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Nordstrom announced on the 1st of March the launch of their own Retail Media Network (RMN) with the “Nordstrom Media Network” initiative. Trade marketing and side advertising revenues from brands are not new to retailers. So why is this piece of news interesting for department store companies? Let’s look at the US grocery market to draw some learnings.

What are we talking about?

Retail Media Network (RMN) is a vehicle for retailers to market to brands with individualized advertisements to customers at a chosen point of interaction with the retailer’s ecosystem. The concept is not new: “traditional” retail media, which includes product sampling, in-store displays and featured placements in catalogues, initially focused on increasing shopper engagement and sales for the benefit of the retailer, which was often asking brands to pay to have their products shown at or near the point of sales, to increase the likelihood of a sale.

However, the concept significantly evolved in 2021 with the digital acceleration as an answer to some of the challenges created by the Covid-19 pandemic, for the following reasons:

• Brands, when going direct due to the pandemic, realised that their marketing initiatives could lead to a waste of investments: with no option to sell their products (both their wholesale and retail networks were closed) brands had to digitize fast, and quickly realized that they could create a direct relationship with customers without having to rely on retailers. However, they also realized that the advertising and marketing investments needed for such a strategy, especially online, were quite heavy and also posed questions in terms of ROI offered by the existing providers.
• Retailers were in need of compensating the Covid-19-induced margin loss:  they found themselves with traffic-building brands going direct to customers and leaving their premises, while also witnessing their margins shrinking, due to several factors, either structural (cost of free shipping, price-related competition from massive online pure players, investments in sustainability as requested by customers or regulation) or contextual (inflation, rising logistics and raw material costs due to the 2021 supply chain bottleneck, worsened by the 2022 Ukrainian-Russian war). As a consequence, they were eager to create new streams of revenue.
• A natural opportunity arose from this context: Retailers also digitized (or increased their digital competencies) and realized that, with the knowledge of their own customers they were able to amass (shopping habits, buying patterns, all collected from both online and offline points of contact), they could create such new stream by monetizing this first-party data to brands, who in turn saw an opportunity to improve the ROI of their marketing and communication investments.

Why did it start in the US grocery market?

Pre-pandemic, Food & Beverage and Consumer Pre-packaged Goods brands were struggling to grow in a saturated market (grocery brands’ average growth in the US in 2018 was +1.9% and average profit growth was +3.2% p.a. over the last 10 years). In terms of advertising, they were also lacking both connection and understanding of their customers (Dunhumbby evaluates that the top 10 brands spent $800m on advertising in 2021, with a cumulated customer database 90% smaller than their retailers’ ones) leading to a low ROI on advertising and communication investments.

The future was also looking bleak, as Google plans to remove cookies in 2023, which will prevent advertisers to implement audience targeting on 99% of Chrome users (2/3 of worldwide internet users). In a world where it is expected that post-Covid, the shifts in terms of grocery spending might stay, especially in terms of online buying (9% of the total UK grocery market in 2020, +54% in growth in the US the same year), that means that they would have to spend more, for the same result than before.

Benefits for all

In parallel, retailers, looking at the precedent set by Amazon (77% of the US-based CPG brands work advertise on Amazon, generating a total revenue for Amazon of $21.33 bn in 2020 and $31 bn in 2021), saw an 80%-like margin offered by retail media a welcome lifebuoy as their margins, structurally slim, were even weaker due to the massive increase of online sales during the pandemic (coming on top of the pandemic related costs themselves, in terms of payroll, benefits, incentives…).

This was a match! Brands saw in this new proposal the possibility to create highly-specific and objective-based campaigns around real shoppers and not personae, using a variety of touchpoints, and being able to measure the contribution to sales of the marketing investment made. Retailers recognized a possibility at the same time to create a new source of revenue but also a way to improve and reinforce relationships with key brands.

Benefits of Retail Media (Emarketer, Coresight)

![Coresight exclusive

![coresight exclusive 2

The Retail Media Network market value is estimated by Emarketer at $31.49 bn in the US only, and forecasted at $41.37bn in 2022, $50bn in 2025 (20% of the total digital ad spend). The worldwide market is estimated for 2022 at $50bn by Forrester and $100bn by Boston Consulting Group.

Now, most of the major US grocers (but not only) have or are venturing into Retail Media Networks activities: Albertsons, Best Buy, Carrefour, Dollar Tree, Gopuff, Lowe’s, Kroger, Sainsbury, Target, Tesco, Walgreens or Walmart. They all use the size of their loyalty program membership to push forward opportunities sold to interested advertising brands.

This trend is extending to the department stores world, as Macy’s and Nordstrom now also operate in this field (respectively from 2020 and 2022).

A use case example: Mondelez and Carrefour

Mondelez realized that, while pre-pandemic they were focusing on children and teenager biscuit brands, representing 68% of their online sales, the Covid-19 crisis favored the online emergence of a new category of customers, aged over 55 and sensitive to other products. These new customers represented half of the 2.8bn new households using Carrefour’s drive-thru offering in 2020 (quite an opportunity!).

Mondelez teamed up with Criteo (a Carrefour partner) to ensure the campaign visibility throughout the whole buying process: promotions on e-shelves and dedicated locations, targeting by keywords or context of the aisle visited by the relevant e-shopper (for instance, having their products visible when customers were using ‘coffee’ or ‘hot drinks’ as keywords).

