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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)

PRINTABLE VERSION HERE

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)

PRINTABLE LINK HERE

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)

Check out the collection of pictures here!

printable version here

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)

PRINTABLE VERSION HERE

The 2023 edition of the NRF Big Show took place on 14 – 17 January. After a virtual edition in 2021 and a limited reopening session in 2022, this edition showed that retail was back on track, with more than 1,100 exhibitors attending, to be compared with the 900+ previous record in 2019. As usual, a wide variety of themes were explored during this somewhat overwhelming event, and it is difficult, if not impossible, to recap all the conversations that took place.

We made a selection of presentations we attended, with a focus on department stores topics. Before doing so, looking at the big picture in terms of topics addressed also help understanding the general mood of the event:

-    The economy was not top of mind even though there were echoes of inflation and recession. Speakers were excited by many other topics and the socio-economic context did not overshadow every presentation,

-    Metaverse was of course not a topic anymore but excitement about Web3 was very much palpable,

-    CSR and ESG were widely discussed and mentioned in almost each and every presentation, confirming that going green is not a choice anymore, as we have echoed in our last White Paper released this month,

-    Social media is becoming more personalized and difficult to operate as customers are torn between their will to log out in order to go on a digital diet, while balancing the fear of missing out on important news if they do so,

-    Exceptional customer experience goes deeper, and it does so through how consumers are treated, what they get, and also the information they are provided with, including informing them about the sustainability aspects of their transaction.

Speakers we listened to during this event discussed retail transformation, physical stores and business models, customer experience, sustainability and retail media.

Table of contents:

-    Leading through transformation and purpose: Macy’s

-    The store of the future is less about the store and more about the business model: Havaianas, Sunglass Hut.

-    Retail strategies for major disruptors: GDR Insights

-    Curated, captivating, contemporary: a blueprint for physical stores: Neighborhood Goods, Studs,  CAMP

-    Building an innovative and personalized luxury experience: Farfetch, Harrods

-    Retail media networks: how the physical store will power retailers’ next phase of growth: Albertsons, Nordstrom

-    Placing sustainability at the heart of retail: Holt Renfrew

Leading through transformation and purpose: Jeff Gennette, Chairman and CEO, Macy’s

Gennette reviewed the actions performed during the pandemic in order to help the company get through the hurdle:

-    Inventory control was key to managing cash, and this led to negotiations with vendors, a review of the supply chain, and deals with smaller-sized operators,

-    Macy’s also learnt to use data and mix it with human forecasting to allocate the stock in the right locations in a quicker way through the use of smaller-scale channels,

-    Geopricing  was also reviewed, in order to geographically match the price according to the location of the customer, and avoid any kind of margin-damaging mistake.

As a consequence, Gennette considers the company to be in a much better position now that the synergy between online and offline is clearer, and works well: stores are needed to support online, as online penetration decreases when there is no brick-and-mortar in the region. The question is indeed not so much about having stores at all, but the type of stores needed:

-    Malls are no longer the main focus, and Macy’s closed a number of second and third-tier locations in favour of off-mall locations,

-    In regions with stores but where densification is needed (Dallas, Atlanta), or regions where stores are exiting malls in favour of smaller locations (Saint Louis), the group opened Market by Macy’s locations (8 locations to date),

-    In new markets where new doors are opened (Seattle), the group opened Bloomie’s locations (2 locations to date).

Even though many locations were closed in the review process, leading to a decrease in terms of square footage, the group currently operates more stores today than in 2019 in net numbers. Genette was very clear that the off-mall, new-format business was his new focus.

He also tackled the notion of talent retention, mentioning that compensation and benefits reviews helped with the frontline workers, but that it was the strength of the group’s brand that helped with specific populations such as data scientists for instance. He also mentioned that while the group had focused for a long time on frontline and boardroom diversity, it led to some gaps in middle-management which were being addressed.

Finally, he also reviewed the current customer’s state of mind. Even though the company enjoyed a great holiday season, Macy’s realized good sales masked a shift in terms of consumption, with the usually slow weeks in November and December (during which customers are not buying gifts but products for themselves), being even slower than usual. Even though the luxury customer is in very good shape, and enthusiastic about occasion wear (as shown by the sales results in dresses, formal men’s clothing and luggage), consumers overall are cautious, as they are under multiple pressure points (inflation, wage inflation, interest rates…).

Macy’s acknowledged this cautiousness in its own operations: reduced OTB, and more open reserves, to limit early season commitments and to be able to respond in a flexible way if and when needed.

The store of the future is less about the store and more about the business model: Alberto Serrentino, CEO of Varese, Alberto Funaro, CEO of Havaianas, Giorgio Pradi, President of Sunglass Hut.

Serrentino explained that the post-pandemic “new normal” places the store at the centre of a new game, by becoming a multi-purpose hub (customer acquisition, logistic hub, service hub, omnichannel hub). Hence, the traditional KPIs do not work anymore and need to be redesigned, knowing that everything starts with the data captured by stores. However, rethinking the store means rethinking the retail business model itself.

This is why Luxottica/Essilor (parent company of Sunglass Hut) acquired stores 27 years ago, a risky move then, as they saw this strategy as a way to collect sales data from customers and control the sales process.

Of course, the Covid-19 pandemic forced the digitalization of the business (from 2% of the business in 2019 to 12% in 2022, mostly on luxury products and through the use of endless aisles), but the store remains at the core of the model, be it in terms of experience (through the increase of omnichannel services allowing to display fewer products and focus on the quality of interactions) or people (with a globally trained workforce connected via a platform allowing the sharing of good practices but also guaranteeing a common culture among every business unit).

Shoe brand Havaianas prides itself on embodying the notion of “Brazilian summer”, as they want to “own summer”. As a consequence, all their stores are designed to be experiential, surprising, and all different. Investments have been performed in customer data analysis in order to manage product development and allocation (each store has a different assortment), the tech underlying sales team trainings, development and tracking, as well as omnichannel capabilities in order to provide a seamless experience.

Summing up, the conclusion of this roundtable did not lead to the discovery of a new business model, but paradoxically emphasized the need for a strong culture and the human factor in order to achieve a differentiation which can not only rely on tech, even the most expensive or up to date solutions.

Retail strategies for major disruptors: Kate Ancketill, CEO, GDR Insights

Like it or not, everyone’s lives are now affected by the 3 C’s: Covid (leading to a reset of many organizations), Conflicts (leading to energy and cost of living increases, as well as shortages of all sorts) and Climate change (with extreme climate events disrupt power grids and supply chains). For Ancketill, a long-time friend of the IADS, this means that we are switching from an economy of abundance to an economy of scarcity, leading to a focus on geopolitics, energy sobriety, no more premiums for convenience, and life extensions of all products.

However, she believes that it is possible to “bloom from the gloom” thanks to the right strategy, according to 3 axes that she exemplified:

1-    Power is shifting from global friction to decentralized resilience: Apple introduced self-service repair, Tesco launched a B2B marketplace for its suppliers to deal with excess or unsold food stock, Tesla allows customers to produce and sell energy, mobile phone network Pollen allows users to buy a mini cell tower and create a signal for peer-to-peer mobile telecommunication, Weshop allows customers to sell their second-hand products and then become shareholders of the company with their earnings.

2-    It is possible to regenerate inclusively by switching from offsetting to insetting. “Offsetting” is based on the idea that business harms the environment and can compensate for this harm by planting trees. “Insetting”, on the contrary, supposes that the damage is fixed at every point of the chain where it appears. Ancketill mentioned a number of sustainable brands (such as the UK-based cosmetic brand Faith in Nature which has placed an eco-lawyer on its board as a representant of Nature), but also the current regulatory trend (the AGEC law in France banning single-use packaging for instance) or new services (Samsoe fashion brand selling its clothes with a QR code granting a prepaid social media credit in order to enable customers reselling the products) as examples on how to “inset” emissions.

3-    We are moving from small indulgences to immersive luxury, to what she calls the “dopamine” economy: it is all about maximizing the use of technology (i.e. metaverse, omnichannel capabilities) to create immersive experiences, be that in the real-world (WOW concept in Madrid) or in the metaverse.

Ancketill’s presentation was, as usual, complete with many examples and very energetic, and welcomed as such by the audience. IADS members can read the latest GDR Report from last July here.

Curated, captivating, contemporary: a blueprint for physical stores: Matt Alexander, CEO, Neighborhood Goods, Anna Harman, CEO, Studs, Amanda Raposo, Chief Experience Officer, CAMP

This roundtable was dedicated to business models placing the physical experience at the core of their offer: fully immersive “shoppertainment for kids” at CAMP (see the IADS analysis of the concept here), custom experience from one store to another and fully meshed into local communities at Neighborhood Goods (see the IADS analysis of the concept here), and niche-specific experience based on the fun factor for Studs (ear piercing lounges).

On average, Neighborhood Goods stores are 1,400 sqm large. When opening the first unit, the company expected brands to take up more space but they realized that richness came from the diversity of the offer instead of having 10-15 brands, they ended up with 50-75. This does not always imply a higher rotation: Asos was expected to rotate but has remained in the stores for the past 3 years. Interestingly, in addition to the width of the offer, Neighborhood Goods also sees private labels as a strong opportunity. In order to funnel customers to stores, people prevail over content as the company leverages the voice of their sales staff, trusted by customers. As a consequence, Neighborhood Goods’ promotional emails have a very high rate of engagement.

Camp, which has a different type of business, has 2 types of store formats: flagship stores (up to 1,500 sqm) with a hidden part which represents 85% of the total surface, and community stores (100 sqm) service as hubs for local audiences. Permanent animation in the whole network, be it generated organically or through paid partnerships, allows the stores to be destinations for families on a regular basis. And just like Neighborhood goods, when it comes to marketing, it is all about allowing customers to share their testimonies and feedback.

Both retailers strongly emphasized their reliance on the human factor in order to remain close to their customers, even though they knew them thanks to data.

Building an innovative and personalized luxury experience: Kelly Kowal, Chief Platform Officer, Farfetch, Michael Ward, CEO, Harrods

Ward shared how Farfetch helped power Harrods’ offering towards its online customers through its white-label technology. Such a decision was made after understanding that Harrods was too small to develop its own tech and would leverage what Farfetch has developed.

This was the opportunity for Harrods to build e-concessions on the one hand (as Ward sees this as an inevitable trend, with brands willing to recuperate as much of their margin as possible), but also to keep a strong focus on experience, which is at the core of what Harrods stands for.

It is not about showing off any kind of tech, which is something customers are not demanding anyways, but truly to maximize every touchpoint and make sure each of them is an experience per se. However, Ward was very clear on two points:

-    The tech provided by Farfetch helped Harrods leverage and scale up its customer analysis and understanding in an unprecedented way, but this forced both parties to learn how to work together. Farfetch is only specialized in apparel and accessories, while Harrods sells every category, and can collect as many as 200 to 300 data points during customer journeys in the store. Farfetch admitted that this kind of scale was somehow overwhelming even for them.

-    Data is a must-have but is not enough to craft a superb and individualized experience: it helps understand and make decisions, but personalization is much more holistic than just an algorithm. For instance, while data helps fine-tune the buying assortment and implementing the brands in-store, Ward still relies on his buyers to make the appropriate choices in showrooms in order to define a differentiating selection.

Ward also shared that he was planning to multiply fourfold the resources allocated to private shopping (people and systems) in 2023. As he put it, it is easy to make an experience come to life in the store, but his goal now is to make it truly omnichannel.

He concluded by stating that in 2023, his main area of attention would not be on tech, but on managing relationships with luxury brands and making sure that Harrods will be able to satisfy the demand for luxury products, which he expects to soar this year.

Retail media networks: how the physical store will power retailers’ next phase of growth: Kristi Argylian, SVP Retail Media Albertsons, Aaron Dunford, senior director of digital markets, Nordstrom

Retailers are facing a triple depreciation of their marketing activities: TV ratings are going down, third parties are not part of the game anymore with the death of cookies, and heavy investments have been funnelled into the digitization of the store. By delivering contextual ads during the purchase process, based on first-party data, Retail Media, the third big wave for digital advertising after search and social is seen as a perfect answer.

It took 14 years for the search market to go from $1 billion to $ 30 billion, 11 years for social media, and only 5 years for retail media. The market is expected to grow $10bn per year and it appears that this will benefit all retailers and not only Amazon: smaller operators are carving out their positions, which can be lucrative when one realizes that 1% of the market represents $450m.

When it comes to starting from scratch, Albertsons explained that the real question was not to consider an in-house or externalized development, but how to phase the launch out. Albertsons launched and scaled up quickly thanks to an alliance with a small group of partners, who are aware that at some stage, Albertsons will be willing to recuperate more control of its operations. But only partnerships have allowed them to grow fast and high, which is why for instance Albertsons teamed up with Pinterest to make their targeting more sophisticated, or Omnicom Media Group to go on the streaming TV market.

Nordstrom launched the first phase of its retail media network in 2019 but with full functionalities in Q4 2021. Through the understanding of the customer experience across many touchpoints, they are able to sponsor products at the right moment, which is extremely attractive to brands when considering the quality of Nordstrom’s customers. Onsite advertising now represents 40% of the total retail media sales.

Both retailers emphasized the fact that the whole process was extremely difficult, as it is all about breaking silos (e.g. Nordstrom’s ecosystem is composed of Nordstrom and Rack stores, or online, stores and apps, all with different systems and people) in order to collect all data in one single spot. This is the reason why Nordstrom developed its Analytics platform which aggregates everything. Now, this platform allows connecting platforms like Instagram with their in-store purchases. For Nordstrom, the next step is to open the retail media network to its in-store stylists and allow them to push specific products and brands.

Finally, both retailers also mentioned that, in order to be attractive to advertisers and stand out from the crowd, it is essential to be able to provide them with quick incrementality measurement tools through a dedicated API. As Albertsons put it, measurement is key and the problem is that there is no standard for now.

Placing sustainability at the heart of retail: Sebastian Picardo, CEO and President, Holt Renfrew

Holt Renfrew as a brand is older than Canada and prides itself to be the first luxury destination in the country. As such, the retailer decided to lead the change and embrace sustainability a decade ago, and as Picardo put it, their mission is “to give their stakeholders the power to express themselves and the opportunity to generate positive change”.

Very well aware of the pollution created by the fashion industry, Holt Renfrew started its journey by engaging in dialogue with brands. For Picardo, the climate crisis is here, regulation is coming, and there is the opportunity to take the lead on sustainability, which the company did.

They are helping brands use new materials by promoting the new items manufactured in that way to their customers (the “Holt Sustainable Edit”) and using tech in order to track progress and results. Holt Renfrew, which started as a fur shop, also decided to eliminate fur products from its offer in 2021, which is a strong move. They have also engaged with their suppliers on Scope 3 tracking, although this is a very complex topic.

However, for Picardo, sustainability used to be a marathon but this is not the case anymore and is transformed into a spring. He concluded by stating that “sustainability is the new digital”.

Credits: IADS (Selvane Mohandas du Ménil)

READ OUR WHITE PAPER IN ENGLISH HERE

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Sustainability in retail is hardly new and has become a major factor in business decisions and investments for retailers of all shapes and sizes. Consumers are increasingly becoming aware of the impacts that their purchases can have on emerging economies and garment workers and are consequentially becoming more demanding to understand how they can make impactful changes by harnessing their purchasing power. Governments are also taking a stance and demanding that retail industries start to release more accurate data that can be traceable through new laws and regulations that can have a large impact on profits and operations.

