What: The Robin Report reviews what’s going on in Paris retailwise.

Why it is important: their extensive review is somehow extremely positive and potentially gives a taste of what tourists are going to discover this Summer during the Olympics.

The evolution of department store retailing has seen a marked decline in iconic U.S. brands compared to their Parisian counterparts, which continue to thrive as centers of luxury and experiential shopping. In the U.S., significant mergers and consolidations have reshaped the landscape, leading to the closure of seven historic brands. Modern U.S. stores have moved towards maximizing floor space and sales efficiency, often at the expense of design and customer experience. In contrast, Parisian stores like Le Bon Marché, Galeries Lafayette, Printemps, and Samaritaine, which started in the 1800s, still celebrate their Belle Epoque heritage with lavish interiors and distinctive glass domes that enhance the shopping experience.

These Parisian stores are not just retail locations but cultural landmarks that blend shopping with art and social interaction, making them memorable destinations. They follow a concession model where luxury brands operate mini boutiques, creating an exclusive and curated environment. This contrasts with the more generic and crowded feel of many U.S. department stores. Additionally, Parisian stores frequently update and engage with modern trends while respecting their architectural history, something U.S. stores struggle with as they often prioritize economic efficiency over heritage.

Despite the challenges of maintaining large, historical buildings and the competition from online retailers, Parisian department stores remain relevant by focusing on luxury, exclusivity, and a unique customer experience. These factors draw both locals and tourists, making these stores more than just shopping destinations but integral parts of the urban fabric and Parisian cultural life. Meanwhile, many U.S. stores have failed to adapt to these changing consumer preferences, leading to a decline in their presence and influence in the retail sector.

An American point of view on Paris retail

What: The Robin Report reviews the state of the business in Korea, a notoriously digital market.

Why it is important: mobile and high-speed broadband penetrations in the country are among the world’s tops. For that reason, looking at the evolution of the retail market there can give some hints on what could happen in the rest of the world.

Dongdaemun in Seoul, encompassing about 30,000 fashion shops, epitomizes the growth of Korea's fashion sector. Despite the rise of Korean fashion brands, local retailers face challenges from Chinese online platforms like Alibaba, Temu, and Shein, which offer lower prices and greater convenience. This competition highlights the limitations of Korean e-commerce innovations against large-scale operations.

Korean e-commerce has thrived on high broadband and 5G penetration, with mobile transactions constituting 75% of the $166 billion spent online in 2023. Innovative online models and KOL-driven marketing have fueled the "Hallyu" wave, significantly contributing to Korea's cultural exports and a $10 billion beauty market.

However, Korean platforms are struggling domestically as savvy shoppers increasingly turn to Chinese sites, which now rank among the top e-commerce traffic sources in Korea. The struggle has led to bankruptcy filings by businesses like Linkshops and potential acquisition interests from Alibaba in platforms like Ably Corp. Additionally, Korea's protective trade measures against foreign e-commerce might backfire, potentially inviting retaliatory actions from China, further impacting Korean cultural exports and businesses.

Korean online retailers are compelled to adapt to survive by enhancing their reach and competitiveness in pricing, amidst a market driven by consumers proficient in navigating global online spaces.

Is the Korean luxury and fashion market falling victim of e-commerce?

What: Barclays predicts significant growth for India's luxury market, potentially expanding at an annual rate of 15-25% over the next seven years, with estimates ranging from 23 billion to 38 billion euros by 2030.

Why it is important: This growth is driven by India's expanding middle class and solid GDP growth. Despite current challenges like income disparity and limited retail space, India's burgeoning economy and developing retail infrastructure suggest substantial potential for luxury brands, particularly in cities like Mumbai, New Delhi, and Bengaluru.

Barclays' report highlights the potential for India to become a significant player in the global luxury market despite its current modest share. The rising middle class and robust economic growth provide a fertile ground for luxury sales to flourish. Challenges such as income disparity and a conservative outlook on luxury spending remain, but opportunities in high-value items like jewelry and watches are promising. Major cities are already establishing themselves as luxury hubs with significant retail developments, attracting major global brands. As India's luxury market infrastructure expands and consumer attitudes evolve, the country could become a pivotal market for luxury brands, mirroring growth trajectories seen in other Asian economies.

Could India be the next China for luxury fashion?

What: The luxury conglomerate is deepening ties to build up AI capabilities in China.

Why it is important: It highlights how the partnership between LVMH and Alibaba use advanced AI to enhance customer experiences in China.

LVMH and Alibaba have extended their partnership to enhance LVMH’s digital, data, and omnichannel capabilities in China. This collaboration works with Alibaba Cloud’s advanced AI technologies, including Model Studio (Bailian) and the Qwen large language model, to provide a more personalized shopping experience. These AI tools will make it easier for LVMH’s customers to have customized recommendations and richer digital interactions.

Since 2019, LVMH has utilized Alibaba Cloud’s Dataphin and PAI platforms to manage data and develop tailored services for the Chinise markey. The partnership has enabled about 30 LVMH brands to use digital features like live streaming, virtual try-ons, and 3D product displays on Alibaba’s Tmall Luxury Pavilion.

The integration of AI also aims to improve operational efficiencies, such as supply chain management, by providing accurate demand predictions and inventory management. This is critical given the current unstability in the Chinese market, where LVMH has experienced a decline in sales.

The collaboration allows LVMH to better navigate the complex Chinese digital ecosystem, which is dominated by super-apps and rigid data regulations. It also supports LVMH’s broader strategy of enhancing omnichannel capabilities and delivering emotionally engaging digital experiences.

Overall, this partnership is expected to not only elevate LVMH’s market presence in China but also to  provide Alibaba with a stronger reputation, reinforcing it as a key player in the luxury market.

Decoding LVMH’s partnership with Alibaba

What: Forbes’ Walter Loeb reviews what missing, in his views, for US department stores to thrive again.

Why it is important: Among many interesting points, he notes that organizations are too heavy and cluttered, and smaller stores are not the answer to rightsizing if there are not enough to cover a market.

The sustainability of traditional department stores in the digital age is challenged by a variety of operational and strategic missteps. A primary concern is the excessive management layers exemplified by Macy’s, which maintains nine chief executives, each with significant overhead costs, in contrast to more streamlined operations like those at TJX Corp. This bloat in leadership contributes to inefficiencies and inflated costs.

Another significant issue is the slow delivery times compared to digital competitors like Amazon, which often offers overnight delivery. This expedience meets immediate customer needs and diminishes the appeal of shopping at physical stores. Additionally, department stores often sustain unprofitable locations that negatively impact overall financial health. Macy’s plans to close such stores by 2026, but the urgency to act sooner is evident as digital entities continue to capture their market share.

