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Retailers always try to keep customers captivated in their stores as the more often they come, the more they spend. A few years ago, carrying a relevant product offer displayed in a nice environment and sold by sales associates was enough to guaranty a healthy business. But through the years, consumers have begun to expect more from retailers than just shopping, including what has been on every retailer’s lips for a while: experience, entertainment and a sense of community.

At the same time, consumers have been travelling more and more and retailers have started to eye the tourism industry. To enjoy their slice of the cake, they started to open hotels, restaurants and all kinds of entertaining features such as a ski slope in the Mall of the Emirates, or closer to the IADS members, a cinema in Selfridges or an ice-skating rink on the Galeries Lafayette flagship’s rooftop: all initiatives designed to increase the number of touchpoints with customers, expand retailer’s influence, and ultimately “sell memories before products”.

The Cidade Matarazzo project in Sao Paulo is a great example of ‘expanded’ retail, illustrating a possible vision of the retail of the future. Scaling at a never-seen-before level in Brazil, it can be considered as the ultimate mixed-use retail project mixing hospitality, culture and entertainment with retail. But how does it compare to other retail experiments? What is interesting considering the future of retail, and what can we expect and learn from the project?

What is Cidade Matarazzo?

Initiated in 2009 and led by French businessman Alexandre Allard, Cidade Matarazzo will be completed in 2023. Versatile and entrepreneur, Allard successively founded several companies in marketing such as Diacom, which developed infomercials in France for the first time in the nineties. From 1994, he also ventured into the tech business with Consodata, once a leader in the consumer data business. Then he entered the real-estate business with successful and failed attempts in historic building refurbishments such as the Qianmen area in Beijing or the Royal Monceau hotel in Paris.

Cidade Matarazzo, located on the famous Paulista Avenue, is a mixed-use project, a city-within-the-city, both in size (the estate initially accounts for 50,000 sq. m/540,000 sq. ft), a EUR 500 million investment from Allard himself, with 27,000 people involved) and in its ambitious programme willing to herald what a ‘smart city’ should be in the future. The project will include:

• Retail: a 28,0000 sq. m/300,000 sq. ft retail village representing more than a half of the project and coming with 1,500 parking lots, gathering 300 brands, 30 restaurants and 60 small shops highlighting local craftsmen. The brand portfolio is unknown yet and, so far, there are no department stores involved in the project.
• Hospitality: a 25-storey tower by French architect Jean Nouvel and designer Philippe Starck will host the first 6-star palace hotel in Brazil which will be run by Rosewood Hotels & Resorts (which operates Crillon hotel in Paris, Carlyle in NYC to name a few). The 150-room hotel, opening late December 2021, offers the usual luxury options with 6 bars and restaurants, a wellness centre, a swimming pool and various event centres. Hong Kongese company Chow Tai Fook, both global biggest jeweller and owner of Rosewood group, owns 49% of Cidade Matarazzo.
• Art: with galleries and an exhibition centre whose inaugural show will be from British-Indian artist Anish Kapoor. There will also be a piece of art by Belgian artist Arne Quinze, “Tupi”, which is advertised as the biggest piece of art in the world. A permanent collection of art with over 450 works by 57 contemporary Brazilian artists will be displayed throughout the hotel property.
• Culture: a cultural centre imagined by French architect Rudy Ricciotti will offer a theatre, a music studio and a cinema.
• Nature: 10,000 trees will be planted in the 45,000 sq.m/48,000 sq. ft park surrounding the project.
• Sustainability: several urban farms are set to become the first national organic market. Also, the project relies on the extensive use of local raw materials.
• Social responsibility: the farms will be run by 4,000 homeless people trained to deal with planting, harvesting and logistics. The project features will also enhance and rely on local craftsmanship and will highlight the work of craftsmen thanks to the 60 small stores from the retail village (see above).
• Local heritage: both part of the estate, an old maternity hospital and an old chapel will be restored to host hotel suites.
• Logistics: an automated platform will guaranty ultra-fast deliveries across the city (although the delivery lead time is not known yet).
• Housing: 122 apartments ranging from 100 to 600 sqm.
• 4,000 sq. m/43,000 sq. ft of office spaces.

In terms of retail, the renderings look luxurious and attractive for sure. And needless to say, customer experience is supposed to be at its peak and will be enhanced by a massive digitalization through artificial intelligence: in order to tailor their journey, an app following customer’s steps will guide them according to their personality, interests, particular taste… and will collect data (as we know Allard is no stranger to data, see above). Also, Farfetch has been appointed by Cidade Matarazzo to implement its Connected Retail solution “to create a technologically advanced luxury experience across the retail village”. Digitalisation seems obvious as “the country has the highest percentage of Facebook and Instagram users in the world. Yet Brazil is only the 35th e-commerce economy in the world.”

The project seems to be able to cater both to locals (to wealthy customers but also to the emerging Brazilian middle-class) and tourists as it is offering all features one can expect from a ‘smart city’. Cidade Matarazzo could also serve the local communities by creating countless jobs. But, even though the digital aspect is quite developed here, this is not the first time such a project is launched. How does it compare with other ‘expanded’ mixed-use retail initiatives?

Hudson Yards: beyond the wow factor

Some have tried ‘expanded retail’ projects before, with questionable success. In NYC, Hudson Yards was also aiming to create a city-within-the-city, only bigger and appealing to the 0.1% richer people thanks to its luxury apartments offer. Accounting for a total of 1.7 million sq. m/18 million sq. ft of urban land, commercial, office and residential space, the project was supposed to be able to change (or at least heavily impact) the retail, entertainment, working and housing NYC landscape.

Representing more than half of the commercial surface, the so-called ‘mall-as-public space’ is gathering 100 stores and 25 food offerings on its 67,000 sq. m/720,000 sq. ft surface, and was originally meant to attract both locals and tourists with a dozen public art installations, a performance space and concert venue ‘The Shed’, the beehive-shaped ‘Vessel’, ‘The Edge’ observation deck, a luxury hotel, 4,000 rental units (including 10% of social housing) and offices to host nearly 56,000 workers. The property management was expecting that 40% of the traffic would come from tourists, 30% from office workers and the rest from city dwellers and the 10,000 people expected to live there.

Almost 3 years after its opening, Hudson Yards tremendously suffered from Covid with almost 2 years without tourists and the closure of its crown jewel, the Neiman Marcus department store. But even before Covid, the project purpose was questioned as it was failing to build a sense of community, with a mall feeling like any other mall in the world. Besides, the place is hard to reach as it’s only served by one unreliable subway line.

Hudson Yards greatly suffers from its gigantism and, compared to Cidade Matarazzo, it lacks human scale. Also, there is pretty much nothing happening at the street level, which remains an important key factor in retail performance, and urban and daily life appeal. Cidade Matarazzo seems to avoid such death traps.

Smaller projects with a purpose, bigger effects?

CSR is now a topic in itself, big enough to become the purpose of a project. The new Ikea store in Copenhagen city centre will be completed in 2023 and will serve two ambitions: helping the company become a circular business by 2030, and coming closer to customers living inside of the city centres. The project will offer an Ikea store with a café and a restaurant, but also a public rooftop park with 250 trees, 1,450 sq. m of solar panels, and 760 bike parking lots (knowing that half of the Copenhageners bike to work and only one third has access to a car). Here, Ikea is aiming to become a place to meet and not only a place to shop, by offering a “completely new experience for the Copenhageners”. While most of them will have to shop at Ikea at some point, the project is credible to both answer this need and be an anchor to the local community.

Cidade Matarazzo is set to highlight and serve local communities as they represent a significant part of the project. When it comes to its shopping attraction, the retail village offers a new place in Sao Paulo for more luxury and Western brands: this could be a key factor to appeal to the old rich elite but also to the emerging Brazilian upper/middle-class.

Another initiative, the recently opened Green Pea retail project in Torino in Italy is the first self-proclaimed 100% sustainable department store in the world. It tries to bring an answer to the following question: how to build a profitable business that takes for granted the sustainable approach? The building is 100% made in recycled materials, it uses the energy generated by the footfall itself to produce electricity, and heat pumps provide 88% of the heating needs. All brands sold in Green Pea are sustainable and a museum is here to educate customers about the need to care for the planet. While the project is solid, will its purpose be enough to create a fruitful business and recuring customers besides a single visit?

Cidade Matarazzo claim is not about sustainability but the project includes features relating to the topic, with tree planting and urban organic farms. While the project’s carbon footprint and environmental impact are unknown, the diversity and value of the activities offered should be enough to attract recurring customers looking for a concentration of shopping, culture and entertainment.

The retail industry is at a turning point, especially as consumer habits change due to Covid. More than before, physical stores and retail projects have to come with a strong and clear purpose, as well as a very precise customer target. The size of the project also greatly matters as it has to be kept at a human scale, not to forget what’s happening at the street level. Whatever the dimensions, any retail project now has to include shopping and entertaining activities, rich and varied enough to attract customers more than once. Considering the retailer’s large existing audience, Ikea in Copenhagen will probably succeed in becoming an anchor for the local community and attracting customers and city dwellers on a regular basis. Green Pea, on the other hand, bets on customer eagerness to know more about their impact on the planet, and possibly to lower it: but will the location, size, nature of the product offer and purpose of the department store be enough to guarantee a recurring customer base?
When it comes to Cidade Matarazzo, the ambition is to mostly attract wealthy customers while enhancing local communities. From culture to events, hospitality, housing and retail, all necessary features seem to be poised for the success of the project. It will also represent a great opportunity for Western brands to gain traction in Brazil. Unlike Hudson Yards in NYC, the project is also kept at a human scale. While the Rosewood hotel opened its doors at the end of 2021, the rest of the project should be completed next year but, due to Covid, it will probably be too soon to determine the success of this mixed-use project. Stay tuned.

Credits: IADS (Christine Montard)

Following a request sent by a member of the Association asking for more information on how other members were dealing with digital transformation from an organisational point of view, the IADS decided to dedicate its 2021 research to the topic by issuing the “Smarter department store organisations” White Paper. Through a review of department stores’ internal organisation evolution from 1928 to the current digital age, it appears that:

• Department stores have always been extremely complex structures since their inception,
• Adapting to an ever-changing context is part of their DNA. They have always adapted to successive market evolutions…
• …even though it often meant to answer complexity with new organisational layers and, ultimately, a more complex structure per se. Department stores answer to an increasingly complex world by an increased C-suite specialization and organisational inflation.

Also, it appears that aiming for a structural simplification will, this time, not be enough to fully adapt to the digital and sustainable age, which are both significantly challenging: it is all about re-engineering structures and processes with a new, more organic, approach. More radical changes might be needed in the mid-range to stay competitive.

Organic reinvention has been an organisational feature central to department stores from their inception, helping them to deal with an increasingly complex world

“Department stores are decathletes”. This sentence encapsulates the challenges embedded at the core of any department store in the world: their model concentrates a vast array of complex activities, and, in these days of omnichannel competition and digital unbundling, they have to be good at every one of them. This permanent necessity has translated into constant adaptation and the acquisition or generation of new and appropriate competencies. While such transformations have been relatively invisible from the customers’ point of view, each new iteration has left its mark on companies’ organisations.

While organisation charts are not an exact reflection of how companies work, they provide insight into a company’s perception of itself, as well as its formal internal power structures. They also allow comparisons, and the tracking of change over time. This is why the IADS has put together snapshots of store organisations during 4 key dates: 1928, 1994, 2015 and 2021.

In 1928, when the IADS was created, department store structures were already extraordinarily complex, in order to address the number of categories and products sold (as seen in the Harrods example shown in the White Paper). In addition, all stakeholders were taken into consideration (customers, employees, partners, shareholders), leading to the juxtaposition of many activities and competencies. This created a fertile ground for a subsequent complexification: with time, the C-suite progressively increased according to managerial evolutions and technological progress, without significantly altering a template that became increasingly anachronistic. With time, organisations became costly, complicated and difficult to transform.

This became particularly visible after 1994, the year when Amazon was created. While a few companies foresaw the danger and followed suit by launching e-commerce ventures (Macy’s in 1997, Nordstrom in 1998 and John Lewis in 2001), the rest of the department stores were still trying to solve the space productivity equation through a highly centralised organisation at the buying level. Even though a few IADS members looked for other approaches, this struggle persists today, and partly explains why adapting to a digital, highly-fragmented and individualised world has taken so long for department stores.

The temptation to answer complexity with increased specialisation and organisational inflation

2015 is the year most iPhones were sold in volume to this day. It triggered the development of m-commerce, a complement to e-commerce, adding to the difficulties of those retailers who were struggling to keep up with customer behaviour changes and the end of the boomer generation majority. Despite this, organisations remained mostly unchanged, with 4 to 6 direct reports to the CEO, covering “traditional” areas of the activity (Finance, Merchandising/Buying, Real Estate, Operations/Sales, Marketing and HR). It is striking that digital capability (whatever its name: digital, e-commerce, omnichannel) was not considered as a strategic feature per se at the time, but was rather integrated into a broader department. This difficulty of acknowledging e-commerce from an organisational point of view is a reason why Galeries Lafayette already had a Chief Transformation Officer, a fairly unique position at the time when compared to the others, to address this challenge.

The Covid-19 pandemic and the total reset of the retail industry that took place in 2021 accelerated the need for department stores to change and rapidly acquire the new competencies needed to strive in an omnichannel world. It explains why they responded to the increased complexity of operations by increasing the number of direct reports to the CEO, with one company for example increasing from 11 reports in 2015 to 18 in 2021. This organisational inflation also reflects a lack of clarity about the meaning of “digital transformation”: the answer will be radically different if approached through each of its components (platforms, channels, technology, products…) rather than through a more holistic approach.

Does structure always follow strategy? The digital transformation case

Should organisations have an individual dedicated to digital change, or re-engineer their structure into a “digital mindset”? Examples from other industries (mass distribution with Carrefour, water supply with Suez Group, luxury with LVMH) suggest that a digital transformation officer position is easier to implement than totally resetting and transforming an often century-old structure. However, the scope of these new positions rarely includes resetting the organisation as a whole, and often consists merely of injecting technological innovations, only contributing to increased complexity or worse, the creation of an additional silo.

The fact that different solutions are adopted is a signal that companies are probably in transition mode. Each of them has to make defining choices, between transforming the organisation as a whole or solely focusing on the customer-facing structures, and between creating a dedicated position at the top, or seeking to digitally pivot the whole organisation (and if so, how).

Two IADS members have set up a new approach to this question in 2021, by addressing the problem from the customer-journey perspective. Both of these approaches are radically different. Breuninger delegates the power to change organisations at the store level, by creating a new position with increased prerogatives and possibilities to change operational methodologies. Falabella on another side has created a new position at the HQ level, whose role is to detect potentially interesting ideas from within the company and implement them in a test & learn process, allowing, when successful, the definition of a new customer journey.

These examples suggest that there is a middle way and a soft method to answer this question. It also confirms that there is room for organisational innovation within the existing frameworks.

Simplifying organisations is key, but may not be enough in the future

These marginal improvements might not be enough. The recent new appointments at the Macy’s board of directors, namely the CEO of The Michaels Companies and the president of Zipcar, both experienced in organisational transformation, shows that department stores are well aware of the difficulty. Historically, department store organisations have been responding to immediate problems, by trying to adapt to the current “iceberg”, perfectly aware that other ones were coming but, understandably, unable to dedicate the necessary resources to deal with all of them at the same time.

This never-ending race is impossible to win. Even though their margin structure has allowed them to avoid icebergs so far, the market-changing conditions are now putting department stores at risk of running out of possibilities if they do not manage to radically reinvent themselves. This radical reinvention requires courage and obstinacy from the leading teams, as it involves long-term vision (strategic planning), radical questioning (unbundling of century-old activities as we start to see across the industry), and the capability to change machine-like organisations into more organic social bodies.

Credits: IADS (Selvane Mohandas du Ménil)

IADS White Paper (English)

Livre blanc IADS (Français)

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Keeping markets under close watch, IADS collected new, pure streetwear and streetwear-oriented store concepts from retailers around the world. This series shows various themes, experiences and displays, illustrating the richness and diversity of the streetwear culture and aesthetics.

Check out how retailers are using innovation, colourful layouts and modern thinking to upgrade the customer's shopping experience.

Louis Vuitton, Tokyo

Leaving behind its usual classic looks, Louis Vuitton’s revamped store is embodying a  streetwear-oriented aesthetic. A dragon head in the window bears the initials ‘A’ and ‘N’, referencing men’s creative director Virgil Abloh and Nigo, guest collaborator and cult icon and founder of streetwear brand Human Made.

MORE ON Louise Vuitton, Tokyo

Off-White, Paris

Illustrating the luxury streetwear aesthetics, Off-White’s Parisian flagship store combines elegance with industrial rawness. A courtyard, a gallery and a market extending over three floors are gradually revealing Off-White’s diverse identity. On the third floor, the brand’s most iconic and beloved items, ranging from denim pieces to sneakers, are available to customers.

MORE ON Off-White, Paris

House of Vans, Mexico City

With its new Mexican store, Vans now offers an entire streetwear experience evolving around skateboard culture. The location houses a skatepark, a space dedicated to street skating, interactive workshops with artists and a gallery for rotating exhibitions. Visitors can also enjoy a movie theatre as well as Van’s kitchen, with some of Mexico’s best chefs.

More on House of Vans, Mexico City

Soldout Store, Seoul

The recently-established sneakers brand Soldout shows how physical retail and experience are key to the limited-edition sneakers market. Inspired by a winery, the space showcases a boutique and rare bottles of wine. The entire store consists of specialised spaces, including an examination room to check the sneaker’s authenticity, a packaging room, and a space to showcase the premium sneakers.

More on Soldout Store, Seoul

Supreme, Berlin

In Berlin’s hottest shopping neighbourhood, Mitte, Supreme offers a store with an industrial look as well as familiar elements, such as polished concrete flooring and a back wall plastered in iconography, all overlaid with skateboards. Furnishings are few and merely include clothing racks, a sales counter and a sculptural rock bench. The sound installation is a clear indication Supreme‘s new outpost isn’t only a transactional space.

more on Supreme, Berlin

Solebox, Barcelona

Barcelona’s new Solebox store offers a full range of streetwear products inside a market themed space filled with green plastic crates and boxes. The entire concept plays with the feeling of a grocery store with a fridge section displaying t-shirts and socks in the place of meat.

more on Solebox, Barcelona

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Created 2 years ago, Pando Fashion is a French company specialised in consulting for sustainable fashion. Its co-founders Laëtitia Hugé and Stéphane Piot are helping companies every step of the way in their CSR implementation, starting with a diagnosis using certification ISO 26000, to building custom strategies and embarking all teams. Pando Fashion is working with companies such as Moncler, Louis Vuitton, Zadig & Voltaire, Besson Chaussures, IKKS, Maje, Sandro, Lemaire, Institut Français de la Mode (French Fashion Institute) and with BTB fashion platform LeNewBlack. Why Pando? It’s the name of the oldest tree in Utah in the US, and it also means transmission in Latin.

Where and how to start with CSR

*IADS - How do you advise your clients to approach customer-facing initiatives (like product and brand certifications and labels) versus operational initiatives (using more efficient light-bulbs...)?*

Pando Fashion – First of all, they have to keep in mind that many factors are considered in a product lifecycle: raw materials and factories of course, but also logistics, carbon footprint, impact of store operations (such as energy consumption, waste…). Then comes the consumer’s part of the product lifecycle: use of the product, washing habits and recycling... Each step of the product lifecycle corresponds with specific actions: from customer-facing ones with the use of labels and certifications for sustainable or recycled materials for instance, to corporate communication for company energy consumption.

*IADS - Sustainability is a lifelong project, it has to be maintained over time. When does Pando step in or step out of the process and how do you set up organizations to tackle these issues for the long-term?*

Pando Fashion – Of course, we can start at any step of the CSR journey, whether it’s from the diagnosis phase or to support a company once its strategy is set, or on specific projects. We are helping companies that are at the very beginning of their CSR project, and others that are quite advanced. Sometimes companies think they have done nothing yet, but in fact they already have set actions which we will use as levers to move forward faster: that’s also what the diagnosis phase is made for.

Ideally, we step out when the company is autonomous on the CSR topic, which means they have enough knowledge and reflexes to continue implementation or run a new project by themselves. Also, there would be no point running long missions as we are helping companies to focus on what is the right part of CSR for them.

*IADS - Sustainability starts from the supply chain. How does your firm support optimizing it and creating a greener process from the beginning to the moment the products reach the customers?*

Pando Fashion – It’s a new mindset between manufacturers and brands. First thing is to get as much traceability information as possible on all production tiers: tier 1 is for the factory making the product, tier 2 for the fabric, tier 3 for the treads, and tier 4 is for the raw material. We will work on both processes (where the product comes from, how many tiers are they) and tools (helping to follow traceability). The more tiers you have, the more difficult traceability will be.

When we are dealing with questionable products, we will advise brands on how to help manufacturers improve their process, as you don’t change suppliers overnight. Pando is also helping brands to prioritize.

For instance, in the case of a leather bag, the biggest impact comes from the leather as the tanning process is easy to improve. Then comes the metal parts: since there is not much traceability for brass and steel, we will recommend the use of alternative metals.

How to avoid greenwashing

*IADS - How do you help your clients avoid greenwashing and achieve authenticity when tackling sustainability and communicating their efforts?*

Pando Fashion – The rule is simple: first, do something, be humble and then communicate. You must have consistent results before communicating to customers. Some companies want to start communicating as soon as they have their strategy set, but that is way too early. Sometimes it’s the opposite as some are too cautious. Several levels of communication are possible: proportion of sustainable materials, of local production, etc…

It’s also very important not to overwhelm customers with too much information. Consumers are focusing on what is in front of them: the product. It bears the first level of information: the product tag informing about materials or “made in”. The second level is the retailer’s website providing more information. Another level can cover the store energy consumption question, the HR inclusivity policy: usually such information is for the corporate communication level.

*IADS - What is the biggest mistake that you see retailers making when it comes to approaching their sustainability initiatives?*

Pando Fashion – The biggest one is about the amount of communication compared to the reality and authenticity of actions. For instance, H&M used to over-communicate on their Conscious line. It was too much knowing this line was only 10% of their global offer, so they were accused of greenwashing. Even though companies such as H&M know being more sustainable is necessary, their business model and price point don’t allow them to have more than 10% of sustainable products.

On top of that, H&M and most retailers have to address all customers in their communication. Usually, we consider 10% of consumers are engaged in sustainability, they are considered activists. 60% are interested in the topic but won’t necessarily buy sustainable products, 20% don’t care and 10% are against sustainability. In that sense, the easiest way to be sustainable is to be sustainable-native.

Pain points and success stories

*IADS - From your experience, what are the pain points retailers are coming across?*

Pando Fashion – The ambassadors of sustainability are the sales associates, and they are hard to convince since they consider that sustainability equals an additional workload. When it comes to sales associates, there are different strategies. With Besson Chaussures, we trained the sales managers in each store for them to become the store go-to person for CSR questions. Considering their position in the organisation, they were ideally positioned to encourage sales associates. With Moncler, we had distance training directly with sales associates. In any case, and as for customers, it’s important not to overwhelm them with too much information but feed them with key elements that can easily be shared.

*IADS – Resources are limited for retailers when approaching CSR. How do you help organizations find and allocate the resources, within the existing teams, to execute, promote and train on CSR?*

Pando Fashion – Since they don’t have any internal knowledge, most of the brands and retailers are asking for external help at the beginning of their CSR journey. On top of helping them start the process, we are suggesting the most efficient and least time-consuming organisation. The key idea is autonomy: CSR has to become part of the company processes as for instance; digital working is. We also help customers in their research of CSR managers. When the latter are being internally promoted, we are training and coaching them.