Retailers do not have the luxury of ignoring this topic. They hold responsibility as they translate customer desires and needs into market opportunities by acting as a bridge between consumers and suppliers. Department stores play an even more important role thanks to their historical and usually very central position in cities, allowing them to bring convenience and product curation to both local customers and tourists who view them as must-see places during their stay.

With such a position and impact, department stores are bound to transform into sustainable businesses offering consumers facilities, products and experiences that create net-positive environmental and social impacts. The IADS White Paper reveals how department stores are innovating and adapting to allow sustainability into their core business in order to remain relevant.

Sustainability is a chance for department stores to reinvent their business model

Now that all stakeholders (governments, investors, and consumers) are on the same page and understand that sustainability is a very important topic that needs to be addressed by businesses, it is time to take action. However, to the dismay of retail leaders, sustainability also reveals itself to be a Pandora’s box, with a seemingly infinite list of complex questions. The difficulty lies in the nature itself of a challenge in perpetual motion, making sustainability “a framework rather than a destination”.

Department stores, due to their size which involves dealing with a large number of suppliers, their central position in cities and customers’ lives, and their complex business models often including historical practices, are on the frontline of the needed changes. While they have already proven their ability to adapt to business disruption, they now face a much more holistic problem of either radically reinventing themselves or becoming irrelevant.

In our new White Paper, “Reinventing department stores through sustainability”, the IADS extensively reviews the sustainability topic from department stores’ point of view, including where they stand, their initiatives and remaining challenges. Hard questions are raised, and potential directions are identified, keeping in mind that while sustainability is not a trend but a true structural change, the solutions built by departments stores cannot be cosmetic and need to efficiently financially address the topic if they want to survive.

The variety of stakeholders complexifies an already fuzzy question: what does sustainability mean in retail?

At first glance, the situation looks overwhelming as even just defining where to start is hard. Retailers started their action plans by defining a Corporate Social Responsibility (CSR) framework, which soon was followed by trackable metrics compiled in Environmental, Social and Governance (ESG) reports. However, they quickly realised that properly addressing sustainable issues required more than reports or guides of good conduct. Simply being able to track greenhouse gas emissions requires nothing less than re-engineering the entire supply chain systems. To make things more complicated, retailers also must deal in real-time with many stakeholders with different views:

-    Customers, who require immediate and impactful actions, but do not always align intentions with their purchasing behaviour, especially in an inflationary context (not to mention that the very notion of sustainability has a different interpretation according to the age group or socio-economic cohort),

-    Pressurised governments, accelerating regulatory efforts without global coordination, leading to a variety of constraints that retailers must comply with, sometimes in a record time (the French AGEC law was enforced in 9 months) leading to the multiplication of non-scalable short-term compliance investments,

-    Suppliers, nudged by retailers to heavily invest to make their production output sustainable, in addition to auditing their carbon emissions to help fill in retailers’ Scope 3 tracking (a titanic task for department stores working with international brands contracting factories dotted across the planet).

Finally, shareholders and employees are worried that retailers will end up paying for the transformation bill, estimated from €315bn to €615 bn between now and 2030, in a shrinking profitability context (-6.5% in the past 6 years in France).

Travelling a long and winding road: an overview of department stores’ initiatives so far

Aware of their social role and seeing a transformative opportunity in this inescapable challenge, department stores have already initiated their journeys towards sustainability, despite not being all at the same stage of progress due to different local geographical and political situations. To document and draw a dynamic picture of these efforts, the IADS used its privileged ties with its members to conduct several studies, the first one just at the beginning of the pandemic, in March 2020, then another one in June 2021, followed by one in 2022.

When it came to defining objectives, retailers answered to mounting legal pressure by teaming up and exchanging ideas and experiences with an unprecedented degree of transparency. This took place through organised bodies, such as the 2030 Breakthrough Initiatives, various retail associations (such as the IADS) and federations helping department stores exchange with strict respect of antitrust guidelines, but also by talking with new third parties (NGOs, trade unions or consumer associations). Such a degree and scale of openness outside of dedicated frameworks from notoriously secretive department store organisations is new and considered critical in order to help them set goals and make progress in real-time.

This cooperation allowed department stores to take control of their Scope 1 and 2 emission rates rapidly, as shown by El Corte Inglés’ reduction of its Scope 2 emissions by 78% between 2017 and 2021, Breuninger’s offer of CO2-neutral shipping or Galeries Lafayette’s entire store electricity consumption being 100% renewable. Dealing with Scope 3 emissions (95% of the total emissions) proved trickier. Exchange organisations helped review market initiatives, such as Macy’s reducing its use of virgin plastic by 50%, or Selfridges’ plan to achieve 45% of its sales through the circular economy by 2030. It is also widely understood that the next area of focus is the supply chain, seen as the second most beneficial area of investment after digitalisation in terms of ROI.

Department stores are also experimenting with their own private labels, which in turn raises the painful question of the lack of a relevant global standard applicable to all brands and marketable in a simple way to customers. For that reason, the study of the Green Pea business case in Italy, “the first 100% sustainable department store in the world”, provided an idea of what new standards could look like. In addition to finding new ways to deal with the environmental impact of their real estate footprint, normally estimated to contribute up to 60% of a retailer’s total emissions, Green Pea educates their customers by openly sharing simplified, but brutally honest, information about their own consumption impact.

The head scratching has just begun

The unprecedented collaboration between companies does not overcome the fact that, their customers and markets being by nature extremely different, there is not a one-size-fits-all solution for all department stores. This has made the sustainable journey a collaborative and solitary trip at the same time. In addition, each department store must figure out how to deal with problematics that come on top of environmental issues and that are linked to their own social context, such as diversity and inclusion.

This raises questions on what to communicate and how, and above all, on what platform. The comparison of actions in 2020 and 2022 showed that department stores, always attentive not to be accused of greenwashing, also discovered that consistency across channels (stores, e-commerce) and partners (suppliers and brands) was necessary, but also that messages had to be adapted in each case to maximise reach and clarity.

The other question is the nature of the organisations guiding sustainability efforts. There is a wide variety of options, from a Chief Sustainability Officer to a dedicated ESG committee, also including partnerships with third parties or responsibilities dispatched between departments. Whatever the option chosen, leaders will have to be careful not to add an extra layer of complexity to their organisations, which has been the case in department stores in the past.

Finally, the most pressing topic is obviously the business itself and how to make sure that sustainable efforts are not an additional financial weight, but, on the contrary, contribute to new revenue flows thanks to the necessary reinvention of the model. While it is relatively easy for new companies such as Green Pea to propose contemporary approaches, the situation is different for heritage companies, as they must be creative in addressing the future in a sound financial manner that does not disrupt daily operations.

Don’t judge a book by its cover: sustainability is not a constraint, but a chance to be seized fast

Even though addressing sustainability might be painful, costly, and even hazardous, retailers do not have the choice and must follow the trend if they want to survive. Just as they addressed digital transformation, they need to start their journey as soon as possible, as passing time is definitively lost and could rapidly become a competitive disadvantage. In addition, they should not be troubled about not having a perfect plan: the most important thing is to get started, then the learning process will take place bit by bit in a non-linear progression.

We identify two phases in the approach, the short-term one being to fully focus on the sustainable transformation of the supply chain, as the needed technology is already here, and the longer one being to increase collaboration between retailers to accelerate the pace of innovation. This is proof, if needed, of the relevance of exchange groups and think tanks such as the IADS, which has been actively helping its members since 1928 address the most pressing business issues in a collaborative way.

Credits: IADS (Mary Jane Shea)

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The IADS Academy programme, a 27 year-old tailor-made mentoring workshop open to our members’ high potentials only, promotes cooperation and future orientation. Over the years, the IADS Academy have trained 180+ executives from 28 companies in 21 countries, some of whom reached top positions in member and non-member companies (for IADS only, 3 CEOs and 1 COO in 2020).

Introduction: Private Labels are an everlasting question

Considered a key topic by the IADS member CEOs, the question of Private Label profitability is constantly on department stores’ minds since margin enhancement is the first reason to carry Private Labels. So, it was no easy task for the 2022 IADS Academy participants to answer a question that has been asked many times at all decision-making levels in their companies.

At the beginning of their 9-month journey, the Academy group reflected on 2 different Private Label models: John Lewis and Marks & Spencer. In parallel, the International University of Monaco (IUM) partnered with the IADS to offer insights about additional case studies: Target and Nordstrom. Having worked on the topic with Galeries Lafayette, the Kéa & Partners consulting company was invited to share their vision on the Private Labels business. Finally, the group reflected on their own organisations, figures, strengths, and weaknesses to decide the most important KPIs to consider. Starting from reviewing department store members’ businesses and collecting best practices, the group built their own vision for a more profitable Private Label business.

All participants were invited to present the result of their research during the IADS 63rd General Assembly held in Geneva, as the tipping point of the hard work put into the Academy program. It included hours of research, collaboration, and discussions in small groups, as well as online meetings, some of them involving the benevolent support of Mr Jérôme Gilg, the Academy Mentor, and Mr Peter King, the Academy Dean of Honour.

Taking a step back: getting a larger perspective on Private Labels

Case studies: John Lewis, Marks & Spencer, Nordstrom and Target

John Lewis’ Private Label business is regarded as a growth driver. Participants studied ‘Anyday’ own brand, which was recently expanded with prices 20% to 40% lower than John Lewis' other own brands. The label is seen as a step towards modernizing its branding as it intends to offer customers John Lewis’ quality at lower prices. John Lewis is usually perceived as a ‘rather expensive place to shop’, but research shows that Anyday's promotional effort (£500m were invested into pricing and promotion to change customer perception) seems to be working: 25% of Anyday shoppers are either new or reactivated customers, as well as younger, yet less wealthy shoppers. This strategy comes with risks, identified below:

-    The value push could damage the premium status and dilute the brand which used to be aspirational.

-    Anyday tries to reach a new segment of customers, which might leave the usual John Lewis shopper behind.

-    The strategy puts de facto John Lewis against a different set of competitors, such as Primark.

-    A wider range of price positioning holds the risk of losing margins.

-    Staffing levels and service standards will be more difficult to maintain in-store.

As a strategy built on cheap prices didn’t fully convince the participants, they also reviewed Marks & Spencer’s Private Labels which have been simplified and reduced to increase performance. With long-term efforts on brand building, their products are perceived to be high quality among competitors. Interestingly, the company also has a strategy of buying out existing brands (such as Jaeger) and onboarding third-party brands (such as Ted Baker and Superdry) to muscle their offer as well as to be more popular and fashionable. As for John Lewis, the product diversification strategy aims at covering all age groups, including younger segments. Results seem promising: third-party brands account for 4.1% of the clothing and home sales, bringing in £70m of revenue in 2021.

The IUM was tasked to work on Target and Nordstrom business cases and issued their conclusions:

-    Nordstrom should reward associates more for selling Private Labels over other brands. Also, IUM students proposed creating online community spaces where customers could be rewarded for engaging with Private Labels. Finally, students proposed to improve Private Labels by including differentiated collection and visual merchandising strategies for fall-winter and spring-summer.

-    Target: students discovered that price is no longer the primary factor for customers. Quality is gaining more importance in building customer loyalty and encouraging repeat purchases. IUM students highlighted the need for good communication and an updated presentation of Private Labels whether that is done through the product quality or within the store layout, such as using shop-in-shop formats.

Learning from transformation and strategy experts

Kéa & Partners was invited to share their vision on Private Labels in department stores. Alongside the challenge of meeting consumer demands and competing with global brands, running a Private Label means navigating difficulties in the supply chain, dealing with contradictory if not unclear objectives, and finding the ideal margin equation for creating value for the consumer and the company.

The share of Private Label sales share can vary but they are generally seen as a tactical component (10% of the total business), a major contribution (20% to 40%) and occasionally as a core business (from 40%). In any case, Kéa & Partners shared the 5 pillars identified to ensure Private Labels profitability:

1. Positioning & Strategy: clear-cut positioning based on target clients, offer, price, and style help differentiate from national brands. There is no set requirement for where to begin or whom to target, and the offer can vary by category and gaps in the market. A helpful tip is to create a target P&L along with realistic KPIs to optimize spending and determine at what stage and scale the Private Label will be relevant and profitable. The KPIs will direct the annual targets which will be defined by the operating model chosen.
2. Offer Structure & Timing: this pillar requires determining the operating model of the Private Label, be it permanent, seasonal, capsule, etc. This will help with managing the size of the offer, its depth and purchasing according to the segmentation that has been decided. Counterintuitively, Kéa & Partners promotes crafting a singular offer that is not based on emulating other brands. This could mean leaving out products that some deem as needed: essentials should be based on the first pillar and not common industry practices, assuming that a generic offer can diminish brand visibility.
3. Sourcing & Purchasing, with a focus on logistical organization. This is where retailers need to overcome MOQ limitations and develop long-lasting partnerships with suppliers. Mixing near and distant sourcing will determine purchasing or developing products based on the margin goals and rhythm. Sustainability needs to be accounted for within the sourcing strategy.
4. The Organisational Model, which is about exploring new models, leveraging activities and expertise in digital processes or through data. In terms of models, coopetition and integration are two possibilities. Either retailers will divide the teams and buyers between Private Labels and national/international brands, or integrate them so that the purchase and sourcing teams are only divided by, for example, product category.
5. Marketing Amplification & Execution: this requires setting up the merchandising strategy as well as a marketing plan. In this case, for example, a capsule collection would influence event size and dates as well as how and to whom the collection is marketed. According to research, 5% of product references account for 20% of sales volumes meaning pushing that 5% could determine the overall success of a collection.

Digging in: Analysing their own Private Labels

Review of the Private Labels organisations

As mentioned by Kéa & Partners, coopetition and integration are 2 possibilities reflected in the IADS members’ organisations. At Galeries Lafayette, a new coopetition organisation has given more agility to the department: national brand buyers are buying the Private Label collections, representing a strong push for Private Labels to be more attractive, efficient and in step with trends. It also means a lighter team, with designers working outside of the company (freelancers and/or outside agencies). Breuninger Private Labels are organised in the same way with buying responsibility separated from the product development (only the Mrs & Hugs brand has a different organisation with shared development and buying responsibilities).

At Manor, each product category (womenswear, menswear…) has its own team including buying responsibility, product management, style, planning, sourcing, merchandising and visual merchandising. At El Palacio de Hierro, the Private Label director manages a team of category managers, each of them responsible for a Private Label: with their team, they are responsible for the strategy and execution as well as buying, planning and allocation. At El Corte Inglés, a category manager is responsible for several brands in the category. This executive manages a head of design who is responsible for a brand manager per Private Label. A brand manager is in charge of the buyer(s) negotiating with suppliers, merchandiser(s), planner(s) and designer(s). At Magasin du Nord, the design and sourcing department is managing all product categories. Each of them includes a buying manager and a merchandiser.