Pop-up shops within department stores also suffer from poor execution and lack of publicity, failing to engage even loyal customers. Furthermore, the strategy of opening mini-stores, such as Bloomies and Mini Macy’s, is only effective if executed on a large scale, which current management structures seem ill-prepared to support.

Private labels, while successful in some cases, often fall behind national brands in style, design, and market acceptance. Better investor relations management is also crucial, as effective communication with stakeholders is essential during times of change.

Customer service in many department stores does not meet the high standards set by competitors like Nordstrom, which actively engages customers with personalized services. This deficiency in customer service, combined with an overreliance on constant sales promotions, undermines the potential for department stores to effectively attract and retain consumers.

Rebuild Department Stores For Success In A Digital World

What: Tourism spending in Europe is nearing pre-pandemic levels, potentially offsetting local luxury market stagnation.

Why it is important: This resurgence is crucial for the European luxury sector, as international tourists historically account for a significant portion of its revenue. Given the decline in local consumer spending, the increased influx of tourists, particularly from the US and the Middle East, provides a necessary boost to sustain the luxury market's vitality.

Luxury spending by tourists in Europe is showing signs of recovery, which could be pivotal for the luxury retail sector amid declining local consumer interest. This recovery is highlighted by the increased tax refunds to tourists, suggesting a rise in spending. Before the pandemic, international tourists constituted 40-50% of the European luxury market's revenue, drawn by lower prices and the allure of buying in prestigious locations.

The report details that while US and Middle Eastern tourists have substantially increased their spending, the return of Chinese tourists—previously the most significant spenders—remains slow. This slow return is partly due to fewer available flights and ongoing economic strains within China, which temper the potential for a swift recovery in Chinese outbound tourism.

Despite these challenges, the slight improvement in Chinese tourist spending in early 2024 brings hope. Moreover, the luxury sector may need to adapt its strategies, focusing more on high-value client interactions and less on broad market transactions to cater effectively to this changing demographic. This strategic shift could ensure sustained growth and stability in the European luxury market amidst global economic and geopolitical uncertainties.

Can tourism save European luxury?

What: This case study explores how brands and retailers, such as Ulta Beauty and Brandon Blackwood New York, develop and optimize effective loyalty programs that incentivize repeat purchases, enhance customer lifetime value, and leverage valuable data for personalized marketing. The study emphasizes the importance of balancing rewards with costs, maintaining brand equity, and engaging users.

Why it is important: In a competitive market with rising customer acquisition costs, loyalty programs are crucial for brands to retain existing customers and increase their purchase frequency.

Loyalty programs have become central to the business models of various sectors, including beauty and fashion. This case study highlights Ulta Beauty's highly successful program, which drives 96 percent of its sales through 43.3 million active members. The program, combining points and tier systems, offers financial and emotional incentives, crucial for repeat purchases and customer engagement. Smaller brands like Brandon Blackwood New York have also seen significant sales growth and higher average order values through their loyalty programs. Effective loyalty programs balance rewards and costs, maintain brand equity, and keep customers engaged. This report provides best practices and success stories for brands at any stage of their loyalty program journey, emphasizing the creation of online buzz and brand evangelism.

Case study- building an effective loyalty programme

What: Forbes argues that retailers need to be much more assertive and brave when it comes to transforming themselves, otherwise they might go bust.

Why it is important: tech companies are able to radically transform themselves, sometimes very painfully (see X). Retailers might need such a dose of courage in order to revitalize themselves and become attractive again.

The retail industry has experienced significant transformations over the last two decades, reshaping the competitive landscape and the dynamic between buyers and sellers. Despite these changes, many brands have responded with only incremental adjustments, leading them to irrelevance or potential extinction. Notable failures include once-dominant retailers like Bed, Bath & Beyond, Blockbuster, and Sears. These companies, emblematic of broader trends within department stores, have lost market share due to their inability to adapt, opting instead for minor improvements and cost-cutting strategies in a bid for survival.

The shift in consumer preference towards more accessible physical stores with focused assortments and better value, such as TJX and Ross Stores, highlights the inadequacies of department stores. The success of TJX, now significantly outpacing Macy’s in revenue and store count, along with the rise of Ulta Beauty from a regional brand to a major player, exemplifies the missed opportunities and the high cost of timidity in the face of industry evolution.

The concept of the "transformation gap" discussed in the book "Leaders Leap" illustrates the risk inherent in not innovating or adapting swiftly enough in a rapidly changing market. Retailers clinging to outdated models are finding that minor, conservative changes are insufficient when radical shifts are required, potentially leading to a rapid downfall.

Retail transformation: the price of timidity is very high

What: Philippe Fontalba, an expert in retail and travel retail, gives his views on the market perspectives in 2024.

Why it is important: Travel retail is increasingly connected to the same expectations than in full price markets: sustainability, digital transformation, product diversification. However, and this does not make things easier, the customer is changing.

The travel retail sector is poised for significant growth, with projections suggesting the global duty-free and travel retail market will expand from USD 75.63 billion in 2024 to USD 121.09 billion by 2029. Asia-Pacific is expected to lead this growth, driven by increasing air travel and rising consumer purchasing power, particularly in China and India. New, affordable travel packages and digital advancements are likely to further stimulate this market.

In the MENA region, countries like Egypt and Saudi Arabia are enhancing their travel retail capabilities, leveraging rich cultural attractions and significant investments in tourism infrastructure. This includes Saudi Arabia's Vision 2030 and Project Travel, which aim to transform the country into a travel retail hub. The demand for premium and luxury items, especially perfumes, remains strong in the Middle East, with Dubai being a key market.

Product diversification continues with an increased offering of fashion, accessories, electronics, and food products within duty-free spaces. Key players include Dufry, Lagardère Travel Retail, DFS Group, Lotte Duty Free, and Flemingo International, who are emphasizing innovative marketing and competitive pricing.

Sustainability has become a critical focus, with initiatives such as eco-friendly packaging and green retail spaces becoming standard. In beauty, demand for luxury cosmetics is growing, with brands like L'Oréal Paris, Estée Lauder, and Chanel Beauty leading the market through innovation.

Digital transformation is reshaping customer interactions, with technologies like Amazon's Just Walk Out enhancing the shopping experience. The expansion of duty-free spaces in airports and seaports, especially in Asia-Pacific, aligns with the overall strategic growth of the sector. Leaders in travel retail are urged to adopt strategies that embrace sustainability, technology, and localized offerings to cater to a diverse and evolving consumer base.

An expert view on the state of Travel Retail

What: The McKinsey ESG 2023 report on accelerating sustainable and inclusive growth for all.

Why it is important: The report details the important efforts that McKinsey is taking to help their clients make distinctive and substantial improvements in their performance.

McKinsey is dedicated to creating positive and enduring change by working closely with leaders and communities to drive transformative impact. Their commitment to sustainability, inclusivity, and responsible practices are the main points of the 2023 report.