In CSR, we work with 3 pillars: environment, social and economics. CSR is often put under the HR umbrella because of the social component. What works best, according to us, is to have a CSR global director and one manager for social questions (working with HR) and one for environmental questions (working with product and marketing). In a way, as for digital functions, CSR functions might evolve, reduce or even self-destruct, once CSR is implemented and infused in the company.

*IADS – Can you share any success stories or examples of retailers that are excelling in their efforts or approach?*

Pando Fashion – With the multi-brand luxury menswear chain Lothaire, we started the process from the values and DNA of the company to build their CSR policy. For instance, they are very much committed to services and local communities. Starting from that, we helped them build and increase their repair service and to create a second-hand shop-in-shop.

At Moncler, the training of sales associates was organised online more like a conference than as a training. It was perceived as something motivating, and absolutely not as an additional task. They really felt proud to be included in the company’s CSR strategy. As a result, the training answered many questions: CSR of course, but also motivation, communication and belonging. These are key components, especially at a time where retail staff is scarce. Such actions are also part of the employer’s brand and of its attractiveness.

Measuring ROI

*IADS – What are the KPIs you’re using to measure the impact of Pando’s actions (cost impact, share of organic materials, carbon impact…)?*

Pando Fashion – There is no definition of sustainability today so it’s up to each brand and retailer to set their own definition and to be very clear about it. Yet, the first KPI all brands are monitoring is the share of sustainable products in their offer. The ‘made in’ share is also an important KPI. Limiting the number of SKUs and increasing the share of carry-over products is also monitored: in that sense, sustainability supports margins. The share of labels and certifications used along the supply chain is another KPI. KPIs will differ depending on retailers and CSR strategies, business model and DNA. In any case, retailers should prioritise and decide the KPIs to focus on.

*IADS – What are the most important KPIs retailers should use to measure the ROI of their sustainability efforts?*

Pando Fashion – The most important today is the share of sustainable products in the offer. It’s also the easiest message to convey to customers, especially with all the labels that can be confusing to shoppers.

Issues with labels

*IADS – There are many labels (BCorp, Amfori, GOTS, etc...) that are very confusing. On top of that, retailers are starting their own labels. What are your thoughts on the over-complication and multiplication of sustainability labels? Does this really help consumers or is this something that retailers are doing to showcase their efforts?*

Pando Fashion – As long as we won’t have a global and single label, it will be very difficult to facilitate communication with customers. Yet, labels are of some help to customers as they are speaking to 70% of consumers (the 10% activists and the 60% open to CSR questions). We advise brands to focus on 6 or 7 labels, not more: among them are GOTS (Global Organic Textile Standard) and OCS (Organic Content Standard) for organic raw materials, GRS (Global Recycled Standard) and RCS (Recycled Claim Standard) for material recycling, RWS (Responsible Wool Standard) for animal welfare and LWG (Leather Working group) for responsible leather.

As for labels such as Galeries Lafayette’s Go For Good and Printemps’ Unis Vers Le Beau, they are helping the consumer in the end. It’s a good initiative since we don’t have a global label yet. For sure those labels have weaknesses as they cannot be perfect, but they are transparent: you can go on the corporate websites and have reliable information about the rules and criteria used. Of course, such labels might become useless when a global label will exist.

*IADS – Do you think any particular label or certification will outlast the others as the main one that retailers should obtain?*

Pando Fashion – The strongest is GOTS especially because of its traceability rules. GRS really secures authentic recycled materials. When it comes to animal welfare in wool production, RWS is the best. In any case, in order to facilitate communication and be pedagogic, retailers should explain in a few words what are the labels and why they are good.

*IADS – What are the main topics/issues that your firm is focusing on in the next 2 years?*

Pando Fashion – In the next 2 years, Pando Fashion will work more on the customer’s autonomy. To that end, we will give access to more information on our website to transform it into a platform. All companies have to enter the CSR topic. Right now, it’s still considered as an added value. In 2 years, it will be a standard so retailers should act fast. The sooner the better!

Contact: Stéphane Piot

stephanepiot@pandofashion.com

+33 6 63 78 12 19

Credits: IADS (Christine Montard)

printable version here

Keeping markets under close watch, IADS collected creative disruption concepts from retailers around the world. This series of stores offers astonishing displays that will give customers a whole new view of today’s physical stores.

Check out how retailers are using creativity, technological innovation and modern thinking to upgrade customer’s shopping experience.

Anya Hindmarch, London

Anya Hindmarch‘s audacious opening of five separate establishments creates the illusion of a small village in London‘s chic Chelsea shopping neighborhood. The innovative cluster of spaces is anchored by Anya Café, a stylish place to sit and have a bite or a drink. ‘The Village’ is set up as an evolving retail concept, and as such the cluster of spaces will see regular tweaks aligned with Anya Hindmarch‘s creative scope as time goes by.

MORE ON Anya Hindmarch, London

Choosebase, Tokyo

Seibu’s new Choosebase store tackles the OMO trend (online merges offline). Through the use of QR codes, the customer’s chosen products are virtually placed in baskets to be picked up at the exit of the store, removing shopping carts to enhance the Instagram-worthy experience.

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Haus, South Korea & China

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PRINTABLE VERSION HERE

*IADS has reported how IADS members accelerated on the sustainable front since the beginning of the pandemic in 2020 (see our latest report on IADS members’ initiatives here). They transformed their organisations from within (with dedicated committees benefitting from increased powers, and often in direct liaison with the C-suite) and communicated initiatives and changes in a crystal-clear manner to the final customer. This also translated into pain points as all these initiatives require resources, which can be overwhelming given the number of certifications and labels, and can also, sometimes seem too far-fetched compared to the immediate challenges posed by the state of the business. In other words: just like digital transformation, sustainable adaptation is costly, takes time and energy, and requires organisational re-engineering.

This is the reason why we decided to look at “Green Pea”, a new type of sustainable business, the first self-proclaimed 100% sustainable department store in the world, and which reverses the problem. Green Pea tries to bring an answer to the following question: how to build a profitable business that takes for granted the sustainable approach?

We looked at the key learnings from this business case and tried to isolate the most interesting ones for IADS members.*

Context

Green Pea has been founded by the Farinetti family, who also founded Eataly back in 2007.

At the time, the reasoning for Eataly was simple: Italy as a concept was a strong brand recognized worldwide, and the Italian cuisine was also universally recognized. Eataly therefore capitalized on the possibility to enjoy fresh food direct from the producer, that could be either bought or eaten on the premises, combined with ideas, images and clichés customers might have about Italy as a country and a way of life. The first Eataly opened in 2007 in the city of Turin, on 12,000 sqm (for comparison, the Milan store measures 5,000 sqm and the Rome one, 10,000 sqm).

Today, Eataly represents 42 stores in 16 countries, operated either directly (including in joint-venture) or through partners. The first market for the company is the US, which, with 8 stores, represents 65% of the total turnover (estimated as a whole around € 690 – 720 M pre-pandemic). To have an idea in terms of turnover, the historical Turin store achieves € 32 M a year on 12,000 sqm, to be compared with € 75M in New York (5,000 sqm) or € 44 M in Chicago (6.300 sqm).

Based on this success of an “all Italian plates and ingredients” formula, the Farinetti family then decided to capitalize on the “Eataly of things” with a focus on what the country is reputed for: food, fashion, design. And in the same manner as Eataly, which is all about local, proximity and “slow food” (a novel positioning back in 2007 for a supermarket), this new project should also tackle sustainability in retail in a new manner.

The claim

Green Pea is the first “green” retail park in the world, opened in December 2020 in Turin, in the same building that hosts the Eataly store, on 15,000 sqm and 5 floors (it is not clear what the Green Pea founders mean when talking about a “retail park” as the format resembles very much a department store one). It aims to answer a seemingly unsolvable question: “should we stop consuming to preserve the planet?”. Green Pea aims to show that it is possible to responsibly consume by setting sustainability as a non-negotiable prerequisite and make it desirable by surfing on the “Italian” aspect of its offer and approach.

The whole company has implemented sustainability at the core of its business model, by setting up a self-imposed Manifesto in 10 points that provides clear and strict guidelines on how the business should be conducted, from day-to-day operations to strategic vision. For instance, Green Pea affirms that in order to efficiently contribute to society, a department store should address new categories beyond selling fashion goods and other “traditional” categories, to prove that it is possible to live in a sustainable manner at no additional cost. This is why Green Pea sells energy (100% clean), transportation (e-cars, e-bikes…), in addition to furniture, design, cosmetics and fashion.

To exemplify the level of detail, the Manifesto states, in the furniture category for instance, that sold items should not (of course) compromise on design and quality, but also abide by strict self-imposed rules (such as limiting formaldehyde emissions, using wood coming from renewable sources and biodegradable and recyclable plastics). The company also commits to planting a tree for each piece of furniture sold, to help consumers recycle or return their pieces when not needed anymore, and to show suppliers’ information about the manufacturing process in total transparency and clarity.

Even though the Italian aspect of the business (fashion, design) is clearly visible, the most striking in this Manifesto is probably the strict methodology applied in every operational and sourcing aspect, as well as the clear communication in simple words about it. It is clear that the main focus is to ensure that customers do not associate sustainable options with high prices.

In parallel, and this also transpires during the visit, the “Eataly of things” aspect somehow misses the point as the Italian-focused offer somehow distracts from the fact that entering Green Pea is all about deciding, as a customer, to have a new approach to consumption.

How does it translate in reality?

First of all, the building itself has been fully built with recycled material (wood, metal, glass) which can all have a second life in case the building has to close. In other words, the architecture can be fully taken to pieces and used to build another structure. The structure is classified Nearly Zero Energy Building (A3) thanks to the materials used, but also the approach to energy:

• Photovoltaic panels (which are integrated into the decor, in the form of giant flowers) and wind turbines provide near to 90% of the energy needed for the lighting of the building.
• It also uses the energy generated by the footfall itself, in a quite literal manner: in all floors, piezoelectric zones use the energy diffused by the steps to also produce electricity.
• Heat pumps installed in the foundations of the building provide heating of both the building (88% of the need) and water (87% of the need), which is also kept circular thanks to a closed-circuit allowing the building to be free from external water supply (it also recycles the rains).
• Within the building, 2,000 trees and plants are also grown, which contribute to purifying the air while also setting up a nice setting for customers.

However, a green building is not enough to make a sustainable strategy. This is why Green Pea founders have spent 2 years prior to the opening to assemble a 100% sustainable product offer that goes beyond the usual categories found in other department stores (fashion, design), totaling more than 100 brands and partners in this adventure.

A department store, really?

The approach taken might seem counter-intuitive for any person familiar with department store structures, with a disturbing floor plan:

• Ground floor: museum, energy and transportation goods
• First floor: home, furniture and design goods
• Second floor: fashion
• Third floor: beauty, books and restaurant
• Fourth floor: members club, sauna, swimming pool and recreation surface.

Starting with a museum to educate customers about the need to care for the planet and how to behave sustainably seemed crucial for the founders. This is why the first things seen at the entrance are the structure and construction details of the building, explained and dissected in simple and amusing ways, to entertain and educate both adults and children. It shows how the building saves energy and water. This is the first touchpoint of a customer journey mixing discovery with education as all floors also contribute to sharing knowledge by explaining how materials are produced and how they impact the planet compared to non-sustainable options.

Also on the ground floor, the founders wanted to address the most basic customers’ needs: energy, money and communication. This is the reason why they have offered green energy suppliers (Enel X, Iren…), new and second-hand cell phone sellers (TIM, Samsung…), green banking players (UniCredit, Mastercard…), green & perchloroethylene-free laundry, and an electric vehicle manufacturer (Stellantis, which displays all the e-cars produced by the brands pertaining to the consortium, including Jeep, Chrysler, Peugeot) a significant retail and showroom space, to educate and sell.

At this point it is key to note that during the visit, the CEO stressed his two main goals were:

• To contribute to making the sustainability topic an everyday cultural one (i.e. knowledge should help customers to address this topic with more confidence, and help them make enlightened decisions). This translates into a large amount of information made available across the ground floor (but also in the other ones), as well as tips and behavioural advice to make an impact in the everyday life, streamed in the Green Pea app, downloadable for free.
• To propose only sustainable options that do not cost more than non-sustainable ones. This means that prices are always clearly displayed and explained, including their margin components, to help customers to make arbitrations.

These two aspects are a constant when visiting the upper floors.

On the home & furnishing floor, for instance, customers can have a fully equipped, 100% sustainable kitchen, ready to be set up, for as low as € 3,500 VAT included. Green Pea worked with manufacturers on materials to reach this impressive retail price (which also helped Green Pea launch its own private label, Green Pea Casa). Of course, the range of products offered also includes more luxurious brands, leading to higher prices (from Whirlpool to FontanaArte, including also Guzzini or KitchenAid). All across the floor, customers are informed of the nature of the components and materials, where they come from and to what extent they impact the environment, as well as a comparison with non-sustainable options.

The fashion floor displays 65 brands in corner or shop in shop formats, of which 70% are operated by the brands themselves. This includes local brands (Esemplare, Antidoto 45, Giampaolo, PT Torino) or larger ones such as EcoAlf, K-way, Timberland, Superga, Kappa, Sebago, Borbonese, Napajiri or Patagonia. All staff are paid by the brands and trained by Green Pea. The RTW section continues on the third floor as a small section of the beauty floor is dedicated to luxury and fashion, with exclusive shop in shops (specific to Green Pea) from Cucinelli, Herno, Zegna and Sease. Both floors (fashion and beauty/luxe) also propose tailor-made experiences, be them via personalization ateliers (from specific details to the production of the whole garment if needed) for fashion items, or via individually formulated cosmetics according to each one’s skin, exclusively developed on site with Alkemy Spa.

When it comes to the food offer (located at the cosmetics floor), the pricing range is also quite wide, from a bar with entry price point snacks (using all Eataly ingredients and suppliers) to a Michelin-starred restaurant.

Finally, the rooftop is dedicated to the member’s club, including a restaurant, a terrace, a sauna and an infinity pool. To be a member of the club costs 300 euros a year and gives full access to the location (to be noted: the regular customer loyalty card, which does not offer access to the club but the same benefits otherwise, from anticipated sales, points and special promotions, only costs 50 euros a year).

What can we learn from this model?

Green Pea is all about being “green” without being suspected of greenwashing. Having a fully sustainable building and displaying only sustainable brands is of course impressive and nice but does not fully support the “first sustainable retail park” claim of the retailer as these initiatives can be also spotted elsewhere in the world. This is the reason why the educational part of the customer journey is key, as it helps the retailer to achieve 3 goals:

• Contribute to expanding the general public’s basic knowledge on materials, practices and behaviors.
• Show in quite a literal manner the initiatives they have taken.
• Promote the selection of brands they have made.

This focus on information is key, as it differentiates them quite a lot from other retailers who promote certifications, initiatives and labels, but who do not really contribute to educating customers on a broader level and, from there, influence culture as a whole. In other words, they are using their physical retail space to create and pre-empt content on sustainability.

This is completed by a specific approach when building the assortment and selling it:

• All salespeople are paid by the brands but fully trained, on a regular manner, by Green Pea on sustainable topics (they are given information to be able to stand a conversation addressing their brand of course, but also the rest of the assortment, Green Pea’s approach and even broader conversations).
• The price range is adapted and answers concerns customers might have about having to pay more to have the same products, but made sustainably.
• By proposing a paid loyalty program (a strategy the IADS is very much supportive of), they astutely create a club of “those who know vs. those who don’t”, therefore creating some kind of social curiosity and interest for sustainable topics, through a membership giving access to an exclusive location at a reasonable price.

Binding all these elements together helps Green Pea to be credible when they claim to be the place to be (and to shop) when it comes to sustainability. However, is this enough to make a business? Many questions are raised when looking more in detail at the model.

First, in terms of traffic, it is of course extremely probable that a 100% sustainable “shopping temple” is attractive to many customers, at least to see what it means. But how is it possible to make sure they come back twice or more? The ground floor, with its utilitarian offer (green energy, finance and communication), is, without a doubt, interesting but raises questions that are more about the customers’ lifestyle than the simple joy to go shopping. Is that amusing for them in the long run? Moreover, one might wonder to what extent a ground floor with such an offer (including a museum to educate customers) could be reproduced elsewhere in the world, in a more competitive context than this specific part of the city of Turin.

This leads to another crucial question, the business potential of the store. When asked about the profitability of the model, Green Pea’s CEO answers that the store has not been built with sustainability seen as a perk, but as a key constitutive element. As a consequence, the brands’ margin model remains the same as for a ‘normal’ business, as sustainability does not create a specific economic advantage or handicap. For him, it is just the way to see things today.

However, it is not really possible to know how well this concept can perform yet. For one thing, it opened in December 2020, in between lockdown episodes, in Turin, which is a smaller city than Milan or Rome. Therefore, KPIs are not relevant for now. Secondly, during the visit, it seemed that the Italian approach of things was too diffused to be as impactful as in Eataly (plus: does it make sense in the same way?). As a consequence, this side of the marketing approach might be less impactful than simply relying 100% on the “first sustainable retail business model”. At the same time, relying 100% on the first “sustainable business model” might limit the number of brands that can be part of the concept, leading to questions on the maximum profitability of the model: can it be comparable to what we know in other department stores? What do you do for instance when Louis Vuitton or Chanel do not fit with the commitments made in the Manifesto? And is the “first sustainable retail business model” enough to become a long-lasting attraction for customers that can get easily bored, and who might not enjoy being reminded of serious things every time they take a trip to the store?

So far, even though the whole Green Pea concept consolidates a series of new approaches and proposals to the customer in the same way that Eataly did back in 2007, it seems that it is still in the laboratory stage, not in terms of maturity of the concept (which is already quite convincing), but in terms of realism of the economic equation. The ingredients that made the success of Eataly (local, circularity, Italian identity) might not be enough to be transferred as such in the Green Pea retail concept, at least outside of Italy.

Credits: IADS (Selvane Mohandas)

PRINTABLE VERSION HERE

If the pandemic wasn’t hard enough already on retailers, it also accelerated topics such as sustainability. Consumers have become more aware and educated on CSR related topics while they were stuck at home with more time to think about their environmental impacts - especially as this relates to retail. This has created increased importance for retailers to ramp up their sustainability initiatives as well as communicate them.

A snapshot of sustainability before and after a global pandemic

Before the “first wave” of the pandemic in March 2020, IADS polled its members about their overall vision and approach to sustainability and its structure. We had 5 members complete the questionnaire (Breuninger, El Corte Inglés, Manor, Sogo, and The SM Store). The survey asked members to define their sustainability vision, how they communicated internally and externally at the time, as well as clarify its organisation and programmes.

After the first couple of waves of the virus, which had interrupted business for department stores across the world, IADS performed another survey to check in on our members to better understand what main areas of sustainability have accelerated by July 2021. Six members participated in the survey including Beco, Breuninger, Magasin du Nord, Manor, Sogo, and The SM Store. From this survey, we wanted to understand what our members were focusing on in these unprecedented times, how they were communicating with customers, what pain points they have specifically faced, and what has changed organizationally due to sustainability’s heightened importance in the past year.

Enhancing communication and avoiding greenwashing

In the first survey, conducted in March 2020, members cited various ways that they approached the communication of sustainability efforts and protocols:

• Some used internal tactics by either creating a dedicated website page or promoting sustainable products through their own logo. Manor for instance would add a ‘Manor Respect’ tag on physical products and on the website to indicate sustainable products.
• Breuninger shared that they communicate initiatives and spearhead projects through an employee app which allows them to easily store guidelines and share progress on projects and initiatives.
• Other mediums mentioned used to share sustainability involvement included social media, marketing campaigns, and store displays.

During the second survey, conducted in July 2021, a new and major challenge of communication was to avoid greenwashing, but this is easier said than done. IADS members have shared their approach to ensuring that their messaging is not construed:

• Hard facts: Sogo certifies that the contents of the messages to customers are factual without ambiguities and supported by relevant certifications. Manor focuses on only hard facts communication.
• Cooperation: SM works with their suppliers and consigners so that the messaging is more seamless across all external partners and they make sure that the eco-friendliness of the products are communicated consistently across their different channels.
• Tone of the communication: Magasin believes that being consistently honest and authentic will eventually win over any sceptic as it is hard to argue with a proven track record.

Evolving organizations

Organizationally, most of the respondents shared in the first survey conducted in March 2020 that they have cross-functional committees with representatives from different parts of the organization, thus ensuring cooperation and information sharing across divisions. These committees typically have a link to the C-suite. Sogo, for example, has an ESG Committee which is headed by the Executive Director and comprises members from all major departments. This committee is in charge of formulating ESG strategies, sustainability reporting, stakeholder engagement, materiality assessment, monitoring the performance of initiatives, and the promotion of ESG issues internally and externally.

By the time the second survey was conducted in July 2021, IADS members had recognized that CSR topics require dedicated resources to be able to carry out and monitor initiatives:

• Beefing up the CSR team: Breuninger has hired more people in the corporate responsibility unit as well as in the buying department to meet the growing needs. Manor will be reinforcing the sustainability department by one headcount.
• Doubling down on the pre-pandemic committee approach: The SM Store created a sustainability steering committee made up of executives from different functions to ensure a singular message. Magasin du Nord does not have a dedicated CSR team, but members from the marketing and HR teams have been used as project managers to address changes, implement training, and manage external contacts. Sogo has not had any changes and continues to support its ESG Committee.
• Looking for external support: Beco has decided to start a sustainability programme and has hired a company to help them go through the initial steps.

Introduction of new pain points

When conducting the first survey (March 2021), IADS did not know to what extent sustainability topics would progress in the coming years, but through the second survey (July 2021), conducted 15 months later, the Association witnessed the face that CSR topics have become top of mind for many of our members. The global pandemic has accelerated the awareness of consumers as well as the importance of making a stance regarding overall impacts for businesses. But this heightened awareness has also introduced new pain points for retailers.

When posed the question about what major sustainability pain points members are being faced with, they all had different answers:

• For Breuninger, they find that the multiplication of labels is difficult to grasp as well as setting up green logistics, green packaging, and a sustainable supply chain.
• Sogo expressed that it is difficult to set medium-term goals and targets as well as raise the awareness of employees regarding ESG issues.
• Manor shared that they are struggling with having enough resources to implement all the initiatives around sustainability. On a similar note, Magasin du Nord stated that sustainable options do not highlight themselves and that it takes extra resources in stores and online to arrange and label these items. They also mentioned that educating customers on more sustainable options is not simple.
• Finally, SM shared that the pandemic as a whole led to a disruption of their sustainability rollout.

Programmes and initiatives

IADS members have rallied their troops to be able to step up to the new demand that sustainability has imposed. There has been a lot of progress made in terms of programmes and initiatives, especially ones that were fast-tracked due to the pandemic. From members who are taking their first steps to tackle CSR topics to those that have extended resources to meet growing demands, all members have some very exciting and noteworthy activities they have been working on since the beginning of the pandemic. Almost all members were focused on reducing overall waste, especially in the form of offering alternatives to the use of plastic and paper bags at the point of sale. These programmes have matured and progressed quite a bit in the past year.

Breuninger has replaced plastic bags with reusable ones and added a green option for online sales to remove any additional packaging. They also revised their guidelines for sustainable articles, prepared a responsible sourcing policy, and prepared an animal welfare policy targeting future goals. The retailer has also introduced digital receipts through their mobile app to reduce overall paper waste in stores.

Magasin du Nord has focused on their own brands to achieve the best certificates and higher composition of sustainable materials. They also are committed to using more sustainable packaging without compromising durability and strength. And they are focused on reducing food waste and getting more out of less when it comes to electricity and other resources in general. They have also partnered with a popular second-hand store (Time’s Up Vintage).