As a result, they had a Return on Ad Spent exceeding 3 (1€ spent led to 3€ earnt in sales), with a 30 to 40% higher visibility when compared to the former target, and a conversion rate 14% higher than for customers who were not exposed to the campaign.

Is that the perfect opportunity for department stores?

When looking at the numbers published by the various players (additional revenue of $1.55b in 2021 for Walmart and $105m for Macy’s) one could conclude that this new business is a silver bullet for department stores looking to generate new streams of revenue.

However, McKinsey identifies 3 main risks with the implementation of a retail media network:

• Brand’s allocations to retail media networks can cannibalize the funds that they would normally allocate to trade marketing, which would in the end go exactly in a reverse direction in terms of the retailer-brand relationship than where a good retail media relationship strategy is supposed to lead./nbsp]
• A shift in the business relationship: retailers become clients to brands, which also would have serious consequences in terms of retailers’ organisation and their team’s self-perception (including the loss of a sense of purpose),
• Lack of core capabilities to properly meet CPG brands’ needs and maximize their spending.

Should all department store companies follow the lead of Nordstrom and launch their own retail media network initiative? While such a venture might be helpful and full of promises, CEOs need to remember that, while many of their companies are already major advertisers, retail media network initiatives require a completely different set of tools and skills to excel at it:

• Ability to provide advertisers access with a clean customer database (size does not matter, but its quality, and the number of active customers do),
• Closed-loop measurement and the ability to fine-tune the offer in real time according to the ever-evolving data privacy regulations are also key for the long-term,
• The behind-the-scene tech is also, of course, crucial, both in terms of reach (operations on multiple locations and channels) and scalability.

In reality, RMNs are a very interesting perk which could contribute to improving companies’ profitability, but such an implementation is neither easy nor painless: just like the topics of digital transformation and sustainability, we are witnessing here an additional layer of (optional) disruption which will require new teams, new systems and additional investments (see Dr Christopher Knee’s comments on how to respond to disruption here) at a moment when CEOs have many other options when it comes to put their organisations’ focus and allocate resources.

Credits: IADS (Selvane Mohandas du Ménil)

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*The IADS visited Rome for the World Retail Congress early in May and took the occasion to visit La Rinascente and Coin Excelsior, among others, for a store review and an innovation spotting session.

To what extent has the Covid-19 pandemic forced local department stores to evolve, in the same way that Paris, Madrid, London or Milan had to follow suit? Has Rome, which is usually lagging behind the economical capital of the country, managed to take that opportunity to upgrade its department store scene?*

La Rinascente

La Rinascente, a former IADS member from 1959 to 2008, takes its origins as early as 1865 with the Bocconi brothers opening a clothing store in Milan, soon followed by branches in Rome, Genoa, Trieste, Palermo and Turin, under the name Alle Città d’Italia. When purchased in 1917, the new owner, Senator Borletti, asked the Italian poet Gabriele D’Annunzio to find a new name, and he came up with La Rinascente, reflecting its rebirth and new approach: a “democratic” approach to luxury appealing to high and middle-income classes./nbsp]

The company teamed up with UPIM in 1928 (as well as Jelmoli in Switzerland which remained a business partner until 1965) and increased its retail footprint across Italy in terms of store numbers (5 La Rinascente, 150 UPIM stores, and 105 supermarkets at its heyday in 1970) and partnerships or acquisition (JC Penney Italia, Auchan..) until it split in 2005. La Rinascente s.p.a. was then created and later purchased by Central Retail Corporation in 2011.

The group now operates 9 stores in Italy, including 2 in Rome (of which the Via del Tritone store opened in 2017), the Turin location opened in 2019 and the Florence location opened in 2020, each different and designed to be destinations by themselves. The latest public information about its total turnover is €800m in 2019, and the 2020 performance is estimated at -30 to -40% of that number. E-commerce has also been launched in the wake of the pandemic in 2020.

The IADS visited the Via del Tritone store in Rome. It opened in 2017 after 11 years and a total investment of €200 mn. It spans over 8 floors including a 2-floors terrace at the top, with an unusual floor plan:

• Exhibition area in the basement,
• Luxury accessories at the entrance on the ground floor,
• Cosmetics on +1,
• Women’s and Men’s fashion on +2 and +3,
• Shoes and contemporary accessories on +4,
• Home goods and food on +5 and access to the terrace.

Initially planned to open in 2012, the delays were due to the findings of major archeologic treasures, that are now on display in the basement of the store: the remains of a Roman aqueduct. This is the reason why La Rinascente decided to take advantage of that to set up its exhibition area there (usually used for commercial popups rather than cultural shows). At the time of the visit, an immersive and very well-executed pop-up dedicated to vintage design was on display.

What is striking in the building structure (apart from the fact that it also incorporates the remains of the Palazetto, a building from the early ‘900s) is the cavedio (a courtyard) which acts as a well of light and spans across the whole height of the building from the ground floor to the top floor. As a consequence, even though this is an invitation to go from one floor to another, circulation can feel somehow a bit cramped as each floor is organized with this empty volume in its middle. It also allows to embrace almost the totality of the department in one glance, but this can also be a drawback too, as there is almost no possibility to surprise customers with the pleasure of discovering something that was not seen when arriving on the floor. As a consequence, visibility is key for brands, and they are all rivaling to make sure they can be spotted from the escalators or the floors, leading sometimes to an overwhelming feeling.

The execution of the food floor and the access to the terrace is extremely well done: all products are presented in a manner which makes them very attractive, and one must say that the terrace is among one of the best available in the city (and advertised as such in Roman hotels to tourists).