They aspire to simultaneously accelerate sustainable, inclusive growth, and responsible practices. For McKinsey, this starts with growth. Growth that builds resilience, and that helps businesses prosper and generates positive enduring change for people and the planet alike.

Efforts were focused on sustainable and inclusive growth, with a commitment to be a motivation for decarbonization. First steps included sustainbiiltiy engamgenet with clients, partnerships with COP28, and efforst to reduce carbon emmissions. Inclusive growth efforts led to contributions to GDP growth, job creation, and business development support. Economic inclusion, talent diversity, and ethical practices were also important priorities, with a focus on becoming skilled at diversity.

McKinsey ESG 2023 report

Printable version here

*The IADS attended the 2024 edition of the World Retail Congress, held in Paris from April 16th to 18th, which gathered 850 participants from 400 companies across 16 countries. During this edition, the Association had the privilege to moderate a roundtable between the CEO of Galeries Lafayette, Nicolas Houzé, and the CEO of Harrods, Michael Ward.

This report is a selection of the most relevant insights gathered for our members.*

*Table of contents

1-    Introduction: the difficult task of forecasting in 2024 (Deloitte, Blackstone, VML)

2-    But what is retail anyway? A fresh perspective (Springstudios)

3-    How to win the new generation customers (Claire’s, MARS Wrigley, Pepe Jeans)…

4-    …in a time of mass distraction (Adidas)?

5-    What to expect from AI in retail? (Keystone, Decathlon, Google Cloud)

6-    The human factor: purpose, planet, profits… and communities (ThredUp, REI, Milani Cosmetics)

7-    A look at 3 retailers set in motion: Sephora, Printemps, Myer

8-    The future of department stores: the IADS interviews  Harrods and Galeries Lafayette

9-    Interesting Quotes*

As retail continues to navigate unprecedented challenges and rapid transformations, the 2024 WRC focused on how to maintain high performance, from integrating cutting-edge technologies like GenAI to adapting to changing consumer behaviors influenced by economic, social, and environmental factors and the overall convergence of digital and physical retail.

During the opening speech, the Chairman and CEO of Carrefour set the tone, as he dwelled on the 4 more important challenges faced by the industry:

• The unprecedented challenges faced by retail, through an uninterrupted series of crises.
• The digital transformation, which started 20 years ago, with a strong acceleration last year, increasingly blurring the border between online and offline. Some models born with this new paradigm, such as quick commerce, disappeared, however, new marketing models have disrupted the industry, and omnichannel strategies have proven successful. Digital transformation now focuses on AI-driven technologies, which could lead to the optimisation of supply chains, product assortments and personalised promotions.
• Inflation has reached unparalleled levels and will continue to impact businesses. Although inflation may subside, its effects will still be felt through fragmented shifts in customer behaviour.
• Climate change presents a decisive challenge, requiring businesses to adapt beyond merely reducing carbon emissions. Factors such as rising commodity costs and volatile energy prices demand transformative approaches as resources become scarcer and more expensive.

In fact, the retail industry is on the brink of rapid and intense transformation, with new shocks expected.

When it comes to Carrefour, the company has undergone a significant journey over the past six years. With 15k stores across 26 countries and various retail formats, it faced difficulties six years ago that required restructuring and selling off activities, such as in China.

Three strategies were employed to tackle the issue of low growth in the hypermarkets segment:

1. Adopting a customer-centric approach using NPS (for the first time!).
2. Changing processes to increase productivity.
3. Partnering with entrepreneurs for troubled stores (a significant change from the historical strategy of controlling all stores).

In addition, Carrefour implemented a CSR policy in 2018 that was formally integrated into its corporate status. The new plan, Carrefour 2026, focuses on acceleration and continuity with the aim of building a European platform and verticals (centralised purchasing in Spain, retail media, etc.).

Introduction: the difficult task of forecasting in 2024

The Global Chief Economist at Deloitte started the panel by stating that the economy in the world was not as in bad shape as often painted. In the US, a strong outlook is driven by low inflation, a tight labour market and robust consumer spending. Europe faces challenges, particularly in Germany and the UK: inflation may rise faster than expected, which might trigger answers from the European Central Bank very different from the US Federal Bank. China's growth will be relatively slow due to state favouritism of the public over private sectors and difficult demographics.

Overall, globalization is experiencing shocks from events like pandemics, trade wars, and geopolitical tensions. Companies now prioritize resilience and diversification over low cost and speed. This shift benefits countries like India and Mexico. However, potential risks of derailing remain, and they include Middle East tensions, China-West conflicts, and Ukrainian instability impacting business confidence.

The Senior Managing Director at Blackstone, a real estate investment company, gave the point of view from an investor’s perspective:

• 2024 presents complex investment opportunities due to increasing tensions and changing balance sheets.
• Cash flow becomes king again as the gap between value/convenience and luxury widens. As a consequence, niche and speciality businesses will survive, but scale will be key to thrive.
• More public-to-private transactions and consolidations are expected for investors able to catch the right sign at the right moment: “You can’t wait for the all-clear sign”, as she concluded. That was echoed later on by the former CEO of Walmart International, Judith Mc Kenna, who explained that she had to divest 40bn$ when arriving (out of a total 130bn$) in order to re-invest in digital and customer experience, without having the certainty that this would pay off.

Finally, the Global Chief Commerce Officer at VML, a consumer research company, gave a perspective from the customer point of view:

• For VML, “the customer is the product” now, as they are all living in a digital, heavily influenced world.
• Physical stores remain important but need revamping to remain relevant in the digital age, given the growing acceptance of data exchange for personalization and the emphasis on experience and emotion in marketing.
• Brand values and purpose are more crucial than ever for success.

But what is retail anyway? A fresh perspective

Giuseppe Stigliano, writer, researcher, professor of Retail Marketing innovation, and CEO of Spring Studios, proposed opening the session by reflecting on what retail stands for nowadays. It can be tempting to consider that the job remains the same… even though the context has radically changed.

From the academic perspective, “Retail is where goods are sold directly to customers (B2C), in small quantities, for non-business use and serve as the final step in the supply chain.” The traditional image of retail could be a supermarket alley. But when the future of retail is considered, it could very well be a customer wearing AR goggles while shopping in-store, meaning a very different image from this traditional perception.

This raises the question of the experience that customers have while shopping in-store: they rush to get groceries but also expect to have an experience such as discussing with a wine expert when they choose a bottle. How can retailers combine these contradictory demands?

In addition, retail encompasses a wide range of formats and channels (brick-and-mortar, online marketplaces, mobile shopping platforms), but something is broken due to new consumer trends such as B2Cization (customers bypassing retailers), C2C business (including second-hand through platforms such as Vinted), or their often conflicting expectations for experiences, speed, and efficiency.

