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

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

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

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

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

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

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

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

Introduction: a global overview of the world situation

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

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

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

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

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

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

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

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

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

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

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

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

Tech is a necessity, but not an end-game

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

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

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

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

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

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

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

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

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

The transformation of leadership and how to manage customers and teams

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

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

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

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

-    Are they relevant for the business?

-    Do they positively contribute to the distribution?

-    What do they bring to the structure?

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

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

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

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

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

Extraordinary times indeed!

To go further:

WRC CHAIRMAN REPORT

Credits: IADS (Selvane Mohandas du Ménil)