Comparing figures and sorting out KPIs

Participants shared key Private Label figures. Once carefully anonymized by the IADS, the idea was to compare and analyse them to find out the most important KPIs for profitability. The Academy group came to several conclusions:

-    Regarding markups and gross margin levels, a high markup is not a consequence of high volumes whereas low markups are a consequence of low volumes. A high markup (over 4.0), combined with entry-level to middle-range retail prices (€17-75), generates the best gross margins and the lowest discounts. On average, gross margins are 69% for the most profitable brands (62.9%-73.5%) and 49% for the worst ones (29%-62%). The number of pieces produced and sold is significantly higher for the brands with the highest gross margins. Markups are on average 4.22 for the best brands and 2.83 for the worst ones despite higher average full prices: it indicates that, even though they charge higher prices than average, their markups are still significantly lower to keep prices interesting for consumers.

-    When it comes to SKU efficiency, a smaller number of SKU won’t guarantee it. Having more colours in one reference may have a positive impact on turnover, thanks to the ‘Colorama’ effect for instance: one brand tends to confirm this assumption with an 11.7 multiplying coefficient and a 75% sell-thru. At least, having on average 5 colours per style guarantees the success of a collection. The number of SKUs is on average 5 times higher for the brands with the highest gross margin. Also, the turnover per SKU is 5 times higher for these brands (€6,565) compared to the worst ones.

-    When having a closer look at retail prices and discount rates, participants found out that there is no point in having a discount rate over 30-35% as it doesn't lead to a better sell-through. The best brands are limiting their discount rates to 26% on average. Retail prices should not exceed a certain point to be attractive to consumers, but it could be interesting to test elevated prices in Women’s Fashion for example: a wide range of prices could possibly lead to less price sensitivity. However, a very accessible range may lead to more dynamic SKUs and a higher turnover per SKU. Finally, brands with the highest gross margins have better sell-through rates (74.8%) and an average full price 46% lower than the worst brands (€39 vs. €72).

Following the conclusions above, participants proposed actions to be reviewed and possibly included in the final answer to the CEO question:

-    Reduce the number of references while maintaining a certain volume of SKUs.

-    Increase retail prices a bit (if they remain competitive), keeping in mind that an average lower full price can ensure a good sell-through and limits discounting to a healthy point, which in turn drives a higher gross margin.

-    Focus on the exit margin.

Creating their own vision: Private Labels will keep you going, Private Brands will keep you growing

The Academy’s overarching theme centred around the importance to transform Private Labels into real, independent brands. Department stores have the reputation and resources, so they benefit from competitive advantages. But, what’s missing?

Dealing with the internal ‘monsters’

After having identified the external threats to their existing Private Label business, the Academy participants focused on the internal ones (‘monsters’ as they called them) that need to be overcome.

Price positioning was listed as the first internal monster. It has become a critical topic with the current high inflation rates forcing department stores to increase their retail prices, at a time when customers are more price sensitive. This trend could also question the medium- and long-term investments necessary to build a healthy Private Label business, especially knowing department stores are fully responsible for every stage of the Private Label operations, making the risk greater.

Also, all participants from the start of the program shared one common challenge: misalignment inside their respective companies. This threat was immediately considered very important by the group as marketing and merchandising teams can face issues regarding priorities, budgeting, and scale. A cultural shift is necessary to get all departments on the same page.

The Academy’s proposed key actions to improve profitability

Participants really stressed the idea of allocating more marketing and advertising budget to Private Labels as they require visibility and their own storytelling. On top of enhancing the brand’s awareness, investing in marketing would increase the top line, boost sell-through rates and contribute to lowering the actual discount rate, ultimately leading to a higher margin in value. In the end, participants advocated for marketing departments to be seen as a profit centre rather than a cost centre.

Despite the difficulties Private Labels are facing, they have a good margin level when compared to other business models that can be found in department stores. In a comparative P&L, participants concluded that Private Labels offer the second-best EBITDA at 35.6% of sales (after the consignment model having an estimated EBITDA of 40% of sales). The concession model is 27% and the wholesale model is 23.9%. Private Labels have an estimated average net margin of 50-55%, just below the consignment model at 56-58%. Wholesale estimated average net margin is 40-45% and concession is 25-28%.

Participants established a ‘core focus’ program to improve profitability: it includes sourcing, assortment, positioning, and net margin as key pillars to be paired with KPIs to be closely monitored. The group acknowledged the difficulty of providing a fixed number per KPI when each company has different goals and scales. For example, they decided that 5 sourcing countries per product category could represent an average ideal number for healthy and controlled sourcing, considering many supply chain issues spurred on by COVID-19. Having backups is one way to provide more agility, however, the number of suppliers may vary per company, label, and category. Having compared how the recent supply chain issues impacted their business, the group set a target of 30% of SKUs produced in near-import countries to dilute the risk linked to producing in China and improve lead time.

Changing a Private Label into a brand also includes making the strategy visible on the shop floor. To that end, they advocate creating a difference between the assortment broadness (what customers see) and assortment depth (what the inventory looks like): the idea is to make the collection’s ‘candies’ (fashionable products such as a trendy pink jacket for instance) as visible as basics to attract customers who will ultimately buy the commercial and basic part of the collection.

A key point also showed when reviewing the Private Label anonymized figures: there is no need to be too cheap. Participants consider that prices should be 10% lower than comparable brands, not cheaper. Also taking cues from the figures, they set a discount rate of 28% to reach a minimum 90% sell-through rate after sales. This implies the need to carefully monitor the promotion strategy and calendar by killing the slow sellers at the beginning of the season (discounting them by 30%). All of these actions could allow Private Labels to reach a minimum 50% net margin.

Also, a true Private Label will become a driver of sustainability to promote responsible products, develop a sustainable selling environment, and ensure the working conditions in its production countries. Ultimately, Private Labels can have a competitive advantage as they often have higher standards than national brands: they should increase their capacity to communicate more proactively on these higher standards. Consequently, they could become a driver for traffic, transformation, loyalty and for the generational shift that department stores are hoping for by attracting more Gen Z consumers, who are expected to represent 28% of the world’s income in 2030.

Best practices from members 

When it comes to muscling the offer and attracting Gen Z, an interesting example came from Magasin du Nord’s collaboration with Trine Kjaer, a major Danish influencer. With a small capsule of 11 styles priced at €40-120 and 2,500 pieces produced, the sell-through rate reached 50% in 2 days, a net margin of 64% in 3 weeks and total net sales of €95,000. But most of all, 54% of the customers were new customers and the number of online searches increased 5 times, reaching 15,000 searches.

For El Corte Inglés, the example of their partnership with La Redoute (owned by the Galeries Lafayette Group) shows how integrating an outside marketplace can improve sales and profitability. In 2021, the department store’s Private Labels and other brands reached €5.5m on the La Redoute marketplace. Monthly fees (including commissions, set up and platform integration) are €55,000. Such results are positive, though there was no clear decision from participants about selling Private Labels through marketplace platforms. While it is an exciting proposition, using marketplaces could dilute the brand and lower margins. Reputational risks are also a factor when adding new selling channels outside of a group’s activity. This avenue also requires additional investment and organisation, making it an aspiration and not a qualification for a successful Private Label.

The importance of creating a visual identity was also something stated by Kéa & Partners and IUM students regarding the Target business case. This is backed up by one member example: Manor is currently working this way by developing shop-in-shop fixtures to give a true flare to their Private Labels. While it’s an ongoing process for fashion categories, the results have already proved efficient when it comes to home categories (bed and bath linen, tableware) as discussed during the IADS Merchandising Meeting dedicated to Private Labels held in December 2022. They have been reorganised with a more efficient display. Manor created new event zones and reworked the navigation by material (types of cotton, linen…) as the first decision criteria, and then by colour. A material testing zone, also known as an ‘education point’, is available. Beds demonstrating bed linen are more systematically displayed.

Conclusion: Private Label profitability is a complex combination of positioning, planning, marketing, closely monitored KPIs and faith

The question of Private Label profitability is likely to keep on going in department stores in the years to come. There are many reasons for companies to expand their offering through Private Labels, especially as inflation ramps up, leading many consumers to choose store-brand products over international and national brands. While each department store will need to adapt its plan, the insights provided by the IADS Academy offer a way to reassess the Private Label model. Setting KPIs for the ideal quantity of SKUs, for sourcing, planning, margins and discount rate can help with tailoring the offer and capturing their full value ahead of other brands. As the Academy Participants, IUM students and Kéa & Partners highlighted, having a unique offer that is specifically aligned with the department store is a great way to attract customers, meaning there is no perfect formula, only guidelines for creating an ecosystem to support Private Labels.

For the 27th edition of the IADS Academy, it was no easy task to define a toolkit for this increasingly important business endeavour. Each participant confronted the CEO’s question with involvement and seriousness, getting to step back from daily operations to learn from different department stores. Having the opportunity to work together across the world helped participants understand other visions, develop team spirit while expanding their network of peers facing similar missions.

Credits: IADS (Christine Montard)

PRINTABLE VERSION HERE

IADS recently held a meeting all about the Men's Fashion brands to look out for in 2023. Based on market research, IADS and NellyRodi presented a curated selection of 10 brands that are trending right now. Check out our selection of these brands!

CASUAL

DRÔLE DE MONSIEUR

Distinctive and wearable everyday wardrobe pieces that draw on iconic

sportswear halfway between 70’s and 80’s aesthetic and nostalgia for the

90’s. Past and present meet with the sophistication of retro silhouettes

combined with studied modern cuts and details for everyday wear.

Check out the DRÔLE DE MONSIEUR website here

CHECK OUT DRÔLE DE MONSIEUR INSTAGRAM

UNIFORME

A collection of minimalistic silhouettes that combine precise tailoring and

military lines to create streetwear that is stylish and utilitarian made in

France and Italy, crafted by specialized artisans to the highest standards of

luxury savoir-faire with responsibly sourced materials free of plastic

derivatives.

Check out the UNIFORME website here

check out the UNIFORME instagram here

DAVI

Created by Davide Marello under the label “davi”, the brand’s first collection

focuses on quality construction and artistic influence with its floral prints

developed for men’s shirts, trousers, and accessories.

Check out the DAVI website here

check out the davi instagram here

STREETWEAR

NEIGHBORHOOD

Tokyo-based brand established in the '90s by a motorcycle enthusiast,

NEIGHBORHOOD combines western influences with Japanese streetwear,

London’s punk scene and strong military influences to create a varied lineup

of utilitarian pieces, printed jackets and unexpected lifestyle pieces.

Check out the NEIGHBORHOOD Website Here 

check out the NEIGHBORHOOD instagram here

JJJJOUND

Originally launched as a digital mood board, JJJJound has grown into a

collaborative design studio producing timeless menswear pieces by

prioritizing materials and construction.

check out the JJJJOUND website here 

check out the JJJJOUND instagram here

RAEBURN

UResponsible and functional pieces that are fit for fashion and the

outdoors.

Check out the RAEBURN website here

Check out the RAEBURN instagram here

NEW & EMERGING TALENTS

BOTTER

Botter is a hybrid fusion of Caribbean culture, music, literature, food and

the arts that has evolved into an elegant and colorful collection of

sustainably conscious garments.

Check out the botter website here 

check out the botter instagram here

S.S.DALEY

S.S.Daley takes British elitism and its classic silhouettes to illuminate the

flowery femininity of what had been traditionally considered hypermasculine,

aristocratic dress.

Check out the S.S.DALEY website here 

ISO.POETISM

ISO.POETISM™ is a Copenhagen based fashion brand creating techwear as

artefacts that present as structural and rugged silhouettes with textural

prints and a futuristic undertone.

Check out the ISO.POETISM website here

CHECK OUT THE ISO.POETISM INSTAGRAM HERE

MWORKS PARIS

Inspired by the evolution of modern ways of living, architecture, and the

blending of contemporary cultures, MWORKS creates a sustainable

wardrobe that combines artisanal details with playful proportions.

Check out the MWORKS PARIS website here

check out the MWORKS PARIS instagram here

PRINTABLE VERSION HERE

Introduction to Thirteen Lune

IADS interviewed one of the co-founders of Thirteen Lune, Nyakio Grieco, to understand more about the inclusive e-commerce beauty marketplace. Grieco created her first beauty brand 20 years ago to celebrate the sophistication of Africa in premium beauty, inspired by the teachings of her Kenyan grandparents who shared their beauty secrets with her. During the racial reckoning of 2020, she found herself and many other founders of color on various lists celebrating Black beauty founders.

This pushed her to start researching these brands and founders, which then led her to realize that many of these brands had very little distribution or representation in large retailers. This is what led her and her co-founder Patrick Herning (founder of plus-sized fashion brand 11 Honoré) to create Thirteen Lune to be the first of its kind truly inclusive retail beauty platform. The company has a 90/10 rule: 90% of all the brands carried are created by people of color around the globe who make products for people of all colors, and 10% of the brands are dedicated to fostering allyship. Thirteen Lune is deeply committed to building generational wealth in Black and Brown communities while helping to make the beauty industry more inclusive.

A catalyst for change

IADS: What has been the catalyst for change in the beauty industry that has led it to focus more on inclusion and diversity? How do you feel that brands and retailers are adapting their business to put inclusion at the core of their decision-making process as well as their investments?

*Nyakio Grieco:* The catalyst for change is making the industry more equitable. People of color spend billions of dollars within the industry and deserve more shelf space and products that better reflect their needs on shelves.

I can only speak on behalf of what we’re building at Thirteen Lune and at our Thirteen Lune store in stores at JC Penney. Our business is built on the mission of a more fair and equitable representation for all in beauty. That is at the core of what we do, we deliver beautiful, non-toxic beauty brands to all, especially a consumer who has been long underserved.

Private Labels

IADS: You launched a new private label collection in Q2 2022. Can you share more about this collection? What was the inspiration? Are you doing anything different or innovative with your private label offer?

NG: Creating Relevant: Your Skin Seen is a culmination of 20 years of experience as a beauty founder. I created this brand, not only to evoke joy at a time of much-needed healing but to better serve all with formulas that don’t leave anyone out. Through building Thirteen Lune I was able to identify white space in the market where we could better serve consumers in regard to science-led innovation married with plant-based clean ingredients that provide efficacious actives at safe levels for all skin.

Being a Black female founder, I’ve experienced many wins but also extremely soul-crushing challenges. Mostly due to lack of access to capital, support from partners, or at shelf including opportunities to distribute successfully in large retailers. Relevant: Your Skin Seen is a testament to the fact that when you give a Black female entrepreneur the autonomy, support and runway to create - she is able to create the brand of her dreams dedicated to serving all!

Relevant is giving me the opportunity to truly build a globally conscious brand celebrating beauty rituals from around the world. I look forward to expanding our distribution globally to celebrate many cultures that have inspired the creation of these products. So many ingredients and beauty rituals come from the most marginalized parts of the globe. Relevant: Your Skin Seen is a manifestation of sharing and giving back to the communities that inspire this journey.

Empowering Allies

IADS: Thirteen Lune has created a place for brands to diversify their product offer to be more inclusive, labeling such players as Allies. How do these partnerships come to light? Are the brands typically approaching you first for guidance?

NG: We define an ally brand as a conscious beauty brand that was dedicated to empowering all long before 2020. They were considering everyone in their formulations, both in front of and behind the scenes, at the executive level in their companies, and in their campaigns modeled their commitment to moving the needle toward positive change in this industry. In the beginning, we invited ally brands to be a part of Thirteen Lune who displayed a non-performative commitment to change within their companies. Many of our early ally brands, Goop, Sara Happ, Olaplex, etc have been true allies to me personally in my 20-year journey. Now we get calls from major ally brands every day wanting to join our mission and it gives me enormous hope for our future as an industry. Thirteen Lune provides our Allies with an authentic space to reach a diverse consumer base to further their offerings to a range of eager customers who truly appreciate being seen and considered.