In short: retail has to adapt, but the solutions found so far (going phygital) are not adapted and do not work. Omnichannel isn’t relevant enough as it is often not achievable. Besides the physical and the digital dimensions, virtual is now a third dimension (like buying a Balenciaga sweater in a Fortnite video game).

This is why Stiglilano suggested a new definition of retail: “retail is the curation and sale of a diverse assortment of goods and services to end consumers.”. From there, 5 key ideas need to be considered:

• Anyone capable of engaging with the final consumer should be considered a retailer. Retailing requires retailers to fulfil essential functions, because everybody can be a retailer.
• There is no one-size-fits-all approach, as the ideal customer experience is, by definition, a relative concept. Retailers should build on their experience and be ambitious, knowing that they don’t have all the answers.
• Developing effective use cases with emerging GPTs, such as GenAI and Blockchain, is necessary to win the customer. Either we understand, or we end up with digital Darwinism.
• Processing data to understand the role of each touchpoint along the 3DCJ (physical, digital, virtual) and optimising the right channel mix is the only way to thrive in a post-digital world. Once they understand what they can effectively manage, retailers should focus on optimisation and be ‘opti-channel’ rather than omnichannel retailers. *IADS Note: ‘Opti-channel’ could be considered a new blanket word for retail operations and an easy marketing concept, but it describes how IADS members currently work. Through the IADS Operations Meeting dedicated to the Omnichannel Business, we can see how IADS members are becoming opti-channel retailers as they work on optimising services (such as Click & Collect and BOPIS) instead of willing to invest in all omnichannel services, which would be ineffective.*
• Employees and customers seek purposeful corporate behaviour that resonates across organisational culture, product nature, and customer experience.

How can retailers embrace the paradigm shift? We come from a world where we think we need to build extremely strong foundations to secure our future. Stigliano recommends moving to a Lego brick world mindset, which can allow retailers to adapt (like changing the size and colour of the bricks when needed). Foundations are not everything retailers need; adaptation is key.

How to win the new generation customers…

This talk mostly tackled the thorny question of reaching younger generations without losing existing customers. To do this, retailers need to understand Gen Z and Alpha Generation value systems and not only offer them a transactional environment: the keys are about developing specific products addressed to specific communities, personalising products, and ways of self-expression.

For Mars Wrigley, the M&M’s example demonstrates how to offer experiences besides transactions. The company also taps into specific communities: for example, they developed the Respawn By 5 Gum brand. Infused with B vitamins and green tea extract, the brand is addressed to gamers willing to improve their accuracy and focus.

For Pepe Jeans, denim products are key, including new details, fabrics, and personalisation options. Developing content for social media is crucial: in that regard, they work with very young influencers.

At Claire’s, it is important to offer ways of self-expression to Gen Z and Alpha Generation. Customers produce their own content for Claire’s YouTube channel. They also built a Claire’s world in Roblox, where customers shop and give live feedback.

…in a time of mass distraction?

In today's era of information overload, retailers face the challenge of capturing consumers' limited attention in-store and online. To successfully connect in this age of mass distraction, retailers must focus on what is relevant and avoid overwhelming customers with excessive digital features.

With attention spans decreasing from 150 seconds to 46 seconds over 20 years, it is crucial for retailers to reduce clutter by resisting the urge to add too many screens. Instead, they should allocate clear and easy-to-find information at store entrances, freeing customers' minds to explore other products and potentially increase sales.

Retailers should also amplify the importance of products by giving customers what they want and remembering that human attention spans are limited. Embracing tangible and analogue elements within stores can capture consumer interest more effectively than an abundance of digital screens. For instance, one of the Adidas stores has a statue of the brand founder, and people pay true attention to it, touching it and taking pictures. This comes as a manifesto for physical stores, a proof that physical retail is far from being dead when well-executed.

What to expect from AI in retail?

AI has evolved from a budding technology to a transformative force, thanks to three key milestones: chips, hardware innovation, and data utilization. This powerful innovation is not mere hype. For instance, in 2008, Amazon was not prepared to go global due to numerous manual processes, isolated business operations, and insufficient focus on long-term customer experience, and AI could have provided strategic answers back then.

Since 2015, Google has been a pioneer in AI, recognizing the importance of unified data for efficiency. Gen AI offers numerous opportunities for increased conversion. Key initiatives that can boost KPIs and efficiency include:

• Content management: Improved product descriptions and conversational commerce can significantly impact conversion rates and customer loyalty.
• HR: AI can streamline the hiring process by analyzing resumes to find the best candidates.
• Procurement: AI can efficiently sift through contracts to extract vital information.

Achieving these goals requires building a solid platform for data and security.

At Decathlon, Gen AI focuses on enhancing customer experience, with visible innovations expected by 2025. AI will enable personalized product recommendations and provide guidance on sports practices. Offering hyper-contextual search and reassurance, Gen AI will help customers discover unknown products, which is valuable for retailers with extensive inventories.

It is key to recognize that developing Gen AI solutions should involve interdisciplinary teams, not just data scientists. Retailers must embrace a collaborative mindset between humans and machines to successfully organize AI developments.

The human factor: purpose, planet, profits… and communities

Thredup presented itself as a white knight when it comes to sustainability: approximately one-third of the items in a person's closet are worn regularly, while the never-worn rest holds value. As a consequence, ThredUp aims to revolutionize the second-hand market: circularity enables consumers to continue shopping in a very entertaining way. As such, ThredUp enhances customer engagement by offering an enjoyable experience: searching for specific items. Resale platforms present millions of unique products daily, unlike traditional retail. This encourages customers to return frequently and make purchases to avoid missing out on one-of-a-kind items.

Another way to look at the human factor is to talk about communities federated around a brand, or its purpose. REI, with its 23 million members, exemplifies successful community-building. The company supports grass-roots advocacy by educating people on engaging with officials for nature conservation efforts.

Interestingly, the sense of community and belonging developed post-Covid. For brands interested in harnessing such an approach, staying connected with communities requires ongoing dialogue through surveys that reveal customer preferences and opinions. This can lead to sometimes seemingly counter-intuitive consequences: some brands launched initiatives targeting specific communities, such as using unretouched photos in ad campaigns to increase engagement. A significant trend for community-focused brands is the concept of consequential strangers: customers seeking friendships through their association with a brand. Inclusivity, transparency, and authenticity are essential for appealing to Gen Z and Millennials, who often place more trust in influencers than the brands themselves.

4 points should be considered when building communities:

• Invest in company culture and ensure employees believe in the mission. This internal commitment will be evident to customers in the external brand culture.
• Develop emotional connections by meeting people where they are and increasing convenience.
• Incorporate retail into mixed-use areas, like Washington DC's Union Market, which combines housing, hotels, entertainment, and retail spaces.
• Prioritize customer stories by staying informed about events outside store walls.
• Maintain focus on core strengths even when attracting new customers beyond original communities. For instance, Milani Cosmetics continues catering primarily to pigmented skin customers despite expanding its customer base.