Manor has stopped offering free bags in store, started a hanger recycling program, and implemented reusable containers for internal deliveries. They also rolled out their partnership with Too Good To Go (a mobile application that connects customers to restaurants and stores that have unsold food surplus) nationally as well as launched the rebranding of their sustainable label and reinforced it with internal guidelines and training.

SM Investments Corporation sealed its commitment as a supporter of the Task Force on Climate-related Financial Disclosures (TCFD) in a strong bid to ensure its businesses meet global sustainability targets.

Sogo has decided to focus their marketing on digital mediums rather than physical ones. They have also created an emergency response team to devise strategies around virus preventative measures, ensured that food waste is composted or turned into animal food, organized charitable events and donated face-masks and gel, and pushed the use of the Sogo Rewards Mobile App to reduce the use of physical gift certificates.

Beyond those that completed the survey, IADS members have been incorporating new programmes that are worth noting for inspiration.

El Corte Inglés is involved in a wide range of CSR projects touching on logistics, merchandise and energy consumption. They partnered with Llewo, a company specialized in social and eco-sustainable logistics management: they will work together to evolve and grow the last-mile delivery from a sustainable and social point of view. The Spanish retailer also joined the Sustainable Apparel Coalition (which is responsible for the Higg Index), an international alliance for sustainable production within the footwear and clothing industries. In terms of commodities, El Corte Inglés reduced its electricity consumption by 25% in just five years and uses renewable energy sources to run its business in Spain and Portugal.

Since its Go For Good programme launched, Galeries Lafayette opened (Re)store, a new women’s fashion space. The section features second-hand labels and circular fashion brands, ranging from affordable clothing to luxury handbags. This month, they opened a Pangaia (loungewear brand) carbon-neutral pop-up store: they nailed both a hot and sustainable brand as well as being able to operate responsibly.

Falabella is also very much involved in CSR questions. They committed to supplying 240 stores in Chile and Peru with 100% renewable energy by 2022. On top of that, 34 stores in Chile, Colombia and Peru received the international certification in Leadership in Energy and Environmental Design (LEED), a distinction granted by the U.S. Green Building Council (USGBC), an organization that aims to promote sustainable construction and development.

Measuring progress

The conducted surveys reveal that there has been an increased awareness and importance put on topics revolving around CSR. Some members have even noted that CSR efforts have a direct correlation to business activity and performance. The survey revealed that sustainability programmes and investment in these types of efforts will continue to accelerate. With the increased activity, there will also be more focused working groups formed cross-functionally and even additional headcounts brought in to help manage the new initiatives.

As members are implementing new programmes and investing money in sustainability efforts, it is important to understand what happens next. How are initiatives measured and how do they know if the time and investment were worth it? All members mention that they define relevant KPIs to quantitatively track predefined targets as well as gather feedback from stakeholders, including customers. Some of these KPIs are:

• Energy consumption per operating area
• Amount of food waste recycled
• Fewer paper mailings based on a specific year
• Percentage of CO2 reduction
• Percentage of turnover of sustainable goods (private label or other brands)
• Percentage of reduction of packaging, waste, and plastic
• Measuring the composition of sustainable materials in each product sub-category
• Tracking customer feedback and brand awareness (El Corte Inglés uses Reptrak as a way to measure reputation, brand, and ESG performance)

IADS also conducted research on the efforts and initiatives of American players such as Amazon, Walmart, HBC Group, and Macy’s Group which all have a robust offering of CSR communications. Comparatively, and as IADS members are quite heterogeneous, some members are in line with the American retail giants, while others are just getting started. This is normal as the prioritization of these efforts heavily depends on the markets they serve as well as customer demands.

Overall IADS members are ramping up their CSR projects and teams and have seen an accelerated demand for such initiatives in the past year. Sustainability programmes used to be ‘nice to have’, but they are now becoming crucial among retail organisations. As commitments to responsibility are made, it is important to follow through and share results through defined KPIs and transparency at each step of the journey. IADS members have found that facts-based communication (sharing KPIs and progress) is a key way to avoid greenwashing and include the customer in the brand’s sustainability journey.

Credits: IADS (Mary Jane Shea)

PRINTABLE VERSION HERE

*Private label development is in full swing for some retailers, especially for the big-box ones in the United States, reflecting a successful business model that Millennials are also favouring. The penetration of private labels amongst Millennials is 1-2 points higher than prior generations and continues to grow.

Usually considered as a margin enhancer, a great tool to recruit customers, a way to develop loyalty thanks to attractive price points, or an asset to emphasize the store brand message, private labels can meet tremendous success for retailers such as Target. But for others, they struggle to reach profitability.

To stay relevant these days, private labels not only have to offer an excellent product implying a great deal of research and creativity, but also differentiate from competitors, and even outdo national brands. As retail consultant Stacey Widlitz sums it up when discussing Target’s success in launching private labels: “They’ve basically been going around saying, ‘Who does it best and who does it worst?. Let’s replicate what the winners are doing and take on the losers and do it better.’” Is it really that simple?

Private labels currently represent an average of 6-7% of the IADS members’ turnover (data from IADS Merchandising meeting dedicated to private labels, January 2021). This part of their business has been reorganised in the past years and months raising critical questions: do department stores still need private labels, are they still good at this historical part of their business?*

The price appeal

It’s a well-known fact that price is a key component when it comes to private labels. It’s even the first idea that comes to mind, especially in the food area. With Covid, such products have recently grown even bigger due to newly price-conscious consumers finding themselves with less money. According to a McKinsey study from November 2020, when consumers are asked why they switched to private labels, more than 45% said price was the primary reason.

A Nielsen study from 2018 also states that 67% of customers think that private labels are extremely good value for money. This high percentage reflects the fact that own brands are not about being the cheapest they can be, but more about being cheaper than national brands (and filling a void on the market), whatever their price points are. As for department stores, they have no interest in trying to be the cheapest: they would put themselves in direct competition with Amazon Basics own label, a competition that we know is lost before even beginning…

So, should department stores continue using private labels to offer an entry price point to customers? Does a relevant product offer have to come with a low-price positioning? With its ‘Monoprix Gourmet’ brand, Monoprix (the French urban “variety” store) shows that the key factor is not about being the cheapest, but about being cheaper. Relying on upscale urbanites willing to pay more for quality food, the retailer developed a range of 700 gourmet products. There were no such products in supermarkets: ‘Monoprix Gourmet’ filled a void and became extremely popular with rather expensive products.

The Monoprix Gourmet example shows that a cheaper price point works if it comes with a strong dose of creativity, in all possible ways: in that case, it comes with strong consumer needs analysis and a great deal of research and testing with many potential food suppliers. It may be obvious to retailers that the price point is not enough, but it remains difficult to be creative enough to find the sweet spot giving a product range its needed added value and competitive edge.

Right now, Target is probably the best retailer when it comes to both being able to offer cheaper prices while having a "’cheap chic’ image and changing the cheap and low-quality perception that store-owned brands have had for many years.”  In 2021, the US big-box behemoth accounts for 48 private brands. Ten of them are worth one USD billion dollars.

In the department store business, Le Bon Marché also achieved a significant performance, yet at a very small scale, with its menswear brand Balthazar: while being cheaper than national brands, it’s also recognized for its quality and designs. Through the years and the eyes of the consumers, it even became a ‘true’ brand and is not just considered as a private label anymore.

A 2020 survey by Numerator (a US data and tech company evolving in the market research industry) also shows how decision-making factors in choosing brands are shifting when it comes to price. It is still key, but its importance greatly decreases with ‘modern’ consumers (the price factor drops from 87% for ‘traditional’ buyers to 69% for ‘modern’ buyers), with quality and product claim gaining more importance instead.

Creating loyalty and additional sources of revenue

Good pricing brings loyalty, that’s for sure. In that sense, private labels remain a great way to recruit and retain customers. Very recently, own brands benefited from the unavailability of some products during Covid. According to McKinsey, 40% of customers switching brands will likely continue purchasing the new brand once Covid is over. With products usually being good value for money, the short-term switching behaviour can obviously transform into long-term customer loyalty. Considering customers are more and more unfaithful to brands and retailers, and costs of customer acquisition are sky-rocketing, having a solid and loyal customer base is more crucial than ever.

When it comes to the loyalty factor, Galeries Lafayette is an interesting example. According to company private labels management, they are benefiting from a very strong loyal customer base thanks to their women’s ready-to-wear considered as qualitative, affordable, timeless, colourful and easy to ‘mix and match’ with customer’s wardrobes. The Galeries Lafayette brand relies on recurring customers favouring the store brand over national brands. This great success built itself throughout the years /nbsp]meaning the customer base has now to be rejuvenated.

The loyalty effect is also interesting when it comes to gathering key data about consumers’ shopping habits (demographics, products, price, cross-selling…). It’s even more important in department stores where the concession operating model is widespread, and consequently the relating data is owned by brands. Having a direct relationship with customers that are buying different items and brands, department stores are benefiting from a true competitive advantage when compared to national brands. Not only can the data help private labels to become more appealing to customers, but the richness and depth of this data makes it a great asset to be valued and sold to national brands and partners. Especially at a time when department stores are evolving their business model to find additional sources of revenue.

Loyalty has some limits though. In 2001, Le Bon Marché tried a ‘spin-off’ Balthazar store in Boulogne, a Parisian wealthy suburb where a fair part of the store customers actually live. It wasn’t a success, and it closed a few years later, but the experience remains of some interest as an attempt to try to make a private brand live outside of its native ecosystem.

A tool to differentiate from competitors

Amit Philip, SVP and chief strategy officer at TreeHouse Foods (producing private label packaged foods in the United States), believes that “you can get national brands in any store but retailers establish unique brand and value propositions that are only available in their banners. The more sophisticated retailers even have price tiers within their private brand portfolios. Historically private label was seen as perhaps a cheaper, lower quality option and the standard was to try to match national brands. Today, retailers are looking to exceed national brand standards and create new and higher value propositions.”

El Palacio de Hierro is an example of a department store digging into the unique brand and value proposition as they are developing more and more brands coming with different price points. In ready-to-wear for instance, brands are ranging from the Entry price point with Catamaran (designed for the 17-28 y-o with a EUR 27 average price is), Mid-range with Epsilon (designed for the 30-45 y-o with a EUR 45 average price) to Premium price point with Chester & Peck (designed for the 35-55 y-o with a EUR 93 average price).

Creating such a high-value proposition to differentiate from competitors, and succeed, depends a lot on research and creativity. Among pure players, Asos is a good example when looking at their ‘Asos Curve’ private label. When national brands were still lagging behind in terms of inclusivity, Asos was ahead of its competitors in terms of trends and filled a void on the GenZ fashion market.

Visual identity has also become an asset to the private label business. Monoprix is again a fair example of innovation in that area. The “Monoprix” brand covers basic needs with more than 2,000 products. As there is no excitement in buying eggs or detergent, Monoprix draws attention to such products thanks to a strong brand image using bright colours and an unprecedented factor: the fun. While own brands packaging usually imitate national brand looks, the French retailer uses bold colour-block designs and funny quotes, transforming boring products into eye-catching ones. When this new packaging launched, customers were even talking about the funny jokes found on cans of beans. Such packaging came with an ad campaign that drastically reinforced customer loyalty to the label.

Attracting customers, but also brands

With enhanced private brands, comes new perspectives in terms of advertising. Promoting a price point is replaced by promoting the product itself: its claim, quality, and difference. In that case, private brands can become a great tool to advertise the store image itself, and to leverage social media to reach more customers. Also think about the importance recently taken by the unboxing trend on Instagram: it has been adding new and supplementary visibility for brands and products.

When thinking about private labels, collaborating with other brands is also something to consider to promote the store image itself, gain new customers and create excitement on social media. Once again, Monoprix is succeeding when launching collaborations with designers or brands, this year with edgy fashion designer Vincent Darré or interior designer India Mahdavi. In such cases, direct revenue is not the point as very few products are produced and sold in the end. But they have proven to be a great way to draw customers attention and reinforce the store image.

Post pandemic, even the most endangered retailers are willing to use collaborations as part of their private label strategy. The last example to date comes from bankrupt and relaunched JC Penney partnering with the infamous Juicy Couture brand, also resurrecting from the dead. It’s a smart move though, considering Juicy Couture is still a famous and impactful name able to draw shoppers attention. The brand is considered a pioneer when it comes to athleisure, a trend that is not predicted to end soon.

Ultimately, private labels collaborating with selected brands can become instrumental to attract new customer groups. At a time when some brands are adopting more and more direct-to-consumer business models (as we know it’s the case with major luxury brands, Nike, Adidas…), private labels could be a key part of an attractive product offer, assuming they have developed a great value proposition.

Another option to be considered is to develop new private labels, especially in the fashion area, using a brand licensing model or even by buying brands and relaunching them exclusively under the department store umbrella. Still, caution is in order in that case. Even a powerful retailer like Walmart faced difficulties when acquiring brands. In 2017-18, the retailer bought a bunch of direct-to-consumer ready-to-wear brands. At that time, comments on the buy-out were harsh on social media, customers worrying about Walmart lowering the quality of such brands. In 2019, the retailer even sold one of these brands, bought 2 years earlier.

A way to prove commitment to CSR questions

For many retailers, private labels are now a way to benchmark sustainability progress and prove ‘transparency’ to customers. For instance, Macy's private brand uses the Higg Index Environment Module but also its Facility Social and Labour’s to gauge the environmental and social performance of manufacturing facilities. Audits in factories supplying the private labels are conducted every 18 months. Hudson’s Bay has enforced a Supplier Code of Conduct applying to all vendors producing private labels (based on the United Nations Human Rights Declaration, the Amfori Business Social Compliance Initiative, to name a few).

Nordstrom is also an interesting business case. They reorganised their private labels by reducing them from 40 to 12, but they are growing the business anyway, thanks to an embodiment of the CSR topics. In 2020, 64% of “Nordstrom Made” product volume was produced in factories using the Higg Index Facility Environmental Module. They also tackle body inclusivity questions by appealing to different age groups, communities and body shapes: for instance, they launched Henna and Hijabs x Nordstrom, designed for the modern Muslim woman, and Nordstrom x Christina Martinez to celebrate Latinx heritage.

A department store is a house of brands. Even though they cannot take responsibility for partners' ways of producing, department stores could become accountable, if not already, for having brands considered not sustainable or responsible enough by customers. Developing sustainable private labels is a way for them to have more control over the CSR issues. In that perspective, Magasin du Nord’s main priority is to improve the entire private labels’ value chain to ultimately be able to market its products as honest, authentic and sustainable. In general, IADS members are very ambitious and target 100% of sustainable offer: by 2024 for Galeries Lafayette and Magasin du Nord, and by 2025 for Breuninger and El Corte Inglés (data from IADS Merchandising meeting dedicated to private labels, January 2021).

*In theory, there are many reasons why department stores should continue developing private labels: offering an interesting price point, filling a void on the market, attracting new shoppers, developing loyalty, differentiating from competitors, anticipating potential national brand withdrawals. Own brands are also supposed to increase retailers’ margins. But the situation for department stores’ is contrasted when it comes to profitability as we know some are struggling. And also, are they still really attracting customers, even after some internal reassessments, or changes in organisation and offer? Considering the challenges ahead, IADS members’ CEOs have decided this year’s IADS Academy will be dedicated to the private labels topic.

Furthermore, there is no ‘one size fits all’ when it comes to private labels, which makes it an even more challenging business. IADS members are not following the same trend in terms of development. For instance, El Palacio de Hierro tries to multiply the number of its own brands (having a different name for each of them), while others like El Corte Inglés or Magasin du Nord reduced the number of brands.

In any case, this part of the business remains a challenge as consumers’ expectations won’t lower. On top of that, private brands have to find their way online. Creativity, research, imagination will surely be key to meeting all expectations. A unique value proposition based on sustainability seems to be the best tool available right now.*

Credits: IADS (Christine Montard)

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Organisation charts, while not a perfect picture of how companies operate, nevertheless provide some insights into how companies are shifting over time, how they are dealing with complexity, and also how companies differ in their perspectives and priorities. A sample of IADS members have shared organisation charts prompting some thoughts about department store structures.

Organisation charts: a reflection of complexity

Organisation charts are not an exact reflection of how companies work. Many business writers, sociologists and anthropologists have commented on what is missed by these charts such as the nature of the flow between the function boxes, pain points, and, perhaps most importantly, the reality of the roles and responsibilities as they are exercised in day-to-day business.

However, they still provide some insight into a company’s perception of itself, of formal internal power structures and rewards, and they allow comparisons to be made between companies at one moment in time as well as to visualise changes in companies over time.

The IADS has collected some members’ current org charts and has been able to draw some conclusions. We have also found charts dating back 5 years which highlight some major, sometimes surprising, changes over that period. What is clear above all is that organisation charts of department stores reflect the complexity of the business. Buying departments manage many different types of contracts with merchandise suppliers. The suppliers are constantly changing. The types of contracts are continuously being renegotiated. The Retail department is dealing in store with own staff, brands staff, demonstrators, part-time, seasonal, as well as with space rental, payments and security. The fact that many department store companies have been in existence for over 150 years means that almost all have accumulated layers of history piled upon each other, often not well adapted to current circumstances.

The C-team

A number of functions headed by a C-level leader answering directly to the CEO can be found in most of our sample of department stores and form the skeleton:

• Finance and Administration including accounting, controlling, planning, and often legal and procurement, which has recently had to deal with cash flow problems among other pandemic-related issues
• Buying and Merchandising covering the assortment from fashion to food with widely fluctuating sales patterns over the last 18 months
• Retail Sales or Operations in charge of the stores, facing questions of traffic, selling space and customer service and experience
• Marketing which is shifting at present and involves communication and media as well as customer data and experience
• Supply Chain and Logistics under the spotlight at the moment since it has had to deal with disruption at the same time as a reorientation of inventory and fulfilment issues
• IT covering company-wide tech architecture as well as payments, security and other systems serving the company, and which has been at the centre of considerable investment decisions and controversies
• HR playing several roles: an administrative one as well as a strategic one, a centralised one as well as a dispersed one around regions or stores, and which has also had to deal with staffing, costs and remote work in the pandemic
• Digital has now moved into a full functional role in its own right and more often than not has a seat on the management board, and covers at least ecommerce, omnichannel, marketplace and often more. Its leader is sometimes described as Chief Customer Officer
• Strategy, Transformation or Innovation has emerged in several companies as the seat of future orientation. In the 1930s, the IADS promoted the creation of “Research” departments in its members which would most closely approximate this function.
• Real Estate covers store planning, construction, maintenance, architecture and works, and development. It is more important if the company owns property, and is currently dealing in some cases with closing stores, and in other cases with designing and opening new ones.

Most but not all of these functional leaders will have a seat on the management board.

It should be noted that in some cases, strategy alone may not be the sole reason for the content or the importance of a function. Strong personalities may convincingly argue that different functions should be included under their remit. History also plays a significant role in how a company is structured at any one time.

Adaptive changes 5 years on

Probably the most striking shift over the last 5 years has been the emergence of ecommerce which has now resulted in a separate “digital” function in most companies. While 5 years ago, ecommerce would have been subsumed under another function, it has now almost universally acquired its own responsibilities and status. It may have moved out of Marketing (Manor), Finance (Palacio), Merchandising (Breuninger and Globus), or Distance Retailing if the company had an already existing mail order business (Stockmann).

As the newest department store function, it often brings together people with rare technical skills, and with considerable experience in different parts of business management, especially if they come from start-ups. Furthermore, the current “digital” departments often started as small projects which were only later integrated into the company.

Similarly, IT has emerged as a much more important and independent function servicing most areas of the business after being hidden within the Finance function in most cases (Galeries Lafayette, Palacio, Breuninger).

Several years ago, the Merchandising department in some companies decided to separate the buyers’ role from planning, resulting in the so-called “buyer-planner” organisation model (BPO). While this was adopted in several companies, some (such as Globus) decided later to reverse the decision and to return the planning function to buying.

Another company which grouped Purchasing, Operations (stores and logistics) and Marketing under one single Commercial department leader reporting to the CEO, has now pulled out the main merchandise categories as separate functions reporting directly to the CEO. One company appears to have done the exact opposite, moving from individual merchandise categories reporting directly to the CEO, towards a model with a merchandising leader covering all the merchandise categories (as well as marketing).

A company which had Supply Chain and Logistics reporting to Finance and Organisation, has now created a separate Supply Chain entity reporting to the CEO, although not part of the Executive Committee.

If a trend were to be identified over the last five years, it would probably be towards a somewhat less hierarchical structure as companies have had to deal with an increasing level of specialised skills. While there are exceptions to this, in general CEOs have had less of a buffer between themselves and specialist units in their structure, with whom there will have been in more direct communication. However, multiple divisions or functions within any organisation puts a premium on communication between them. Whether that is taking place is something an org chart will not reveal.

Various morphologies

While the skeleton remains more or less recognisable over time, the morphologies of department stores shift. The current shape of the department store can be described along several dimensions which characterise their functions.

The most centralised: In spite of recent changes brought about by ecommerce, some functions still benefit importantly from economies of scale. These are Finance & Administration, IT and Supply Chain/Logistics. These are functions which serve the whole organisation and which lose efficiency when fragmented. It is also these functions which are most likely to be outsourced. IT and Supply Chain also require large investments which need to be amortised across the company. While important to the future of retail, IT does not always get its own seat on the board as it is seen as a service to other departments and can be subsumed under Digital or Innovation for example (Palacio). However, IT is often the flattest organisation as it is the one where the most “agile” structure is operated.

The most dispersed: While Human Resources still has an important central function, many of the activities of HR are now performed locally in order to adapt to the specific needs of stores, regions, countries, or sometimes skills. Recently, perhaps because of its dispersed nature, HR has taken on the role of sustainability guardian (Galeries Lafayette, Manor).

The most confident: Merchandising and Retail Operations are still at the core of traditional retail activity (buying and selling). Members of each of these functions see themselves as key to the whole business, they produce the revenue and are part of what Geoffrey Moore has called the “productivity zone”. This aura of unassailability partly explains why there can be big variations among retailers in how they are organised: a buyer is a buyer no matter where they are placed in the chart. We also often hear about “natural selling skills”. However, this certainty applies less to the food category which is why it is almost always separated from the mainstream buying department.

In some companies, it has been deemed appropriate to include buying (as well as some other functions) under a flagship store division when it is felt that the flagship is unique (Food under Galeries Lafayette Haussmann, or Home under BHV/Marais). Companies might also choose to treat Outlets differently.

The merchandising department is of course only necessary in a wholy or partly wholesale model. Businesses that lease space will operate instead through a Leasing department operating alongside a Sales department (Sogo).

Visual merchandising can be seen as belonging in Retail Operations (Manor) or in Merchandising (Beco). The Merchandising department of Manor is unusual in that it includes also Marketing.

The most connected: The relatively recent Digital department is the one with the most direct impact on other areas of the company since it involves not only ecommerce and web design but also omnichannel relations with the traditional physical company, the marketplace (increasingly popular), customer experience and data, and even CRM and loyalty card (Breuninger). This department is often headed by a designated “Chief Customer Officer” which puts them in charge of some of the traditional marketing functions. In one, a “Chief Innovation Officer” will head IT, ecommerce, and logistics (Palacio).

The most contested: The Marketing department has been undergoing a revolution for some time. Indeed, an increasing part of its budget is getting redirected to online and social media. A part of its activity concerned with customer knowledge and data has now become so technical that it is better handled by a new breed of marketeers, data scientists and techies. In fact, the responsibilities of the traditional marketing department have sometimes been transferred to a Chief Customer Officer heading a digital department (described above). In one case, Marketing is the responsibility of the Chief Merchandising Officer (Manor); in another, the two are also combined but only at corporate level (Falabella).

