertise in various and different areas will be needed.

•    Marketing: Marketing is critical to the success of any product or service, and this is especially true in the wellness market, as the target customers are already over-solicited by the first entrants.

•    Regulation: The wellness market is subject to various regulations, which can vary depending on the location of the store and the specific products and services being offered.*

Despite these challenges, there are many good reasons for department stores to consider entering the wellness market. For one, the market is large and growing, with strong consumer demand. Additionally, department stores have the advantage of being able to offer a wide range of products and services under one roof, which can be attractive to consumers who are looking for a one-stop shop for their wellness needs. Finally, by offering wellness products and services, department stores can help to position themselves as destinations for health and well-being, which can help to differentiate them from competitors and attract customers.

When Chinese customers are said to be more sensitive to the notion of sustainability when it relates to personal well-being, no doubt that having adequate spaces and offers will help global department stores accommodate the needs of this returning population in the future.

Going further on Wellness:

Feeling Good The Growing Wellness Market

IADS Exclusive: Business Case 6 Monoprix

IADS EXCLUSIVE: wellness the next step in galeries lafayettes makeover

Sustainability: Western versus Chinese Icicle

WWD: The Wellness Boom

Credits: IADS (Selvane Mohandas du Ménil)

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The IADS travelled to Berlin last November to meet with Andre Maeder, the CEO of the KaDeWe Group, a few hours before the unveiling and celebration of the store’s ultra-luxurious revamp after years of work. Berlin is not precisely coming to the top of mind when it comes to luxury retail when compared to London, Paris or Milan… yet. But while the city undoubtedly is a buoyant and energetic place, the upgrade of KaDeWe, combined with a shiny new airport, might very well be a game-changer and put Berlin on the international luxury map.

We review our store visit below, showing the second largest department store in Europe in size remains true to its roots of acting as a local meeting point and a city landmark, and does not only rely on tourists for its future.

Company history and background

The Kaufhaus des Westens (German for 'Department Store of the West'), abbreviated to KaDeWe, was founded in 1907 by Adolf Jandorf and Eduard Josef Wertheim. Spanning across more than 60,000 sqm (gross), it is the second largest department store in size in Europe, after Harrods in London (92,000 sqm) and before the Galeries Lafayette Cuppola building on Boulevard Haussmann (45,000 sqm). However, a large specificity of the store is that it dedicates a large portion of its surface to non-retail activities, which explains why KaDeWe falls second to Galeries Lafayette in continental Europe when it comes to net retail surface area (40,000 sqm, the same as Selfridges’).

Contrary to many of its European counterparts which started earlier but on a smaller scale and then grew, the store has been spacious since its inception, as it already spanned across 24,000 sqm at its opening. Severely hit during WWII, with even a US bomber crashing into it in 1943, it took until 1956 for its full reconstruction and the store quickly became emblematic of the material prosperity of West Berlin versus the eastern part. The store then doubled in size between 1976 and 1978, reaching 44,000 sqm, and finally added a seventh and eighth floor in 1996, reaching the current store size.

While the founders were pushed out during WWII due to their Jewish origin, the store was transferred before the war to a company called Hertie, acquired in 1994 by KardstadtQuelle AG, which renovated most of the floors between 2004 and 2007 in order to prepare the store’s one-hundredth anniversary. The Kardstadt premium division, which included KaDeWe, Oberpollinger in Munich and Alsterhaus in Hamburg, was then purchased by Signa Group in 2013 for €1,1bn. Signa then sold a majority stake to Central Group in 2015.

Central Group does not release numbers by department store companies. The KaDeWe group was reported to achieve a total turnover of €600m a year pre-pandemic, achieved 42% through fashion and 14% through food, a category that has been a centrepiece of the store since 1995. In terms of clientele, KaDeWe achieves its turnover through 80% of locals, and a mix of 10% European and 10% international tourists.

The KaDeWe group has been led since 2014 by Andre Maeder, a seasoned Swiss executive who started his career in the discount fashion company Charles Vögele, and who then moved to Harrods, S. Oliver, Hugo Boss, and Kardstadt. The group expects to surpass its pre-pandemic levels in 2023.

Visiting the store: making sure locals and luxury customers go up in the floors

We visited the KaDeWe store in mid-November, a day before its official inauguration after a few years of work to revamp the building. This is the reason why, at the time of the visit, Dior hoardings were covering all windows, as the brand’s takeover of the façade (similar to what has been done with Harrods at the same time) was to be revealed during the inauguration.