A look at 3 retailers set in motion: Sephora, Printemps, Myer

Sephora’s CEO promoted the company by showcasing its results and values, as the leading global beauty retailer, operating 35 markets, 3,000 stores with 52,000 colleagues and selling 500 brands. Following a 10-year growth trajectory, 2023 results were very good with +50% vs. pre-Covid, growing twice as fast as the beauty market levels:

• North America +27%
• Europe +23%
• Middle East +28%
• South East Asia +27%
• Latin America +43%
• China +2%

For him, Sephora's success relies on four pillars:

• Product curation and differentiation through strong brand partnerships. Sephora transforms small businesses into leading brands and maintains a unique perspective on beauty. They also support smaller brands to meet the 50% pledge in the US, reflecting consumer diversity. Clean and Planet Aware labels demonstrate Sephora's commitment to responsible retailing.
• Exceptional in-store experiences using innovative tools like diagnosis and skin analysis technology to foster personal relationships with customers.
• Community-building by nurturing the largest beauty community, hosting special events like "Sephoria" for product discovery and testing. Initiatives extend beyond the loyalty program.
• Talent development in retail as a people-driven business. Sephora values inspiration and aims to fill 70% of roles internally. To continue attracting top talent, they've introduced new work practices, such as full weekends off.

Printemps CEO’s speech was a bit more of a presentation of the company to an audience which might lack general knowledge about it. The Printemps Group, which includes Printemps, Citadium, Place des Tendance e-tailer, and home e-tailer Made in Design, processes a transaction every 2 seconds.

The company began its transformation journey four years ago in response to COVID-induced online growth, decreased tourism and local traffic, and brands going direct. To adapt, Printemps implemented a new strategy to create a personal omnichannel department store experience. This included:

• Enhancing the wow factor by redesigning their visual identity with nature-inspired green and luxurious gold accents. They introduced 30 new concepts such as 'Le 7ème ciel' for luxury second-hand items, upcycling, circularity, and restaurants.
• Fostering an intimate atmosphere with welcoming staff, personal shoppers, and special attention to VICs who spend over 30,000 euros annually.
• Embracing omnichannel retail with a unified stock system, marketplace integration, in-store e-commerce features (communication tools, QR codes, and distant shopping studios), and an online store presence.
• Expanding internationally to reach customers worldwide and opening additional locations in Doha last year and New York in February 2025.

After four years of transformation, Printemps exceeded pre-Covid levels. They doubled their Middle Eastern and Korean customer base, tripled the business from 30,000+ euro VICs, and achieved 9% of total revenue through e-commerce.

The Chief Customer Officer of Myer then took the stage to describe the company’s transformation journey. Myer, Australia's largest department store, has 56 stores, 20,000 employees, and a AUD $3.4 billion turnover.

Before the COVID-19 pandemic, Myer faced a challenging situation with a AUD $107 million debt, struggling e-commerce, loss of core customers, and a weak balance sheet. As early as 2018, Myer developed a plan to drive transformation by resetting its values and vision to prioritize the customer. The “Customer First Plan” focused on five key areas:

• Accelerating online capability and leveraging multi-channel opportunities
• Achieving factory-to-customer excellence
• Transforming in-store experiences
• Refocusing product offerings
• Rationalizing property and overheads

Myer implemented a more balanced merchandise strategy that relied less on seasonal fashion and more on deeper brand partnerships and inventory control. This led to a 26% reduction in core ranges since Fall 2019 and 35% growth from major brand partners during the same period. Over 400 new branded shop-in-shop concepts were introduced across stores, resulting in a better-balanced category portfolio.

To enhance team capabilities, Myer invested in transforming sales associates into tech-savvy, well-informed team members who could focus more on customers and less on administrative tasks. They introduced the M-Metrics app for analytics and customer feedback, which was sent directly to team members' phones. This investment in technology improved in-store customer satisfaction by 23% and increased sales associates' time spent helping customers by 20%.

Myer also built omnichannel capabilities by investing in their supply chain and launching a new national distribution center with world-class automation technology. This led to a 163% growth in online sales. Now, 59% of customers browse online before shopping in-store, making the online platform Myer's largest shop window. Multi-channel customers spend 2.6 times more than those shopping only in-store.

Finally, Myer worked on their CRM to re-engage with customers more effectively.

By altering value perceptions and increasing reward frequency, they developed a wider loyalty and points ecosystem through partnerships with third parties. Enhanced analytics and AI capabilities facilitated personalization, resulting in 36 million customers in their loyalty network. Moreover, they revamped their PR, offering unique events and experiences to attract customers.

Productivity improvements and strategic space reductions of 14.1% contributed to a 12% increase in in-store sales productivity. Additionally, over AUD $210 million was invested in store environment and infrastructure upgrades.

The future of department stores: an IADS interview of Harrods and Galeries Lafayette

The interview tackled the current department stores’ challenges and the most important topics for the future.

• How to cope with brands going direct? Harrods and Galeries Lafayette consider themselves houses of brands. Harrods creates iconic shop-in-shops comparable to free-standing and flagship stores, while Galeries Lafayette positions itself as a brand offering the best in fashion, luxury, beauty, and food.
• What do they do with data? Harrods employs large CRM and data science teams. However, the real difference lies in the customer experience. As customers return to stores post-COVID, Galeries Lafayette adapts to become an omnichannel retailer with the best assortment.
• What does omnichannel mean? Harrods prioritizes ultra-wealthy customers before targeting local or international ones. Personas are identified, and communication is tailored for long-term relationships. Galeries Lafayette caters to both tourists and locals seeking the best in fashion. Customers often research online before visiting the store, proving omnichannel is not solely transaction-based.
• What is the big elephant in the board meeting room these days? At Harrods, the focus is on providing exquisite services and ensuring staff possess excellent product knowledge. Customer centricity and NPS are vital for both Harrods and Galeries Lafayette. Staying updated on trends like sustainability and wellness is also essential.
• What about international development? Both stores represent their cities and beyond. Harrods has outposts in Shanghai to connect with wealthy local customers. Galeries Lafayette began international expansion over 100 years ago, accelerating growth in China 20 years ago, with plans to open more stores directly next year (also expanding into India through a franchisee partner). This development communicates their brand to customers worldwide.

Both CEOs concluded with pieces of advice for other retailers: Harrods recommends investing in data scientists, CRM, and customer-facing IT innovations. For Galeries Lafayette, being customer-centric is key.

Interesting quotes

Judith Mc Kenna, Former CEO Walmart International: “If in a team you have 2 people who think the same, you have one person in excess in your team”.