The most autonomous: A small number of companies have instituted Strategy or Transformation departments devoted to strategic planning and projects. This area is probably the closest to one of the original goals of the IADS looking to the future on behalf of member companies. Such departments have the ear of the CEO and impact the company as a whole only when projects become reality or when they enter the “transformation zone” draining investment from other areas.

The IADS includes several members with international operations. These are often structured separately, especially if they are a mixture of owned, partly owned or franchised businesses. One member with a fully owned and operated international network is Falabella with department stores in three countries. This implies a “matrix” structure with a country head in charge of national operations as well as a divisional function head in charge of a function across all countries.

Unsurprisingly, structures become more complex with time. The youngest IADS member company founded in 2003 has adopted a structure with two joint Executive Directors overseeing 15 or so separate functions including Advertising separate from Marketing, Ecommerce separate from IT, Administration separate from Finance (Sogo HK).

Does structure follow strategy?

It is clear that, although the department store sample shows many common points in terms of basic organisation structures, there are also significant differences between companies which sometimes may point to different directions for the future. Organisation charts are not stable, and respond to strategic objectives, environmental and market conditions, technological changes and customer expectations, as well as to individual talents within the organisation.

Three key questions:

• How to achieve digital transformation?

There appears to be a trend towards a separate Digital department headed by a Chief Customer Officer. As well as the expected responsibilities related to ecommerce and the website, this role also includes omnichannel and therefore needs to play a strong cross-functional role. Is a separate department the best way to achieve this? While it underlines the importance of digital by putting the CCO on the Executive Committee, it does not guarantee that digital initiatives will be distributed across the organisation.

• Are we serious about sustainability?

In companies where sustainability is mentioned in the organisation charts, it is tucked away in the HR department. This might be the right move given that sustainability and CSR need to run across responsibilities such as merchandise, selling, relations with suppliers, maintenance and construction etc. and HR as we have seen is the most dispersed department. However, this is an area that has become highly specialised, which might well be coordinated through HR, but which requires very specific technical skills to achieve credibility with increasingly critical customers and pressure groups.

• What is special about flagships, outlets and food?

The answer is that these are three areas which do not fit comfortably within the standard skeleton structure outlined above.

Flagships sometimes have a distinct customer base such as tourists, which means they have to adapt their assortment, marketing, and indeed elements of the business model. At the same time, they carry a large proportion of the brand value of the company.

Outlets used to serve only as temporary channels to evacuate surplus merchandise. They have become a format in their own right, sometimes with their own website, and growing fast. They no longer sell only discounted stock but also include specially purchased goods. They operate on a slightly different business model.

Food has traditionally been recognised as a separate business from fashion or home and therefore featured in a special place in the organisation charts. Today, food is increasingly linked to wellness, to gifting, to luxury, and to consumption in many parts of the store. Should it be reassessed?

Conclusion: dealing with complexity

It would probably be a mistake to attach too much importance to companies’ organisation charts. Nevertheless, many uncertainties, hesitations and vacillations are revealed through an examination of these charts, and these may reveal present and future pain points. As BCG has pointed out, companies (and department stores in particular) need today more than ever to respond to the complexity of contradictory demands:

• Speed and reliability
• Innovation and efficiency
• Standardisation and customisation
• Global consistency and local reactivity

The answer has tended to be a proliferation of structures, responding to complexity by complicatedness. The confusion apparent in department store organisation charts comes from the complicated response to the complexity of the operation. In this sense an examination of organisation charts acts as an indicator (in the chemistry sense) of deeper problems or shifts which are probably as yet still unresolved.

Cross-functional activity, or the lack of it, is one such revelation. The different solutions to problems adopted by different companies is another which signal that companies are probably in transition mode. This is clearly the case with Digital and Marketing. We foresee that a high degree of uncertainty will be touching the Selling/Retail Operations area in the near future.

Credits: IADS (Dr Christopher Knee)

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*Héroïne is a retail design agency dedicated to Client Experience. Thanks to their ROX™ method, they are able to program in-store experiences and develop unique design concepts. The company works with different industries, such as cosmetics, food, fashion, telephony...

The company created some of Clarins' Experience Ceremonies to support their strategic launches through their retail network in different key markets. They also collaborated with Armani for experiential pop-up stores, and with French jeweller Fred on their new retail experience. Héroïne also works with companies such as Estée Lauder, Orange, L’Oréal, Rémy Martin.

Héroïne was founded 2 years ago (3 months before Covid), with the strong belief that physical retail is not dead but has to reinvent itself through customer experience. While this trend is on every retailer’s lip, we tried to better understand how to make it work. To that end, Héroïne’s founders Rémi Le Druillenec (CEO) and Quentin Obadia (Creative Director and Strategist) have answered IADS’ questions.*

Good customer experience

IADS - How do you define good customer experience in 2021? What do you think is missing? Do you see a gap between customer’s expectations and what brands and retailers offer as a whole?

Héroïne - When it comes to defining good customer experience, the answer is simple and complex at the same time. Good experience should of course match with what customers are expecting from a store visit. It looks simple, but it implies that brands and retailers, not only know their customers’ expectations in terms of product, price point…, but also in terms of experience. As it’s relatively new, this is the complex part. And it’s a preliminary phase, before even starting to shape the customer experience.

There is sometimes a gap between retailers and customers’ expectations. Retailers want to develop experiences in order to directly sell their products or their services. But from a customer point of view, the experience is not necessarily about directly buying something, but more about discovery, feelings and emotions. Of course, at the end of the day retailers’ purpose is to sell. However, it’s important to help them change their mindset to become even more customer-centric, which is the very purpose of the customer experience.

If we think about stores (and especially flagship stores), they were designed as temples using a ‘top-down’ approach for many years. As a result, they have sometimes transformed into “brand ego trips”, in a way separating the brand from its customers. There is a lot of work to be done here. After Covid, brands and retailers are more and more aware that they have to really understand their clients, which differs whether they are in Paris, or in French secondary cities, in China or in the United States. Brands now try to adapt their stores and their offer, in a more ‘down-to-top’ way.

Engage with GenZ

IADS - What do you think are GenZ's expectations in terms of customer experience?

Héroïne - As the first generation to be born and raised with smartphones, they discovered the world through internet. It means that digital has to be fully integrated in every step of the customer journey. It still happens that we meet with brands showing us their ‘experience zone’ consisting of a big screen or an iPad! The experience should both live through smartphones and in store. Most of all, such customers are expecting a full integration of the real life into the virtual life, the real life being augmented by the virtual life. In that perspective, all the digital assets should offer the possibility to continue the experience after the in-store visit, to ultimately lead to a purchase.

It’s even more difficult to track GenZ customers as they might not buy in store, physical retail being just a touch point among others. They might come in store, share pictures with friends first, then on social media, etc…, and eventually buy online…, or go back in store. In such circumstances, we not only have to measure the quality and efficiency of the experience, but also track how this experience influenced the purchase.

Develop and measure customer experience

IADS - How should a retailer proceed if they want to transform selling spaces into experiential spaces? What method are you using?

Héroïne - The method we use is based on the evaluation of 5 pillars, which are reflecting what a store is made of:

1. The Immersion: it covers all that is linked to the DNA of the brand including store concept, retail design.
2. The Usage: how the brand helps customers understand what's inside the store, the customer flow, where they can find everything. It includes signage and also tools helping customers try products.
3. The Services: they are both transactional (alteration, delivery, payment…) and relational (interactions with sales associates, small gifting…).
4. The Proof: retail is the place for the proof as you can see and try products.
5. The Sharing: the store becomes a media and facilitates the experience sharing, from good lighting for Instagram posts to challenges to engage with communities.

Once the evaluation is done, we can then work on 3 to 7 personas which are the results of our observations through the pillars, analysis of the environment, interviews of sales associates, ethnologic studies…). Such personas are adapted to each store’s specific needs. Then we build the experience which has to be seamless and not overlooked as “plugged” into the store.

IADS - You’re using a new KPI to measure results: the ROX (Return On eXperience)? How does it work? Is it easily adopted by retail organisations, or do you see resistance? How do you overcome that?

Héroïne - Once the customer experience is on, we will evaluate each pillar again to know the ROX. There are ways to overcome retailers’ resistance. For instance, when it comes to the Sharing pillar, we will measure the hashtag success on Instagram, showing the success of the experience, if it’s easily sharable and if the store is becoming a media. For the Usage pillar, we will for instance observe and measure the “breaking of flow” corresponding to the moments when the sales associate leaves the customer alone. The audit can also be done on a regular basis to measure evolution.

The results we see are different from one brand to another. They share a common trend though: the sustainability question, which is relating to the Proof pillar and have to become part of each customer experience. The Service pillar, as it involves individuals, usually raises questions. The store staff needs training especially given they are more and more having to multitask. As the Service pillar involves the intervention of different departments from marketing to sales, it sometimes reflects issues in the brand organisation, such as for companies organised in silos.

IADS - Services are more and more mixing with experience: how do you articulate both?

Héroïne - Services, as they are an extension of the Proof, are important to create long-term in-store relationships that can also be measured (think about product repair). Services also demonstrate how the brand speaks to customers, besides just selling products. In that regard, Rimowa New York’s experiential store featuring a passport picture service, is a great example as it elevates the brand from luggage selling to a travel experience.

IADS - The customer journey now accounts for 6 touchpoints (instead on 2 touchpoints 15 years ago): what is the role of the customer experience here and how do you use data?

Héroïne - Like glue, experience brings consistency to all these touchpoints, links them together (ad campaign, digital, brick & mortar…) and pushes customers to engage with the brand.

Since many brands don’t have data (or they have data but don’t know how to use it), store staff remains a great source of information, especially to really know who the actual customers are.

Current trends

IADS - In your book ‘Le Magasin est-il mort’ (translating to ‘Is the Store dead?’) coming out today (13 October 2021), you identify 5 innovation trends : What are they? What has Covid changed forever? Please share from the customer point of view and from the brand/retailer point of view.

Héroïne - The 5 trends we identified that existed before Covid, but the crisis has also emphasized:

1. Social retail: social media defining new journeys and touchpoints in store.
2. Conscious retail: more sustainability is key, especially in-store.
3. Humanized retail: the need to connect with people is more important than ever. How to reach clients with mobile stores rather than opening huge flagship stores which have been the answer to retailers’ questions for many years.
4. Automatized retail: access 24/7 to products in a fast way.
5. Virtual retail: how to create a virtual store offering a specific experience and not just replicating a brick & mortar store.

We are convinced about the future of retail, that’s what we wanted to demonstrate in the book as well as showing how we work. But knowing we can do almost everything from our couch, a trip to any store should be worth it and most of all, a place where people can connect and live experiences.

Contact: Rémi Le Druillenec

remi@heroine.paris

+33 6 11 38 40 49

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Credits: IADS (Christine Montard)

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There is so much more to come from RFID technology than we have experienced so far in the past few years. The technology and its implications have transformed rapidly, leading to more interesting use cases for the retail format. Unfortunately, the implementation of RFID can take a lot of time and money. So how can retailers make the most of it? Once implemented, what potential does RFID have for retailers and where can it lead?

What is RFID and how does it work?

Radio Frequency Identification (RFID) technology is a form of wireless communication, using radio waves to identify objects remotely. All RFID objects have their own unique tags for identification, and allow objects to communicate with each other through wavelengths.

To use the technology in stores and in warehouses, retailers will need both an RFID tag, which is usually embedded into the product or on price tags, as well as an RFID reader. Unlike traditional inventory tracking systems that require employees to “point and shoot” the item identifier, RFID readers can capture the information from a broader range, thus saving time when gathering inventory information.

The information captured from RFID readers can then be used to get an overview of the entire operations of the business, enabling companies to make informed decisions about their supply chain in real-time. Following the pandemic, RFID is being considered as an asset again as it can help solve a lot of the various logistics and inventory management issues that have arised throughout pressure tested supply chains.

A comeback for RFID in retail

RFID first became popular in 2003 when Walmart announced that all of its suppliers needed to have their pallets tagged with RFID in under two years. This forced adoption from the major retailer ended up leading to RFID’s demise when the project resulted in the realization that the costs, at the time, outweighed the benefits; and the project was deemed a failure in the retail industry.

According to IDTechEx, in 2019 only 10% of the addressable apparel market has RFID tags. But as omnichannel services increase use cases across retail, RFID has been given another fighting chance to prove its worth in the retail market. RFID technology links physical and digital stores, allowing a mostly accurate picture of where inventory is at any given moment.

In Mango’s new Barcelona flagship, the retailer can harness the technology to know where garments are at all times, whether that be in the dressing room or if they have left the store, allowing associates to make sure that items are available. But that use case is only the beginning, having RFID trackers attached to products and having readers placed throughout the store can also monitor and improve sales by informing retailers of their “hot” and “cold” zones of the stores that lead to the most and least sales. By understanding the store flow and the placement of products, retailers can create a unique customer journey based on what and where products are being sold.

As retailers spend more time and investment in RFID technology and its implementation, they are also trying to expand its use cases to be able to achieve the best ROI possible. RFID can be coupled with endless other technologies, such as the Internet of Things (physical devices that are embedded with technology and can be connected), to be able to offer more unique experiences to customers. According to Accenture, information captured from RFID technology can be used in collaboration with blockchain, supply chain analytics, self checkout, supporting omnichannel fulfillment, reducing stock outs, improving customer engagement with smart technology, and inventory tracking and visibility.

It will take time….

As RFID can offer real-time accuracy of almost 100%, the technology can be leveraged to improve customer experience associated with omnichannel services. The technology allows retailers to know where their stock is at any given moment, which also allows them to guarantee availability across all channels, whether that be in-store or online. The information can also be used to understand where products are located to reduce shipping costs, split shipments, and delivery times. Understanding the location of products empowers in-store pickup options. Levi’s, for example, reported 98% inventory accuracy in stores where RFID is fully operational with inventory counts only taking 20 minutes to conduct. This allows for multiple checks per day, making the real-time data more accurate and strengthens the omnichannel. Having accurate inventory visibility is a revenue factor as well as a customer service factor.

RFID tags and readers allow retailers to understand where their inventory is at all times, whether that is in the dressing room, on the wrong shelf, or in a warehouse. Some retailers like Ralph-Lauren, Rebecca Minkoff, and Puma have used the technology to install smart mirrors in dressing rooms that bring up product information and suggest other clothing items that are similar in style to the ones that the customer chose. This creates a personalized shopping experience while empowering the consumer with all the necessary information to make the best decision based on their wants and needs.

An RFID success story: the Prada example

Prada has gone all in with RFID implementation with 100% of products containing a microchip. This allows Prada to enable connectivity with consumers, not only in stores, but also throughout the life of the products. Embedded RFID brings more transparency to the overall lifecycle of the product, with information that can be used privately by the retailer and information that can be shared publicly with customers. For example, retailers can see when an item was received in a warehouse and the time it took for it to get to a store, and customers can gain visibility about how and where their specific product was made. Prada has even created an app where customers can scan the chips to access images and videos of their specific item moving through the supply chain and get to know the people that help create their goods.

RFID’s shortfalls and substitutions

RFID has the potential to be extremely useful, but implementing it can be time consuming and costly. There are equipment costs, installation costs, tag costs, software costs, ongoing license costs, maintenance costs, and integrator costs (if you use a third-party expert). This might be the reason why Rebecca Minkoff’s store stopped using smart mirrors, the cost of maintaining the service might have outweighed the benefits. And technology does not come without its hiccups. RFID is prone to two main issues: reader collision, when a signal from one RFID reader interferes with another, or tag collision, when there are too many tags and an RFID reader is overwhelmed with too many data transmissions.

One of the major shortfalls of RFID is that it is physical, and now there are a lot more advanced technologies that can cut out the pains associated with implementing hardware into each individual product. For example, computer vision might be a major competition for RFID. The Amazon Go convenience store that allows customers to pick up products and walk out of the store and be charged automatically without using a cash register was rumored to originally use RFID for its touchless checkout tech. But now the retailer uses a mix of RFID and computer vision, and is applying similar technology used in autonomous driving to retail. These technologies allow the inventory management system to identify the customer (via facial recognition, user ID, GPS, or through an app) and recognize which products are in their possession with the help of cameras, sensors, and microphones.

While RFIDs implications are very interesting, the cost and time it takes to implement every single tag into individualized products might make autonomous technologies more enticing for retailers. But even newer technologies like NFTs used by the Aura Blockchain Consortium can be combined with RFID tech to attach information to products, helping anti-counterfeit and loss prevention efforts. This makes the RFID initial investment even more so attractive.

A fully transparent supply chain

The greatest struggles and roadblocks of RFID are quantifying its cost, identifying the right suppliers and partners, and having the ability to train employees. It takes a long time to pilot and implement, but with the right use case, the benefits will pay off in the long run. Once retailers decide to invest, they will need to push through the difficult change management stage to realize the potential and very beneficial ROIs associated with the technology. A successful transformation will require the whole organization’s cooperation.

When it comes to gaining visibility on supply chain operations overall, software companies like Avery Dennison, Kinaxis, E2Open, OracleEPM, and Anaplan offer added insight to inventory management and should also be considered, no matter where you get your data from, to reduce risks and cut costs. These tools can optimize the supply chain and add an extra layer of visibility through what-if simulations from RFID data, giving retailers the control and foresight when unexpected circumstances, like a global pandemic, may arise.

Whether RFID is right for your organization or not will need to be determined for each individual use case, understanding the time and costs that are associated with a calculated ROI. For organizations that have already invested, it could be an exciting time to couple the data output with new software and services to gain more from your initial investment. For organizations that have not yet invested but are considering such a solution, it might be wise to evaluate other emerging innovations as well to ensure the right fit for your strategy and needs.

Credits: IADS (Mary Jane Shea)

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In America and Europe, retail is a major employer, especially for women and young people. Retailers are the largest private-sector employers in America with 32 million workers, and a staggering 2.4 million retail jobs were lost in March and April 2020. In Europe, about one in six workers have retail or wholesale jobs. Whereas they have never been easy, with low wages, permanent pressure over turnover, chronic understaffing, no weekends…, retail jobs have become risky positions pushing workers further away from stores.

At the same time, such jobs have drastically changed, and not in a good way according to the staff fleeing from stores. In a survey done by RWRC (a marketing agency working exclusively in retail) in December 2020, 75% of the 500 British store associates involved think that their job became more complex since Covid. In the United States, a recent survey by retail operation platform Zipline says 42% of retail workers are either considering or planning to leave retail post-pandemic. Some moved to distribution centres, but this is not a solid option especially given warehouses are far from cities, and jobs are more physically demanding which might not be suitable for women.

At this point of the year in 2021, retailers are facing a real staff shortage putting at risk a much-anticipated business rebound. Government support plans and the fear of catching Covid while working may be of some influence on the current state of labour. Also contributing to the transformation of retail staff becoming a rare breed in the United States, fashion retailers are hiring sales associates at a rapid pace unseen in the last decade. But that doesn’t explain the whole labour issue. What’s happening to retail staff? What should be done to make retail attractive again?

The retail days of yore are over

Not long ago, if you were a sales associate, your responsibility was to sell stuff in store, period. Those were simpler times. Nowadays, and with Covid putting more pressure on business and more expectations on retail staff, anxiety has increased while responsibilities were dramatically shifting, and higher flexibility was required to adapt to unprecedented conditions.

It has become an understatement to say that retail is not only about selling things anymore, and so are retail jobs with store staff transforming to multitasking employees. Now they have to be able to sell both physically and distantly, prepare and ship orders, organise kerbside pickups, become tech-savvy, be brand ambassadors through social media (or “mini-marketers” as Marc Metrick recently said about Saks sales associates), provide experiences to customers, and learn wider and wider marketplace product catalogues. Worse, retailers being in a very difficult position, an additional compensation is not always part of the equation. And in the end, due to Covid closures and massive digitalisation, jobs are truly at risk and sales commissions are vanishing. To a certain extent, sales associates find themselves stuck between fighting to increase the company’s turnover (as well as their own revenue) and defending their sales commissions against the online business, accused of taking away sales that associates judge to be theirs.

Overcoming resistance to digital…

Changes are massive and not everyone wants to (or can) adjust to such transformations. Facing online competition, brick-and-mortar retailers, along with their staff, have to adapt. The crucial and human relationship between sales associates and key customers is becoming digital. Even though they were used to texting their clients, store staff had to adopt additional tools such as WhatsApp, Instagram and WeChat.

Now retailers, especially in the fashion area, are adding clienteling software on top of existing tools. For instance, Neiman Marcus acquired Stylyze, a software making outfit recommendations based on what customers have looked at or purchased. That’s great, but such a tool heavily relies on data and less on sales associate skills, which might be demeaning for some. Anyway, two months after the technology was rolled out and integrated into NM Connect (the digital software staff uses to communicate with customers), it resulted in USD 60 million in incremental sales. In order to handle relational shopping operations, Magasin du Nord also successfully launched a digital communication solution with Clientela.

… And rethinking incentives

The first thing coming to mind when thinking about attracting employees is money. While retail jobs are often low paid, it is a long process to increase salaries mostly because there is no turning back. Walmart and Target entered such a process before Covid. With the pandemic, Target doubled down on its investment in the workforce by giving out bonuses six times in a row since April 2020. Last May, sportswear brand Under Armour did the same by increasing its minimum wage in the United States from USD 10 an hour to USD 15, hoping to fill some 3,000 available positions in stores and warehouses. Kohl’s also recently rewarded loyalty by giving USD 100 to USD 400 bonuses for store and distribution centre employees staying on long-term. Some American retailers also offered immediate sign-on bonuses.

As increasing wages is becoming a broader trend, retailers also have to adjust their commission schemes if they want to overcome resistance to e-commerce and make digitalisation a success. Fighting resistance is crucial and sales associates have to embrace digitalisation as part of their job. In regards to such evolution, El Corte Inglés has set a successful policy to involve store staff and make its 2-hour delivery really work. During the IADS Merchandising Meeting dedicated to Cosmetics & Beauty, they explained that orders, placed online, are prepared in-store, and employees preparing them receive a bonus while commissions on sales are assigned to the store.

During the 2021 third IADS CEO Quarterly Exchange, Fnac-Darty CEO Enrique Martinez explained the store’s incentive strategy. E-commerce was considered as the enemy among store staff. But thanks to a new scheme integrating digital sales, store associates are now seeing them as a financial opportunity. With incentives on sales usually representing 10% to 15% of their pay check, sales associates are now benefiting from the same incentives as soon as the store is involved in some way in the selling process, whether it’s the inventory, the delivery or the salesclerk being part of the operation. One question remains though: should sales happening 100% online be integrated into the store metrics? For sure, such integration would reinforce staff loyalty.

Reinventing working conditions

But money is not the only way. Improving working conditions can be of some help. Even though working from home has not been a picnic, it has allowed many people to keep their job through the pandemic and onward. As the world is expecting other major disruptions in the future, retail jobs will be impacted again, and this is not very enticing. Even though some people benefited from government or company support, what they really want is a steady job and not feeling at risk about their position. This is raising the question of how retail working conditions could evolve to both be able to manage disruption and retain employees. Since everything is digitalising, including sales, some retail staff could work from home, offering them both more security in their job and possibly better working conditions at a time when some stores very existence is questioned.

Madison Reed, an American hair salon chain, paved the way in that sense. When salons had to shut down last year, the company decided to keep its 100 hair colourists and to launch online ‘colour parties’ where they would act as virtual consultants helping women colouring their hair at home. It was a huge success in terms of revenue but also in terms of employee loyalty. A year later, and even with salons reopening, the party is still going on and it seems it’s a permanent change for the company workers. Eighteen new colourists have been hired since then to meet the increasing demand.