The whole store, while being extremely large, paradoxically gives a feeling of intimacy when moving from space to space, once the monumental entrance and luxury section have been passed. This is likely thanks to the revamp conducted by architectural company OMA (Rem Koolhas) in 2021. OMA divided the store into 4 quadrants per floor, each of them corresponding to a different street entrance (including two new ones on opposite sides of the building that were opened during the reconstruction work). Each quadrant has its own core void acting as an atrium where a monumental staircase has been built. All four staircases are also unique, allowing each to convey a distinct atmosphere between quadrants on the same floor.

On the ground floor, from the main entrance on Tauentzienstraße, visitors are immediately welcomed by the Cosmetics area, which is quite graphic and spectacular with a combination of generic signage and branded walls. Interestingly, the beauty section used to be in the back, and luxury accessories were sitting in front of the entrance: a switch was decided in order to make the entrance more welcoming with more entry-price point products.

Given the fact that the cosmetic section is surrounded by the luxury accessories juggernauts, some brands were encouraged to develop new concepts in order to ‘melt’ into the general concept. For instance, Louis Vuitton, which is in direct eyesight from the entrance, has a shop with transparent walls, which is unusual for their typical department store presence. The other brands are all displayed in their own shop-in-shops alongside two pathways running across the entire length of the store, giving a sense of perspective. Each brand was invited to display a new concept: for instance Burberry built the first store with its new concept in Germany.

The perfume section, designed like a boudoir featuring international specialist brands (Byredo, Francis Kurkdjian, Byredo…) appears almost by surprise, as it is not visible from the entrance. Its design reinforces a sense of intimacy which is surprising considering it lives on the 7,000 sqm ground floor of such a large department store. The path naturally leads to a 200 sqm work in progress section, which will house more beauty and jewellery brands, followed by a watches and fine jewellery section (including the Hermès store, as the brand specifically requested to be in the back of the store in this section), that was redesigned in 2020 with an extremely luxurious execution. Two elements were noteworthy there:

-    The Bücherer second-hand section, which felt like a luxury boutique without any taste of vintage or second-hand feeling, leading to the fact that customers were more looking for rare treasures than bargains in this section,

-    The bar, operated in partnership with the Waldorf Astoria, is also extremely luxurious and gives a taste of what awaits during the visit, as each floor has, at minimum, one bar to encourage time spent in-store as well as repeat visits.

The first floor is dedicated to men’s fashion and has an entirely different feeling, as each of the 8 floors of the building have been redesigned by a different architect. The notion of quadrant is even more perceptible here:

-    A vibrant fashion section mixes shop-in-shops with brands’ concept (including the only Jacquemus and Dior Homme shop-in-shops in Germany) and generic areas signalled only with a brand logo,

-    The dressy section has a very cosy feeling, including the new Zegna store concept,

-    The formal section feels a bit older and will be upgraded in 2023,

-    A very large shoe section with floating display units in the middle and peripherical shop in shops all around, feels very luxurious and reminds us the quality of the Shoe Level execution in Dubai.

The second floor is dedicated to women’s fashion, and feels less organised, due to the upgrade of the whole floor remaining unfinished. While the international fashion has a very enjoyable atmosphere thanks to its musical background (as surprising as it might sound, Andre Maeder had to force the store to air music in its aisles when he arrived) and Art Deco design, the classical fashion feels somehow disconnected. Transitioning from one space to another feels sometimes brutal in terms of design, ambiance and even music. While the international fashion section favours open generic areas with cool brands, the classical fashion section displays a series of semi-closed shop in shops in central sections, and as a result, the general feeling is less modern than what the first floor conveys.

In the central section of the floor, a hoarding hid (at the time of visiting) the new Dior popup, organised as a part of the store take-over, which covers 200 sqm and is designed to give the illusion of a boutique. Pop-ups are an integral part of the store policy, as at any given moment there are 40 active popups in the store, dotted across the floors.

The third floor is dedicated to Accessories and Shoes for women, including lingerie, surprisingly accessible immediately adjacent to a staircase and next to bags. The design of the floor gives a large perspective allowing the eyesight to go far, which encourages one to discover and explore the aisles. Some cosmetic brands are repeated on the floor, as well as some jewellery brands, next to beauty service, VIP shopping and a soon-to-open hairdresser, who is a household name in Berlin. The accessories section is completed by a large Luxottica eyewear shop-in-shop, and the shoe section which was refurbished in 2014 and feels extremely modern, luxurious and airy (it was one of the first section to go through such an upgrade). The size of the luxury brands concessions is surprising, as Chanel, Louis Vuitton, Dior and Gucci all have 70 sqm each to display their shoes and accessories, which contributes to giving a very luxurious feeling to the space.

The fourth floor includes sport, kidswear and toys, travel accessories, a library, an outlet and seasonal animation.