The World Retail Congress 2024 highlighted that despite the digital transformation, the physical store remains a cornerstone of the retail industry. More than ever, successful retailers are those who blend digital prowess with the tangible, sensory experiences only possible in physical spaces. This congress showcased the innovative ways stores are being revamped to create immersive, personalised experiences that attract and retain customers. The future of retail involves a strategic interplay between online efficiency and the experiential richness of brick-and-mortar stores. Physical retail isn't just surviving; it's evolving to fulfill new roles in community building, experiential marketing, and as a touchpoint for deepening consumer relationships in an increasingly digital world.

Credits: IADS (Selvane Mohandas du Ménil)

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The IADS recently attended a webinar hosted by Bain & Company covering the topic of ‘Monetizing sustainability – Navigating ESG pricing’ where the relationship between profit and sustainability was discussed. As we have covered in our previous IADS Exclusive on how retailers can turn sustainability regulations into opportunities, sustainability directives are here to stay and will only become stricter, but this should not stop retailers from finding ways to make such changes a win-win situation. In the same vein, the IADS also recently studied the key takeaways from Adam Werbach’s book ‘Strategy for Sustainability’ which explores how businesses can integrate sustainability principles into their strategies to create long-term value. Building on the principles and ideas discussed by Bain & Company and in the book by Werbach, we explore some of these ways to build a positive and profitable groundwork for retail businesses while keeping sustainability topics at the heart of the company, which in these days, is key to survival.

Bain & Company: How investments in sustainable initiatives can convert into financial value

To give an overview of the current landscape, Bain & Company shared in their ‘Navigating ESG’ webinar that it is clear many industries and geographies are moving at different paces in terms of Environmental, Social, and Governance (ESG) initiatives. Nevertheless, these topics have become central to boardroom discussions, with 90% of S&P 500 companies publishing sustainability reports. The projected annual expenditure on Green Capex for this decade is estimated at USD 6 trillion, with approximately 50% of new product launches embracing sustainability goals. This trend is further amplified by increasing media coverage and heightened consumer awareness. At this point, companies have not yet fully linked their sustainability efforts to a return on investment, as they are primarily driven by regulatory and corporate objectives. Today, there is quite a debate on whether ESG is truly being addressed fully to encompass the “E” (Environment), “S” (Social), and “G” (Governance), thus blending the 3 concepts is distracting and not always productive. Nevertheless, the next step, and major challenge, is to translate these sustainability initiatives into commercial success, which will require a lot of dedication and effort.

The benefits and risks of tackling ESG pricing 

If retailers can master ESG pricing and take advantage of green business models, although it is a complex exercise, they will be able to unlock significant benefits. The landscape offers promising prospects, such as the ability to command price premiums from a sourcing perspective and enhance margins through the emergence of new profit pools. Additionally, adapting to the evolving demands across the value chain presents vast opportunities for market share expansion and value capture. Launching new markets and products that are in line with ESG initiatives also provides a platform for brands to distinguish themselves and secure a competitive edge.

Conversely, the stakes of mismanaging ESG products and services are high. Overlooking emerging value trends could forfeit potential market gains while misjudging the market entry timing could close the opportunity window. Furthermore, exploiting these trends with too keen an eye on opportunism could tarnish a brand's reputation and compromise its success, underlining the delicate balance between seizing opportunities and navigating the risks associated with ESG initiatives.

Navigating ESG market opportunities effectively requires a multifaceted approach 

Bain & Company broke down the navigation of ESG pricing into 4 key guidelines.

Firstly, it is essential to have a clear understanding of the value at stake to guide prioritization, resourcing, focus and ensure that the overall sustainability strategy is in line with delivery and monetization. This includes being intentional when setting up new ventures especially in terms of the number of resources allocated, what they will focus on, and understanding the levers to be pulled whether that involves tapping into a new market or holding out for more premium offers or customers. In terms of customers, it is essential to understand the factors that push their willingness to pay and the problems the initiative helps the customer address. Supply and demand dynamics play a large role in success as well and it is important to understand if there will be enough green supply (resources) to carry out the initiative. Finally, it is important to understand the minimum margin requirement, meaning the target ROI and effective floor price, and the relationship this demand has on current products, wallet share, or loyalty.

Secondly, it is important to recognize that ESG triggers span across the value chain, with the intersection of costs incurred and value generated not always aligning. This means businesses not only need to understand their customers’ needs, but also their customers’ customers, and eventually the end consumer. This means that ESG pressures can come from a variety of places either from consumers changing opinions and driving pressures upstream, it can also come from regulations that bring more stringent practices, or it can come from a revolutionary technology change. Some examples of companies acting on these pressures are Coca-Cola announcing plans to use more recycled materials due a response to consumer demand, BMW sourcing aluminium from manufacturers exclusively using electricity obtained from solar power to meet their internal sustainability goals, or Rio Tinto investing in renewable energy and low carbon technologies to decarbonize their mining operations due to goals to meet both regulatory compliance and their internal sustainability objectives. Such internal sustainability objectives are important to get just right because efforts to go above and beyond, as seen with Walmart's Project Gigaton, will in turn have an impact on customer perception of the brand. The key to being successful in this stage is to ensure that the business is agile enough to act on these pressures quickly to clearly address the market demands, no matter which area the pressure is stemming from.

Thirdly, is it necessary to comprehend the currencies of value to accurately identify target segments and relevant propositions. Customer segments will vary in their willingness to pay across value attributes. When articulating the value proposition of an ESG initiative, it is important to understand the contributions that will resonate with customers. This can be addressed by asking questions such as: how can we help our customers drive value from ESG? and how can we help our customers deliver on their sustainability agenda? These questions cover tangible attributes such as helping customers drive growth or generate premiums from an improved ESG value proposition and improving their risk profile by helping them avoid greenwashing. The questions also address intangible values like helping customers attract and retain motivated talent due to stronger commitments to ESG or helping customers strengthen their ESG claims around their brand and helping them improve their market positioning. Such questions can also address sustainability value by helping customers deliver on their ESG and time-critical targets as well as offering more cost-effective pathways to achieve goals.

Finally, it is about playing the long game and ensuring pricing is established within the strategic context of sustainable offerings, carefully navigating supply and demand curves to achieve optimal outcomes. When defining the value proposition, it is important to focus on differentiation and going beyond regulatory requirements to drive bold change and address the industry’s main challenges to set the company to be an outlier versus the competition. The business needs to decide which areas it wants to be considered ‘compliant’, ‘proactive’, or ‘leading the market’ compared to the competition which helps protect the business from downside risks. These initiatives are more about laying a foundational ESG groundwork and might bring less tangible added value out of the ESG offering, but such changes will lead to longer success in terms of brand recognition.