For anyone with the habit of larger and probably more traditionally-structure department stores, the feeling left after the visit is the one of a well-executed store, with a very good array of brands, but somehow with a difficult circulation and an offer which is hard to read. This is mainly because of the dual structure: a ground floor and an underground which are easy to navigate and quite clear, while the top floors, which are all organised around the light well, propose an entirely different experience, navigation and product offer reading.

Coin Excelsior

Coin was founded in 1916 in the Venice region and evolved into various formats until becoming a department store per se in 1957 in Trieste, in a former Ohler department store location. It then expanded across the country and now operates 39 stores of various formats, including the Coin Excelsior one which is more upmarket than the traditional Coin stores (mixing the Coin brand name with Excelsior, a concept store owned by the group and specialized in high-end fashion). The group also owns OVS (midmarket apparel department stores) and UPIM, which was bought following its split with La Rinascente in 2010.

The IADS visited the Coin Excelsior located in via Cola di Rienzo, a “contemporary department store” which opened in 2014 with an investment of €8mn and spans over 3 floors and 4.300 square meters.

Although during the visit it was clear that the store reflected its age (on this positioning, 8 years seem a lot), one must say that the way it is structured and merchandised is quite surprising, with a few interesting innovations.

First of all, this is, like El Corte Inglés and other IADS members, a department store which includes a supermarket in its basement, even though it is quite small. What was striking however was the use of technology in a simple way and with clear incentives for the customers:

• Cash desks are fully automated, with a steward navigating to help customers. Payment points are very visible and designed in a way that they come naturally as a conclusion to the shopping journey (allowing to clearly define a navigation direction, which is quite useful in the Covid-19 context).
• An app, heavily advertised on-site, also allows an evaluation of the savings made by proposing to compare the prices.

Even though the supermarket zone is small, it allows to draw a certain type of customer in the store and connect it to the neighboring populations.

Rather surprisingly, upon exiting the supermarket, customers have to cross a food zone where they have the option to either eat on site or pick up their meal. They have no other possibility than crossing it to go to the rest of the basement, which mixes Home & Decor, kids’ fashion, lingerie and toys. For each category, the set up is well executed (end even very immersive in the case of the Home & Decor offer, sold under the Coin Case private label name), but the transition between them is quite abrupt and even disorientating.

Similarly to the basement, the ground floor mixes different categories:

• Cosmetics and perfume with the usual suspect brands, all displayed with their own branding in light shop in shop structures,
• Jewellery, including a Tiffany’s store which has a separate entrance on the street in addition to the in-store connection,
• Lifestyle, with Nespresso and Dyson, both of them with significant spaces and which are, according to Coin, quite successful both in terms of driving traffic and sales. Coin is increasingly entering partnerships (similarly to Manor and others) to expand its offer and access new customer bases,
• Jewellery and leather goods, with low and mid-market brands,
• A “Lifestyle hub” which includes tech, gadgets and even electrical cars. The name of this zone is not properly displayed and can be somehow confusing, which is all the more surprising that Coin advertises it as its new experiential showroom / concept store / space of discovery designed to attract a younger clientele (this new space has been launched in nationwide Coin Excelsior stores as a new concept in 2021).

The overall impression left on the ground floor is a profusion of brands expressing themselves on dedicated spaces, with an interesting (and surprising) curation and juxtaposition, but, just like this is the case in the basement, transitions between unrelated categories give the feeling that this spatial organization was made out of necessity rather than with a specific store planning vision in mind.

The first floor is dedicated to Women’s and Men’s Fashion, displayed both in shop-in-shops (including an impressive All Saints space) and in corners, and mainly in the mid-market segment. The Men’s section is displayed with floating furniture suggesting that the offer constantly evolves, while the Women’s one is structured with fixed fixtures. Also, the space and mezzanine allow giving a great view of the concept store part of the ground floor, as well as the Art Deco architecture of the building.

When leaving the building, the impression that is left is somehow confusing: there are many great ideas and brands or categories juxtapositions in the store, but ultimately it is difficult to identify who is the actual target customer or even the positioning of the store: while the Coin Casa, bakery on the basement or the fashion offer suggest that this is a store addressing a classical and middle-market customer, the Tiffany’s store at the entrance or the co-operated Dyson and Nespresso stores give the impression that Coin Excelsior is trying to stretch itself to the luxury category, and therefore trying to address all customers with one bait.

*Is Rome a Dolce Vita for department stores? While it has been an obviously historical touristic hotspot, when it comes to retail, Rome is more famous for its local and family-owned stores, rather than its department stores.

La Rinascente Via del Tritone, the second flagship of the company after the Milan store, addresses international luxury customers according to a robust playbook, but, due to the structural efforts it had to make to adapt to the city’s specificities (especially the archaeological treasures hidden in its soil), the result is somehow disappointing when compared to other players located in other cities, including Milan.

Coin Excelsior, on its side, displays many innovative concepts and initiatives, however, the store organization and difficulty to understand its positioning makes it a store that is difficult to understand.

It seems that, unlike in other European cities which took the opportunity of Covid-19 to work on their offer, positioning or brand perception, there is still some way to go for players in Rome in that perspective.*

Credits: IADS (Selvane Mohandas du Ménil)

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IADS recently held a meeting all about the cosmetics & beauty sector. Based on market research, the IADS team presented the most innovative brands from different segments of the cosmetics & beauty brand industry: skincare, makeup, haircare, fragrances, and everything in between! Check out a selection of these brands!