Another example is coming from Apple. Called “Retail Flex”, a bunch of retail employees will test a hybrid in-store and at-home working model for 6 months. These workers will deal with online sales, customer service and technical support, moving between their store and their home depending on where the customers demand is. Paychecks will be the same whether working in-store or from home, and internet expenses, as well as office equipment, will be partially supported by Apple.

Training and promoting

The rapidly changing retail ecosystem is requiring additional skills that sales associates don’t necessarily have. So, they need to be trained to feel comfortable and efficient doing their job. While younger workers might need more knowledge about products and selling technics, seasoned sales associates (who are usually taking care of the top customers) might need a little help on the technology side. But in any case, training is a tricky question for retailers. Considered more an expense than an investment, they are often reluctant to spend money on expensive and questionable training programmes. Especially on retail staff whose turnover rate is usually high: in the United States alone, the annual turnover rate among part-time store employees was 76% in 2019, according to Korn Ferry.

Obviously, training on product knowledge is highly necessary as a lack of it is repellent to customers. Employees at Trader Joe’s supermarkets, for example, are expected to taste products. It prevents them from boredom and most importantly, they can answer questions about what they sell. This kind of effort contributes to why Trader Joe’s is in the top 5% of similar-sized companies for employee retention, according to Comparably, which rates company cultures. Another example is coming from Sephora where the training programme includes tailored development plans, a “Daily Dose” of training, and free classes at Sephora University.

“The retail workforce is almost more important than in pre-pandemic days,” said Ron Thurston, vice president of stores at Intermix. “These are the people with the most knowledge of your brand, the customers and product feedback.” Despite such enthusiasm, it’s a well-known fact that retail employees are rarely considered to climb the company ladder and have access to better positions. Thurston adds: “At Intermix, every employee sits down with a manager on a quarterly basis to discuss career goals, create individual development plans, and share any open headquarter roles that may be available.” If really enforced, such HR policy can allow companies to develop employee knowledge and perspectives, really identify people with strong potential and ultimately increase loyalty.

Enforcing creative measures

Knowing a part of the retail staff has switched to other jobs during the pandemic, there are additional measures that can be taken to attract workers back. For instance, Vashi, a British jewellery company, decided to offer perks to store employees: they are entitled to a pension plan, 29 days of annual leave, free gym membership, life insurance, access to an online physician and prescription service and a mental health counsel. Such measures come at a price but who wouldn’t join? Kohl’s, when recently hoping to hire 5,000 associates, made publicity about some competitive edges such as flexible schedules, and an immediate 15% Kohl’s associate discount.

To be in step with younger employees, retailers are being innovative in areas some wouldn’t think of. Korean department store Hyundai has completely revamped its reporting system to better collaborate with Millennial and GenZ staff. Accounting for 80% of its workforce, their habits and expectations had to be taken into consideration by lifting bureaucracy burden as well as simplifying and digitalising reporting tools. Employees are now simply sending notes through a messenger app.

***

Covid pushed retail workers to reflect on the meaning of their jobs. While communication between each level was off, or in jeopardy during lockdowns, deep questions probably arose such as engagement versus wages, work direction, career opportunities, and empowerment. Such topics are usually missing in the normal work routine, and with Covid, some jobs lost their meaning and value to the very eyes of the ones involved. Besides improving pay checks or working conditions, companies should add significance and direction to the retail they are rebuilding. More and more people want to be proud of the place they are working in and feel they are part of something exciting and bigger than them. As they  picture themselves as part of a community in their daily lives, they want to relate to a company culture. Will retail be up to it?

Credits: IADS (Christine Montard)

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Several aspects of retail supply chains have been revisited during the Covid pandemic. Retailers have been dealing with the crisis using different fulfilment strategies which integrate online and physical stores more than ever. Some of these will probably last into the future, or at least have an impact on future retail models. Many of these new ways to serve customers are in fact supply chain questions which are becoming an increasingly important part of the retail business.

Fulfilment from stores: an additional role for the store

In the US, Target had been developing a “click-and-mortar” model well before the pandemic hit. It was fulfilling orders from stores, in part thanks to its acquisition of Shipt in 2017. This company provided on-demand grocery delivery allowing customers to shop online and have their orders delivered from their local stores. Target now offers delivery to home from as little as one hour by using their 1900 stores. In the second quarter of 2020, Target e-commerce sales doubled compared to the previous year, and 80% of e-commerce orders are now fulfilled from stores. Most importantly, the average unit fulfilment cost has been cut by 30%. Same day pick-up and drive-up options which don’t require packaging and delivery are now Target’s most profitable fulfilment options.

However, fulfilment from operating stores may require using store personnel which is also more expensive than warehouse staff (especially given the recent minimum wage increases announced by some of the large retailers) and, in the long run, than a robotic warehouse picking system. Even if these issues can be solved, the problem remains of what a large-scale fulfilment operation from an working store would do to the stock and indeed the attractivity of that store. And delivery services require a lot of space. As previously noted, SM in the Philippines has been integrating a “call to deliver” system in its stores which accounts for over 15% of sales.

The trick here is to use data-driven inventory allocation to compensate. A central warehouse able to sort items into packages intended for particular store aisles, allowing store staff to unpack directly onto the fixture, bypasses the backroom of the store. Deliveries to stores may be sorted in trucks so that unpacking follows a predetermined order.

Dark stores: a micro-DC close to customers

However, “classical” online sales requiring a box, a shipping label and a carrier pickup are also growing, and this type of operation uses a lot more space than the same-day options. To overcome the limitations of using operating stores for online orders, some retailers have been looking at abandoned sites in malls to use for order fulfilment. Others have been converting their own stores to “micro-distribution centres”. Indeed, these sites labelled “dark stores” are often better situated closer to customers than the traditional warehouse or DC operations.

The design of such buildings, often with several floors is not necessarily suited to high density deliveries. Although parking is sometimes available, at least for sites in malls, there is only one entry for incoming goods rather than the double inbound and outbound channels needed for quick turnaround fulfilment. Certain laws govern traffic and deliveries in populated areas, at night for example, which is not a problem for warehouses or industrial locations, but may be for more central dark stores.

Whatever the problems, it remains that having centres closer to customers could mean transferring the job of pick-up and delivery to consumers which would create considerable savings. It also opens up the possibility of allowing customers to return goods themselves instead of packing them up and taking them to a delivery office. Some companies like Tesco in the UK or Walmart in the US have been experimenting with dark stores for some time. Other companies are increasingly interested in the idea, such as El Corte Ingles in Spain for example.

Paradoxically, retailers without stores appear now to be considering a presence in retail stores as well as micro-distribution or dark stores. If, as it has been suggested, vacant Sears or JC Penney stores in the US were to be used as dark stores by online players for delivery and returns, it is only a short step to offering customers a little more during their journey and beginning to return the store back to its original purpose.

Returns management: shift some logistics to the customer

The NRF estimates that total returns by customers to retailers doubled in 2020 to 10.6% of total retail sales. This will include returns to e-commerce operations with a return rate estimated at over 25%. We can safely assume that, since apparel and shoes have the highest return rate, department store returns will be higher than that. A return is not only a failed sale, and one which has incurred selling costs, but also an operation which generates its own additional costs through reverse logistics. This reverse logistics process is one which is a prime target for refinement.

In this vein, even before Covid, Amazon partnered with Kohl’s to integrate the department store into its reverse logistics process thus supporting Amazon’s optimised returns while bringing an estimated 2 million extra customers into the Kohl’s stores. That the process creates increased revenue to stationary stores has not been ignored by retailers, some of which such as Magasin du Nord in Copenhagen, have set up a click and collect counter and storeroom on the ground floor to serve customers from a range of other retailers.

This vision of stores as a sales and logistics platform would appear to be a significant advantage held by store-based retailers. It allows them to place inventory close to customers in a situation where e-commerce is growing fast and the costs of fulfilment are taking off. Amazon’s fulfilment costs grew in 2020 by 45%, outpacing their online sales growth (estimated at 37%).

Thus, in effect, stores or dark stores are shifting some of the logistics costs of fulfilment and returns to the customer.

In-store retail: the rule of resilience and the hybrid store

Of course, even if e-commerce has been growing tremendously, most department stores are maintaining in-store retail as their core concentration. Some have been forced to close down, under the pressure of a sharp rise in the cost of shipping, substantial decreases in customer footfall, supply chain disruptions that proved too much for legacy planning and inventory management tools, and inbound inventory delays. According to Advanced Supply Chain survey, up to 92% of retailers have experienced inventory management issues. What some have described as the “supply chain strain” is not only the result of the Covid pandemic. The leaner the supply chain, the greater the strain it is put under by any disruption at all, such as the recent Suez canal incident.

It has become increasingly clear that, in a situation of uncertainty, just-in-time does not work. Many retailers are eschewing the once-popular lean model and thinking about a “just-in-case” model (see FT Just in time planning). Instead, they are broadening warehouse footprints to localise inventory for improved availability to their customers. Only a quarter believe that just-in-time inventory management is still relevant in the post-Covid environment. All gazes are turning towards the question of how to build resilient supply chains. Many are recognising also that investment in cutting-edge digital solutions to improve inventory management and visibility is part of the process of bolstering supply chains.

Furthermore, uncertainty and lower footfall has resulted in a new interest in local retail. Any method is welcome which will help provide shoppers with more reasons to visit a store. Diversifying ranges to attract and retain customers may transform stores into a model closer to the convenience store or the US drugstore, albeit with one dominant category. The desire to increase footfall might well bring operators in other retail sectors to serve consumer needs outside of their specialty.

As early as 2013, Forbes reported Macy’s pulling goods from stores and developing algorithms in order to limit out of stocks at store level, and achieve faster delivery as well as buy online pick up in store. In a strangely prescient piece, given the developments at John Lewis and Marks & Spencer for example, it also mentioned condensing the selling area and allocating more space to the backroom.

Imagine a store in which the selling area has been shrunk and converted to more of a showroom with interactive experiences; the rest of the store serving as a separate zone in which pickers would assemble a customer’s purchases; and digital technology would allow shoppers to select and pay for products on display. The resulting order might then be delivered to a kerbside collection point for the customer to pick up without having to wait in a checkout queue. Such a hybrid, traditional plus dark store, would answer many customers’ desire for a store experience without risk while allowing retailers to be flexible with both conventional and e-commerce formats as required. It would also serve as a collect and return point for online customers.

Logistics has become a customer issue

Many of the questions raised by omnichannel, and which have been put under the spotlight by the Covid pandemic, are in fact logistics questions. The recent customer expectations we are struggling to fulfil are in fact issues for supply chain and logistics: fulfilment from stores; dark stores; buy-online-pickup-in- store; click-and-collect; buy-online-return-in-store. All these are trends dominating the current retail scene and which have been accelerated by Covid. They are all heavily dependent on efficient and adaptable supply chains, and they all place logistics under consumer scrutiny. In the same way that steam and electricity transformed manufacturing, so digitisation is having an equally important impact on supply chains. As it matures, digitisation will be increasingly used to fulfil customer expectations in terms of time and availability, as well as offer a profitable and resilient fulfilment solution to retailers.

Credits: IADS (Dr Christopher Knee)

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125 years of history in commerce and retail, 290 stores, 14,000 employees, usually 60 million visitors per year and EUR 4.5 billion in yearly turnover (pre-pandemic): those are a few figures describing the Galeries Lafayette Group. But it is especially famous for its prestigious boulevard Haussmann flagship store. Usually relying on 200 nationalities accounting for 60% of its EUR 2 billion yearly turnover (2019 figures), the store occupies the coveted, yet challenging number one position of Paris’ department store scene.

Being number one implies being able to stay in step with customers’ expectations, attract Millennials and GenZ, as well as locals and tourists thanks to a great product offer, convenient services and memorable experience. And in 2021, after more than 200 days closed since the beginning of the pandemic, reinvention is also to be added to the list.

On 7 September, Alexandre Liot (Haussmann Store Director), Marianne Romestain (Chief Merchandising Officer) and Guillaume Gellusseau (Director of Communication and Marketing) unveiled the new “Le Grand Magasin de Tous” (translating to “a department store for all”) programme rooting in the very purpose of a department store: be a place for discovery, enjoyment and entertainment. We attended the press conference for you, and we are delighted to report back this exciting member news.

Reinvention, since 2018

In truth, reinvention started in the Haussmann store way before Covid with the “Programme Lumière” (translating to “Light Programme”) to run until its completion planned in 2024. Since 2018, the rooftop, kidswear, home, lingerie and a part of the beauty departments have been revamped to answer to a fast-evolving customer base. The historic dome has also been beautifully restored and transformed into an experience itself, thanks to a suspended gravity-defying glass walk platform (accessible from the third floor) allowing customers to get closer to it.

Digitalisation has also slowly developed: as stated during the press conference, e-commerce was only accounting for 2% of the turnover in 2019 and now reaches 25%. Such tremendous transformation basically happened in 4 months showing the company’s agility and ability to adapt. E-commerce is expected to stabilise at a 15% to 20% business share once life is back to normal. It has implied a true change in the way the store is considered: Galeries Lafayette’s management is now referring to the Haussmann store as a ‘navire phygital’ (translating to ‘phygital ship’) instead of the usual flagship store expression.

Reinvention at Galeries Lafayette is underpinned by 4 strategic objectives:

• Accelerating on local customers: despite a 60% share of international customers, Galeries Lafayette started refocusing on locals by redesigning its loyalty programme at the end of 2019.
• Remaining an unmissable Parisian attraction in a context of increased competition with the opening of La Samaritaine: on top of the expected fashion offer, the store wants to propose experiences through restaurants, cultural events and new partnerships that will be disclosed in 2022.
• Keeping its position with international shoppers: despite the absence of Asian tourists, performances with European, Middle-Eastern and American customers have been quite good considering the travel restrictions. Since the store reopened last May, the turnover achieved with these customers is “only” -20% compared to 2019.
• Benefitting from new growth engines appealing to younger generations: with the second-hand business.

These 4 objectives are very clearly reflected in the new Haussmann store propositions: a new highly attractive women’s shoe floor able to appeal to both locals and tourists, and a women’s ready-to-wear offer renewed with ‘Instabrands’ and circular fashion options, in step with Millennial’s and GenZ’s expectations.

New women’s shoe floor: the higher the heel, the closer to heaven

It’s literally true as the Haussmann women’s shoe floor moved from the basement to the fourth floor. Comparing to the previous location, the move includes new brands and extended footage, making it the biggest women’s shoe department in Europe with a 4,000 sqm surface. The large offer justifies a trip to the store and is, without a doubt, the most relevant in Paris.

Covering Luxury, Premium and Mid-range price segments (respectively accounting for 35%, 20% and 45% of the offer in 2020 (according to the information gathered during the last IADS Merchandising Meeting dedicated to Leather Goods & Shoes), the assortment now proposes 200 brands, 60 corners, 35 exclusive products and 10,000 SKUs. The shoe floor also brings innovation in the way brands are segmented and displayed. Two large lookalike multi-brand stores are available to the customers: the ‘Designer Galerie’ gathering luxury brands such as Alaïa, Balmain or Maison Margiela, and the ‘Creative Galerie’ offering “emerging” labels like Ganni, Rejina Pyo or Staud, both spaces being filled with natural light with an eye on Paris’ rooftops. A third multi-brand store has been designed to embrace the casualisation trend: the ‘Sneakers Galerie’ features a nice 20-metre luminous wall and offers all sorts of options from classic brands such as Nike and Adidas, to creative labels like Axel Arigato or Eytys..., and responsible ‘Go for Good’ labelled brands (Spring Court, Faguo, Good News, Viron...).

Circling around the base of the famous dome, the shoe department has been designed by Belgian architect Bernard Dubois. The design concept is mixing hardwood and concrete floors. Colours are evolving around earth tones, display furniture is made of concrete resin and medium wood. Impressive large resin rocks, where seats have been carved out, are giving visual rhythm to the shop floor.

The floor is completed by a Maison Michel shop-in-shop and a shoe repair/recycling station run by Veja. Customers can also buy Pierre Hermé macaroons or have a latte at EL&N, a coffee shop coming from London and naming itself “the most Instagrammable café in the world”. A concierge counter is also available as well as a Kure Bazaar mani-pedi station.

Premium and Mid-range women’s fashion: brands, brands, brands

Between 2020 and 2021, Galeries Lafayette embarked on 140 new brands, no less. As a result, a third of the brands have been renewed, bringing a much-needed offer-refresh able to appeal to younger local customers. Taking advantage of the store closures, the women’s fashion department has been revamped on the second and third floors, the ones dedicated to the Premium and Mid-range offer. In 2020, these price segments are respectively representing 30% and 20% of Galeries Lafayette’s womenswear business, the Luxury segment accounting for 50% (according to the information gathered during the last IADS Merchandising Meeting dedicated to Women’s Fashion).

Three new spaces are contributing to a clearer and more appealing brand segmentation: an Instabrands-DNVB (Digital Native Vertical Brands) space, the ‘Social Galerie’ and the ‘Creative Galerie’ (echoing its sister from the shoe floor) which will be renewing brands and offers on a regular basis. Brand corners have been revamped with new common signage, contributing to a clearer impression. The lingerie area, a new denim bar and a ‘fashion sport’ section complete the 2-storey offer.

The ‘Creative Galerie’ is a 225 sqm space nested on the second floor and gathering about 30 brands (including 15 new ones): the selection is dedicated to fashion addicts and is quite edgy. Customers can shop brands such as Stella Nova, House of Dagmar, Nanushka, Rejina Pyo, Anine Bing, The Frankie Shop… Additional new ready-to-wear brands are complementing this new space: Ganni, Laurence Bras, Proenza Schouler White Label, Valentine Gauthier, Dawei…, but also accessorie brands such as Staud for the leather goods, Annelise Michelson or Gossens for the jewellery.

On the third floor, new sections are displayed to appeal to Millennials and GenZ: the ‘Social Galerie’, and a large space dedicated to DNVBs and ‘Instabrands’ such as Songe Lab, Janne Mill or Pretty Wire. These brands are opening their first physical stores, showing once again how relevant a department store is to the development of such labels. The ‘Social Galerie’ is a unique concept where customers will find digital-native brands offering accessories, last-minute gifts and souvenirs. A famous DNVB will also launch during the next Paris Fashion Week: Skims by Kim Kardashian. Putting together these new sections surely benefited from Galeries Lafayette Champs-Elysées, the first to offer niche and Instagram brands.

(Re)store, a new venture in the responsible fashion market

Three years after launching their ‘Go For Good’ label which highlights products with a reduced impact on the environment, Galeries Lafayette is opening a large section dedicated to circular fashion on the third floor. ‘(Re)store’ is clearly designed for the younger generation and is associating vintage products through 7 different partners (Monogram, Relique, Petite Chineuse…) and eco-responsible labels, and ranges from Luxury to Mid-range price segments. Services are complementing the offer. A resale salon is available to customers: depending on the item, one of the partners will deal with the client’s pre-loved item. A collection point for donations to associations is also planned. An innovative hardware store featuring products in step with a more responsible way of life offering knitting kits, made in France accessories, organic washing products… occupies a fair share of the space. A new attractive digital-native concept, ‘Club Couleur’ (translating to ‘Colour Club’ is reviving second-hand objects (fashion, accessories and decoration) by re-colouring them.

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Such revamp is supported by a 360° omnichannel ad campaign imagined by DDB agency, photographer Lei Wei Swee, and filmmaker Jason Yan Francis: it includes social networks with a film blasting an exclusive Marc Cerrone disco music, billboards and press ads, a set of emojis, store windows... Four values are at the heart of the campaign: joy, inclusivity, energy and a youthful spirit. It is full of rhythm and colours and is supposed to speak to all customers from queens (aka older customers), cowboys (appealing to the new masculinity), innocents (kids), beauty addicts, artists (for the home lovers), educated palates (Lafayette Gourmet), trendsetters and visionaries (echoing the company’s responsible offer). The campaign is all about the enjoyment to be found in ‘Le Grand Magasin de Tous’, reminding of Galeries Lafayette’s founder whose philosophy was to gather everything and everyone under the same roof.

***

As an introduction to the press conference, Alexandre Liot was saying that “under such challenging circumstances, it’s all about dying or acting and reacting”. Clearly, Galeries Lafayette picked the second option and has set an ambitious women’s fashion revamp as a new chapter of the ‘Programme Lumière’. This new chapter is all about the Haussmann store, and after recently announcing that 11 provincial stores will become franchises, this is confirming again the company’s refocus on flagship locations.

Competition is gaining traction and the ‘phygital ship’ now has to compete with the brand new Printemps commitment to sustainability and has to be strategically poised for the return of tourists. The Asian tourism consumption in Paris is a large business but the cake is not extensible, so it’s key for the department store to be ready to win the fight against DFS-La Samaritaine. The ‘Programme Lumière’ is not fully achieved yet so we’ll see what the next moves will be. In the meantime, optimism for the future shows thanks to the addition of a new flight of escalators. Installed to better handle the customer flow and unclog circulation on the ground floor, Galeries Lafayette Haussmann is ready for hordes of customers when life is finally back to normal.

Credits: IADS (Christine Montard)

PRINTABLE LINK HERE

WATCH THE FULL INTERVIEW HERE

2020 has been an unprecedented year for all of us, and by the magnitude of changes it brought, it literally changed the world. By grounding the whole planet at home, it brought some space and time to reflect, especially when it came to examining changes in retail:

• Digitalisation and new purchasing habits,
• Work from home and the question of commuting,
• Notion of essential vs. non-essential goods.

*All our members, in addition to the obvious economical impact of the various closures they had to go through, witnessed significant changes in terms of how they were approaching their customers and their markets, leading to key changes both in their operating model and in their organisation.

We are launching a series of interviews with key innovative thinkers to understand the magnitude of the changes, and their views on how to deal with them. All organisations have proved their resilience and ability to cope with the emergency of the situation, however, it is a very human thing to tend to come back to habits whenever possible. What happened? How can we make the most of what we learnt and how can we make sure our organisations and thinking processes are durably impacted?*

Introduction: Jakob Sand from the BIG Group

For this session, we welcomed Jakob Sand, partner of the Bjarke Ingels Group (BIG).

BIG is a group of architects based in Copenhagen, New York, London, Barcelona and Shenzhen, founded in 2005 by Danish architect Bjarke Ingels. BIG got famous with innovative projects such as:

• Living units: “Mountain Dwelling” in Copenhagen (10,000 sqm of housing and 20,000 sqm of parking space with a  mountain theme), or the “8 Houses” project in Denmark,
• Public utility: Amager Resource Centre in Copenhagen, a waste to energy plant doubling with a ski slope,
• Corporate projects: The Google HQ in the US, Lego House in Copenhagen,
• Mixed-use buildings: The pyramid-shaped mixed-used building of Via 57 West in NY,
• Other projects: National Art Gallery in Nuuk, the Big U defence in lower Manhattan and many more (such as the Riverside project in NY),
• In retail, the group is known for having made the Galeries Lafayette Champs Elysées store.

Today, the group represents 600+ people with a holistic approach including all functions and disciplines.

Jakob Sand joined in 2011 as a partner, with previous experiences in Denmark and France with Dominique Perrault. He overviews projects at the global level.

Part 1: How to cope with innovation?

*IADS – Jakob, Bjarke Ingels has been named innovator of the year for architecture in 2011, and among the top 100 most influential people in 2016. Charismatic, known for his sense of humour, can you recall your first encounter with him and your feelings / thoughts at the time?*

Jakob Sand: We met in Paris as BIG had just won the Sorbonne University project, which was the first French project the group had to handle. I met with Bjarke very casually and we walked through the city as old friends, towards the university. It was not before we entered the building that we started to discuss this very project.