The decently large sport section is actually a popup as KaDeWe wanted to test the category, with a fairly high quality of execution. When visiting, it did not feel like a popup at all and the management is currently thinking about  keeping it as it is and move forward with new brands. It is efficiently decorated with dynamic fixtures and decorative flooring that reproduces a running track (also seen in El Corte Inglés Castellana and in Attica city centre stores).

The kids section is vast, and includes fashion (both through generic displays and branded shop-in-shops) and toys in a series of rooms that hide the immensity of the offer. It naturally leads to travel accessories and bags, including luxury luggage brands such as Rimowa.

The outlet section is well executed and “clean”, with products sorted by brands and sizes (including LVMH and Kering brands). A sense of visual merchandising both on the racks and on the mannequins and well-maintained fitting rooms help avoid feeling like a second-class customer.

Finally, the 100 sqm Christmas section is very immersive, and displays an own-bought selection of products.

Overall, this entire floor is extremely immersive as each of the universes work well, however, transitioning from one to another can be somewhat brutal.

The fifth floor is dedicated to homeware, tech and stationery. The home offer used to be displayed on 2 floors and was regrouped into something more coherent and homogeneous. The space is divided into kitchen, bathroom and bedroom subspaces, going from mid-priced brands to luxury ones (including the only Hermès tableware shop in shop in Germany). The floor also houses a Global Blue Lounge.

The sixth floor is entirely dedicated to restaurants and delicatessen, including a tobacco and lotto shop. This is a traffic driver as there is virtually every price level as well as food choices, from Veuve Cliquot and Chandon shop-in-shops, to Ladurée tea salon, a 2,000 sqm sweets shop, a German deli, a beer garden, and 30 restaurants including a caviar bar available across the floor, totalling 7,000 sqm. The gourmet offer used to be on the fifth floor for 60 years, yet now has been concentrated on the sixth floor with restaurants and F&B, as the retail offer reclaims the space formerly dedicated to offices.

Interestingly, it is possible to access parts of this floor outside of the store’s opening hours via a special lift, which also leads to an art gallery where pieces costing as much as €50,000 have been sold. The German deli remains open at night, as well as 6 restaurants and 2 bars, open until midnight.

60% of visitors come up to the floor, which represents 12m visitors a year and 15% of the total turnover, via a model split 20/80 between concessions and wholesale, while the ground floor is almost 100% concessions and the store in general is 50/50.

The seventh floor is dedicated to a winter garden under a beautiful glass ceiling, and includes a self-service restaurant, but there are signs that this space is also about to transition to another usage. Off limits, the floor also houses the spectacular in-house food production plant, as many items are produced on the premises. For instance, all Lenôtre cakes are produced in the store, as well as all restaurant food. Interestingly, there is currently not much advertising focused on the fact that the food is the freshest possible as it is prepared from raw ingredients on site.

What’s great and what’s next

As a whole, it can be surprising to see such a level of execution and such a display of luxury goods and experiences for a city like Berlin. It shows both that the market is changing, and that there are some expectations in terms of new flows of tourism. Even though Central Group’s size might have helped, convincing so many heavyweights from the luxury industry to accompany such a grand vision is no small feat, justifying KaDeWe’s ambitions to become not only a luxury destination store in Continental Europe, but also a jewel in the Central Group crown.

Without any doubt, the revamp of KaDeWe is spectacular, as it involves many structural redesigns, in addition to new concepts and brands. Even though international luxury brands are all displaying their best in terms of concept and product offer, one can feel that the strategy does not only rely on tourism, as the store is built to be more than just a place to shop. It also invites customers to trade their most precious currency: their time.

To achieve that, the strategically located and perfectly executed bars and restaurants dotting each floor are helping, as they bring some breathing space during the shopping experience with a specific flavour each time. The 6th floor is also spectacular, and its ability to draw 60% of traffic from the ground floor is certainly a prowess, even if the cool staircases (including the OMA-designed which is bound to become iconic with time) also help.

As a consequence, KaDeWe remains a place for locals where they can gather around a beer or a Louis Vuitton bag, even during evenings (at least for the beer) when the store is closed. This guarantees that the connexion between the store and 80% of its clientele (locals) is not hampered by a luxury upgrade of this magnitude.

Another interesting development to watch will be the opening of the new Lamarr department store in Vienna by KaDeWe group, scheduled for 2024 (20,000 sqm, also designed by OMA). It will be interesting to see how the innovative features seen in KaDeWe Berlin, dictated by the weight of history and structure, will be translated into such a blank slat.

Going further on KaDeWe:

KaDeWe celebrates 115th anniversary

KaDeWe’s Berlin new concept

Central Group and Signa unveil luxury department store in Vienna

Credits: IADS (Selvane Mohandas du Ménil)