Skincare

Peach & Lily

The top destination for the very best curation of Korean Beauty productsand innovations from cult-favorite Korean Beauty brands. Spa-grade,toxin‑free, delightful, and accessible, K Beauty-inspired skincare with noharsh chemicals, dyes, alcohol, parabens, or sulfates.

Check out the Peach & Lily website here

Peach & Lily Instagram

Laboté

Laboté cosmetic treatments are made from medicinal plants andpharmaceutical ingredients selected for your skin through diagnosis.Treatments are certified vegan and cruelty-free. Take your skin diagnosisonline to discover your tailor-made treatment protocol.

Check out the Laboté website here

Laboté Instagram

Horace

Skincare line of natural products co-created with customers for men. Whena need is expressed, we formulate a treatment. Horace products areeffective, easy to use, good for all skin types, skin tones and hair.

Check out the Horace Website here

Horace Instagram

OUATE

Skincare line for little ones because children love to learn while having funand feel that joy that overwhelms them as they walk on the path toautonomy, OUATE transmits them the essential care gestures to take careof their fragile skin.

Check out the Ouate Website Here 

OUATE Instagram

Youth to the People

Consciously-sourced, nutrient-dense premium superfood blends and pairthem with clinical, pro-grade vegan actives, all made in California for thebenefit of skin’s health. All initiatives support non-profits and activistsworking to amplify diverse voices and increase inclusivity, build a more justworld, and save the planet.

check out the youth to the people website here 

Youth to the People Instagram

Makeup

Claropsyche

A makeup brand that seeks to saturate, liberate and inspire creatives. No Rules. Art supply inspired makeup products.

Check out the claropsyche website here

claropsyche Instagram

Dries Van Noten

Dries Van Noten clashes couture with streetwear. Refillable lipsticks, withmix-match cases in clashing top and bottom prints inspired by fashion collections.

Check out the Dries Van Noten website here 

Dries Van Noten Instagram

War Paint

A makeup line helping men feel confident in themselves using cruelty-free,vegan ingredients. Light & comfortable to wear looks natural & incrediblyeasy to apply.

Check out the War Paint website here 

War Paint Instagram

Pat McGrath Labs

The world’s most influential and in-demand makeup artist formulated andperfected her must-have collection of high-performance cosmetics,culminating in the launch of her eponymous brand.

Check out the Pat McGrath website here

Pat Mcgrath Instagram

Haircare

Pattern

Pattern - Meet your hair where it is & empower your curl pattern bynourishing your hair with affordable and effective products & safe ingredients.

Check out the Pattern website here

Pattern Instagram

Gisou

A haircare line that’s key ingredients are sustainably sourced from theMirsalehi Bee Garden by founder Negin Mirsalehi and her father. Honeyis the key to healthy, shiny, nourished hair. Rich in vitamins, minerals,amino acids and antioxidants, honey deeply nourishes and moisturizes torepair and restore dry, damaged locks.

Check out the Gisou website here 

Gisou instagram

SACHAJUAN

Haircare inspired by Scandinavian philosophies and powered by OceanSilk Technology. Simplify haircare by reducing superfluous products,ingredients, and routines.

Check out the Sachajuan website here

Sachajuan Instagram

Fragrances

Vilhelm

A fragrance line where each perfume is the culmination of a broad,creative and collaborative process, a blend of vintage and new that sparks recognition but not familiarity. It brings together around twenty fragrances conceived as olfactory stories.

Check out the Vilhelm website here

Vilhelm Instagram

D'Orsay

Fragrance line where the scents are inspired by exploring the state oflove through to carnal desire, speaking of feelings and intimacy.

Check out the D'Orsay website here

D'Orsay Instagram

Other Categories

D+ For Care

Natural, scientific, and French, designed by women for women. D+ forcare is the well-being brand for women that provides dietarysupplements for beauty, well-being, stress, sleep, slimming, menopause,menstruation, hangovers, and more.

Check out the D+ for Care website here

D+ For Care Instagram

Lightinderm

A unique deep skin regeneration system, usable at home, combining aphotobiomodulation device and capsules of serums concentrated inphoto-active ingredients. A triple stimulation: light, serum & massage toact effectively. 1 device 5 targeted programs: wrinkles and firmness,imperfections, redness, and radiance.

Check out the lightenderm here

lightinderm Instagram

Holidermie

Holidermie created products and tools to accompany active women ona daily basis so that they remain beautiful and radiant for longer, bypreserving and beautifying their skin from the inside out, bycontributing to their physical and mental well-being and by allowingthem to take care of their style even in the bathroom.

Check out the Holidermie website here 

Holidermie Instagram

Solaris Labs

Inspired by massage techniques and modalities that have been aroundfor hundreds to thousands of years they created tools that are holistic,modernized or high tech to optimize your routine and skin health.

Check out the Solaris Labs website here

Solaris Labs INSTAGRAM

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IADS recently held a meeting about on the home and decor sector. Based on market research, the IADS team and NellyRodi presented the most innovative brands from different segments of home and decor: furniture, home appliances, home accessories and electronics. Check out a selection of these brands!

Furniture

Vetsak

Produced locally and sustainably with an innovative design from South Africa. One-of-a-kind, modular, quality, practical furniture, that brings life a little extra comfort.

Check out the Vetsak website here

Vetsak Instagram

Lapalma

Balancing craftsmanship, industrial techniques, efficient production, and a focus on details, Lapalma produces and sells its quality design aimed at creating innovative solutions that interact with each other. Lounge, Light Office, Outdoor, Cafè and Home, all customised environments, by extending the range of finishes.