Bjarke is very easy to get along with, and what struck me was his curiosity: he was curious about my history and not worried at all about filling me in with the project and deadlines! Rem Koolhas, his former employer, once described him as “the only architect without angst”.

I think that his curiosity, fearlessness and positivity on how to tackle the problems brings us a lot of ideas and helps the group push the boundaries. This is probably why the BIG group has no specific signature style: although our buildings are certainly recognizable, they are all significantly different because when we start a project, we just do not know where we will land. He always challenges us to the maximum.

Combined with his talent, his curiosity helps us solve seemingly inextricable situations, by providing both a new approach and an almost scientific frame. Even in the most challenging moments, we are always confident that we will get somewhere. This specific methodology is probably one of our greatest points of differentiation on the market today.

Funnily enough, ten years later, this Sorbonne project in Paris is finally being built!

IADS – BIG is widely known for its innovative thinking process and ideas. How does that translate into the corporate culture? Any tips on best practices to onboard newcomers in innovative companies? Did you have to “unlearn” things?

JS: I did not have to “unlearn” as many of our projects are very classic, we just define our own approach. My previous experience was ideal when I joined, as Dominique Perrault is quite bold in his approach. Rather than unlearning, it is more about knowing history. As a good friend says: “the future starts in the past”. Even if our projects sound futuristics, they start somewhere, with references, studies and understanding of the context. It is just about making the right due diligences.

In terms of general organisation and our approach to innovation, even though Bjarke has his vision and methodology, we need to make it trickle down, not only between the 16 partners but at all levels in the 600+ staff. To achieve that, we empower everyone, in full transparency and sharing. There is no secret room where senior partners develop projects: from interns to the top level, we share information and updates on a weekly basis (let’s say it is a huge PDF sent on a weekly basis). This helps us save a significant amount of time.

Also, as many of the partners have started as interns in the company (I am an exception), the group culture is apparent at all levels. Everyone is encouraged to generate ideas, and any idea is welcome, wherever it comes from. There is no “we normally do like this” approach, but on the contrary, we are on a “what if” posture. This strongly contributes to talent retention, and this is how, for instance, we came to combine a bridge and an art gallery together in Norway in one of our projects (The Twist).

IADS- From a very practical point of view, how do you manage creativity within an international and multicultural organisation?

JS: We give responsibilities according to talent, not experience or time spent in the company. This empowers and motivates people. Some of our young talents can even feel overwhelmed with the level of responsibility they are given. But this is our way to foster talent and make them grow. Everybody is given the possibility to pitch their ideas, from interns to senior partners.

Regarding the weekly exchange, the PDF file is organically shared within the organisation. A comment from Bjarke goes to everybody, and vice versa. Of course, we are developing an app to make it more practical and optimized.

IADS- Has BIG Group gone through any kind of transformation due to the Covid-19 pandemic and if so, what and how where they dealt with?

JS: We were given 36 hours to “digitalize” the organisation, and make sure all employees could work from home. As architects, we already had the infrastructure needed to do so, as we deal with heavy files between offices across the world. For us, the change was not so much technical, but rather human: we were finally able to use tech to separate really important meetings, where you have to be physically present, to the other ones, where video conferences do the job.

While we knew technologies work and contribute to save time, we learnt the value of physical presence, which allowed us to review how we work, and when/where. This leads to a new balance, which is positive for all.

Part 2: BIG Group view on innovation in retail

IADS- Looking back: what did BIG learn with the Galeries Lafayette Champs Elysée store?

JS: We owe a lot to Galeries Lafayette for trusting us. They wanted us to bring in a fresh eye, and this is the reason why our partnership was so fruitful, as it mixed their experience and knowledge and our open approach, not taking anything for granted but on the contrary, raising “why not” questions.

I like to think of our approach as a “pragmatic utopia”: pragmatic because of course, the bottom line is to be economically sustainable and sell products, but also utopia because we believe cities can be improved. This is why we wanted to make a store which is also a destination, where you can go and stroll, in a seamless way with the urban environment. We wanted to create a physical space where you feel good and comfortable. For instance, the sneakers section is bigger than what you normally find, with a stunning architectural element creating the attraction. It is the same thing with the pinwheels moving around for watches or the giant moving belt for bags. We also created attractive glass displays on the second floor, which was a notoriously difficult floor for the previous owner.

Also, remember when I was mentioning the history? We discovered that this building used to be a bank, where customers could access a very luxurious vault in marble and precious stones. The fun part is that everything which was not visible by customers at the ground floor level was only covered with plaster, because why would you waste money on staff? We echoed this historical element by mixing a very luxurious marble and brass atrium and staircase with more contemporary white walls and a steel part, where you can find the perfumery today. This is a strong element of differentiation for the store.

We also decided to reveal the cupola, which has been masked by the former owner and created a meeting spot beneath it, like a plaza. This is what retail is about: being a natural spot where you meet your friends during a rainy day (but not only!).

IADS- What is the department store’s role for you in 2021? Should we consider it to be part of the “1% buildings” once mentioned by Bjarke as public buildings, such as churches, city halls and other public amenities? Or does it belong to something else?

JS: Put a store next to a public square. If people can sit in the public square, they will end up coming to the store. In other words, a department store needs to be a place to recharge, mingle, meet and spend time.

In the past, this was a corollary of the stores’ structures themselves: atriums were not here to be beautiful or a place to meet, but a very pragmatic way to have light come into the store and make products visible. People then appropriated these atriums as meeting places. With time, department stores wanted to maximize productivity by showing as many products as possible, closing spaces and creating floors. Thankfully we are at the end of this cycle and now visitors want space, place and a reason to come again.

I highly believe that the future of department stores is to be semi-public spaces, all the more that they are already enjoying key positions in cities. A department store is a natural part of the “1% buildings” where all senses are solicited to buy products, but not only. This is a clear competitive advantage over the internet!

It does not mean that there might not be fewer department stores, though! We are currently working on a project in Düsseldorf where one store is closed and the second one across the road kept, as they were both built in the pre-internet era. A funny point on this project: we decided to transform the road in front of the remaining store into a pedestrian area. Everybody was stressed, as “cars give energy in front of the store”. This is not the right approach: if you have passers-by, benches, trees… you will have probably much more qualified traffic for your store than cars passing by… usually cars do not come into stores!

IADS – What are your frustrations, if any, for retail? Can architecture solve all issues?

JS: No frustration on our end. Everything depends on the readiness of the retailer we are working with. Galeries Lafayette was forward-thinking, but for other projects we feel sometimes we are asked to design for the past, to stick to well-known recipes… Retailers know their part, and we are not here to teach them new tricks, but experimentation and new ideas are key to reinvent retail.

Architectural alchemy is about mixing ingredients: retail with leisure, entertainment.. a new function. For instance, for Google in California, we decided to gather almost 3,000 people on the same floor under the same roof, as we believe this reflects the new ways of working.

The toughest thing for architecture in retail is not the structure, but the mindset.

IADS - Retail is also about people – customers, but also and equally importantly sales teams. How do you take them into account in your projects?

JS: We all want meaning and purpose. This goes for any employee of any industry. The quality of offices can increase loyalty and even motivate employees to stay extra hours, thanks to a rooftop, a gym…

The topic of sustainability is particularly critical for the younger generation. We need to make them believe in and be proud of, the values promoted by the company. Our role, as architects, is to express that when they work in this particular building, they are part of a bigger plan (making a better city, a better planet…).

IADS – Is the store of the future a store at all?

JS: I am sure that a wholly virtual world is exciting. For me, the store of the future is physical! My 9-year-old who intensely uses her iPad and iPhone really enjoys going to stores to test, try and touch. We are human beings after all.

It is probable that we will see new experimentations with stores, in open air, on highways… why not?  it will be rethought in many ways, but I am confident department stores will remain relevant in the future.

They just need to keep on inventing and experimenting. For instance, we are working on an Opera house in Germany where we chose to show backstage mechanisms to spectators. A similar approach could be applied to department stores, where you could see the system fulfilling your orders in real-time, for instance.

Technologies are there. In Danish, design means “giving a form to something which does not have a form yet” or giving a form to the future. All IADS members have the possibility to define by themselves the form of their future, and that is pretty exciting!

Credits: IADS (Selvane Mohandas)

printable version here

Keeping markets under close watch, IADS collected spectacular store concepts from retailers around the world. This collection of stores offers jaw-dropping displays that will draw customers from near and far.

Check out how retailers are using surprise effects and creativity to fundamentally challenge traditional retail concepts to create desirable experiences and spectacles.

Apple, Los Angeles

Apple Tower Theatre is a new store designed inside of an abandoned 1920s movie theatre in downtown LA. Inside, there is a grand entry hall designed in the style of Charles Garnier's Paris Opera House, complete with bronze handrails and marble columns. Apple plans to use the space as an auditorium for daily skills workshops and presentations from local artists.

MORE ON apple los angeles 

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Louis Vuitton, New York City

The French fashion house opened the doors to a temporary men’s pop-up in the SoHo neighbourhood. The space, featuring a spectacular color palette, hosts a product selection from the artistic director, Virgil Abloh. The installation is part of a series of men’s global fashion events named ‘Louis Vuitton: Walk in the Park’.

MORE ON louis vuitton new york city 

Gentle Monster, Seoul

The new Gentle Monster store in Seoul, Korea does not conform to the typical template of eyewear stores. At the entrance, an army of androids welcomes customers and directs them to screens with hyper-real images. The space also features a giant metallic spider that is independently animated.

More on gentle monster seoul

ENG, Shanghai

ENG is setting up a second concept store in Shanghai. Featuring a futuristic spaceship interior and buzzy atmosphere, the store has proven to be a hit with Chinese Gen Z customers. With a palette of silver, white, and electric blue, the shop floor displays holographic projections and vending machines where products can be purchased.

More on ENG SHANGHAI

Fendi, New York City

Fendi has opened a flagship in NYC at 57th and Madison Ave. The highlight of the store is a jaw-dropping sphere suspended from the centre of the second floor. The location also offers a VIP room and a lounge that can be closed off by ivory curtains. Every aspect of the store is dripping with luxurious attention to detail.

more on FENDI NEW YORK CITY 

Luxemporium, China

Luxemporium is expanding to second-tier cities with its store concept in Changsha. The store is themed ‘Parallel World’ and features various sections boasting futuristic aesthetics with metals playing a dominant role in the design. Lights and shadows are used throughout the store to give different effects, such as a sunset.

more on LUXEMPORIUM CHINA 

pRINTABLE VERSION HERE

What: Generation Z shoppers are not easy to win over and have a long list of demands for retailers and brands.

Why it is important: Gen Zers are the influencers that can impact the buying decisions of the generations before them. Retailers need to constantly understand and adapt to the needs of younger generations to stay relevant.

Introduction: Generation Z shoppers are a completely new beast for the retail industry to market and capture. They are digital natives that have little patience for errors and value their personal brand above all else. Although they can be tough to appeal to, they are easily won over through loyalty programs and perks. Taking the right steps to impress these young shoppers will be vital for brands and retailers to stay relevant.

Meet Generation Z

Move over Millennials, retailers and brands are setting their sights towards a new buyer persona: Gen Z shoppers. People labeled as Gen Z were born from 1996 and after. While these shoppers are still young, they are known as the “influencers” which means they have an impact on what Millennials and Gen Xers buy. This does not mean that Millennials are irrelevant, but rather Gen Z can be leveraged as trend setters. Before the pandemic, Forbes reported that Generation Z had a purchasing power of USD 143 billion.

IBM and NRF conducted a survey of 15,600 Gen Zers from 16 countries examining their shopping habits and values. Some trends that Gen Zers expect from retailers are accurate inventory information, value for their money, a wide assortment of choices, innovation and technology that enhance encounters, and individualized shopping experiences.

As seen in Figure 1 below, choice, availability, convenience and value have major impacts on where Gen Zers shop. While GenZ does not practice brand loyalty just yet, research suggests that as they get older they will start to become more loyal, so brands need to try and make a lasting impression while they are in this discovery stage.

![1 

Surprisingly, Gen Zers prefer to shop in the physical store compared to online. This does not mean that they don’t also use digital shopping channels, but they expect unique and personalized experiences online and in stores through the perfect marriage of digital and physical channels. TX Youth Energy Centre in Shanghai creates the ultimate experience by combining fashion, street culture, and clubbing under a single roof to “become a cultural landmark for youth.”

Reaching Gen Z on social platforms

Connecting with Gen Z on social media allows brands to interact directly with these young consumers while also capturing key data points about their preferences. These data points can then be leveraged to suggest personalized and unique product suggestions to Gen Z shoppers, which they also see as an important service that brands should offer.

According to the GlobalWebIndex, people from the ages of 16 to 24 spend an average of seven hours per day online with three hours dedicated exclusively to social media channels. Classic social media platforms like Twitter, Snapchat, and Facebook have seen reduced traffic as more popular platforms like TikTok or online gaming platforms like Fortnite grow in popularity. This is another reason brands will need to constantly evolve to stay current with what is important and trending with these younger shoppers.

Gen Z has completely reinvented social media marketing and brands need to adapt and reconsider the platforms that are being used to reach younger audiences. Falabella has launched Falabella Play, a new multiplatform channel with interviews, music, and live broadcasts. The channel is transmitted on YouTube, TikTok, Instagram, Facebook, and Twitch to be able to reach their younger community of shoppers. Falabella Play has featured interviews with influencers and music artists, unboxings of products, and offers fashion trend videos.

Social media has become a place where e-commerce, entertainment, and social are fusing into one thanks to Gen Zers. Poshmark recently teamed up with Snapchat to offer Poshmark Mini, a social shopping experience in the app where shoppers can browse curated products without leaving the app, in hopes to introduce the resale platform to the Gen Z audience. This is a great example of a retailer meeting Gen Z shoppers in the formats they are using on a daily basis.

A Gen Z approved strategy

Gen Zers could be the secret to keeping physical stores relevant in this growing digital and omnichannel age. According to a survey conducted by A.T. Kearney, Gen Z considers shopping in stores as “retail therapy.” But in order to give this generation with high expectations and short attention spans what they expect, department stores need to consider communication methods, service offerings, and rewards carefully.

Communication needs to be authentic, concise, and include up-to-date lingo that Gen Zers respond well to. Social media and digital platforms should be a key area to target this consumer group to meet them on the channels that they actively use daily, with options to shop directly through these channels. Being transparent as possible around sustainability and other initiatives will also help Gen Zers feel more comfortable supporting a brand. For example, H&M has completely revamped their inclusion and diversity statements and promises “ to share [their] progress and achievements, as well as the challenges ahead.”

Service offerings like free shipping go a long way with Gen Zers as they search for value. Retailers need to harness the power of data collected through various channels to be able to propose unique and personalized products to Gen Z shoppers. Any technology that is adopted needs to be intentional and must enhance the shopping experience, otherwise Gen Zers will have no patience for it. Many retailers like Macy’s, Gap, and Neiman Marcus are offering flexibility through Buy Now, Pay Later payment services which attract younger customers. While technology is a place to pique Gen Z’s interests, physical stores should be prioritized as a place where they can enjoy picture worthy experiences.

Rewards are very important to Gen Z shoppers. As they value individuality, loyalty programs that offer curated freebies, make suggestions based on past purchases and searches, and remember their birthdays are sure to keep these shoppers coming back for more. H&M’s Membership Program offers customers points for each dollar spent, a welcome gift for signing up, exclusive discounts, free online returns, insider shopping events, and birthday offers. This loyalty program is a perfect blend of transactional benefits (coupons) and community-driven experiences.

Tactics to capture and retain Gen Z buyers

Generation Z grew up in an age of rapid improvement. They are digital natives that have a growing knowledge about data and how algorithms work on targeted campaigns, making them an even harder target to catch. Retailers and brands must take the right approach when coming after these shoppers to ensure that messaging is clear and authentic while also creating a personalized and unique experience across all channels. Understanding this generation’s influence on the consumer market and implementing a marketing strategy with them in mind is vital to survival in this digital and omnichannel age.

As Generation Z continues shuffling through trends, brands and retailers should keep a few things in mind. It is important to stay in touch with the younger generation and understand how to be able to reach them whether that be pertaining to channels they use or issues they care about. Agility and understanding is key to ensure marketing efforts are not lost. But just as Gen Zers value authenticity, it is important for brands to remain true to their missions and values and not sacrifice these things for the sake of relevance. As Generation Z starts to enter the workforce, their spending power will only increase with time, but understanding how your brand can uniquely capture some of their wallet share is important before investing in new tactics and channels.

Credits: IADS (Mary Jane Shea)

PRINTABLE VERSION HERE

*What:  Our visit and review of one of the most important Tech fairs in Europe

Why it is important:  4 interesting start-ups that we spotted for our members, with some potential for immediate retail applications.*

*Viva Technology (aka Vivatech) is a French fair dedicated to new technology, launched in 2016, and seen as the French response to the tech hype from California and the CES in Las Vegas. With the permanent support of the French President, Emmanuel Macron, who promotes the “start-up nation”, this tech fair became in 4 editions a rendezvous of choice, where all tech moguls from the world gave speeches (Mark Zuckerberg, Jack Ma, Satya Nadella from Microsoft), but also world leaders such as Justin Trudeau or John Kerry, and world figures (Usain Bolt, Bernard Arnault).

The 2021 edition was, due to the Covid-19 context, unique as it was one of the first mass-scale events to be held in Europe, organized in a hybrid way, with both a physical fair with live events, echoed by an online platform to maximize visibility. In terms of numbers, this meant 26,000 physical visitors and 114,000 users on the platform (to give a sense of comparison, the first edition welcomed in 2016 45,000 visitors, and the last pre-pandemic one in 2019 attracted 124,000 people).

We decided to attend this edition as we believe the IADS should help its members detect innovative approaches and solutions wherever they are, in complement to their own efforts. Also, it was a way for us to catch a glimpse of where “retail tech” stands.*

A quick overview of the key messages from top speakers

To say the least, this edition of the fair was politically charged.

Emmanuel Macron used Vivatech as a political platform to highlight the progress of the tech industry in France, both in terms of number of companies, jobs created or funding. He was echoed in that stance by Mirakl (a French company specialized in marketplace technology, working with a few IADS members and Hudson’s Bay and which we reported here), which discussed financing and going public.

Macron also pleaded for European cooperation in terms of start-up support, through the Scale-up Europe initiative, and for a closer control of what GAFA does. Tim Cook from Apple replied that the European proposed big tech mandate could affect the security of the Apple products system.

However, some other leaders decided to focus on tech itself, by giving some perspectives on the evolution of the industry.

Mark Zuckerberg from Facebook chose to promote his convictions about the appearance of a “meta-universe” where, through VR and 3D technologies, it will become possible to virtually produce, sell and buy items (i.e. instead of selling a TV, it will be possible to produce and broadcast the content directly to the audience, making the TV an obsolete product). Klarna (a buy-now-pay-later solution that we reported in our Exclusive article as well as here and here) ranted against banks, which are, according to the company, overcharging customers while its solution perfectly suits its 18M customers and 250,000 retail partners needs. Finally, Google made a spectacular announcement by confirming that it had inked a deal with LVMH to manage the group’s cloud capability (i.e. use its AI capability to help LVMH on topics such as CRM and customers’ knowledge, logistics and supply chain processes).

Interestingly, however, a macro view of the fair and the start-ups presenting their solution tended to show that retail tech was rather underrepresented, compared to other sectors of innovation such as transportation (autonomous vehicles, flying cars, shared fleets), health (improved capabilities of the iphone on that topic, among others), HR and video conferencing (AI to manage employees, systems to meet virtually), or finance. Even the LVMH booth was somehow lacking retail-dedicated start-ups: out of the 12 presented, we spotted only one company that could be interesting for our members, the other ones being more adapted to brands than retailers (tactile packaging, in store display proposals (see the one we have spotted below), live-shopping solutions for brands, data analysis dedicated to grey market and second hand, or new materials).

Our top 4 selection for department stores

Here are the companies we spotted for our members during the fair:

1- A versatile tool for central HQ functions and marketing campaigns: Pitchy

• A seemingly simple tool, however with potential applications that go beyond the use cases displayed on stage.
• Pitchy is an AI-powered online video editor, that allows the making of high-quality videos quickly, simply and without any particular skills. They can be used online, on websites, but also on social media or in 1 to 1 communication. In terms of practicality, think “PowerPoint applied to video conception”. See how it works by clicking here.
• Why do we think this is important?   A simple and versatile tool, that can be used at the HQ level on many topics (training, motivational or informational messages) but also on the sales floor when it comes to presenting a new product efficiently to inform customers, just with a phone, or by marketing departments to tease their next campaigns.

Contact: Jimmy Moe, International Sales Manager, jmoe@pitchy.io 

https://www.pitchy.io

Learn more about Pitchy here

2- A marketplace system, for real stores and offline promotions: Achille

• A reverse approach to marketplaces in order to promote real stores to local customers and let them have access to the best deals, offline.
• Achille is a device-driven solution that applies the principle of marketplace (in terms of choice, offer and access to products) to real stores. The advantages for retailers are that Achille works exactly in the same way as a virtual marketplace, however is a great complement in terms of local business solution at a limited cost of operation. You can watch their demo video by clicking here.
• Why do we think this is important? A simple tool that comes as an extra software layer, thus not requiring heavy IT integration, which also provides a solution for our members who have a large regional network and want to make sure they cover all their types of customers, including the less connected ones.

To be noted:  The IADS already showed to its members a similar solution, UK-based, during the Store Operations meeting in 2017: Nearst, founded by Nick Brackenbury

Contact: Fabrice Moncault, founder, fabrice@achille.shop

https://www.achille.shop

learn more about achille here 

3- A circular packaging system: Hipli

• An interesting initiative, supported by LVMH, which provides to brands and retailers the possibility to guarantee a 100% sustainable delivery process thanks to circular packaging,
• Hipli has developed reusable packaging (envelopes, covers) that is shipped back free of charge by the customer upon receipt of the product. Hipli washes the packaging, prepares it again and reinjects it in the process. Packaging elements can be branded, and the solution is already 100% working in France, currently being expanded in Europe. The system works as a “Packaging as a service”
• Why do we think this is important? Hipli provides an easy to implement and non-industrially committing solution to members to move forward in their sustainability initiatives. For now, they have only inked deals with brands, but there is no reason why retailers should not be interested either. It is also a very visible step, that can provide significant PR coverage (contrary to other initiatives that, even though they are needed and useful, might be less visible and interesting for the general public).

Contact: Lysianne Coquin, cofounder, lysianne.coquin@hipli.Fr

<https://hipli.fr/en/>

learn more about hipli here 

4- A spectacular solution for windows, instore displays, but also live streaming: Fosfor

• The WOW effect in windows and on the sales floor, with a wide variety of animations in 3D that either represent the products on display or complement them with additional information. In addition to this, a solution for live streaming IADS members that could contribute to animate stores from the network while having the live session in the flagship.
• A series of state-of-the art screens and display technologies allowing jaw-dropping interactions with products (click here to see the video of their Totem Holix solution, applied to Kenzo). But more importantly, a camera and screening system allowing streaming in real time a 3-D, life sized picture of the speaker, in a clear and natural manner (click here to see the video of they Crystalman solution) . With the appropriate system, the speaker, wherever he/she is based, can interact with the audience watching the screen.
• Why do we think this is important? Live streaming sessions are now crucial for our members’ businesses, but can be expensive, all the more so if they involve a celebrity or an influencer. In addition, they tend to address only an online audience. We see this technological solution as a way to maximize the investment by being able to show the streaming in other stores, therefore creating occasions for drive-to-store events addressing the local clientele.