Monetization might be the goal, but it can’t be achieved without a long-term strategy 

Bain & Company’s presentation broke down the ways that ESG initiatives can help a company find the right opportunities and monetize their sustainability strategies, but it is not enough to stop there. ESG needs to be ingrained into every fibre of a business to make a long-term and lasting effect. This is why the strategies and principles of Adam Werbach’s “Strategy for Sustainability” book are also important to consider when building out a corporate ESG playbook.

Strategy for Sustainability: Building out a solid long-term corporate sustainability strategy

In his book “Strategy for Sustainability”, Werbach explores how businesses can integrate sustainability principles into their strategies to create long-term value. He emphasizes the importance of aligning business goals with environmental and social objectives, arguing that sustainability is not just about minimizing negative impacts but also about seizing opportunities for innovation and growth. Werbach emphasizes that sustainability is not just a moral imperative but also a smart business strategy.

By integrating sustainability principles into their operations, businesses can unlock a myriad of benefits. Firstly, they can achieve cost reduction through the implementation of energy efficiency measures, waste reduction strategies, and sustainable sourcing practices, ultimately leading to long-term savings. Secondly, by addressing environmental and social risks such as supply chain disruptions and reputational damage from environmental controversies, companies can effectively mitigate risks and safeguard their bottom line. Thirdly, as consumers increasingly prefer environmentally and socially responsible brands, demonstrating a commitment to sustainability can significantly enhance brand reputation and foster customer loyalty. Lastly, sustainability challenges can spur innovation, prompting companies to develop new products, services, and business models that are not only more resource-efficient but also environmentally friendly, driving continuous advancement within the industry.

Werbach encourages companies to consider going beyond compliance and being transformational organizations by embracing sustainability as a core value and fundamentally transforming their business models to create positive social and environmental impacts.  With this philosophy, sustainability should be integrated into all aspects of a business, rather than treated as a separate, siloed function. This integration involves embedding sustainability into the company's mission, vision, and values to ensure alignment with business goals, incorporating sustainability considerations into decision-making processes across departments, from product design and procurement to marketing and human resources, and engaging employees at all levels to foster a culture of sustainability and empower them to contribute to the company's sustainability efforts. The key idea is to ensure that all decisions are driven by long-term sustainability goals rather than simply trying to meet quarterly exercise expectations.

Introducing new analysis strategies to ensure sustainability is a foundational consideration 

In rethinking traditional analysis methods, Werbach advocates for a shift towards more dynamic strategies and away from slower frameworks such as SWOT (Strengths, Weaknesses, Opportunities, and Threats) and PESTLE (Political, Economic, Sociological, Technological, Legal and Environmental). Werbach focuses on two methodologies: STaR Mapping and TEN Cycle.

STaR Mapping focuses on Social, Technological, and Resource changes, and moves away from competitive analysis towards simple incremental steps, termed North Star Goals, that can be implemented across the organization. STaR Mapping aligns short-term objectives with long-term strategies, anticipates energy and commodity costs, addresses demographic shifts toward aging populations, and prepares for future changes.

The TEN Cycle method takes into account Transparency, Engagement, and Networking in a cyclical process aimed at revitalizing conditions for long-term prosperity and the achievement of North Star Goals. The TEN Cycle helps strategists for sustainability celebrate transparency, build from the inside out, demonstrate that people are the most important company asset, provide deep induction processes and long-term equity incentives for employees, stay highly networked to outside organizations and companies, and employ cyclical and constant actions.

Xerox: a use case using Star Mapping, North Star Goals, and TEN Cycle 

Werbach illustrates the practical application of STaR Mapping, North Star Goals, and the TEN Cycle through real-world examples. Once again, these strategies focus on internal changes rather than on competitive analysis, which has been illustrated with a couple of examples from Xerox, where leadership teams leveraged these strategies to innovate and build sustainable and profitable businesses with significant industry impacts:

In 1993, Xerox hired chemist Patty Calkins to drive change as the company sought to integrate eco-conscious design principles into its products and services. Against the backdrop of heightened environmental awareness, Calkins helped the company set an ambitious North Star Goal: to produce waste-free products in waste-free facilities, fostering waste-free offices for customers through offering remanufactured products and parts. This simple foundational change led to big impacts, activating a TEN Cycle: the development of the ISO 24700 standard ensuring the quality of office equipment with reused parts, the reduction of overall costs due to better quality parts that would last longer and could be interchanged between products and offering better products to consumers. It is estimated that Xerox saved several hundreds of millions of dollars through the copier remanufacturing program.  Such a change also made Xerox reputable as being a sustainability innovator and the company became active in associations working towards regulation and spent time educating customers on why sustainable businesses do not always need to be considered more expensive as they make products that are made to last, thus saving customers money in the long-term.

In 2021, Xerox faced substantial challenges, with a staggering USD 17 billion debt, operating losses of USD 237 million, and a substantial loss in stock market value. Under the leadership of CEO Anne Mulcahy, the company embraced its tradition of innovation and community service to chart a new course, grounded in the North Star concept. Mulcahy's strategic vision allowed Xerox to move away from only selling copiers to expanding their product offering- which significantly propelled the company, resulting in a USD 978 million gain by 2005. This foundational change also set the company up to develop the first plain paper copying machine and to establish the renowned Xerox Palo Alto Research Center (PARC), which played a pivotal role in the evolution of personal computing and laser printing, giving Xerox recognition as an innovator.

Conclusion – A winning ESG playbook is all about the Domino Effect

The playing field of how businesses operate more sustainably and responsibly, especially in terms of ESG initiatives, might not ever have a set of official rules and guidelines to follow. Thanks to experts at Bain & Company and the advice taken in the examples shared in Werbach’s book, retail businesses do not have to act as guinea pigs and can follow the examples of many companies that have tried to innovate in the sustainability space.

What can be learned from these examples? There is a critical intersection between simplified long-term sustainability strategies that bring business value and profit in today’s business landscape while amplifying a company's culture and leading to strong relationships with employees and customers. There is also an advantage to being a first and influential actor, as seen with Xerox, that sets the stage for what a sustainable company looks like. By integrating sustainability principles into their strategies, businesses can achieve various benefits, including cost reduction, risk mitigation, enhanced brand reputation, and innovation. Overall, by embracing sustainability as a core value and integrating it into all aspects of their operations, companies can not only mitigate risks and comply with regulations, but also drive innovation, enhance competitiveness, and create long-term value for shareholders, stakeholders, and society as a whole.

IADS Note: To access the full Bain & Company webinar on ‘Monetizing sustainability – Navigating ESG pricing’, follow this link. You will need to input the passcode: !0J?Lp3D

Credits: IADS (Mary Jane Shea)

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The IADS attended the Global Peter Drucker Forum, an annual event organized in Vienna, Austria, last December. This event is an international management conference dedicated to the management philosophy of Peter Drucker, a management professor, writer, and consultant, often referred to as a “management guru”. The conferences held during the Forum aimed at making a reconciliation between pure research (systematically based on Peter Drucker’s findings) and practice, by having on-stage academics and executives.