Check out the Lapalma website here

Lapalma Instagram

Home Accessories

Ago

Korean design studio specialized in lighting, that searches for a balance between beauty & function with light. With the line between residential and commercial space becoming increasingly blurred, Ago values simple, honest and refined aesthetics.

Check out the AGO website here

AGO Instagram

Helle Mardahl

Helle Mardahl is an artist and designer with an eccentric and contemporary aesthetic. Playing with forms and materials, she playfully combines strength and fragility, crafting pieces that bring life to  spaces. Creating a dreamy universe of richly coloured quirky glass designs.

Check out the Helle mardahl website here 

Helle Mardahl Instagram

Cookut

Cookut is a brand of kitchen utensils, which also offers accessories for storing and transporting food, as well as hygiene and care products. Their goal is to reduce plastic and daily waste, reduce CO2 emissions while using natural raw materials, promote eco-design and produce responsibly and transparently.

Check out the Cookut website here 

Cookut Instagram

The Citizenry

Citizenry believes homes deserve designs with a soul, a story, and a purpose. Country by country, they partner with master artisans, blending modern style with different cultural time-tested techniques.  The products reflect a collective of individuals from different cultures and backgrounds who rally together to create something beautiful.

Check out the Citizenry website here

The Citizenry Instagram

Boy Smells

Highly spirited scented candles, fine fragrance, and intimate wear for all or neither gender. Boy Smells wrap traditionally masculine scents in a prettier bouquet, made with natural oils, all-natural coconut wax, and beeswax blend and are hand-poured in a reusable glass vessel and hand-labeled.

Check out the Boy Smells website here

Boy Smells Instagram

KJP

Colourful homewares, cheerful print & pattern-focused textiles and lifestyle goods that spark joy.

Check out the KJP website here 

Kjp instagram

Lucas du Tertre

Creating a bridge between India and France and between tradition and modernity. Colourful and printed collections created in the Parisian workshops and printed or woven in India according to ancestral know-how.

Check out the Lucas du Tertre website here

Lucas du Tertre Instagram

Dusen Dusen

Bold, original prints on versatile, textile and home goods products that includes bedding, throws, pillows, and towels.

Check out the Dusen Dusen website here

Dusen Dusen Instagram

Electronics

Mirror

A mirror that is also the ultimate home gym with the most workout variety that actually looks good in your home. 10,000+ classes on demand, 50+ genres, and new live classes daily.

Check out the Mirror website here

Mirror Instagram

Yoto

Carefully connected speakers that puts kids in control of their listening, learning and play. Packed with features for day and night and without any cameras, microphones, or ads.

Check out the Yoto website here

Yoto Instagram

Gomi

Wireless mag chargers, portable chargers and speakers, made out of non-recyclable plastic bags, and powered by 100% repurposed e-bike batteries.

Check out the Gomi Website here

Gomi Instagram

Home Appliances

Netatmo

Aesthetic smart home devices with a variety of products including various security cameras, personal weather sensors, and an internet-connected smoke detector.

Check out the Netatmo website here 

Netatmo Instagram

Daan Tech

Customisable dish washer with 24 colors to choose from that washes daily dishes for one or two people in just 20 minutes. Bob the dishwasher is the world’s most advanced autonomous and eco-friendly dishwasher thanks to its integrated water tank.

Check out the Daan tech website here

DAAN TECH INSTAGRAM

Lema

Lema Air Cleaning System uses nanotechnology and a special UV lamp to generate a photochemical reaction within the wardrobe that naturally destroys viruses, bacteria, odours and mould, improving the customers’ well-being, reducing allergies and respiratory problems. The wardrobe is entirely sanitised, including internally and at the back, without air resistance.

Check out the Lema website here 

Lema Instagram

Somnox

Somnox Sleep Robot is a soft-robotic that enhances the quality of sleep and uses breathing regulation and audio to help fall asleep faster, get deeper sleep, and wake up at the optimal time through a smart alarm.

Check out the Somnox website here

Somnox Instagram

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In early 2021, the IADS Academy participants were set the task by their CEOs of suggesting ways to develop a truly omnichannel P&L and related KPIs relevant to department stores. Their proposals covered several areas including KPIs and data sharing (see Presentation to CEOs at IADS General Assembly, 28 October 2021; and IADS Academy 2021 report). One of the proposals called for the development of “omni-clusters” of customers. The IADS has attempted to develop this idea.

Imitate or innovate?

In the early days, many omnichannel department stores in effect created a separate and competing business within their companies: e-commerce, which started as an “add-on”, often an experiment, was operated on the same principles as the traditional stores, with the differences that selling took place on a website rather than in physical stores, and that customers were delivered at home instead of carrying their purchases away with them.

As e-commerce began to include more merchandise categories, department stores saw the format as competition, just as they had seen big-box and discount retailers, then fast-fashion companies enter their market and address their customers. It was supposed that by getting involved in e-commerce, the danger could be fended off and those customers tempted by pure online retailers could be brought back to the fold. However, online retail proved to be bigger than expected, customers integrated it quickly into their retail habits and department stores found themselves running to keep up with the trend. Today, it is more of a scramble to adapt to the pandemic new normal. The puzzle of profitability of e-commerce was not solved, even by the pure players.