Contact: Cédric Besacier, cofounder, cedric@agence-fosfor.fr 

https://www.agence-fosfor.fr

learn more about fosfor here 

Going further: IADS launches the “innovation channel” exclusively for its members

We believe that it is key that your Association gets more involved with the notion of innovation and transformation, be it digital or in other fields of application. This is the reason why, in the coming weeks, we will be launching new initiatives:

• Opportunities to discover start-ups that we think can be interesting for your innovation departments (with the guarantee of the IADS integrity as we do not have financial involvement in these ventures),
• More exposure on the subject of innovation through new content, developed in partnership with players from the tech industry,
• Interviews with innovative thinkers to discuss organisation of transformation and more.

Of course, we also welcome your suggestions! How would you like to be exposed to innovation? How could you contribute to this IADS innovation channel initiative? Do not hesitate to share with us your ideas!

Credits: IADS (Selvane Mohandas)

PRINTABLE VERSION HERE

It's here!

Suspense was on almost until the D-day. The long-awaited reopening of iconic Parisian department store, La Samaritaine, is finally here after sixteen years out of business and a total investment estimated between EUR 750 million and EUR 1 billion.

Closed in 2005 for safety reasons, the initial renovation plan was aiming for a reopening in 2010. Renovation plans were only unveiled in 2012, with, at the time, a target opening date set for 2016. After some blockages from local authorities (before and during the course of the renovation), works didn’t begin until the end of 2014 and, later on, the opening was announced for April 2020. But due to the Covid pandemic, the opening was postponed to June 2021, although the precise date changed several times while getting closer to the date. After many changes and an official pre-opening event with French President Emmanuel Macron, La Samaritaine Paris Pont-Neuf – finally – opens its doors on 23 June. Luxury takes time as Bernard Arnault always says.

A little bit of history

La Samaritaine was founded in 1870 by Etienne Cognacq and his wife ‎Marie-Louise Jaÿ. Both came from modest families, he was a hawker and she was a sales person at Le Bon Marché. Believing in innovative selling methods (fixed prices, clear price information, possibility to try on garments, easy in-store circulation …), the couple is a remarkable example of the social climbing that was linked to the rise of department stores at the end of the 19th century. Growing through the years, they ended up with a four-building store completed in 1932.

Having acquired Le Bon Marché in 1984, LVMH bought La Samaritaine in 2000 with the ambition to transform them in modern and trendy department stores, on both sides of the Seine River. However, the approach for La Samaritaine significantly differed from le Bon Marché (which is a LVMH entity), as it would be managed by DFS, the Hong Kong-based tax-free shopping division of LVMH.

(Chinese) tourists vs. locals

A first Duty Free Shoppers store opened in Hong Kong airport in 1960. In 1972, the company launched its first DFS Gallerias in Honolulu and Hong Kong. In 2013, DFS announced their intention to expand outside of Asia, by looking for a few European locations (France, Italy, Switzerland). The strategy was to rely on DFS’ brand awareness among Mainland Chinese shoppers and company’s understanding of Asian consumers to capture their spending when travelling to Europe. For DFS, at the time, “Chinese customers will continue to account for more than half of our revenue in several years to come”. In 2016 they opened their first European duty-free business in Venice, combining luxury and curated local products. While it still remains unclear if it is successful or not, DFS claims it has been attracting 3 million visitors in the first year. La Samaritaine is their second European outpost.

For LVMH, tourists (especially Chinese ones) were supposed to account for half of the department store’s customers. In 2019 alone, nearly 1 million Chinese tourists visited Paris, spending over EUR 1 billion in tourism revenue. The average amount spent in stores is EUR 1,128 per day and per person. In that sense, department stores are an important crossing point for such spending (Galeries Lafayette is the second place to be visited after the Eiffel Tower and the retailer now has a dedicated store across from the flagship Boulevard Haussmann, just for Chinese tourists). Before the pandemic, and comparing La Samaritaine with the results of the Galeries Lafayette’s Haussmann branch in Paris, French trade magazine LSA estimated that the revamped department store’s annual revenue could potentially exceed EUR 500 million. For comparison, Le Bon Marché turnover is estimated to EUR 550 million, with 50% more retail space than La Samaritaine. But Le Bon Marché is not known for attracting that many Chinese tourists.

Needless to mention that Covid changed the game and La Samaritaine has, at least for now, to rely on Parisian, French, and hopefully European customers. For the time being, the opening marketing campaign is very much French-oriented (if not to say Parisian) and features the real store employees, using a very French and girly tone.

But Bernard Arnault has a long-term perspective on DFS’ new venture and the current situation is not making much of a difference to him: “In the short term, there are very few tourists. […]. The question is not whether things will return to normal or not. Clearly, they will return to normal. The question is when? We don’t know, and everything depends on that. But we’ve waited 15 years, an extra year won’t make much difference.”

So, La Samaritaine’s strategy towards Chinese customers has not changed despite Covid crisis, and DFS will just have to wait for them to come back. In that sense, just looking at the store loyalty program says a lot. Using a QR code, you can get your digital card directly and instantly while in the store: what you get is not a Samaritaine card, but a Loyal T Card by DFS and an email from them, informing you about “What’s happening In Hong Kong This Month”… To say the least, it will be confusing for Parisian customers who don’t know anything about DFS. In itself, the loyalty programme includes the usual: exclusive offers, free alterations, exchange without receipt, free delivery from EUR 200, and reward points coming with each purchase.

A closer look at the store

The original state-of-the-art “Art Nouveau” and “Art Deco” architecture and decor are amazingly restored and completed by a new and controversial Rue de Rivoli wavy glass facade by Japanese architecture agency Sanaa, which was also in charge of the department store project. Depending on the store sections, interior design was handled by Yabu Pushelberg, Agence De Création Malherbe Paris and Studio Ciguë.

The whole project occupies 2 buildings out of the 4 original ones, represents 70,000 square-metres splitting in different parts, and will employ 3,000 people. Non-retail parts are offering offices, 96 social housing apartments and a childcare centre. For the business parts: a LVMH Cheval Blanc 5-star luxury hotel (72 rooms, some with private pools, scheduled to open on 7 September 2021), and 20,000 square-metres dedicated to the department store itself including 12 food vendors (before closing the selling surface was 30,000 square-metres). As a comparison, Le Bon Marché surface is 30,000 square-metres, BHV is 38,000 and Galeries Lafayette Haussmann is 70,000.

The relatively small surface implies choices and, as it was originally designed for an international customer base, the store is exclusively dedicated to fashion and beauty. As opposed to competitors, local customers won’t find kid’s wear, nor homeware or groceries. In terms of taste, feeling and brand mix, La Samaritaine is meant to be about lifestyle, discovery and experience, “at the intersection of Avenue Montaigne and Le Marais […] where they can treat themselves to a luxury purchase and sip an espresso made by an expert barista”, according to Eléonore de Boysson, DFS’ President for EMEA.

More than 600 luxury and premium brands (including 40 exclusive ones) can be found under the renovated store, mixing big names and independent labels in all departments. Basically, the store splits in 2 sections: a luxury one (Pont-Neuf side, throughout the 6 floors) using materials such as state-of-the-art mosaics, light wood and gold finishing, and a streetwear one (throughout the basement, ground and first floors) featuring graffiti, concrete and raw materials. The latter is shrewdly located on the “high-street” Rue de Rivoli side (an Oxford Street Parisian version) to attract Millennials and Gen Z customers.

Wandering through the floors

From the main entrance on Rue de La Monnaie, the ground floor is dedicated to leather goods and accessories such as sunglasses and costume jewellery. The organisation is quite the usual with concession stands all along the walls, smaller stands and multibrand areas displayed in the middle. A relatively small part of the floor is dedicated to “La Boutique de Loulou”, an elevated gift shop, gathering 1,500 small objects, tech objects, stationery, books, souvenirs, accessories... Being self-service, metallic baskets are available to customers to easily shop. On the Rue de Rivoli side, the ground floor offers a young take on women’s and men’s fashion with a “Designers Lab”. Also, on this side of the store, and for the next 5 months to come, famous contemporary art gallery Perrotin has a 200 square-metre pop up store offering cultural goods such as art books, artists’ limited editions, goodies and decorative objects. It’s worth mentioning that La Samaritaine boasts about highlighting French creative talents in the “Factory”, a space for free expression.

The first floor is dedicated to luxury and contemporary women’s fashion, mixing concession stands and multibrand areas. When strolling towards the Rue de Rivoli side, the floor is transitioning to a genderless streetwear, outdoor and athleisure area complemented by a Shinzo Paris sneakers shop-in-shop.

From Tiffany to Cartier, the second floor is entirely dedicated to jewellery and watches and should appeal to Chinese customers when they are back. The third floor is for men’s fashion. The fourth floor is for women’s shoes displayed in a boudoir style. It’s worth mentioning that there is no men’s shoes section per se, but only a sneakers wall on the men’s floor in addition to the offer available at Shinzo’s shop-in-shop.

The fifth floor is beautiful in itself with legendary Art Nouveau peacock frescos, from which the store communication takes its origin. It’s also the place for Voyage restaurant and lounge coming along with an event space. Unfortunately, no rooftop, terrasse or spectacular views for the restaurant, such spaces being all taken over by Cheval Blanc hotel. Anyhow, food is an important part of the store, coming as a possible answer to the customer’s current cravings for experience. The 12 food vendors available in the store are all exclusive concepts and are ranging from coffee to pastry shop and classic restaurants. Street Caviar run by Prunier and located on the Rivoli side, is certainly the most interesting one as it offers EUR 15 caviar sandwiches.

Last but not least, the beauty department, unusually located in the basement, is the store’s main asset. Representing 3,400 square-metres and supposedly is the largest in Continental Europe, it should be a key driver for traffic and sales, for both tourists and locals. Two-hundred brands have been curated including 50 sustainable ones, plus niche and exclusive ones. They split in 2 different ways, a young and trendy self-service, and a more institutional space with concession stands. Interestingly and quite new, the majority of the beauty assistants are from La Samaritaine staff, not from brands. While all staff members are trained to be able to serve any customer need, customers can also shop by themselves as if at Sephora, thanks to baskets made available throughout the entire department. Services complement the beauty offer with a brow bar, a spa (Spa des Cing Mondes with hammam, sauna, and massage) and Studio de Beauté (run by Kure Bazar including nail bar, hairdressing and barbershop). Perfume is also emphasized with both an engraving station and one-of-a-kind editions ranging from EUR 3,000 to 300,000.

At your service

Besides “L’Appartement” VIP lounge available on the women’s fashion floor, La Samariatine offers personalised, and sometimes, new services. To be booked at the “Conciergerie”, personal shopping is developed through different options: directly in the store or in “L’Appartement” VIP lounge, but also at your home. In that case, a stylist will come to your place and show you ways to combine your pieces with new ones. La “Conciergerie” is also supposed to help any customer willing to book a museum ticket, a restaurant or a show. “Make my day” is a new service evolving around the idea of leisure and pushing customers to spend more time in the store. Offering them a “Samaritaine immersion”, the experience ranges from 2 hours 30 minutes (including 3 culinary experiences and an hour with a member of the Rue de Rivoli team) to a full day pampering with manicure, brow, makeup and hair styling sessions, lunch at Voyage restaurant, 3 hours with a personal stylist and a photo shoot.

Hands-free shopping is available for customers to gather all purchases in one place and to pay for everything in a single transaction. A tax refund service is developed so that all store staff know how to proceed, making the refund seamless for an immediate refund in cash, credit card or by “Wallet Alipay”.

As a conclusion, the IADS perspective

Times are difficult for multibrand retail and especially for department stores, competing to retain customers in store while being forced to develop their e-commerce and digital capabilities. Especially in Paris, retail suffered greatly with “Gilets Jaunes” social movement in 2018, massive strikes in 2019 and Covid in 2020. Meanwhile, Galeries Lafayette Champs-Elysees opened in March 2019 with results “below expectations,” (after the first six months) company Chief Executive Officer Nicolas Houzé told BoF. More recently, Qatari-owned department store Printemps changed its management team and announced a new strategy.

So La Samaritaine is not a safe bet yet. While nobody knows when tourism will resume and allow the department store to fulfil its strategy, here is what we can keep in mind further to the opening:

• In a general way, La Samaritaine is not a store made for locals and Parisians will understand that in a minute, the loyalty program says everything about that.
• It might also be hard to attract big local spenders to this “high-street” Paris neighbourhood. Rue de Rivoli has never been their favourite and has recently transformed to a pedestrian way. For sure, people will visit this beautiful store and, while unable to splurge on a EUR 2,000 Loewe bag, will probably indulge with a EUR 15 caviar sandwich. That’s not a lot of money at the end of the day, and it remains to be seen if they will come back for a second sandwich.
• There is no e-commerce and attached necessary delivery and click & collect services available.
• On the other hand, the beauty department is a real asset and could guarantee strong sales among locals, assuming they will be aware it exists.
• Food options are a lot considering the total footage. They are disseminated throughout the store, sometimes in debatable places, but will probably attract people looking for fun alternatives during their office lunch hours.

If Paris is still very much impacted by Covid, the city positions itself for a rebound. La Samaritaine will be part of it anyway, as well as IADS member Galeries Lafayette Haussmann that just completed the renovation of its historic and stunning “coupole” dome. On the cultural side and under global corporation umbrellas, art foundations (among them the Pinault one located very close to La Samaritaine) recently opened adding new and noteworthy attractions to a city now expecting life to go back to normal.

a closer look at la samaritaine

Credits: IADS (Christine Montard)

PRINTABLE VERSION HERE

Omnichannel department stores have two big advantages over pure players, including Amazon: they know their products, and they have stores. Department stores need to capitalise on these by using their human potential to the full with product knowledge, and by tailoring stores to the behaviour of digital customers.

Know the product

We have all experienced recommendations by Amazon for books which can be, to say the least, puzzling. They seem to bear no connection to previous purchases, interests or even searches. Ben Evans makes the provocative point that Amazon does not really know what it sells. The key for Evans is that Amazon operates with a logistics-based business model. That is, it deals with relatively uniform packages on an infinitely long shelf. The system can describe the products, but usually using only information from the suppliers, and incorporate that limited information in its presentation and description, and in its recommendations. All categories of goods are treated in the same way as long as they can be fitted into a box on an infinitely long shelf. “Products are a number, a size and a weight” (see Ben Evans). And anyway 60% of what Amazon sells is not sold by Amazon.

Recommendations use a model based on the history of the user and the behaviour of similar users. Even on sites which are personalised to each customer, AI is able to provide recommendations which are increasingly subtle and feel close to serendipity from the customer perspective.

a)    Content-based filtering relies on using as much customer data as possible. A recommendation like “products similar to this” is an example.

b)    Collaborative filtering collects information from many other users to derive suggestions for a particular customer. A typical recommendation in this case may suggest items which go well with one another.

c)    Knowledge-based systems are more appropriate when there exists less prior knowledge because, for example, items are infrequently purchased, and data is lacking.

The challenges faced by recommendation systems are sparsity of data; latent associations (when labelling or description is imperfect); and scalability (when data sets widen and become overwhelmed by the multiplicity of products and clients). An interesting example is Netflix which integrates the history of what members have watched with product tags by employees who understand the content, and finally pulls these parts together with a proprietary machine learning algorithm.

Now it is clear that while Amazon has no sparsity of data, it does nevertheless have problems with product knowledge (and perhaps also scalability). This accounts for its sometimes bizarre, recommendations which appear to have no reason other than a word in common in the suppliers’ descriptions.

Convenience and automation vs experience and interaction

The Amazon model privileges price, speed, convenience and automation, and managed from the outset to dominate a category, books, known for content, browsing, experience and human interaction. In so doing, it changed the category itself. The large impersonal chains such as Barnes & Noble or Waterstones which had put so many small local bookshops out of business, found themselves in their turn struggling against the apparently unstoppable might of Amazon.

However, customers fought back by patronising what was left of the small independents, and the chains used the best features of the independents to transform themselves and win back market share from Amazon. Book retailing is thus polarising between an efficient commodity system on the one hand, and a local community experience on the other. Both apparently growing (for example, independents are now growing again from a low of 1650 across the US in 2009 to 2470 in 2018).

According to the Financial Times, James Daunt, originally founder of Daunt Books of Marylebone High Street in London, has successfully rescued the Waterstone’s chain in the UK from the Amazon juggernaut by transforming it into a chain of local stores. Since then, Waterstones has acquired the US giant Barnes & Noble, and Daunt has the (daunting) task of doing the same in the US with analysts and investors betting against him.

The ideas developed in his own shop including catering to local customers in a club-like atmosphere rather than developing a single and replicable store matrix, and recommending books which he and his staff had actually read rather than two-for-one offers, was extended to a vast chain. The market was with him since the current trend appears, for example, to be favouring books as objects against the e-book fashion which has plateaued at 15% in the US.

The model has also been surprisingly viable since the returns to publishers fell from 25% to 5%. And the publishers appear happy to hand over a degree of control to intelligent booksellers. The model relies on engaged staff but as Daunt puts it, “you need fewer people, but the compact is you invest a decent amount in others. You get into a virtuous cycle, and you end up with a well-run, happy bookshop”.

Thus, the advantage of the Daunt strategy over Amazon relies on catering to local customers, using that knowledge to offer a better deal to suppliers (publishers), and, importantly, knowing the product sufficiently well to marry the two. Arguably these qualities are at least in part at the centre of the very DNA of department stores which have historically tailored their offer to their customers, provided useful conditions to brands and suppliers, and once again importantly curated and studied their assortment so as to be able to offer advice and recommendations.

Adapt the stores

These elements rely to a large extent on having a physical presence as well as an online one since the stores provide the local touch and the human product knowledge. This is the second advantage which department stores have over pure online players.

Recent circumstances have transformed retail, in particular regarding online business: in 2019, less than a third of US retailers had implemented a digital strategy. The transformation wrought by the covid pandemic saw retailers implementing omnichannel experiments such as kerbside pickup, same day home delivery, or buy online pick up in store. For example, the share of retailers offering kerbside pickup had jumped to 44% by the end of summer 2020. Some of these were, of course, catering to the convenience market, customers who did not want to shop physically but who appreciated the speed and return advantages of a physical pick-up point. But others were more complex.

This buy online pick up in store (BOPIS) service is the one chosen by Ketzenberg and Akturk in a recent HBR article. They found in a large-scale survey that retailers offering BOPIS actually stole business from their competitors who did not. They were not only increasing their store traffic but also gaining in sales of the higher-priced, more profitable items since customer fear was alleviated by the possibility of effortless return in store.

BOPIS also meant that customers avoided the shipping costs and had visibility into the availability of the product, thus avoiding a wasted trip. While on that pick-up trip, some 85% of customers made additional unplanned in-store purchases. It should be remembered that BOPIS is one of the least costly and more profitable omnichannel services for retailers.

This approach clearly argues against abandoning the advantages of in-store shopping. However, how many stores are catering specifically to their online customers in store? What would it mean to organise a store around the idea that the customer is a “digital” customer, who has perhaps made a purchase online which they are picking up in store? Would the store look different from the current one designed around store-based purchase if it were catering to the online shopper primarily and as a pick-up point?

Staff and stores, past and future

The omnichannel challenge is not a new one. Sears of the US started life as a catalogue retailer in the 19th century and diversified into stores from 1925 until the store business overtook the catalogues. Sears is often compared to Amazon because of the breadth of its assortment. However, its mail order business model was quite different in spite of it also being “distance selling”. Indeed, Sears deliveries rested on the US Postal Service initiating rural free delivery in 1896 and parcel post in 1913, rather than on its own delivery capacity. Both the catalogue and the stores demonstrated considerable product knowledge with the early Chicago stores selling hunting goods, farm tractors and tombstones. The Sears buying offices, already large in Chicago, expanded their fashion competences in New York City when the stores opened. Also Sears developed its own brands (such as Kenmore and Craftsman) which have been a major asset of the group and have enjoyed a long and profitable life.

Thus, from an early date, omnichannel department stores (even those coming out of the mail order world) have had significant knowledge of the products they sell. This constitutes an advantage over some other retail formats today in that they are product specialists, or what are sometimes called “merchants”. Significantly, Amazon has always disputed its label as a retailer and described itself from the beginning as a tech company: “Amazon is a tech company, we just happen to do retail… really well.”

Department stores are notable also for having landmark stores which can provide additional service and experience. In spite of, as Kate Ancketill puts it, e-commerce having “deleveraged” the physical store, forward-looking retailers are opening stores, albeit newly designed stores, intended to act as support to the online business.

In conclusion, therefore, to exploit these two advantages to the full today would mean rekindling and significantly developing the product knowledge offer through staff, both selling and buying, as well as thinking of the store as a support to the online business rather than as a traditional selling machine.

Credits: IADS (Dr Christopher Knee)

PRINTABLE VERSION HERE

Keeping markets under close watch, IADS collected innovative concepts such as unique transformative experiences presented by stores as shoppers demand physical connectivity and community following the isolation of the pandemic.

Check out how retailers are drawing customers back into stores through these unconventional experiences that can only be appreciated physically in stores.

![Retail Review # 4: Lacoste 

Lacoste, Los Angeles

Lacoste Melrose Place has launched the Lacoste Country Club, an elaborate retail offering with a shopping experience that provides a fresh take on country club vibes. The store will be reimagined every 6 weeks with new product assortments and varying themes.

MORE ON LACOSTE LOS ANGELES 

![Retail Review #4: Browns 

Browns, London

The London store offers four storeys of experiences with integrated augmented retail technology as an omnichannel unifier. The flagship includes a restaurant, courtyard, and a clubhouse that is only available to VIP customers where they can chat with their stylists at the bar. A pop-up space called “the focus room” allows specific brands to be showcased.

MORE ON BROWNS LONDON 

Camp, United States

The stores are staged to transform the space into universes such as campgrounds with activities that appeal to children and families. Some spaces are sponsored, allowing brands a chance to stand out from the rest. Regular events are held in-store and online to keep customers returning.

More on Camp United States 

![Retail Review #4: DFS 

DFS, China

DFS Hainan hopes to reproduce the wonders of the world in its new “The World in a Day” themed store. The concept is meant to allow Chinese customers unable to travel internationally to experience attractions based on Venice, Paris, Sydney, and Macao themes.

More on DFS China 

![Retail Review# 4 : snow peak 

Snow Peak, United States

The new Japanese-inspired hybrid store in Portland encompasses retail experience, a restaurant and the new headquarters all in one place. The concept features event spaces and an outdoor patio. The showroom displays products so customers can easily imagine their practical use.

more on snow peak united states 

![Retail Review #4 : Miele 

Miele, Australia

The German appliance manufacturer opened a new ‘Experience Centre’ near Melbourne that allows customers to host in-store dinner parties to test out the appliances. Customers also have access to the M Chef technology which uses sensors to cook almost anything to perfection. The concept mixes retail, DIY, and experience all in one.

more on miele australia 

PRINTABLE VERSION HERE

As retail is undergoing major evolutionary changes, so retail jobs are evolving. The possibilities of automation and the application of AI as well as social and political changes force a radical reassessment of retail functions and organisation structures to improve service and performance. At all levels, retail jobs are shifting, reskilling, being automated, or being deconstructed and redesigned for new retail models.

*What: Two trends are developing in the world of retail work: a shift away from store-based work (which is becoming increasingly skilled), towards technology mediated fulfilment work. At the same time, jobs are being reassessed and deconstructed as part of a search for a new retail productivity deal.