Thirteen Lune x JCPenney

IADS: Thirteen Lune has started to open physical retail locations in partnership with a US department store (JCPenney). How did you decide to start offering products in physical stores and how has this been working as a strategy for the company?

NG: From day one, my co-founder and I built Thirteen Lune to be a full omni-channel business. Even though we are a company that was born on Zoom while we were all in lockdown, we knew that physical retail would come back strong. Thirteen Lune is committed to meeting customers wherever they show up to have their beauty and wellness needs met.

We were connected to JCPenney only three months after the launch of thirteenlune.com. We were so thrilled to find that from day one we were completely aligned in our shared mission of hyper-inclusion and truly serving the consumer to feel seen, heard, considered, and valued.  It was love at first sight and it’s been amazing ever since. Partnering with JCPenney in their reimagined JCP Beauty space allowed us to bring brands to our Thirteen Lune stores within JCP to flourish and reach a wider audience.

IADS: What have you learned so far since partnering with JCPenney?

NG: I’ve learned that consumers want to experience discovery in their retail settings and that staff and consumers truly buy into people before they buy into products. Consumers are smart and want to spend their money for good. I believe the success we are experiencing is due in large part to the fact that the founders behind all of the incredibly efficacious and gorgeous products we offer at Thirteen Lune, are amazing authentic founders with rich stories to share and who deserve success.

IADS: Do you see physical store formats being a major part of the business growth going

forward?

NG: Yes, 1000%! Our plan is to have a global presence with many Thirteen Lune stores, coming soon! Any chance that we get to bring thirteenlune.com to life in a physical setting is a goal. The greater the presence we have globally, the more consumers we get to serve in a truly inclusive format.  As mentioned previously, we deliver on discovery and outside of our site which is truly a storytelling platform, we know that we have the opportunity to bring that experience to life in stores worldwide.

Thirteen Lune as an incubator

IADS: Thirteen Lune has now taken on a new role as becoming an incubator and accelerator for inclusive and diverse beauty brands. What does the process look like for these smaller brands once you onboard them?

NG: Incubating existing brands into Thirteen Lune and collaborating on new brands with diverse founders is on the horizon, and I can’t wait! We come from a place of support, mentorship and guidance through the retail process. It was so important to me to create the retailer I always wish I had with my first brand. Even when I got to shelf in some retailers, not having the capital support or mentorship needed to win at shelf truly held me and my brand back. I spent many sleepless nights wondering how I could afford to stay on shelf in those moments. I am very proud that we are committed to making sure every brand we onboard at Thirteen Lune, both smaller and bigger brands, has the support they need to focus on scaling their businesses and not being held back because of lack of said support.

IADS: Speaking of innovation, are there any exciting and upcoming trends that you have been noticing in the beauty and cosmetics space?

NG: Yes, the beauty of inclusion! If you are a large strategic or retailer and are not already working diligently to serve diverse founders and brands or aren’t truly looking at this mission as a necessary investment and proposition now, it might be too late. We all know how diverse this world will look like the majority in the not-too-distant future. If you as a corporation are not looking at the diversity of Gen Z and generations to come now, the future consumers who are already deeply committed to sustainability and diversity, you definitely should be!

What’s next for Thirteen Lune?

IADS: Thirteen Lune is starting to expand into new countries and regions. Can you share where the company is going and what opportunities you have found in these markets?

NG: While I can’t officially announce where we will be next, I am so thrilled about what’s to come this fall!

IADS: Are there any other target markets that are not on the roadmap that you would like to

reach? If so, what are the reasons you would like to enter these markets?

NG: Honestly, we’re exploring all major international markets. Personally, I see a huge opportunity for us in Europe, Southeast Asia, Dubai, Korea, and of course as a first generation American of Kenyan descent, would love to see a future presence in East Africa, South Africa and territories in North Africa./nbsp]

IADS: How will the company operate internationally? Will it be focused on e-commerce,

physical stores or take an omnichannel approach?

NG: In the same way we envisioned a full omnichannel approach here in the U.S., the same stands true for our international expansion. Whether it be through joint retail partnerships or stand-alone stores, we look forward to expanding our reach and mission globally.

IADS: Is there any other exciting news you would like to share about Thirteen Lune’s

projects and activities in the near future?

NG: I’m so excited to continue to release more Relevant: Your Skin Seen products across various categories, expanding our global distribution, and launching more portfolio brands under Thirteen Lune coming in 2023.

I’m also ecstatic about bringing these incredibly talented founders and brands we carry and are onboarding every Tuesday at Thirteen Lune on this global journey with us. This is what happens when you take your pain, and turn it into purpose ….. you get to build an amazing beauty business!

Credits: IADS (Mary Jane Shea)

Printable version here

The IADS took the opportunity of the 63rd General Assembly in Geneva to issue POAPs (Proof of Attendance Protocols) to member CEOs as a virtual representation of their 2022-2023 membership as well as POAPs to the graduates of the 2022 Academy Program as a virtual certificate of participation. The inspiration for this activity was to be able to learn by doing and put ourselves in the shoes of our members as they face questions about Web3 and its various applications. The following synopsis is a look into our Web3 journey as well as the takeaways we gathered from the experiment.

Introduction: testing the waters

As retail adopts more technological advancements to create a greater omnichannel experience, IADS felt that it was an ideal time to experiment with Web3. Our team began with questions, considering what our members might also be asking when deciding on their latest digital strategies: How can this technology work for us? What could it be? What would it cost? How would we distribute it? How does it add value for our members/community/customers?

After an initial brainstorming session, the team created a list of possible applications without constraints on whether the ideas were feasible:

•    Celebrating member achievements with a yearly POAP leading to a page that highlights individual accomplishments (think of Spotify Rewind)

•    A virtual hall of fame in the metaverse that includes current and former IADS members who made big impacts

•    POAP for events/membership that can grant access to a ‘vault’ of all our archives and data gathered over the years

•    Discord for members to exchange with separate channels per department and activities (i.e., Merchandising channel, PL channel, Academy channel etc.)

•    Member Stories – a ‘jukebox’ with members sharing how they solved a problem, a funny story, hopes for their company, etc. (similar to a short podcast; adds a fun part to the immortalization idea & gets members involved in a new way)

•    NFT awards – annual recognition tokens that signify exemplary retail achievements (i.e., ‘Most Sustainable’)

•    NFTs that are sold to the general public (if we go toward a more capitalistic strategy)

•    POAP for academy completion (leads to a gallery of photos from Châteauform and their presentation)

•    Virtual news map – inside a metaverse platform like Decentraland to make getting informed more fun and exciting

Once our extensive research and concept proposals had reached exhaustion, the team moved to make a selection between two possible starting points: a digital asset strategy or a metaverse strategy, both with a short- and long-term plan. We again narrowed the selection down to keep the strategy realistic and within budget. The process included discussions on how we could leverage our understanding and research on innovative technology to bring IADS to the forefront of digital retail knowledge (adding hands-on experience to our practical knowledge). As part of our inspiration, we revisited what IADS stands for. The team listed the reasons for creating NFTs based on four principal functions of IADS: Communication, Support, Organization, and Certification. Aside from trendiness, NFTs and POAPs can function as methods for protecting sensitive information, Discord servers, Google forms, websites, or VIP events online and off – perfect for what we do. While the initial focus of our strategy was broadly based on the sale of NFTs, due to the complications of monetizing data and navigating unofficial tax regulations, our team moved in a different direction. This will be expanded upon later in the text.

Metaverse: a more gamified approach

The concept of a metaverse is currently very popular and offers many opportunities for brands and retailers to strengthen consumer loyalty. This portion of Web3 activity has some of the most exciting applications: the integration of gaming and discourse channels, the development of functional virtual storefronts, VR events, and the integration of data into a virtual world. While IADS did not choose to move in this direction, it is still a potential avenue for experimentation. Of course, digital teams must be agile and create a strong roadmap with key points for transition.

When considering this path, the team asked practical questions: What would our metaverse look like? Why would people visit? What features would be offered? Where would it be? How much would it cost to build and maintain?

Due to the current lack of interoperability across metaverse platforms, IADS was hesitant in pursuing this strategy. Investing both time and financial resources in a strategy that does not fully serve our members and is not guaranteed to last was deemed unwise. In light of IADS’ capabilities, a virtual storefront would be the most feasible option from our team’s proposals. However, due to financial barriers and limited technical experience, it was determined that this virtual location would not be a fully functional storefront. Thus, we moved in a different direction.

Virtual land on the popular metaverse platform Decentraland costs around USD 3,000-15,000. After, the fees to have a software developer or programmer build and test a virtual store in Decentraland would cost between USD 20,000 and 36,000. Having an in-house developer would also be expensive at USD 75 to 175 per hour.

According to our research, setting up a functional virtual store also requires a tremendous amount of time. Our team discovered that it takes around 3,040 hours to register your virtual crypto-based business on the digital network of Binance, which could cost around USD 228,000 to 532,000 (for an in-house developer). Another popular platform, Cryptovoxels, does not appear to be cheaper. Famous voxel architect, Bileca quotes USD 10,000 to 300,000 for a full build. Unfortunately, verifying credentials when choosing an architect also appears to be a challenge, making this option better for companies with the proper internal team that has more funding and lower risk aversion. A deep understanding of gaming and metaverses would also be beneficial.

POAPs: certification & commemoration

A short-term digital asset strategy became the most realistic for IADS. The final proposal was a POAP for member CEOs (a virtual representation of membership), and a POAP for Academy graduates.

POAPs are a type of NFT which stands for Proof of Attendance Protocol and can be described as an ecosystem for preserving memories. A POAP is a digital record for the holder that acts as proof of events that they attended or participated in, whether physically or virtually. Because POAPs are technically NFTs they have the capability to act as a utility for potential future events or product drops. They can be compared to any collectable such as the ticket stub for a famous concert or a band tee from the start of a musician’s career - proof you were there or proof of your fandom.

We believe POAPs provide the most relevant qualities for our mission. Our Academy program, which was established in 1995, seemed like the ideal way to begin fortifying our seal of approval through POAPs. As an association that is approaching its 100th anniversary, our expertise in retail insights and innovation certifies the skills development that Academy members receive upon completion of their project.

Another benefit of POAPs is that they are free to mint. For the creation of general NFTs, the cost can vary tremendously depending on the gas fees - a cost incurred from minting as one would mint fiat money. The cost can change hourly and based on the demand, the platform/marketplace, and the cryptocurrency selected. In general, selling on OpenSea, an NFT marketplace, requires two initial payments for creators: USD 70-300 to establish the account and USD 10-30 for OpenSea to be given access to generate your NFTs. Alternative sites exist, one of which is Rarible. The Rarible marketplace platform offers a lazy minting feature that makes creating NFTs free and diverts the gas fee cost onto the buyer. The platform also takes 2.5-5% of the final sale.

Once the team began creating the POAPs, the co-founder of POAP France, Sebastian Orellano, reached out to inquire about our motivations and goals as it was quite an unusual use case for his team. POAP France has assisted luxury fashion companies to distribute POAPs at their events such as Christian Louboutin at Paris Fashion Week this year. Following a meeting with him, he offered some insight into how he can assist us and our members. Thus, those who have questions can contact the Association to learn more or to be put in touch with him.

Ultimately, we distributed the POAPs through printed QR codes that were distributed during the IADS General Assembly. Sebastian also recommended incorporating NFC (Near Field Communication) tags into our strategy to better distribute to users that are unfamiliar with crypto wallets and digital assets. While it was too late in the process to incorporate NFC tags, we are considering this for any future initiatives IADS might launch to create a physical and virtual representation of membership or certification.

Going forward: challenges & opportunities

Looking toward a long-term goal, we believe it would be necessary to develop a method of separating monetizable non-sensitive information from private insights that should only be accessible to our members. This path would likely mean creating NFTs for purchase that commodifies our research and reports, such as our lists of emerging brands determined during our IADS Visual Merchandising Meetings. This would involve more work developing a business-focused production of these elements by creating an internal IADS position responsible for Web3 activities. The current membership structure poses an issue for pursuing the sale of NFTs as it might require constructing a complex hierarchy of subscription levels. As a non-profit focused on connecting and supporting our members, this goes against our values. The most tangible monetization of IADS activities is through our city guides. This idea is still being explored through pay-wall map platforms that can organize specific locations based on tags.

Another complication came from the unclear legal and regulatory framework in place for Web3 activities: To whom and how do we report virtual earnings? Will we sell securities or utilities? Do we need an accountant specialized in the Metaverse and crypto? What resources and team capabilities do we need?  Where is Web3 going?

We understand that the Association is not expected to carry out such activities, however, we consider ourselves a research lab, and therefore, felt that this emerging trend would be perfect for experimentation. Our conclusion: it does not have to be intimidating. Web3 specialists are eager to assist companies with entering this emerging digital space. With so much potential, we recommend exploring how Web3 can work for you, within your teams, and for your customers.

This initial trial of POAPs for IADS showed us the importance of understanding the different levels of familiarity with Web3. Ideally, this can be addressed by providing enough time to educate and assist newcomers. Digital innovations can be intimidating, and it can be tempting to wait for the trend curve to reach its peak. Yet, waiting does not equal eventual understanding. To best attract young consumers, being educated on the future discovery and shopping channels they will use is imperative to securing their loyalty. IADS will continue to provide insight and education on digital innovations and hope to connect you further with POAPs, NFTs, and all the exciting new Web3 developments.

Credits: IADS (Devon Blowers)

IADS recently held a meeting all about the leather goods & shoes brands to look out for in 2022. Based on market research, IADS and NellyRodi presented a curated selection of 13 brands that are trending right now. Check out our selection of these brands!

PRINTABLE VERSION HERE

SHOES

![CLARIS VIROT

CLARIS VIROT

The Claris Virot brand is above all new collections with injections of new

skins and new models such as the arrival of the basket for the summer or

the 100% leather line. Tanned, grained, smooth or tie and dye, the Claris

Virot leather, like the python used in all the models, is worked by hand in

Balinese workshops.

Check out the claris virot website here

![REIKE NEN

REIKE NEN

The inspirations are expressed every season by mixing the formal and the

atypical, the flexible and the hard, the raw and the refined. Contemporary

and new elegance Contemporary Refinement this is the purpose of this

rake nen.

Check out the reike nen website here

![ILIO SMERALDO

ILIO SMERALDO

Ilio Smeraldo’s shoes are crafted in Tuscany by local artisans, every single

piece is handmade with care using Italian leather and locally sourced

materials. They pursue the ancient Florentine tradition, ensuring quality

and uniqueness.

Check out the ilio smeraldo website here

![YUME YUME

YUME YUME

YUME YUME creates unique design pieces for all creatives in the world.

Check out the yume yume Website Here 

![MOEA

MOEA

MoEa uses innovative bio materials from recycled fruits and plants to create

low carbon and vegan sneakers.

check out the moea website here 

![ROMBAUT

ROMBAUT

Using luxurious plant based materials, recycled fibers and high grade

artificial leather, ROMBAUT creates unique sneaker styles with a story.