Integration into the traditional business has been unfortunately very expensive. The original business was not adapted and e-commerce was generally loss-making. Department store companies have had to operate simultaneously two business models: one in which the main cost centres have been real estate and people, as well as the new one requiring significant investment in systems, fulfilment and marketing. In spite of efforts to the contrary, the traditional department stores found themselves competing not only against new online companies but also being cannibalised by their own creation, at first a modest separate pilot but which soon grew into a Frankenstein monster. The admittedly complex model of the traditional department store was clearly inadequate for the job of operating online, and a fortiori inappropriate for an omnichannel retail operation. One consequence is that, under pressure from activist shareholder groups, some US companies have already or are considering spinning off the high growth dot.com part of the business to increase market valuation such as Saks Fifth Avenue and Hudson’s Bay, and also illustrated by the speculations on Macy’s, even if this approach sparks controversies. This suggests that they believe there is no answer to the omnichannel conundrum.

Struggling with channel conflict

Part of the problem has been, of course a shift in customer behaviour and expectations. It is clear that any business model which does not start from the customer is doomed to failure in what has been called “the age of the customer” (from say 2010). Starting from the belief that online customers were different from store customers, department stores operated two separate channels and only slowly came to the realisation that there was such a thing as an “omnichannel customer” (with higher spending than the single channel customer they had been dealing with).

But then the challenge of merging two business models with very different cost structures became apparent. Against the traditional conversion ratios of 40% plus, the online part of the business was confronted with rates as low as 1%-2%; against sales per square metre, online invoked profit per transaction; against shareholder expectations of bottom-line profit, online was operating as a start-up expecting no profit for at least 5 years but demanding rapid growth during that time; against B2B logistics based on store deliveries, online required quick and efficient B2C fulfilment.

As long as the online part of the business represented 5% or less of the total, then it was monitored separately in order to determine its profitability, return on investment and its longer-term future. As time passed, it became clear not only that online was here to stay, but also that it was contributing to store-based business (and vice versa) in a complex and organic way making it almost impossible to isolate online P&L from store-based P&L. (See for example how Macy’s is claiming to “scale omnichannel thinking across the entire customer journey”.)

The question then becomes how to determine the profitability of various parts of the business, how to attribute costs and sales. Furthermore, it has become clear also that the “best” customers are “omnichannel” customers, making full use of all the opportunities available to them across channels to search, gather information, purchase, pay, get delivered and return merchandise. However, it remains unclear to what extent they are the most profitable, as they “consume” expensive services which are implemented through expensive platforms.

Omnichannel means integration

And yet… many department stores are locked into the double P&L model and struggling to determine how to attribute sales and costs. Partly because so many employees are assessed on a series of inappropriate KPIs which actually discourage an omnichannel approach. And partly because data is unavailable to track customers, inventory, fulfilment, returns etc. in sufficiently granular form to allow appropriate attributions.

Integration of channels means first and foremost the integration of data allowing all channels to be under the same control and distribution system. For example, all data on any particular customer must be available in one accessible place whether it concerns purchases or returns in all channels, preferences, hard data as well as unstructured data.

Similarly, inventory data should be updated in real time, any priorities for particular channels need to be clearly set out in order that channel conflict does not develop from limited inventory.

At the same time, traditional KPIs which have been focussed on transactional records are no longer able to evaluate the sometimes complex drivers of customer decisions. It has been suggested that omnichannel KPIs should fall into four main categories: awareness, engagement, conversion, and loyalty. Thus, such KPIs might cover traffic and visits, recommendations and conversion rates, cross-channel conversion and baskets, and advocacy, lifetime customer value, revisit rate and frequency, for example. (See KPI suggestions.)

A new idea: “omni-cluster”

Since the customer journey has become omnichannel, it has arguably become necessary to use management tools and financial statements which reflect this development rather than struggling to attribute revenues and costs to different channels. The notion of “omnicluster” is a proposal in this direction.

Clustering in itself is not a new idea for department stores. Different clusters as applied to department stores include clustering by store capacity (space for example); by attribute (traffic, location, income profiles…); by sales (revenue, inventory turn…); productivity (revenue or gross margin per square metre); price (price profile, elasticity); multi-dimensional clustering; and more.

In the same way, customer clustering is also common. Using algorithms and AI it is generally defined as an improvement on rule-based segmentation since it allows clustering over many more dimensions; allows only small variance within each group; and can be made dynamic and reflecting the current state of data.

The proposal made by the IADS Academy was to bring the two ideas together to create customer clusters who shopped at stores, online, or both. This would potentially avoid the difficulty of separate or overlapping P&Ls for stores and online. The only rule is that any customer can belong to only one omni-cluster even if they occasionally shop, return, or collect in several physical stores. All revenues, returns and costs associated with a customer would belong to that omni-cluster.

It has been often remarked that not only does online bring customers to stores (and vice versa), but most online customers are more dense around an existing store (while this was a surprising discovery in the early days of omnichannel, it is now fairly obvious since most customers now shop online and stores are situated in the most important markets). In this case, it is clear that an omni-cluster may consist of one or more stores and the online customers residing around that store. This is the simple omni-cluster model as favoured by Magasin du Nord for example.

If, however, a number of online or omni customers have a preference for direct contact with a distant store (say a flagship store, or a store closer to their office rather than their residence), then one mixed omni-cluster might include a store, its geographically close online customers as well as online customers geographically closer to a different store. This may happen also if the stores are clustered by size as they are at Manor, for example.