Why it is important: Both of these affect retail, and specifically omnichannel department stores,*

• as its store-based business shrinks relative to the online business
• as it struggles to find a new profitability model

The IADS has already written about “working from home”, “remote work” and “hybrid work” as it applies to retail during and after the covid pandemic. What is covered here is a longer-term adjustment in a broader economic cycle.

The future of labour

The world of work is changing. According to The Economist (see Labour Markets, The Economist), after four decades during which the rich world’s workers endured competition, technological change, unequal wages and unconvincing recoveries from recessions, while investors and companies benefited from expanding global markets, liberalised finance and low taxes, the balance is now shifting. The coming of a post-pandemic economy with lower unemployment will be characterised by a rise of the labour market thanks to two factors: a more favourable political environment; and a technology shift.

On the political front, the US is leading the way with infrastructure spending, the promotion of unionisation and higher wages. Thus, classically low-paid jobs such as those in fast-food and retail are under the spotlight. Unionisation is back in the headlines (see Amazon in Alabama FT article), McDonald’s is upping wages (see FT article), and Walmart is considering how to offer careers to its workers instead of the precarity of hourly pay (see article in IADS news).

This “paradigm shift” has been accelerated by the covid pandemic. Two elements for omni-channel retailing (including department stores) stand out:

The first is overall job losses. As traditional brick-and-mortar stores closed, so traditional sales associate jobs were lost. A study from the Centre for Retail Research showed that 177 000 jobs were lost in UK retail in 2020, and it is predicting another 200 000 to be lost in 2021. The job losses concern mostly entry-level positions such as sales assistants and check-out roles, while some jobs are being created in online warehouses and delivery.

The second is a shift in jobs. As retailers struggled to compensate for store losses through online sales, the relative number of order fulfilment-related jobs has increased.

![Retail Jobs table 1

Ben Evans, The Great Unbundling, January 2021

This is not a new process: The number of people identifying as retail associates on their LinkedIn profiles has declined 41.4% from 2013 to 2017 (see Retail Dive). Software developer is the fastest growing job in retail, with engineering and information technology jobs growing from 7% to 9%.

During covid, store staff have been taking on order and fulfilment roles either working in DCs or fulfilling from stores, providing click & collect service, kerbside pickup… Others have been providing one-to-one sales service over mobiles in “live streaming” shopping for customers.

Retail in the future will be in need of “upskilled” customer facing staff more akin to a concierge role on the one hand, and staff working with automation and AI on the growing fulfilment side of the business on the other.

Is it enough to “redesign work ecosystems”?

Unsurprisingly, consultants have caught on to this movement and have offered various perspectives.

• Thus, Oliver Wyman talks of “job redesign”. They have found that it has been possible to eliminate obsolete operating processes, some of which have resulted in productivity savings by up to 50 percent. They see the exercise as a periodic necessity in order to better align with the organisation’s future strategy; to ensure that work is easy to perform and productive; and that the work should be as engaging as possible for the individual.
• Deloitte on its side, describes managers caught between two realities: “One reality is that their workforce increasingly depends on external workers. The other reality is that their management practices, systems, and processes are designed for internal employees” (MIT Deloitte, 2021). This perspective challenges the linear career paths which have traditionally created value for companies and offers the idea of a “workforce ecosystem” including a broad community of workers and organisations.
• McKinsey addresses specifically the question of automation in retail and how we should be prepared for skilling and reskilling at scale, in particular as an alternative to replacing talent. They foresee that the remaining retail jobs will probably be better paid, with higher skills and lower turnover. “As retailers introduce additional automation into their retail models, they will end up with fewer but more highly skilled jobs. To get the right talent, retailers must invest in higher wages and benefits” (McKinsey, 2020).

Unbundling or deconstructing jobs

Against these approaches, however, it is argued that in times of uncertainty, another more radical argument is needed. This is connected to the tech concept of “unbundling” as described by Ben Evans (January 2021) and others. It describes originally a business process where a series of blocks or products inside a value chain are broken down to provide better value. What has happened to TV is an oft-quoted example with unbundling separating news, sports, storytelling, entertainment etc. into separate entities, in each one of which another company has grown such as Google, YouTube, ESPN, History Channel, Netflix.

That argument is taken further and applied to jobs and indeed the very notion of a job itself by John Boudreau and others (MIT Sloan, January 2021).  (See also Li’s Newsletter, Unbundling Work from Employment.) This approach argues that a “new operating system for work” is needed that will support a high degree of organisational agility amid increasingly rapid change and disruption. This new operating system allows leaders and workers to deconstruct jobs into more granular units such as tasks in order to deploy staff based on their skills and capabilities, rather than on their job descriptions.

The traditional work operating system was built for the Second Industrial Revolution, with work defined as “jobs” and workers defined as “job-holding employees”. The agile methodology is insufficient on its own to overcome resistance to collectively work on, and actively engage with challenges that span job titles or departments. In one example, staff could not understand how projects fit with their day jobs, how to find space to contribute, and how to respond to direct supervisors who felt that projects were unrelated to the employees’ functional areas.

This is not an argument for the deskilling and degradation of work as discussed by some analysts in the 1970s. It is rather a process of decomposing and eventual recomposing of skills due to economic and technological changes in order to make them better suited to the conditions of the time.

The process of deconstructing jobs into tasks also shines a light on the degree to which particular jobs can be automated depending on their nature. Thus, merchandise planning may be significantly automated, while supplier management only moderately so, and space planning might rest somewhere between the two. Most jobs can be placed somewhere along the three lines below:

![Retail jobs table 2

At the IADS, it has been clear that a number of department store functions have been “redesigned” or “redefined” or indeed simply been broken up. Thus, Globus divided its selling staff between sales associates and replenishment associates in order to allow the former to concentrate on customers and the latter to ensure merchandise availability. The same company followed a trend (which was adopted by others) consisting of separating the roles of buyers and planners, which it has since reversed. The marketing function over the last few years has become importantly divided into a brand role and a customer data role (exemplified by many including Galeries Lafayette).

As for automation, the HR department of Magasin du Nord has been investigating how jobs can be classified into more or less automatable parts. Falabella HR department on its side has already put in place some bots which effectively automate some of the more routine functions of the HR department itself and give a quicker and better service to employees.

The end of the retail job as we know it

What happens when the nature of retail changes?  The first thing to happen is that retail jobs change. If retail is changing today as profoundly as it changed with industrialisation, then the jobs designed to power that retail model need to be revisited. The current retail job model belongs to another age (see for example the Oxford University iLabour project).

Although many areas of retailing work can certainly still be managed within the traditional system, work is likely to evolve as retailing itself changes and as always it would be preferable to anticipate and control that change rather than bear it. The two trends outlined above will probably have dramatic effects on retail employment. Costs will shift, employment practices will change, and companies will need to adapt. However, it has often been argued that the increased productivity of businesses expected as a result of the application of new technologies has not happened. It is arguably unlikely to happen if the structure of employment does not shift to accommodate a new model and in so doing liberate the productive potential of new working models.

In addition, the shift in operating system described here will certainly necessitate different leadership skills to overcome problems of coordination, responsibility and consent. “This new agile, serial leadership will require leaders and managers to excel at human leadership as they perpetually reinvent work; construct more transient, deconstructed, and highly efficient teams; and blend humans with technology. (See Boudreau and Donner, MIT Sloan, 2021).

Unbundling is part of a process. After a period of turbulence, over time, it is often followed by “rebundling” in order to achieve the economic benefits which unbundled businesses cannot reach. Thus, the deconstruction of jobs into tasks may well be followed by a reconstruction of jobs on a very different basis. Unbundling in the music industry, for example, saw traditional giants suffer at the hands of Apple or Amazon which offered songs by the unit rather than control the whole value chain. However, while the customer gained in terms of price and choice, she lost out in terms of curation and direction. Then Spotify came along and in effect “rebundled” the music offer using customer data to personalise the offer. Some argue that the same process is happening in finance.

The question is whether the companies that get unbundled can ever be the ones that rebundle? Or is it always new entrants?

Credits: IADS (Dr. Christopher Knee)

An article in The Economist looks at the cost of e-commerce for fast fashion retailers using the example of Inditex. Basically, the store model is described as a “giant bundle of fixed costs” including rent and staff and which turns profitable only when enough merchandise is sold through them. Websites and warehouses cost less to run but because the retailer pays for each delivery, the more is sold, the more the variable costs increase. On paper, the shift online looks appealing, if only because the online channel has significantly lower wages and rent expenses. However, if more customers choose to shop online rather than in store, then the retailer incurs higher variable costs while still having to cover the fixed costs of stores.

Inditex has been reducing store numbers and has set itself a target of raising the share of online sales from 14% in 2019 to 25% by 2022. It has apparently managed to keep operating margins at 17%, while those of, for example, Fast Retailing, parent of Uniqlo the only rival to match Inditex’s sales growth, is a third lower. Considerable investment is being made to allow stores and website to work seamlessly together, in particular with technology such as RFID to locate inventory and fulfil orders either from stores or from a warehouse.

Another troublesome cost of online sales is the high return rate which can be as high as 30%. However, encouraging customers to return orders to stores reduces that cost as well as opening up the possibility of further sales. The item also has a higher chance of being sold again when returned to a store. In the case of Zara, at least, a lower number of stores will mean less visibility for a brand which spends practically nothing on advertising.

For the sustainable shopper, what should be the choice between bricks and clicks? A piece in the Financial Times looks for answers at analysis by fund manager General Investment Management. It makes the point that, as retailers make the last mile delivery more efficient, online will gain the edge. However, this is not guaranteed. Indeed, remembering the economies of scale for stores mentioned above, while store shopping would normally generate higher emissions than online, the emissions per item generated by a larger store shopping trip would fall below those online. Customer transport emissions can vary tremendously according to whether the trip is made by car, on foot or public transport, for example.

Still, online shopping will generally be a greener option than driving to the store for just a couple of items. Somebody who does that three times a week could save about 2kg of carbon a week even by switching to an averagely efficient e-retailer.  The article concludes that “bundling orders, minimising returns and avoiding rush shipments would all make a difference. As, of course, would buying less”.

Imagine that, during the recent pandemic, retailers offered customers to shop in store remotely using selling associates, then sent the purchases within the day by personalised delivery (or even organised kerbside pickup by the customer travelling to the store by car), and probably had to deal with a higher return rate than normal for a store sale, then those retailers were accumulating all the most costly options both in terms of their own expenses and in terms of emissions and damage to the environment.

How Inditex is refashioning its business model (The Economist)

Carbon counter delivery van vs shopping trip (Financial Times)

PRINTABLE VERSION HERE

The IADS office is launching an observatory of 100 department store companies around the world for members’ information and to keep track of changes in the format. The companies are not selected by size since the list includes small businesses which may nevertheless be representative of the format in their country. The list is a subjective sample which expresses the diversity of the format, both as it exists today and as it has transformed itself since its beginnings in the 19th Century. The list will be updated and act as a tracker of the format around the world. The very diversity of department stores revealed by the list is an asset when companies share their particular strengths in a group such as the IADS.

The following is a commentary on the list which is a work in progress.

The “creation myth”

Just as cultures through time and around the globe have developed their own creation myths to explain the origins of the world, the planets and stars, and human beings, so too department stores have their own. Some see the origins of the department store in middle eastern markets, others favour 17th century Japanese kimono shops while still others maintain that the expansion of European drapers holds the key to the original idea of the department store. The most widely cited case of the first “modern” department store is probably the Parisian Bon Marché in 1852, described by Emile Zola in his novel Au Bonheur des Dames (1882), held up as a typical department store as well as symbolising the social, economic and technological changes which were both improving society as well as ravaging it (see H. Pasdermadjian, The Department Store, Newman Books, 1954).

Department stores today have become an extraordinarily diverse format. They mostly still adhere to the earliest characteristics which include free entry, fixed price, no bargaining, a certain size (the most common figure quoted is at least 2500 m²), divided into multiple departments selling a wide range of goods. Their original target was the growing middle class emerging with economic development and industrialisation. Over the last one and a half centuries, the format originally based on efficiency has become increasingly complex, making it less efficient and indeed layering on levels of complicatedness (See Yves Morieux, TED Talk). However, arguably, the mixed parenting of so many department stores has given the format extra resilience which, in spite of a decline in market share, has guaranteed its persistence in new and different forms in the retail landscape.

Around the world in 100 stores

At a regional level, the IADS 100 List includes 17 companies from the Americas; 39 from Asia; 34 from Europe; and 10 from the Middle East and Africa, Australia and New Zealand. There are some broad differences in the models operating across continents:

• In Asia, there is a marked preference for the concession model, in which department stores host brands/suppliers. This model is in some cases very close to the shopping mall model. In most Asian markets, the emphasis is on growth.
• In the Americas, and particularly North America, there is a dominance of the wholesale model in which department stores purchase and take responsibility for the merchandise they sell.
• In Europe the model is mixed with some stores favouring the wholesale model, and others operating more closely to the concession model. The emphasis in Europe is on profitability rather than growth.

It should be pointed out that none of these models are totally dominant on any continent. Furthermore, we can observe a series of shifts over time: the Asian companies are searching for competitive advantage in a crowded and competitive market and will be attracted to the exclusivity of own brands or partnerships. At the same time, Americans, while also exploring partnerships for exclusivity, will invite formats into their stores which may increase the proportion of concessions. In the multiple smaller markets of Europe, where the situation is already mixed, concessions are seen as reducing risk, but also as reducing the uniqueness of the offer.

It has often been remarked that department stores do not travel well. Large markets will therefore tend to breed larger companies. It is certainly the case that the US has produced a number of giant department store companies which result from consolidations over a long period of time in a huge market. Macy’s has swallowed and absorbed well over 20 different store companies. However, it has kept Bloomingdale’s as a separate division.

In department store terms, the Asian continent has traditionally been dominated by Japanese companies which have opened (and often closed) in many other countries (where their names sometimes subsist). They have also consolidated, in pairs, in their own market. However, China is a huge market which now has a significant number of players in the format which are growing in large part thanks to the expansion of the Chinese middle class which has historically been the motor of the department store format. It should be noted that Korea is also an important player with one of the largest market shares of total retail by department stores.

In Europe, the average size of department store companies is significantly smaller than on other continents, in part because consolidations have taken place within smaller countries rather than across the continent. There are some large companies such as El Corte Ingles in Spain, the only one left in its market. Germany has lived through consolidations for many years; and the UK’s wide variety of department stores has started shrinking with the recent loss of BHS, Debenhams and many House of Fraser. In the last 30 years, France has gone from over 12 department store companies to just three in 30 years, with a market share estimated at under 1%. The historically small market share of the format in Italy can be explained by a historic dominance of small independent retailers in fashion.

The importance of omnichannel business to the format also varies considerably. It ranges per company from almost nil to around 60% (or more during the Covid pandemic). In general, online business as a proportion of the total retail market is largest in China and the US, in part because of the giant dot.com pure players and marketplaces. It is hardly worth their while for a Chinese department store to attempt to compete with an Alibaba online marketplace, whereas in the US omnichannel has been growing in department stores (and indeed in other formats).

The proportion of global online sales is currently estimated at 18% of global retail sales, forecast to rise to 22% by 2023. Several department stores were above that before covid and we expect a “50% club” to emerge (those department stores registering over 50% of sales from online) already including John Lewis, with Nordstrom and Falabella knocking on the door and others not far behind.

What does diversity look like?

It is clear that even given the lowest size limit mentioned above, there still exists a huge variation in size among department stores. Some of the giants most often mentioned today are the Centum City, Busan, store of Shinsegae (293 000 m²), the SKP stores such as the Beijing one at some 200 000 m², or even Macy’s in Herald square New York, claiming to weigh in at 200 000 m² GLA. It is clear that operating such a business requires different skills from those needed to run one of the smaller stores (under 5000 m²) of the important Swiss chain Manor. An appropriate management structure including regional directors overseeing several smaller stores, or floor directors responsible for one or more floors of a large structure, is often created. The size of overall companies may also vary considerably in our list (see Liberty of London compared to Falabella of Chile, for example).

The composition of the department store portfolio of a company may consist at one extreme of a number of stores which are fairly well balanced in terms of size and revenue (such as the late Debenhams in the UK which could properly be described as a chain), or of a large flagship with a “long tail” of smaller stores capitalising on the flagship brand (which was the case of Galeries Lafayette before it put a number of its smaller stores out to franchise). Clearly an unbalanced portfolio of stores can make the retail operation extremely complex in terms of assortments, contracts with suppliers etc.

Some of the complications of running a multiple department store business may come from a history of consolidation. Frasers group in the UK, for example, over time acquired and, in some cases, consolidated over 20 different names. In each case this means merging company cultures internally, and communicating brand meaning to customers (there were street demonstrations in Chicago when Macy’s changed the name of Marshall Fields to its own in 2006). Macy’s, the world’s largest department store company in terms of revenue, probably has managed also the greatest number of takeovers of rival department store names. In Japan, several pairs of department stores have joined forces over the last decades such as Hanshin and Hankyu, Isetan and Mitsukoshi, or Daimaru and Matsuzakaya. However, it is sometimes complicated to understand exactly what that means in operational terms.

Indeed, in some places, one department store company has risen to the top and exercises a quasi-monopoly in the department store market after acquisition of its rivals. This is the case, for example, of El Corte Ingles in Spain which acquired its only rival Galerias Preciados in 1996. However, all countries are not characterised by one dominant department store company and a litter of smaller niche companies. Countries where department stores hold the largest market share in terms of the share of total retail trade, are often characterised by several strongly competing companies. This is the case in South Korea, for example, with companies Lotte, Shinsegae, Hyundai and Galleria accounting for perhaps over 5% market share. The same situation obtains in Chile with Falabella, Paris and Ripley waging war in an unforgivingly competitive retail market.

The degree of rivalry also depends on the market positioning of the department store companies. Some have chosen to remain or shift towards the luxury end of the market such as Breuninger in Germany, or Bon Marché, part of the LVMH group. Just as society is supposed to be polarising along income and wealth lines with significant shifts in Gini coefficients, so retail and department stores are finding it increasingly difficult to maintain profitability catering to a shrinking middle-class market. The degree of dependence on the tourist trade will also impact some but not other companies. Large flagships in world capitals will be operating a different business from those stores serving a more local clientele.

The situation can vary in markets where the format is older compared to markets where department stores are relatively recent creations. In the former, the emphasis will be more on precision retailing and maintaining profitability, whilst in newer department store markets, the emphasis will be on development and growth (as it was indeed when the format was created in Europe or the US). Thus, SM in the Philippines has, until Covid slowed us all down, seen a remarkable organic growth rate in terms of numbers of stores and centres around the islands of the country. Similarly, with Hong Kong and plans at Sogo of the Lifestyle Group, although recent political events have complicated matters. The outstanding example, in this regard at the moment is, of course, China where SKP is planning to open giant stores across the country in the next two or three years. In Thailand, The Mall Group is continuing its considerable investment programme, while Central Retail Group has been acquiring famous department stores in Europe such as Rinascente in Italy, KaDeWe in Germany, Illum in Denmark, and most recently Globus in Switzerland.

The perspective on development, investment and growth will depend to a significant extent on whether a department store company is privately held or public. Privately owned companies are expected to adopt a more long-term perspective than public companies. However, while this may be true to a large extent for family-owned companies, it is certainly not the case for equity investors who may take a company private after a takeover. The case of the Canadian company Hudson’s Bay which took over Lord & Taylor and Saks Fifth Avenue under US investor Richard Baker is an example of the latter case, Lord & Taylor having been sold and closed down.

This huge diversity within the same format translates into a considerable stock of collective experience to be shared in an organisation such as the IADS: the early development of e-commerce or marketplaces; concession management; private label development; fulfilment options; the adoption and integration of various softwares and technologies; organisation structures and HR management; supply chain strategies; marketing innovations and visual merchandising standards; store design… These are but some examples which may be expressed quite differently (or indeed at different moments in time) across the range of department stores, but which are nevertheless applied within a common format. The learnings are potentially huge.

Die another day

Just as we started with the department store creation myth, we need to end with an “apocalypse myth”. The end of department stores has been forecast for a long time. Every time a new retail format emerges, it is said to be another nail in the coffin of department stores. Thus hypermarkets, big box discounters, fast fashion chains, and, of course, online retailers have all been named at different times as factors hastening the doomsday of department stores. The most recent predictions have been related to death by covid, which is supposed to have accelerated an already active process of decline (see NYTimes piece).

The IADS believes to the contrary that those department stores which have survived, and in some cases thrived, will find the resilience to develop and be born again, perhaps with a modified business model. Visions of apocalypse are usually a reflection of our fears at any given moment. Those fears are real but can be harnessed and put to work to create a new version of the format using its diversity as a strength.

The IADS 100 List is intended to chart aspects of the format as it copes with the latest challenge (and perhaps future ones).

Note: How to read (and how not to read) the IADS 100 list

Is department store data available and comparable? While department store diversity can be a strength when shared, 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.

Standards between companies and between countries will vary sometimes quite considerably, because of history, accepted practices or indeed accounting standards and legislation. For example, in some companies, reported revenue will cover only sales of goods owned by the store and not the sales made through concessions operating within the store and paying a commission. This is the case for example with Harrods of London which officially reported a latest-year revenue of £607 m but unofficially a “gross merchandise revenue” (goods sold through the store) of £ 1 041 m. Some companies in Asia generate revenue mainly from concessions.

Profitability is also reported differently (when it is reported at all): it may be operating profit, EBIT, EBITDA, or net (attributable) profit. These are sometimes defined differently from one company to another. They can also give very different pictures of a company. For example, although some companies have been clearly still operationally profitable even during covid, they may still suffer an overall loss. The main interest of the IADS will be to evaluate operating profitability. We will however report overall department store, company or group profits where available.

The IADS also focuses on department store operations, sometimes the only activity of a group, but in other cases only a small part of a group’s operations. Ideally, we would be able to report a group’s results as well as those of the department store division within it. This is not always possible, however. In some cases, the differences are minimal while in others they can be considerable. The Hanwha Group of Korea is a large business conglomerate covering aerospace, chemicals, energy, finance, construction, as well as leisure and lifestyle under which can be found hotels, resorts and the Galleria department stores, representing around 1% of total group business. Similarly, the Sogo Seibu stores of the Seven & I group of Japan represent under 8% of total activity.

International companies are also sometimes structured by country in which the results of department stores are not distinguished from those of other formats in that country such as supermarkets or DIY. This also can pose a problem for the extraction of the pure department store activity.

Finally, many, but not all, of the companies listed have some e-commerce activity. That activity may be local or international (such as Breuninger in Switzerland or Bijenkorf in France). It may sometimes but not always be listed separately from the brick & mortar store activity. Probably the most notable in this respect is John Lewis of the UK for which online represents over half of total activity.

The “elephant in the room” is, of course, the past year of covid lockdowns. Some of the figures include that period, others include some of that period and yet others only cover the period preceding covid. This naturally makes any comparison of the effects of covid impossible. With time, as the list evolves, this problem will disappear. However, it should be noted that financial years can be very different across companies, even within the same country.

The latest figures from Statista show the impact of covid on retail sales in different categories online. While supermarkets and sports equipment have clearly benefited from lockdowns, tourism, travel, fashion, and accessories (important to department stores) have suffered. Overall, retail sales are expected to be down 5.7% in 2020. So the figure is likely to be considerably higher for department stores.

Credits: IADS (Dr Christopher Knee)

 ASIA: Sample of 39 companies covering 12 countries. Total sales € 88 bn

EUROPE: Sample of 34 companies covering 18 countries. Total sales € 55.1 bn

AMERICAS: Sample of 17 companies covering 12 countries. Total sales € 66.9 bn

MIDDLE EAST, AFRICA, OCEANIA: 10 companies covering 6 countries. Total sales: € 7.6 bn