Often experimenting with cultural stereotypes and cross pollination of

archetypal footwear classics we create a new aesthetic of purity, optimism

and gloom, which feels very relevant today.

Check out the rombaut website here

LEATHER GOODS

![DESTREE

DESTREE

DESTREE tells the story of a colorful and singular passion, of a Parisian yet

different style, drawing its beauty from the visual dissonances it evokes and

which it translates through a graphic and structured aesthetic.

Check out the destree website here 

Check out the collection of pictures here!

PRINTABLE VERSION HERE

As of 2022, Walmart accounts for 10,585 stores in 24 countries, operating under 46 different names in the United States, Canada, Mexico, Central America, India, China and South Africa to name a few. Walmart is the world's largest company by revenue, with about $570 billion in annual revenue, according to the Fortune Global 500 list (Amazon comes second). It is also the largest private employer in the world with 2.2 million employees. Walmart was the largest United States grocery retailer in 2019, and 65% of their sales came from U.S. operations.

To keep its position and secure recurring customers, Walmart started a transformation before Covid to offer in-store seamless omni-shopping experiences. The new Walmart store has convenience, experience, and membership in mind, and it’s no surprise. The transformation came in 2 phases: the first one was completed in September 2020, and the second one has been in testing since February 2022. While the first phase was focusing on in-store navigation and efficiency, the second one is about giving stores a new look and feel, as well as offering customers a digitally enabled shopping experience. In parallel, the Walmart+ membership program was launched and gained traction.

On the one hand, by developing new visual merchandising features, Walmart is encroaching on Target’s turf, both taking cues from department stores that are usually masters in the visual merchandising area. On the other hand, by heavily boosting their membership program, they are chasing after Amazon.

Focusing on navigation and wayfinding

Focusing on a customer-centric approach, Walmart developed new store signage with a sleek and bold aesthetic. The update goes from the exterior to the interior of the store. New very visible signage (Dairy, Pizza, Bakery…) highlights product categories and brings enhanced visibility to key products and departments throughout the store. With surfaces ranging from 6,400 to 24,200 square meters (the average surface being 16,500 square meters), it’s key for Walmart to be able to quickly guide customers to the section they are looking for. In that perspective, using airport signage navigation has proven  efficient: as a result, Walmart stores’ aisles are now marked with letter and number combinations.

The new signage goes hand in hand with the store app. It has also been updated to reflect the Walmart app and make customers accustomed to downloading and using it from the very beginning of their journey. To that end, a store directory at the store entrance invites customers to download it thanks to a QR code. The app offers end-to-end digital navigation and guides customers throughout the store.

Stores also include self-checkout lanes with Walmart+ members dedicated ones, as well as contactless payment solutions, including Walmart Pay. Select locations also offer a Scan & Go service to help customers manage their checkout directly. Shopping cart’s comfort has also been improved to include phone and drink holders.

Overall, by helping customers navigate more easily and quickly throughout the store, Walmart wants to offer a more efficient and convenient shopping trip, hoping this will help retain customers in stores, and possibly to larger purchases. The first phase of the new concept was tested, got very positive shopper feedback and has now been rolled out in more than 1,000 renovated stores.

Competing with Target using visual merchandising tricks

Walmart launched phase 2 in early 2022. The new store experience developed there is called ‘Time Well Spent’ as the retailer ambitions to become a destination where customers want to spend time, and not just deal with shopping fatigue. As a result, the focus is on experience, product try, touch and feel, which are not necessarily the usual features of a supermarket. Walmart also increases comfort by offering wider lanes and more space within its key departments, in an attempt to make shoppers feel more relaxed and have the impression they spend some quality time shopping.

Walmart is amplifying the physical design elements to inspire customers and elevate the experience thanks to lighting, space enhancements and dynamic displays. New displays are featured at the most strategic corners of some departments to attract customers in and help them touch and feel products. For instance, home sections feature a bedroom or a living room set up where shoppers can try pillows or blankets and buy them on-site or order them to be home-delivered. Also inspired by Target, electronic sections have been reorganized with long display tables, including proximity stocks. In the apparel, nursery and beauty departments, the new Walmart store makes room for brand shops and intends to develop a “store within a store experience”, still following Target’s footsteps.

Digital touchpoints are also developed. Using stores as a primary display, a larger range of products and services is available a click away thanks to QR codes and digital screens. For example, in the pet area, a customer can scan a QR code to find additional product options, learn about Walmart’s pet insurance service or have their dog food bags home delivered. Smart screens are also used for a variety of purposes. For example, a passively interactive widescreen above the men’s grooming section will automatically display reviews of a product when a shopper takes it off the shelf.

Competing with Amazon thanks to a strong membership program

To compete with Amazon Prime, Walmart launched its membership program, Walmart+, in October 2020. Five months later, it was already considered a success thanks to its estimated 7.4 to 8.2 million users representing 30% of US online grocery transactions whereas Amazon was only accounting for 27%.

Early June, and in an attempt to coincide and compete with Amazon’s Prime Day, the first Walmart+ Weekend three-day sale event was held exclusively for Walmart+ members who received special access to sales on thousands of items. It remains to be seen whether this sale will become an annual event but the results seem quite promising: the average Walmart+ Weekend spend per order was $69.75: while it is slightly more than the regular average Walmart.com order of $64.99, it is much more than the Amazon Prime Day 2021 order of $54.17. Forty-seven percent of the Walmart+ Weekend orders were placed for $100 or more, compared to just 27% of Amazon Prime Day orders last year.

Walmart+ Weekend was also open to customers outside of the membership program even though they would not have access to the best deals. But it has obviously been a way to attract more customers and generate more sales.

Walmart+ membership is noticeably less expensive than Amazon Prime: it costs $12.95 per month (or $98 per year) compared to Amazon Prime’s $14.99 per month (or $139 per year). Since its inception, Walmart+ has attracted urban, young and affluent online shoppers, on top of the usual customers. Like most memberships, Walmart+ gives access to special prices, product releases, early access to sales, online special deals, free shipping with no order minimum required, and free same-day grocery delivery from local stores (with a $35 order minimum). At a time when inflation is skyrocketing and consumers are reducing their discretionary expenses, Walmart+ offers interesting additional perks: members can save up to 10 cents per gallon at more than 14,000 gas stations and receive 6 free months of Spotify Premium.

So, will the transformation be enough for Walmart to keep its position? Directly competing with Target and Amazon, Walmart is taking from both to become a perfect combination of experience, convenience, and membership. They are testing new ways to elevate their stores and design them as destinations rather than only competing on the price point. They are also in a ‘test and learn’ process and are making changes based on the customers’ feedback.

While such changes are important in the customer’s eyes, analysts are showing scepticism as consumers still prefer Amazon, Target or Home Depot, and as sales growth slowed down during the first quarter of 2022 first. The question is whether Walmart’s new store features and, crucially, distribution capacities will be enough to compete with Amazon growing its capacities very fast to shrink the delivery delays so much that customers won’t have a reason to go to stores. As an answer, Walmart will build 4 new fulfilment centres in the next 3 years including automation, machine learning and robotics, to offer next-day or two-day delivery to 75% of the US population. So far, one of Walmart’s strengths is also that half their sales are coming from groceries which are still mostly purchased in stores, whereas Amazon’s Wholefood and Fresh supermarket results have been disappointing so far. Also, having stores within 10 miles of 90% of Americans is an unparalleled opportunity to thrive in the omnichannel business, and - maybe - defeat Amazon?

Credits: IADS (Christine Montard)

Check out the collection of pictures here!

PRINTABLE VERSION HERE

As one of South Korea‘s leading department stores in the upper segment, Hyundai’s ambition is to “bring happiness to customers and enrich the world”. Seoul is known for its shopping culture as many people frequent department stores. Today, with the e-commerce spike caused by the pandemic, Hyundai is questioning the purpose of physical retail and answering the call for drastic changes in the industry.

Occupying no less than 89,000 sqm across a total of 12 floors (including 4 levels of underground parking) gathering nearly 600 different shops, The Hyundai Seoul first of all offers great architecture. The skyscraper complex where it is located was imagined by Sir Richard Rogers. Various international architects and designers took part of the department store project such as Cmk Architects for the cosmetics and beauty area, and Diego Burdi and Paul Filek for women’s and men’s fashion areas. Landscape designers Woo Kyung- Mi Woo Hyun-mi Design took care of the vegetal parts of the mall.

Besides offering city dwellers a place where they can shop, experience cafes, restaurants and art, The Hyundai Seoul claims it is Korea’s first eco-friendly department store, bringing together the concepts of nature and rest with shopping.

Opened in March 2021, the Hyundai Seoul also illustrates the end of a siloed business model which used to separate shopping, entertainment and communication. On the contrary, inspired by young generations and highly in line with social media posting, the department store merges the three businesses into one. IADS partner Nelly Rodi had the occasion to visit the Hyundai: check out what the new department store really has to offer and look at the collection of pictures provided.

Entertainment features from nature to GenZ content, culinary experiences and art

The Hyundai Seoul’s most striking feature can be found in how the surface is allocated as almost half of its space is dedicated to indoor landscaping. The department store wants to provide a space where customers can relax, rest, reconnect with nature and experience its healing benefits. To that end, a 12-meter-high waterfall called the 'Waterfall Garden' is visible from floor 3F to floor 1F (ground floor), and a 3,300 sqm garden located on the 5F floor comes with 30 trees, natural grass and nature sounds. It is the largest indoor garden in Korea with natural lights shedding through a 20-meter-high glass ceiling. The walkways in the shopping mall are also wider than usual, so customers don’t constantly bump into each other, which seems especially important since the department store opened during the pandemic.

llustrating a common retail trend, the department store clearly ambitions to capture the local GenZ by offering them entertaining and Instagramable spaces such as a pool full of pink balls, new brands and pop-up stores, all gathered within the B2 floor. Dubbed ‘Creative Ground’, the floor also includes metaverse and NFTs. But there’s more to attract the younger generations. Located on the 6F floor, CH 1985 (referring to Cultural House initials and to 1985 as the first year Hyundai mixed culture with retail) is the first boutique and cultural space intended for Millennials and GenZ. Defining itself as a social club, talks and masterclasses are organized such as the Late Night Salon centred around Korean culture and the bustling Seoul artistic creativity.

The food offering is probably the biggest of its kind in the country. Called ‘Tasty Seoul’ and located on B1 level, the 14,800 sqm food and restaurant area features no less than 90 different food and beverage venues ranging from a food market to food stands. As Seoul emerged as a culinary destination, Michelin-star chefs also offer upscale experiences. Wine and spirits are also developed, mostly to attract male customers and help entertain them while their wives are shopping: they can enjoy famous local sommelier advisory and taste wines while smoking cigars and reading books about Cognac or winemaking. On the 6F floor, groups of 6 people can benefit from famous chefs’ cooking masterclasses and then enjoy their meals in private dining rooms.

Illustrating the culture trend one can see growing in the retail industry, The Hyundai Seoul has a museum located on the 6F floor. Called Alt.1, it is set to offer various art exhibitions able to draw in many customers. Art exhibition examples include fashion photography with works from Paolo Roversi, Peter Lindbergh, Nick Knight and Ellen von Unwerth. The entry price is EUR 13, or at a reduced fee of EUR 10 to encourage younger generations to visit the museum.

Tech used to build a seamless and pandemic-ready department store

Located on the 6F floor, the ‘Uncommon Store’ gives a vision of what supermarkets and convenience stores could look like in the future. Before entering, shoppers are required to install an app by scanning a QR code. After registration, payments will be automatically and seamlessly registered and processed. The ‘Uncommon Store’ uses a cloud system and internet hyper connections, AI, complex sensors, and machine learning techniques, all being taken care of by Amazon Web Services which are fully integrated into the store’s retro-futuristic design. The Internet of Things also forms a two-way communication between the space and its users, allowing storage and reloading of the shopper’s purchases and consumption habits.

The Hyundai Seoul is infused with additional tech innovations, such as facial recognition to enter VIP areas, the deployment of a guide robot, a safety robot, and a special app to make restaurant reservations and check parking spaces. Given the pandemic, tech has also been applied to maintain safe shopping. Multi-recognition temperature scanners which are used in airports have been installed at all entrances while portable thermal imaging cameras and facial recognition heat scanners were installed at indoor entrances. Also, air sterilisers can be found at major customer facilities to enhance air circulation, and all door handles have been covered by a layer of 99.9% pure copper which has excellent sterilisation and anti-viral effects.

Customer-centricity and services are significantly developed

Overall, the department store offers a high level of customer service. Concierge services provide information on brands, events, as well as helping customers with restaurant and CH 1985 lecture room bookings. Dry cleaning, alterations, watch, bag and shoe repair services are also available and distributed across the floors dedicated to the fashion offer. Lockers are displayed on the B1 floor for customers to leave their heavy belongings and shop hands-free. As the 5F floor is dedicated to kids, it offers various kids-related services such as baby and kid lounges and stroller renting. Finally, a full lounge, ‘The Club Wedding’, on the 6F floor offers wedding services.

Finally, The Hyundai Seoul purposes 2 membership programs. The ‘classic’ one has 3 levels depending on their annual spending and also offers access to a private coffee shop. The second membership program is designed for Millennials and GenZ based on their level of influence.

What about the brand and product offer?

The department store offers a classic layout when it comes to cosmetics, beauty and luxury categories. Beauty brands and luxury brand concessions, including jewellery and a large watch offer, are gathered on the 1F floor (ground floor) under the ‘Exclusive Label’ area.

The 2F (‘Modern Mood’) and the 3F (‘About Fashion’) floors are dedicated to men’s and women’s fashion. They mix brand concessions and multi-brand areas (including a large Tom Greyhound shop, the Hyundai-owned affordable luxury multi-brand store), and overall try a more genderless approach to fashion in certain areas. The 3F floor also offers a multi-brand shoe section.

The 4F floor is the place to find sports and home products. The 5F floor is home to a comprehensive kids product offer and to tech brands. A Lego store is also coming along with brands such as Microsoft, Samsung and Dyson to name a few.

As it is also the case at their Seongnam branch, an affluent and fast-growing satellite town of Seoul, The Hyundai Seoul is clearly chasing after the younger generation’s wallets. But is that all there is? More broadly, and considering its size, the department store is also able to address all kinds of consumers from families with toddlers, to fashionable women and wealthy male consumers, each time developing the appropriate product, experience and service offer for each consumer group.

Overall, the Hyundai Department Store Group has evolved to provide comprehensive shopping experiences with a renewed lifestyle and cultural approach to retail. Without forgetting people’s cravings for nature, The Hyundai Seoul is a fair example of what the store of the future could be.

Credits: IADS (Christine Montard)

Check out the collection of pictures here!

PRINTABLE VERSION HERE

The IADS had the opportunity to travel to Seattle to attend and report the Global Department Stores Summit, co-organized with Nordstrom. It was the occasion to review how the iconic US department store is articulating its attention to customers, which they claim to be superior to the competition in the country. On this occasion, we visited the Pine Street store (in the Seattle city centre), a location not as glamorous as the store at Columbus Circle in New York that we reviewed earlier this year.

What is so special about their service and how is it organized in store from the customer perspective? What are the learnings for other retailers? And most importantly, how is this helping in a city still bearing the scars of the pandemic, including a devastated “Retail Mile”?