If store customers are very mixed (tourists and locals, for example), then one can imagine an omni-cluster made up of local store customers plus online, and another partial omni-cluster made up of tourists and the much smaller online tourist customers. A business which involves franchised stores might include its own stores and all online customers in its omni-clusters but not include the franchised stores. These cases may be more appropriate at, say, Galeries Lafayette.

A series of ecosystems

As these examples show, the criteria for omni-cluster membership may obviously vary from one company to another according to its history, its organisation, its market etc. It is a flexible model. The definition criteria of omni-cluster will be a function of the particular circumstances of each company and its history as well as of the omnichannel strategy pursued by a company (aggressive online growth, new store openings or potential store closures etc.).

The aim is primarily to group revenues and costs into a number of omnichannel P&Ls which cover total operations of a cluster which can serve to manage operations (through the related KPIs), and which can be consolidated into a total business P&L. While the different omni-clusters can be compared, it is clear that none will be exactly comparable to any other. For example, geographical location or the number of stores in a cluster may have an impact on fulfilment costs.

However, the advantage of this model is that it highlights the profitability of the customers in any one cluster (for example how much they spend in all channels, frequency, rates of return, margin per customer etc.). Clearly the costs of store personnel also do not relate only to store customers, which distorts store-only P&Ls. Potentially it also allows the evaluation of the true loss of revenue through a store closure.

The kind of integration referred to above moves closer to an “ecosystem” perspective of the retail business. Indeed, a degree of “unbundling” will be necessary to evaluate the costs attributable to an omni-cluster. When that exercise is pursued, then it becomes possible to find potentially more appropriate, more efficient or more effective solutions before rebundling these into an omni-cluster ecosystem.

Warnings, dangers and the way forward

However, such a move would make it quasi-impossible to spin off the dot.com part of the business as has been done recently by HBC with Saks Fifth Avenue and Saks.com. There are currently some reports of Macy’s considering a similar move. It is clear, however, that these examples are financially motivated and a result of pressure from activist shareholders. They are also more appropriate to larger companies. A smaller omnichannel department store following the integrated omnichannel route will be capitalising on its unique status as what Bain has called a “regional gem”. Once established, an ecosystem can no longer be dismantled and split up into its original component parts. It competes as a whole, not as a multi-channel entity. However, this commitment is no more risky than the spin-off of the dot.com part of the business may turn out to be for larger companies which choose this way.

The omnichannel route might also imply considerable reorganisation of the traditional bricks and mortar assets as illustrated by the John Lewis case which is closing and shrinking so many of the stores it (perhaps unwisely) opened while it was expanding its online business (now around 60% of total revenue). It also sold its Ocado stake in 2010 for £250m which would be worth nearly £2bn today. Rather than spin off the online business, it is reshaping the total business under a new team, focusing on own brands, convenience, high productivity, sustainability, and the integration of formats.

John Lewis raises the question of how to implement the shift towards real omnichannel in today’s retail landscape. Clustering, new KPIs and rejigged P&Ls cannot be put in place in a day. The question therefore is: What would a transition phase towards omni-cluster P&L look like? Who should guide the transition, and how can investors be won over to support this longer-term shift?

Credits: IADS (Dr. Christopher Knee)

PRINTABLE VERSION HERE

At a time when travel is continuously restricted for many of our members, the reopening of the US borders before Christmas, as well as the NRF event in January, to which the IADS attended, felt like the perfect occasion to prepare a special retail review to give you a glimpse of what’s happening in New York retail, including comments and pictures for your review.

Are brands still innovating in New York, the city once seen as the retail mecca? What are the most interesting stores to visit? While Covid has had a major effect on retail everywhere, what are the impacts of the pandemic in New York?

Great and immersive experiences

Fashion and beauty

Gucci in Soho, is an immersive and impressive store that comes off as ultra-luxe and ultra-cool at the same time. On the second-hand side of luxury, TheRealReal Soho store is also impressive, thanks to staff competence, product curation, and a feeling of being in a “real” luxury multi-brand store with perfect presentation. It seems the concept is a success as it was one of the most crowded locations, with people buying and not just browsing. Interestingly, the store staff focuses on inviting customers to sell their belongings more so than to return for another purchase. LVMH recently invested in Aimé Leon Dore, the new cool kids brand. The store, perfectly located in Nolita, includes a café and a terrace outside. The store is usually crowded, giving off a great impression, and looks like a mix between Ralph Lauren and rap lifestyle. On the beauty side, Ulta in the Upper East Side feels very bright compared to Sephora thanks to the all-white atmosphere. More importantly, the perception is more immersive than Sephora, as Ulta provides a full beauty appliances section and a beauty salon.

Sports goods 

Nike stores are all about experience. Nike studio was closed however, both Nike midtown House of Innovation and Flatiron locations were extremely crowded with waiting lines filled with local shoppers willing to buy full price goods. Overall, the staff was welcoming, polite and competent. At the REI store in Soho, although the impression is quite messy due to click & collect, the immersion feeling is very strong.

Tech and home goods

The Google store in Chelsea is also immersive and almost better than Apple in terms of experience and comfort. The organisation of their cabins to experience products is effective. Bed Bath & Beyond offers another kind of immersion, with a great revamping in the home goods area, including large and clear sections and alleys, easy circulation, a huge space allocated to cash registers and click & collect areas. It is great but one can wonder if the trimming process was a bit too radical as it seems there was less inventory and choice than before.

Kids

Camp store near Union Square is impressive with a playground located in a hidden location behind the counter. This store is also an inspiration in terms of VM in the kids’ sections. The “kid’s shopping” initiative where kids are given fictitious money to make purchases (with a set limit by parents, charged at the end) is very intelligent.

