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

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

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

*Table of contents

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

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

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

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

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

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

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

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

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

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

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

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

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

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

•    Generate personalised marketing messages.

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

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

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

•    Support category management and sourcing.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

•    Other reasons (10%).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Credits: IADS (Christine Montard)