Visiting the store: caring for customers on every floor

The store is located in the heart of the Retail Mile, not far away from the Pike Place Market (known for its fish-throwing tradition and the 33rd most visited attraction in the world in terms of traffic). However, even a few blocks of distance from this energetic zone can feel very far away given the state of retail in the neighbourhood: the Macy’s store still bears its logo although it has been closed, and so does Barney’s just across the street. The competition has fiercely reduced, and Nordstrom is now the only department store in the location, along with a Nordstrom Rack across the street, and a Saks Off 5th a block away.

The store is built on 5 floors and was refurbished in 2016. The layout is simple: men’s fashion in the basement, shoes and beauty on the ground floor, women designers’ fashion on the first floor, contemporary fashion on the second one and sports, lingerie and services on the upper floor.

The basement is very accessible through large ramps, and features a full universe for every male customer: a significant suit and formal fashion area (according to the sales manager, Men’s suiting is still a significant part of the business), an animation area, the shoes and accessories space, and a restaurant (Nordstrom Grill), offering a full lunch service, representing 1 out of 4 transactions in the store.

The animation area has been developed according to a different graphic identity and is dedicated to delivering what is new in fashion. At the time of the visit, the space was dedicated to sports, and this is the 17th edition since the launch of this concept in 2019 (popups are opened on a quarterly basis). There, Nordstrom sells “products with a point of view” (meaning either exclusive brands, products or collaborations) and takes the opportunity to produce content with its selection (for instance, a part of the sport selection was featured in a promotional clip with the rapper Macklemore and generated 200m media impressions, in addition to selling 75,000 pieces in 2 weeks nationwide).

Apart from this specific space, the brand assortment is classic for a high-end fashion department store, with luxury shop-in-shops on the periphery (even though according to the salesperson concessions only represent a mere 10% of the total business) and more accessible brands in the middle section, including a denim section. Interestingly, Topman, which Nordstrom operates in exclusivity worldwide, is displayed without any mention of this exclusivity, and feels a bit lost in the retail space.

Services are proposed with third parties, such as a shoeshine family business that has been a local partner of Nordstrom for the last 30 years.

The ground floor features beauty, cosmetics, shoes and accessories.

For the beauty section, a concierge is here to sample the whole offer, which is impressive, in addition to helping customers and directing them to the right brands, all featured in a lightly customized concept with low displays. Customers also have the possibility to bring back their empty packaging to be recycled (although the execution itself of the recycling unit in cardboard is surprising and denotes with the environment). There are also food and beverage touchpoints in the cosmetic area in order to increase the time spent in the section.

When it comes to shoes, the space felt really crowded with products, with many advertised on sale. Interestingly, the shoe offer is doubled: entry and mid-price point products are featured on the ground floor, and expensive ones are featured in the designers’ section along with the related accessories and RTW, to propose a full silhouette.

The floor also features a “service bar”, here to offer “service and convenience” (quick returns, touchpoints, purchase pickup, alterations, click & collect). In terms of managerial practices, the best employees are featured there, and are highly visible to customers.

The first floor is quite immersive with brands’ locations featuring the whole product offer and differentiated from each other with subtle variations on the walls and flooring. The animation space, mirroring what is available in the Men’s section, is much lighter in terms of concept and somehow less visible. The denim section is huge, but not called “denim”.

Here also, services are available, such as alterations (Nordstrom has the largest US network of tailors able to alter any product).

The second floor is dedicated to contemporary fashion, including Topshop and Asos (not really advertised as unique or exclusive for any of the two). Here, no brand has its own concept, as it is all about rotation and new findings. For instance, a specific concept is dedicated to new brand discovery, just in front of the escalator, and makes a new product proposal every six months. The interesting point is the variable business model, as sometimes the space can be lent or rented to brands (such as Allbirds), and sometimes, Nordstrom makes its own selection of products.

The third floor is probably the most interesting, and not for the product selection (sports, kids, lingerie, home products), as all sections are quite heavy visually due to the number of products on display.

What is striking on this floor is the click and collect area, and the fact that the stocking area is on the sales floor, visible from all. Initially, the reason for such a situation was that it was easier during the pandemic, when the stores were closed, to set up a pickup area for sales associates there, but then, Nordstrom realized that it could be an asset to show operations.

When customers are coming, they see the sales associate taking their parcel from the shelving. If the product is in a box, it means that it comes from another store or a warehouse (there are 3 fulfilment centres in the country). If the product is in a bag, it comes from the store itself. Customers are then invited to open their boxes or bags, to make sure that the product is right for them. If not, they have the possibility to have them altered by the click and collect staff, who can also gift wrap them on the spot. Interestingly, the click and collect staff are not sales persons and are not trained on what is available, meaning that they can bring an additional service, but cannot complete a sale by another product suggestion.

According to them, the visible shelving has now become an attraction and a destination for customers, who are happy to come to this floor to pick up their products. They have the possibility to wait at the nearby café (not particularly inviting) in case they have to wait for the alteration to take place.

Our opinion

Overall, at the time of the visit (early June), the sales floor was packed with merchandise, including discounted products even though the Nordstrom Rack is across the street. This was especially visible with shoes and accessories, suggesting that, even though we were told that business was great, the retail recuperation was somehow slow to take off.

Two other points were striking at the time of the visit:

-    Nordstrom takes great pride in being a knowledgeable fashion retailer, with a distinctive flavour and a specific selection. This is visible through the special concepts designed in the Men’s and Women’s sections (where they experiment with new brands or brands repositioning themselves, such as Lacoste or Aigle) and the animation zones in the women’s section. This makes it all the more surprising that they are not heavily advertising the fact that the Nordstrom customer has the worldwide privilege to shop Topshop, Topman and Asos, once global brands and now labels that only Nordstrom has the right to sell.

-    The service point on the third floor was visually impressive, and so were its organisational processes when described by sales associates. It is quite impressive to have managed to make the shelves an attraction per se, and decided to display them on the retail floor (this also relates to what we saw in the Nordstrom Men’s store in Colombus Circle, NY). However, such attention to customer service and detail should go hand in hand with the motivation of the associates: our experience at the service counter (ground floor) was, at best, poor, during the store opening hours, and somehow echoed the questions raised by the multiple signs on the sales floor encouraging people to apply and join Nordstrom teams.

All in all, the Nordstrom customer service quality is undisputed in the USA, and this Seattle store is no exception when compared to the competition. However, the level of inventory seen on the sales floor (a situation which is not specific to Nordstrom) might imply that physical retail is still difficult for stores located downtown (customers really need a very good reason to come there), leading to a focus on sales and discounted items (Nordstrom has even announced that the Rack business unit was a key component of its planned growth in these difficult times), which, in turn, reflects on the sales associates morale and the overall store experience.

The gap between the New York stores and this one is quite significant, and we are not talking about the stores’ setups (the New York units are more recent), but really, the atmosphere generated by a staff which seemed, at the time of visit, less motivated and excited in Seattle than in New York.

Credits: IADS (Selvane Mohandas du Ménil)

PRINTABLE VERSION HERE

Whole Foods Market is an organic food grocery company currently operating in the USA, Canada and the UK, which achieved a total turnover of $17bn in 2021. Founded in 1980 in Austin, Texas, the company has consistently grown both organically and externally, by the opening of stores and acquisitions of regional players, allowing a geographical expansion, learning and implementing new processes, and entering new product category markets. The company has been purchased by Amazon in 2017, after having posted a total revenue the previous year of $16bn in 2016, for a total value of $13,7bn, the largest external acquisition operation ever made by Amazon at the time, with a 27% premium on the share price.

In a post-pandemic world, crafting an inclusive culture able at the same time to bond together employees and act as an element of motivation and pride is more important than ever, especially now that retail companies start to feel the pinch when it comes to attracting new talents. The IADS had the privilege to listen to Walter Robb, the former Co-CEO of Whole Foods Market, during the World Retail Congress in April 2022, on the topic of “conscious capitalism” and how, when properly implemented, it could help fuel growth for the company by creating an adequate corporate culture. This is the reason why we invited him to share his thoughts and vision when it comes to leading with a purpose, as well as to share the lessons he learnt during his 26-years-long tenure within the company.

Introduction

Walter Robb, a graduate of Stanford University, is a connoisseur and ardent entrepreneur in the organic food business, an industry he joined in 1977. He is the founder of Stonewall Robb Advisors, which mentors and supports entrepreneurs, a Senior Executive Partner at S2G Ventures, and a member of the Board of various companies in food, health and hospitality. Prior to this, Walter Robb was the Co-CEO from 2010 to 2017 of Whole Foods Market, a company that he joined in 1991 as a local owner and operator before moving up the chain of command, until overviewing its acquisition by Amazon in 2017. Robb has been inducted into the World Retail Congress Hall of Fame in 2022 which honours retail’s most influential representatives whose ideas have shaped retailing through the businesses and brands they have created.

Interview

IADS – You started and operated your own grocery store for 15 years, prior to selling it to Whole Foods and joining the company in 1991. 31 years later, how would you say this experience influenced your career at Whole Foods? What would you do differently?

WR – I started my career from the ground up: I borrowed 2,000 dollars from my stepfather, bought 3,000 dollars of inventory and started a business. During my first day, I did 200 dollars of sales. We were in 1977, I was 17 years old and I was a retailer.

Would I do anything differently? Probably not: I am convinced that to be a good retailer you need to start from the ground. I made some mistakes (a bunch actually) but it was all about permanently learning. I learnt by watching the owner of a hardware store across the street, who was all about customer service and building relationships through interaction prior to any intent of selling anything. I integrated that approach and later on implemented it at Whole Foods, trying to create a business based on relations, not transactions. This is why in the stores whenever a customer was asking for a product, clerks were not simply pointing them out in the right direction but bringing them to the right location.

There is no replacement for learning by doing when it comes to understanding how a retail business operates.

IADS - The expansion of Whole Foods Market in the Northern Pacific Region in the 90s under your watch was meteoritic: what was the competitive advantage back then? Product, people, systems? Do you feel this could be the same today?

WR – I do not think the situation is the same today as we are in different times: there are many more organic food companies now and all retailers have included that segment in their offers: look at Walmart!

At the time, there was a great sense of purpose to bring natural food to the market: we were the first ones to do it, with all competitive advantages linked to being the first mover, and we had the wind in our back, even though we did not know exactly what we were building. So, definitely, the situation has changed.

I believe that our differentiating point was our philosophy, all about empowerment and based on the idea that every associate can, provided they get support from their leaders, make a difference in the way the business grows. We supported the idea of sharing the responsibilities to collectively make the best decisions possible. A few examples to show how it translated:

-    Store teams leaders had a yearly budget of $100,000 to invest, on their own decision, to improve their stores,

-    Team members had to vote when it came to accepting a new member to the team.

So looking back, it was a combination of right timing, having the wind in our back, and a strong sense of purpose, to give good reasons to people to come and work at Whole Foods Market.

IADS - You spoke at WRC in Rome about the importance of purpose and culture for a company. How did you drive purpose during your tenure at Whole Foods? How did it evolve? How did you make sure it matched business expectations?

WR – Let’s start by looking at the purpose: it is the reason why the business exists, the “why”. You do not exist to make money, but to serve your customer. Every company needs a purpose: this is the most powerful leverage we can have.

How to make the purpose actionable? First of all, you define one, you communicate it, you lead it, you make your decisions according to it, and you share it with your teams making sure that they can give their own form of the purpose. But what does this mean?  What is key is to see it as a living concept:

-    You have to constantly talk about your purpose to the teams,

-    Your actions need to be taken in order to reflect the purpose. For instance, Whole Foods Market was one of the first retailers to walk away from one specific fish species which was unsustainably exploited, in order to be true to our purpose. We were also the first to go to a fully recyclable paper bag. Each of these steps, however little they might seem, are noticed by teams who understand that you are true to your word, which is what matters in the end.

-    On their side, your teams need to have the opportunity to act at their level through an empowered culture, to give the purpose its own expression through their own actions. We as leaders need to set up a culture where teams have room to make decisions. Giving them authority and power, you help bring the purpose alive throughout the organisation.

Now, a note about what I mean by “culture”. The Whole Foods philosophy, that I call “conscious capitalism”, is based on 4 pillars:

-    A sense of purpose, which is “why” the company exists,

-    Empowerment and leadership,

-    Values,

-    Culture, a mix of the purpose and values in a living form: how people feel shopping or working with you.

The culture is where we invested a lot of energy, time and money at Whole Foods Market.

IADS - When Amazon bought Whole Foods, the price strategy drastically changed: how did loyal customers react? What was the impact on WF culture and what did it take to remain true to the original promise?

WR – Amazon changed a lot of things for Whole Foods Market!

In terms of pricing, in 2016, the market had caught up with the organic food trend and our shares were down from the high 50s to the low 30s: the analysts were disappointed with our inability to adjust prices quickly enough. We had not realized that we had gone from a market where we were the only ones selling our products and setting our prices, to a market with fierce competition. The reason why we did not adjust the pricing and margins soon enough, was probably because the culture could not be adjusted even though we had already started some initiatives. But our freedom to test was limited, being a public company with the obligation to report every quarter. Amazon, being a private company, had the ability to go faster in the price lowering process, and they maximized the gross margin through a series of investments which showed results within a year. This was a great example of Amazon’s power and positive side. They also allowed us to invest in cybersecurity and e-commerce, for instance.

When it comes to the limitations of the partnership, I would probably say that the culture, which was so precious and particular at Whole Foods Market, could not be understood and maintained by Amazon. For instance, when we started discussing with Amazon, both teams were asked what they learnt from each other. The Whole Foods Market team answered that they learnt about data management, decision-making tools, and tech. The answer from the Amazon people was: “we learnt how to hug”, which is disappointing because they could not manage to understand our specificities. As a result, many of the Whole Foods Market teams left as the culture changed too much.

But on a broader note, I would say that the acquisition by Amazon has been a good thing for Whole Foods Market because it allowed the company to grow, including by making the pricing more adjusted to today’s competitive market.

IADS – You used to be Co-CEO at Whole Foods Market. What is a Co-CEO and how does this work?

WR - You have to remember that John (Mackey) and I were friends for 35 years and that before being appointed Co-CEO, I had already served as President and COO so it was not something coming out of the blue but a natural progression.

John is an extraordinary thinker but not so much interested in details, which is my case. We were really complementary to each other, without a strict division of actions even though in reality it came naturally (for instance I managed the relations with Wall Street). It was a specific set-up of 2 people doing something together in which they believed very much.

I would say that the clear benefit was to have 2 perspectives and points of view, both wanting to win together, and the downside is that we had to take the time to work it through with each other.

For instance, one time we were trying to decide to raise some product prices, I woke up in the middle of the night and I realised that we needed to act and I wrote John a note, he wrote back straight away at 4 am thinking the same thing. There were also times when we disagreed, for example on investments and tech. This is where it became a challenge because we ended up agreeing on compromises, turning out not to allocate enough capital to the projects.

When it came to the teams, of course, they were probably playing the mom and dad game, but I had most of the direct reports, so most of the organisation ran through me, which made things simpler.

At the end of the day, even though analysts were criticizing our set-up, it was working well for both of us, and it lasted 8 years!  Keep in mind that we had been friends for 35 years before. It was a unique arrangement, specific to our company and our history. I would not rule it out for other organisations, but it was quite unique and specific based on our personalities and situation.