Other concepts

Because of its size, Neighborhood Goods in Chelsea is more of a concept store than a “department store”. The curation of local brands and price point is very effective, attracting the right customers and a nice coffee shop completes the offer. Shopify store in Soho is an interesting marketing space for the brand. The welcome and service are great however, retail is a real job: which includes maintaining stores in perfect condition, and this is not Shopify’s top competence.

Retail disappointments

Fashion

Kith store in Nolita is well merchandised and even though visitors were buying high price tags, the women’s selection is quite disappointing and overall the store is not impressive. In Soho, Galeria Melissa‘s immersive environment and window set up are impressive but the store was either closed or empty, with sales associates looking at her phones and standing in the middle of the entrance… The Webster was impossible to visit as it was partially closed most of the time. The surroundings look terrible and the building itself is under renovation.

Sports goods

On Running store in Nolita is attempting artificial “coolness” by asking customers to line up and wait for the next available sales associate… who are just chatting together in the back of the store. Once in the store, there are good display ideas (shoe storage drawers) and the number of people on the street wearing On Running shoes was quite impressive. Although greeted with a warm good welcome at the Allbirds store in Nolita, there was no real follow up once inside. Customer education on sustainability was visible, although nothing compared to what Green Pea in Torino does for instance.

Tech

B8ta “Retail as a service” store in Hudson Yards is a showroom demonstrating and selling tech and lifestyle brands. It may have an interesting business model and help people find novel items however, people in the store are more looking than buying, which questions the efficiency of such a concept./nbsp]

Another concept

Even with an interesting brand curation, Showfields was an odd experience. The store does not really reflect the missions the concept intends to represent (vegan, sustainable, women-led…), the sales associates were too pushy, the store was empty, the Magic Wand feature did not work and overall, the store lacks cleanliness.

What about department stores?

New Nordstrom Men’s and Women’s stores near Columbus Circle were by far the most impressive out of all of the visits. Their flexible format and fixtures allow them to change layouts throughout floors without taking a toll on brands’ presentation and desirability (though, sometimes a bit odd with luxury brands). During Christmas, there was a great gifting assortment and wrapping services. Overall, the product presentation was good during sales. In the Men’s store, the “floating” cash registers (right in the middle and designed more as stations, not booths) are interesting, as well as the way click /amp] collect is nicely displayed and even used as a feature visible from the outside. In the Women’s store, the ground floor is energetic, airy, and combines a great cosmetic section with the feeling of a concept store. The ground floor area dedicated to home products offers great product curation, which contributes to the concept store impression.

Nordstrom Local is conveniently located, well attended and had many customers at the time of the visit. The way the services are displayed and visible (as proof of competence) is interesting. The store also sells a very limited number of items (snacks, small items & accessories) though not enough to sustain the store itself. The staff was great and competent.

Saks Fifth Avenue’s ground floor is great and impressive, with the escalators going down to the fine jewellery section and overall, spacious, modern and bright. The rather simple idea of colourful escalator “wrapping” really inspires customers to visit the upper floors. Traffic was slow and SaksWorks on the last floor was closed. The Barney’s floor is a gimmick with no added value.

As usual, Bergdorf Goodman had great Christmas windows and displays, but the impression was not so positive. During Christmas they offered “presales”: customers were charged at the time and were to receive the product at a discounted price later. The 7th floor which used to feature stationery is now dedicated to BG merchandised products. The traffic is low, apart from the shoe floor.

Bloomingdales in the Upper East Side feels a bit old. Still, the store offered a gift-wrapping service with customised-printed gifting paper in partnership with Klarna. The new Men’s shoe floor is not revolutionary but nice, with brand corners and multi-brand areas organised by style/functions (sport and sneakers, casual and weekend, classic and work shoes). Service counters are emphasized.

Macy’s in Herald Square feels old and not well maintained (floor maps are not all correct), however it was overall busy. The home floor has been redesigned with a lifestyle approach. On the ground floor, there is an interesting mix of cosmetics, tech (including Apple) and light travel goods.

Is New York still worth a retail trip? While there are always interesting stores to visit, the city didn’t feel the same as before due to the lack of traffic and energy, even if it was a bit busier during the holidays. The impact of Covid on retail was felt in all areas. It was particularly visible on Broadway around Macy’s, with closed flagships (Victoria’s Secret and empty >500 sqm locations) and even more so in Soho, in the Mercer St. / Greene St. area where there are many “available” retail locations advertised. The slow traffic is both due to the heavy travel restrictions and to the local affluent consumers relocating in their secondary residences. For instance, it led Bergdorf Goodman to achieve a fair share of business by sending trucks every day with goods to the Hamptons and other locations in 2021.

Another common feeling from two separate visits was the impact of staff shortage (Macy’s advertises for recruitment on zones and screens normally dedicated to products) leading to a feeling of poor maintenance (Visual Merchandising, product visibility, overall maintenance and attention to details, even cleanliness) and poor customer service (among department stores only Nordstrom sales staff gave a sense of welcome and product-related competence). During Christmas week, there was a striking contrast between stores that were either fully closed (Mejuri in Nolita, Melissa Galeria in Soho), partially closed (The Webster, On Running) and the ones that were inaccessible due to long queues at the entrance (Louis Vuitton, Prada, Chanel, Nike…).

Credits: IADS (Christine Montard)

Check out the retail review in pictures here