IADS – How do you see the role of the CEO now and how did it evolve?

WR – The most important quality for a CEO is that they set the vision, and use the strategic chops they have access to, to understand the market and figure out how to proceed.

Beyond that, for me, as a CEO you have to be authentic and empathetic, all the more that you have to work with multiple generations of employees. In the US, we had social situations forcing CEOs to talk, without playbooks as this was an entirely new situation. A lot of CEOs told me that they found these situations strenuous. We are all different, there will never be a playbook on how to be meaningful and empathetic, especially given the fact that a lot more is expected from CEOs today compared to in the past.

Another set of qualities is agility and curiosity: now CEOs have to be willing to move, discover and act quickly, especially when it comes to technology.

All in all, there has been a crack in the idea that CEOs are all powerful and that teams are working for them: the work from home trend, among others, has changed the way organisations are led.

A lot more is asked from CEOs today in terms of skill set and the qualities needed. I do not think that it is possible to be a CEO without being so on a 24/7 basis. It demands a lot from you as a person and requires a strong, and permanent, willingness to grow. One of the principles of conscious capitalism is that if as a leader you do not grow, you will not be able to make your organisation grow either.

IADS - In terms of Price / Quality / Experience, what works and does not according to you? How did you drive customers’ attention?

WR – The three components of retail are price, quality and service. You can have two of the three but usually not the three at the same time. We chose quality and service. We never aspired to be the cheapest but we wanted to provide the highest quality. Of course, this depends on companies and what they want to achieve.

We developed a set of quality standards that evolved with the years, laid out in full transparency with vendors and suppliers. Again, this relates to our culture, our goal was to motivate our store leaders by showing that we were true to our purpose. We were known to have the highest product standards on the market.

When it came to the service, we invested a lot in the workforce and how to constantly better serve the customer. Our model was based on interaction and we were known for the great customer experience when they were coming to the stores. We controlled that with mystery shoppers but that was almost superfluous given the strength of our culture at the time.

It is all about the role of the leadership: to take care of teams who in return can take care of customers.

IADS - With the current limitations (staffing, experience), what would be your view for department store food retailing: go with a partner or develop ourselves?

WR – I went to several department stores in Berlin and Amsterdam, and I loved the way they set up restaurants on the roof-top. Food is a great business to bring animation and traffic to department stores, but a very complex one too because fresh products have a very limited shelf life.

For that reason, I would say that having a partner would be probably easier, but, if I had the choice, I would rather go direct by recruiting someone from the food industry, leveraging his own contacts, as I truly believe that outsourcing leads to losing a part of the experience. Plus, you might make more money by going direct.

IADS - How did you deal with innovation at Whole Foods Market? By sequence? In parallel? How did you create a culture of innovation?

WR – This is getting us back to the power of culture, in our specific case the notion of individual empowerment: our team members were able to make their own decisions at their level. In our case, we expected our 500 or so stores to be all different from each other, so we did not centralize the store development function at the national level, but, at best, at the regional level. This allowed all store leaders to do their things, all the more that our culture included a right to do mistakes. In Denver for instance, a store displayed a full Mac & Cheese aisle. Nobody told him to do that, but he came up with the idea which was specific and differentiating. Another example is when for material reasons, a store started to over self-serve bakery whereas so far, we were serving ourselves bakery over the counter.

IADS - How do you deal with innovation-related investments within a company? And how can you mitigate risks?

WR – For the food industry, there is more innovation now than in the past, and this is only going to accelerate. It would be suicidal for any retailer to ignore this. There is no way to succeed by holding on to what you have in such a competitive market today.

In terms of my investments, everything starts by meeting an entrepreneur who at the same time has the ability to build a sustainable company, which shows his seriousness, and at the same time provides a truly different and differentiated offer which will fuel my unique value proposition in a new way.

***

Question – Going back to the notion of purpose: how did you deal with all stakeholders (board, team members, directors, shareholders…)?

WR – Purpose is a living thing. It is not like you say it and that’s it. You have to consciously invest in the process of reviewing your purpose and see how it can evolve, first because you are a bigger company now and you can do more things, and second because you are focusing on the right things.

We had a meeting every 5 years called ‘Future Search’ when we were gathering about 150 stakeholders, and we worked through a process where we looked at the past, present and future, including reviewing our purpose.

Also, remember: simpler is better than more complex, and this is true for purpose too.

Question – Going back to the notion of culture in Whole Foods Market, in department store companies, usually legacy companies, we need to move fast but at the same time also deal with company owners, usually members of a family. I am sure that you have gone through the same changes, but how to deal with the needed changes which might, at the same time, make them very nervous?

WR – Always remember that the culture of a company is a living thing, it is not set forever. We took some leadership principles from Amazon, for instance. Another example is that we opened a leadership academy as we realized that a lot of our store managers lost, with time, their ability to drive with purpose. It is all about growing an organic set of values and ideas.

In order to pilot this, we were asking our whole staff twice a year about our culture, where we had to invest, where we were strong, and what were their ideas too.

In the department store world, Nordstrom is a good example: they are all about serving the customers. And this is not going to change: even if the “how” changes, the “why” does not.

Now, when it comes to the reaction of owners and how to deal with this, this is an excellent question and I will ask Pete and Eric Nordstrom about that!

Question -  How do you inspire all teams with purpose and make sure they embrace it?

WR – Give the possibility to the teams to embrace the purpose and make it theirs, by granting them autonomy to test ideas (as long as they enter within the purpose framework of course). Give them the possibility to do so in full autonomy (for instance, we gave a budget of $100,000 to store leaders to spend on an annual basis on their store, they were accountable for the expenses but the decisions were theirs). And, most importantly, keep in mind, and remind them, that it is ok to fail.

Credits: IADS (Selvane Mohandas du Ménil)

Check out the collection of pictures here

Printable Version here

Introduction

The IADS travelled to Turkey (now known as Türkiye) last June to meet with Cem Boyner, the CEO of Boyner Grup, a former IADS member, to get an update on his latest initiatives following the Covid-19 pandemic. Located between Asia and the West, often tarnished with its international policy decisions (to the shame of Turkish businessmen), and riddled with inflation (estimated at 78,35% for 2022, a 24-year high), it is easy to overlook the country and consider it done.

In reality, the retail market is buoyant, and many innovations are taking place, which made the trip all the more interesting as many of these innovations could be interesting for IADS members to look at. We review below our store visit, as well as the insights collected during the meeting with Hopi, Boyner Grup’s data venture.

Company history and background

Department stores capitalised on the expansion of Turkey’s ready-to-wear sector in the 1990s and a concurrent boom in large shopping centres that have continued further. Despite continuous unfavourable exchange rates making imported goods significantly more expensive, as well as extremely expensive customs fees (up to 35% for merchandise coming from some parts of Asia), fashion and luxury found their way throughout the country. On another hand, the growth of Turkey’s economy gave rise to a new middle class and more wealth among the already rich. This transformation led to increased foot traffic at premium department stores as people became more eager to try new brands and spend beyond basic necessities.

Among the significant players shaping up the market, Boyner Grup was founded in 1952 as a clothing manufacturer, by Osman Boyner. The first Boyner store opened in 1981 and was operated under the name of Çarşı (name converted to Boyner in 2004). Nowadays, it is led by Cem Boyner and is mostly addressing the middle class, operating under the brands Boyner, YKM, Boyner Sports, YKM Sports, and Boyner Outlets. They report 276,000 sqm of retail space in 97 stores spanning across 37 cities.

The merger with YKM, another department store company, was achieved in 2012, which ultimately led to Boyner’s resignation from IADS in 2016 (YKM was a member since 2003 and membership had been transferred). Business includes international brands (active sportswear, Men’s, Women’s and Kid’s footwear, accessories and RTW, cosmetics, home decoration) and a significant private label business (13 brands). Boyner also launched Boyner Home in 2017, with stores dedicated to kitchen, bathroom, home textile, and electrical household appliances.

In 2015, the group was composed of 2 main arms: the Boyner retail and textile activity, including the manufacturing capabilities and some private labels sold through their own retail network, and the retail branch, composed of Beymen (a luxury department store brand name founded by Boyner in 1971) and AY Marka. Cem Boyner increased his equity in Boyner Retail and Textile Investments, while Qatar-based Mayhoola (which also owns Valentino, Balmain and Pal Zileri) invested in the retail branch. This led to the restructuring of the group in 2019: Beymen and AY Marka are now owned by Mayhoola while Boyner Holdings remain the full owner of the textile retail and production unit, including:

• Boyner stores,
• Altinyildiz (textile manufacturing),
• BR Magazacilik (retail distribution of the Altinyildiz brand, in partnership with Ran Retailing – BR reports 200 stores in 60 cities in 2020, and 300 points of sales including wholesale),
• Hopi (mobile and telecommunications),
• Morhipo.com (online retailing, launched in 2011 and ranked 6th online retailer in Türkiye with a turnover of $172m).

No financial information has been officially released at least since 2018.

Visiting the store: A holistic department store

We visited the latest Boyner store, in the Cadde location (in a residential part of the Asian side of Istanbul), which opened in September 2021 on 4,200 sqm and 5 floors. This store, seen as a prototype for the new Boyner concept, replaced a much bigger unit which was, according to Cem Boyner, in a much better location, and which became a local meeting point for residents in the past 22 years in addition to being a cash machine, thanks to a private brand, Limin (not sold in the new store). Boyner made the decision to challenge all this (and make the most of a real estate opportunity) as the goal is to move from being a department store company to a “multi-brand lifestyle store”, positioned on the mid-range segment (the goal is not to compete with Beymen, which operates all international luxury brands in).

What is sure is that the store is highly visible: the entire façade is covered with a 38-meter-long screen displaying anamorphic art pieces (a technology allowing to have a striking 3-D feeling from the store entrance) and Boyner makes sure people see it, thanks to a Costa Café just nearby (they have secured the franchising agreement for the country). Art is basically everywhere in and on the store (this is unusual for Boyner) and every artwork has been co-developed with artists, to make sure they are interactive and echo what is going on in the store, to avoid giving a museum feel.

The basement, dedicated to sportswear, is striking: all walls have been built in recycled plastic and wood (the eco-conception is at the core of the store model, for instance, solar panels on the roof help power the store, and toilets are used with collected rainwater) and, in addition to an immersive décor and visual merchandising, many services are offered to customers: a cold room to try the garments (similar to Canada Goose in Toronto), bikes where customers can pedal to recharge their phones, free water fountains in the gourds section… all in the middle of an advanced VM set up (a step forward for the company according to the staff), using interactive LED-lit flooring and artworks, or 3D holograms on the shelves to animate the products. This selling space is working extremely well and generates 25% of the total store turnover.

The ground floor displays a space dedicated to sustainable goods at the entrance, and the cosmetics spaces (25% of the turnover).

The sustainable goods space, where many products have been developed in collaboration, also features artwork developed by artists concerned about sustainability (a common trait across the whole store) and collecting points, where customers can leave their unwanted items, which are then recycled and sold, financing grants to students. Art is only displayed and not for sale.

The cosmetic area is more classic, with the usual names (Clarins, Lancome, Estée Lauder…) displayed in their own concept boxes with white logo on black background, all operated in concession (even though the system is quite exotic in this store: brands pay for their salespersons, do not pay rent but Boyner collects 100% of the turnover, making this system a mix between wholesale and concession).

What is more striking is the 40m high LED screen that goes from the ground floor to the 4th floor, displaying artwork which interacts with customers through their cell phones (an astute way to collect data!). This proves that it is possible to use screens in a lively manner, and not just as a décor like in, for instance, the Nike House of Innovation in Paris.

The first floor is dedicated to Women’s fashion, with an upgrade in terms of brands presented compared to what Boyner has in its other stores: Lagerfeld, DKNY… (the retailer wants to remain accessible to its customers and not go full speed on luxury). They also promote local initiatives, by collaborating with influencers and artisans to produce and sell one-of-a-kind products at accessible prices. There are no cash desks: Boyner is testing on this floor mobile payments. When asked about how they were dealing with the antitheft tag removal and the gift wrapping, they showed a mobile unit where all these actions can be performed on the spot and moved very quickly from one side of the floor to another.

The second floor is dedicated to activewear and denim. There, the seating section has been developed by an artist whose artworks are displayed in the entrance, echoing what she does in her art, and is completed with videogame booths and the possibility to interact with the screen, which increases the time spent in-store.

The third-floor features men’s collections. Interestingly, and due to the nature of the market, the mannequins also display women’s products there, as many customers are females looking for gifts for their husbands.

Finally, the top floor is dedicated to homeware and kids offers, as well as the “customer relation” lounge, where customers can proceed to click and collect and ask for home delivery. The lounge seemed to be still under construction at the time of visit, and was very surprisingly uninviting, in stark contrast with the rest of the store.

In terms of F&B, in addition to the Costa Café at the entrance, the store is flanked with a new concept, “Vertical restaurant”, which is a must-see. The concept is to be entirely sustainable at 100% and self-sufficient in terms of energy, water and consumption (except the aliments). This goes through, of course, the decor (entirely recycled), zero plastic and carbon policy, the use of recycled and filtered water at the bar, but also specific partnerships with LG, Electrolux or Bosch to create kitchens that customers can rent or where they can follow lessons with chefs, as well as an upcycling workshop, a local vegetable growing unit, and the systematic recycling of 100% of the food waste into facial cream (from the coffee waste), soap (from cooking oil), compost and pet food. On 800sqm, the restaurant features a high-end and vegan Turkish cuisine restaurant, a pizza place, a Japanese place as well as 3 locations that are offered to up-and-coming Turkish young chefs or street food stars every week, to generate curiosity and traffic.

What’s great and what’s next

The Cadde store is delivering results: the average ticket is 27% higher than in other stores, thanks to a different brand selection and a lifestyle approach, with many places where it is great to spend time (time spent in-store increased from 30mn to 1 hour). This concept will be rolled over to 20 stores in 2023 and 30 additional ones in the next 5 years.

Overall, the bet to create a “multi-brand lifestyle store” is paying off, as the general feeling is an energetic store, full of great ideas, addressing a young clientele and giving them an immersive concept, which feels rich but not expensive. Is that to say that Boyner has developed a new concept store? When discussing with Cem Boyner, he confirmed that such a concept was to be deployed on 9,000+ sqm stores. Among the good ideas that we spotted:

-    The many fun services (cold room to try warm garments, bicycles to charge phones,

-    The collaboration with artists to make art part of the store (and not museum-like, for instance, Le Bon Marché in Paris) and with sustainability in mind,

-    The practical approach, for instance with the mobile wrapping and antitheft tag removal unit, which has been developed by salespeople themselves,

-    The ‘Vertical’ restaurant and its radical approach, which could be interesting for IADS members in their food offer.

Of course, we had some questions when it came to salesperson management: 60% of them are paid by the brands, and only 40% are managed by Boyner. In these conditions, given the fact that the store has a cohesive, holistic lifestyle concept, how to make sure that they are all working together and orientating customers, instead of only selling their own brands?

Moving forward, we were also introduced to the Boyner online business, which is currently representing 30% of the total group’s turnover, with 17m loyal cardholders (in a country of 85m people).

Boyner is launching a new delivery service, “Boyner now”, with a 90mn delay in the whole of the country. When customers use this service, a Boyner-branded delivery person comes to their house (including, in the case of fashion items, a +1 / -1 size unit, just in case), waits for the selection confirmation and retrieves payment (meaning that customers pay for what they keep and not during the order itself). With this new service, Boyner hopes to capture 60% of its turnover online. In terms of technics, this service is fulfilled from the 97 stores in the country, and customers have access to 4m references, vs. 10m on the “normal” e-commerce website, which is also going through a revamp in order to increase the length of stay online from 1mn and 1% conversion to 8mn and 4%.

This growth in digital is supported by Hopi, another venture that Boyner launched in 2015, and dedicated to data management for B2B (marketing solutions, digital transformation, payment systems solutions, BNPL solutions) and B2C (hyper-personalized services for their 13m app users), leading to a full ecosystem which is truly competing with what Amazon or Alibaba can propose to Turkish retail companies today. Boyner will be looking at international expansion for Hopi in 2023 and hopes to equip foreign retailers in the future.

Conclusion

Following the split with Beymen, Boyner Grup knew they had to reinvent themselves and the experience they wanted to provide to customers, so they initiated a sea of changes well before the Covid-19 pandemic. As a consequence, the pandemic acted as a catalyst and also allowed to speed up some of the planned changes.

Today, many boxes are ticked: a new approach to instore experience (which really competes with many higher-end world-class department stores), the use of art at the design level of the store to make sure it is echoed in the customer journey rather than just sitting there, a radical approach to sustainability with many innovative processes, and a clear vision when it comes to the use of tech and data in order to accompany today, and predict tomorrow, customers’ purchases. The setup of the Boyner Now delivery in 90mn in the whole country is a tour de force and it would be worth it for IADS members to go and see how this is actually performed in terms of systems and processes.

Credits: IADS (Selvane Mohandas du Ménil)

Check out the collection of pictures here

printable version here

Introduction

The IADS was invited to take part in the 2022 Future of Retail Conference organised in Athens last May by the Hellenic Federation of Retail. The Association was interviewed on stage, along with Mr Dimosthenis Boumis, the CEO of Attica, the emblematic Greek department store, and invited to discuss the future of retail in city centres.

It was also the opportunity to reconnect with old acquaintances, since the former CEO of Minion, a defunct department store in Athens, used to be a member of the IADS and is now a member of the Attica board. Attica has gone through the Covid-19 pandemic with the same difficulties as other department stores in the world and came up with a new strategy designed to rely less on international tourists (even though they remain more than welcome) and more on the local Greek clientele, from every social class. If appealing to the rich Greeks is not a head scratcher, the current social and revenue structure in Greece makes it a bit more complicated to appeal the to lower classes without losing glamour or soul.

We visited the City Link flagship, in the heart of Athens, very close to the infamous Syntagma square, in order to see how the store is implementing and executing the new strategy.

Company history: just turning 17 and already a complicated story

The Attica department store (not to be mistaken with Attica Group, owner and operator of boats) has a recent and rather complicated history, since the company (and the brand) is only 17 years-old, in spite of the flagship City Link location in the heart of Athens being located in a historical building. Just like in other countries when it comes to the history of retail, it is mainly a story of powerful men and capital management, even though it is much more condensed in time in the case of Greece.

To fully get a grasp of it, one needs to have a quick historical approach to the Greek retail market, marked in 1934 by the opening of a small kiosk, called Minion, by Ionnis Georgakas. There, he only sold products in bulk, which proved so successful that just after WWII, he was able to buy a larger location in the city centre, increasing  progressively the surface until being able to sell 120,000 references in the 1950s, with 1,000 sales associates. Minion became a European-class department store and introduced escalators, air-con and computers to Greece, in addition to allowing Greek customers to become exposed to foreign fashion and tastes, generating queues in the streets to enter what would soon become an iconic location for any Athenian.

Georgakas, a wise businessman, understood early the role of seasonal discounts as well as TV and radio advertising,  and ruined the competition of the then-ubiquitous local bazaars. Unfortunately, the iconic 9-storey store was destroyed during a fire provoked by a criminal arson in 1980, and the company was ruined. Georgakas rebuilt the store but was not able to recover from the heavy losses, and the company was nationalized in 1983. Georgakas attempted a come-back in 1991 by purchasing back the company but failed and ultimately left the following year. The company survived until 1998, before being sold to another Greek company, Elmec, which in turn was acquired by Folli Follie, which had the project to renovate the store, a project dropped in 2018. The store, left empty for more than 20 years, has been sold in 2021.

Folli Follie was founded in 1986 by Dimitris Koutsoliotsos and is famous today for its luxury jewellery, watches and  fashion accessories, sold in 95 stores across the world. Koutsoliotsos, aware that the closure of Minion had left a hole in the Greek retail market (and before opportunistically acquiring it), founded the Attica department stores company in 2005 with the City Link location and the idea to replace Minion. Due to the nature of its business, Folli Follie was able to secure exclusive distribution rights for Greece (and other countries) for some brands, such as Shiseido, which were presented in the Attica stores. In 2018, Koutsoliotsos had to resign from his role at Folli Follie, but remains involved in Attica, where he appointed Dimosthenis Boumis as CEO. Boumis, who has a finance background, founded Cosmobrand in 2011, a joint venture between Attica and himself, dedicated to the import and distribution of cosmetics and food, as well as e-commerce. The CEO appointment came in 2021 and makes Attica quite special in the worldwide landscape, with a non-family-member acting at the same time as a major stake shareholder and CEO.

Today, Attica operates 4 department stores in total, including City Link (2005), Golden Hall (2008), Tsimiski (2014) in Athens, and a location in Thessaloniki (2012). All locations sell women’s, men’s, and children’s fashion wear, footwear, beauty and accessories and are recognized by customers and brands as true luxury hotspots. According to the Greek press, the company posted a total turnover of €140m in 2021, vs €98.8m in 2020 and €180m in 2019.

Visiting the store: a true and visible improvement from a year ago

The City Link store is located in a historical building that has been part of a city centre renovation project back in 2005, helping to preserve buildings that were built just before WWII. It is structured on 8 floors and 34,000 sqm, 4,000 of which have been added in 2021, mainly to house extensions of the Women’s Fashion and the sportswear sections, in addition to new services such as a VIP room, a hair & beauty salon, and new F&B points.

The large windows on the street are inspiring, quite efficient, and open on a space which is complex due to the structure of the store: the basement and the ground floor are narrow and the whole game is to make sure that customers are naturally going into the upper floors, which is the reason why the escalators are massive and just in front of the entrance, at the risk of overlooking what is left, right and down (to the point of not having visited the basement for this review…).

The narrow ground floor displays the cosmetics offer, with all brands having a shop in shop at their concept in the periphery, including a large Byredo location at the entrance. Circulation is not easy, but sales associates are omnipresent and willing to help. Security guards, too, are very visible and can be intimidating when it comes to entering the store. Interestingly, each floor displays the whole list of brands available, which suggests a certain effort to keep it up to date of course from season to season but also in season when popups and temporary collaborations are launched.

The first floor is dedicated to formal men’s RTW, shoes and accessories. The brands are high end, such as Hugo Boss, Zegna, Kenzo or Brooks Brothers (a company in which Konstantinos Tsouvelekakis, another significant shareholder of Attica department stores, has shares). The whole floor is closed, without windows, which can be somehow oppressing, and although all brands have their own concept,  some logos obviously produced on site are not entirely perfect.

The second floor is dedicated to Men’s casual fashion, and, contrary to the first floor, has all windows opened on the main avenue (a decision taken by Boumis when he took the job) which gives light and a real sense of depth since the building is narrow and long. Interestingly, all cash desks (for those not related to the shop in shops) are located at each end of the floor (this is the case for all floors) which can be painful as customers are obliged to go through the whole floor to pay for their purchases.

The third floor has been, just like the second one renovated, but also extended, with a very efficient sportswear section (the largest in Greece) on the other side of the building (the lower floors in that building are not part of the store as they belong to the Pyraeus Bank, and are under negotiation in order to re-structure properly the store for its basement, ground, first and second floors). The whole space has been imagined as a running track and this works extremely well given the structure of the building, with very large Nike, Lacoste and Adidas shop-in-shops. The “young fashion” space is also spectacular, including the Levi’s shop-in-shop of uncommon proportions. One caveat due to the structure of the building, is that the whole space feels like a tunnel, however immersive it might be, meaning that once customers have started their journey, they might have some issues in terms of circulation and finding the staircases to go up or down.

The fourth floor is dedicated to women’s fashion, and just like the third floor, benefitted from an extension which allows displaying, in addition to the traditional names (Max Mara and all its other lines for instance) a very wide selection of local Greek brands such as Forel. The hair salon is located just behind (not the old school salon, but a very spacious, well-lit and luxurious space), just near the jewellery and small accessories section. This floor also includes a very inviting bar (serving alcohol) and an interesting Carpo shop-in-shop. Carpo deserves a special mention, as it is somehow reminiscent of what Steen & Strom has done with headwear brand Varsity, by teaming up with a local partner and is making extremely good sales thanks to its premium positioning: Carpo is all about selling Greek nuts and chocolate in very nice boxes. The space, located in front of the bar and in a section where customers can not do anything but go through, is a must-see and very well decorated. Average ticket: €80 (literally for nuts).

The fifth floor displays contemporary fashion and lingerie, with a huge Zadig & Voltaire shop-in-shop, a smart sense of merchandising (for instance, Hei Poa cream is available just near the cash desk in the swimming wear section), but the execution of the lingerie space is somehow disappointing.

The sixth floor is dedicated to kids, duty free and also gives access to a rooftop café which, although it has a very nice view, is difficult to access (in terms of escalators and time to get there) and even to find on the floor itself.

What to remember and what is next?

Even though Attica used to be considered a second-class wholesaler by brands in the past, this is no longer the case. The brand selection is good (and improving) but above all, the new floors extensions show a very modern and acute approach to retail immersion, which also explain the dense traffic in these sections at the time of visit (noon, with a scorching 30°C  temperature outside) even though the building is difficult in terms of structure.

Also, the CEO is all about increasing omnichannel capabilities but also experience spaces, as shown by the extremely well-designed café and Carpo nuts store, which are both generating a fantastic return on investment.

In terms of what’s next, the company has announced a major and ambitious plan for the next 2 years, with new store developments taking place until 2026, and, of course, the relaunch of the e-commerce activities including full omnichannel capabilities.

The e-shop, launched in 2017, is to be relaunched during summer 2022, with, in addition to a new product curation, a new technical platform allowing the interaction with physical stores, i.e. picking products bought online in stores, or dealing with products purchased in store and exchanged online. In addition, while at the beginning the e-store will be limited to cosmetics and fashion accessories, RTW will be integrated at the end of the year. This development should contribute to connecting the department store with local customers.

However, we mentioned in the introduction that tourists are always welcome, especially the customers from the Balkan countries, who might not have the same exposure to international brands at home as, for instance, Dutch or French customers. For them, the offer sold in the Thessaloniki stores will be upgraded and amplified, in order to make the most of their appetite for international brands.

Finally, Attica is planning a new opening in the hip area of Ellinikon in 2025, near Athens, where rich Athenians either own a house or enjoy the beach, 25 mn from the city centre. The massive urban renovation project includes 2 retail areas, the Vouliagmenis Mall (“Ellinikon commercial hub”, on 185,000 sqm)) and the open air Marina Galeria, on 19.000 sqm. The new department store in Marina Galeria will display on 10,000 sqm an exclusive selection of brands, completed by a series of mono-brand stores that it will lease to international luxury labels.

Conclusion

The realisation that Chinese and Russian tourists had acquired a place too central in the business forced Attica to rethink its point of differentiation. But how to do so? Can you really compete for international tourists who are spoilt in their home cities and rushing through Athens to get to the islands?

This is why the nut stand is not as anecdotical as it might seem. Attica is well aware that it needs to differentiate in order to reach the customers it targets. This goes through providing experience, but also providing the right level of prices for the right luxuries: dry fruits delicacies for local customers who might want to treat themselves with something inspiring but not to the point of buying a Chanel bag (or being able to), or the right brands to tourists coming from zones where they do not have the same choice than in central European cities.

Even though this is an ongoing journey (which will be completed by the finalization of the omnichannel capabilities in Q3 2022), Attica has made a significant step up when compared to its pre-pandemic aspect and offer. The exciting and ambitious Ellinikon project will also be something to watch closely, as it will be all about experience and entertainment.

Attica company profile

Credits: IADS (Selvane Mohandas du Ménil)

IADS recently held a meeting all about the women’s fashion brands to look out for in 2022. Based on market research, IADS and NellyRodi presented the most innovative brands from different segments of women's fashion: DNVB, designer, contemporary, young talents and everything in between! Check out our selection of these brands!

DNVB

![salut

SALUT BEAUTÉ

Salut Beauté is an innovative and sustainable Parisian brand that creates

colourful, original, and comfortable sets for women. These sets are made

with different fabrics from second production circuits recovered from

luxury houses or manufacturers from there they are refurbished and made

into fashion forward yet powerful suits.

Check out the Salut Beauté website here

![never fully dressed

NEVER FULLY DRESSED

Never Fully Dress is a flattering effortlessly feminine fashion brand that was

designed for all shapes, sizes, and styles. The products are made with

premium quality materials without the premium price tag. They have

introduced recycled polyester and natural and biodegradable fabrics to

help reduce their environmental impact.

Check out the Never Fully Dressed website here

CONTEMPORARY BRANDS

![icicle

ICICLE

Icicle is a high-end fashion brand from Shanghai that presents a fine

elegance while still being made with sustainable materials with 100%

natural materials, vegetable dyes, recyclable packaging,

Check out the Icicle Website here

![LVIR

LVIR

LVIR is a modern and natural brand that can be enjoyed by all generations.

It is a flexible style that can blend with the attitudes and emotions of the

customer. It is refined women’s clothing for fashion professionals and

wants to focus on simple colors for a more comfortable and stereoscopic

style.

Check out the LVIR Website Here 

DESIGNER BRANDS

![MERYLL ROGGE

MERYLL ROGGE

Belgian brand curating an energetic medley of unexpected styles.

check out the MERYLL ROGGE website here 

![NENSI DOJAKA

NENSI DOJAKA

Albanian designer known for her lingerie-inspired dresses and cutout

pieces that reference '90s aesthetics.

Check out the NENSI DOJAKA INSTAGRAM here

NEW YOUNG TALENTS

![SUPRIYA LELE

SUPRIYA LELE

Led by her Indian heritage, British identity, and her passion for minimalism

in her creations she uses a deliberately vintage and subversive approach to

textiles, cutting and manufacturing, thus elevating them to the rank of

“new luxury”.

Check out the SUPRIYA LELE website here 

![HELIOT EMIL

HELIOT EMIL

The collections are unisex and monochrome, taking inspiration from

Scandinavian heritage and using different fabrics from around the globe.

Check out the HELIOT EMIL website here 

OTHER

![ELSE

ELSE

Elevated, everyday lingerie, loungewear, and swimwear brand for modern

women.

Check out the ELSE website here

![SPORTY & RICH

SPORTY & RICH

Collection of simple, yet thoughtfully designed products that emphasize

longevity over momentary relevance.

Check out the SPORTY & RICH website here