While the whole session was dedicated to exploring the notion of “creative resilience” in an age of discontinuity, two specific talks raised our attention, as they challenged some notions that are taken for granted in business :

• Simplify to win,
• Plan a transformation process,
• Have the appropriate individuals carry this process.

What if the simplification process has become a poison for businesses in a world where uncertainty is everywhere and every day, at every level? What if the business transformation was not a process, but a never-ending moment, because its true nature is more psychological than measurable in actions? Finally, what if CEOs could not count on dedicated individuals to carry out a digital transformation process due to its very evanescent nature?

While we already reviewed these notions in our 2022 White Paper, “Smarter department store organizations”, by especially wondering if the structure had always followed strategy in the past for department stores, these two conferences gave an interesting angle that comes as an ideal complement to the conclusions we made at that time.

Introduction: Questioning Conventional Business Strategies

During a conference held at the Peter Drucker Forum in Vienna last December, Pierre Le Manh, CEO of the Project Management Institute (PMI), an HR consultancy company dedicated to upskilling and reskilling people, made a disconcerting remark: at the beginning of the COVID-19 pandemic, the whole market thought that PMI would go down, as their business entirely relied on discretionary budgets. Contrary to expectations, they did not. The surprising part comes from Le Manh’s candid admission that they performed much better than anticipated, but no one in the company, including himself, truly understood why or what factors contributed to their relative success over competitors.

Since his career was built on the fact of being an outsider (he was first appointed CEO at less than 30 years old, under the premise that “he did not have any clue about the business he was about to lead,” a trait seen as a strength by the then-president of CFL Holdings who recruited him), he proposed to review his inability to explain PMI’s success by questioning what leaders are usually taught, and what he did not do “by the book” when he joined.

In doing so, he challenged the long-term effectiveness of conventional business strategies: defining a value proposition, choosing a market, adapting the offer, focusing on specific customers, and optimizing the supply chain are all sound strategies… but what if this simplification also creates an organizational fragility? After all, the business tactics companies have been using for the past 20 years were adapted to a world where free money, safe real-time logistics, and the predictability of events were taken for granted, a world that no longer exists.

He also emphasized that natural ecosystems are extremely complex and based on millions of interactions that allow the environment to remain very resilient. In his opinion, this suggests that the simplification businesses often pursue might not be the wisest move in a world where resilience and the ability to face the unexpected are now vital.

This strong view against simplification in business, for the sake of ensuring resilience and the ability to absorb shocks (even though “simplified” processes such as Just in Time were initially described as the best way for organizations to absorb shocks), was later echoed in another conference dedicated to digital transformation.

Digital Transformation: More Than Flexibility

When asked about digital transformation and its ability to add flexibility to organizations, Lalit Karwa, the Head of Tata Consulting Services in Europe, was clear: the question is whether digital transformation adds enough flexibility. He stated that the answer was negative: given the changes the world is undergoing, the need for flexibility is now extreme, and expectations to reach that level are not realistic. Moreover, the notion of flexibility varies according to different perspectives, and the gap between decision-making and execution in digital transformation often leads to failure.

He emphasized that digital transformation is primarily a transformational process, with the “digital” aspect being just a component. The foundation relies heavily on people and processes, often overlooked in transformation efforts:

• 70% of transformations fail due to internal resistance: making a company more flexible often involves less flexibility at the individual level, creating friction,
• Placing people at the centre of a transformational process does not reduce complexity, on the contrary,
• Processes cannot also systematically be trimmed down or reviewed according to general principles. In the same way that Le Manh mentioned that playbooks might have to be reviewed, Karwa suggested that “inefficient processes in any given company were there for a reason, and leaders should empower their staff capable of tweaking these processes rather than replacing them with external elements.”

In summary, digital transformation is a complex process that, unfortunately for CEOs, cannot be simplified by creating an ad hoc department responsible for such a transition. As Karwa put it, “If one does business as usual and launches into digital transformation as a parallel process, it will fail. There is nothing in digital transformation that has a start and an end.”

Instead of top-down efforts, Karwa emphasized the need for bottom-up transformation approaches, mixed with a systematic revaluation of conventional business practices. He cautioned against relying on external experts (notably interesting as he leads a consultancy company) and emphasized that, for change to be successful, employees must be motivated, equipped, and empowered to redesign processes.

He proposed a set of 6 rules to define the “new generation” digital transformation in organizations:

• The outcome should drive what gets prioritized,
• The outcome should be time-boxed,
• Uncertainty should be managed in new ways,
• Adoption should be planned at the design stage,
• Transformation should be an innovative process.
• Transformation should be carefully balanced in an equilibrated portfolio.

The outcome should drive what gets prioritized: 

Karwa explained that, for front-liners, respecting deadlines and budgets is paramount, and then they deal with “HQ’s eccentricities”. To ensure this group feels involved in the transformation efforts, the value proposition of such efforts should be clear, relevant, and valuable to them, and be the sole focus of management. Too often, transformation efforts culminate in grandiose plans that fail to connect with or engage the workforce.

The outcome should be timeboxed 

Karwa suggests that relevant teams (if not the entire company) should be tasked with realizing the value of their efforts within 120 days. Ninety days is too short a period, and 180 days too vague. Therefore, leaders involved in the effort should report and demonstrate results, ROI, and KPIs within this 120-day period.

Uncertainty should be managed in new ways 

It's impossible to act without checkpoints, which Karwa suggests implementing every two weeks. During these checkpoints, micro-decisions should be made according to market developments, user feedback, and general observations. These micro-decisions are intended to steer the project in real-time and mitigate the expensive commitments that will eventually need to be made.

Adoption by design 

Addressing the disconnection between decision-makers and those tasked with developing solutions, Karwa stressed the importance of empathy and humility. The transformation plan's solutions must be centered around people’s needs. In his words: "If no one uses your solution, why do you build it?"

The transformation should be infused with innovation 

The transformation process should be planned, designed, and developed with the objective of empowering the organization and providing it a competitive edge. In other words, innovation should be embedded in the transformational process to ensure the organization is not only equipped for today but also for tomorrow.

The transformation plan should be part of a larger perspective 

Karwa expressed his view that transformation initiatives should be part of a balanced portfolio, which plays at the same time offence and defence.

These last two points echo Le Manh’s views, who insists that businesses should allocate 70% of their resources to business as usual, 20% to innovating in known territory, and 10% to uncharted territory (a distribution rarely observed in real conditions, as per his own words).

While Le Manh advocates for CEOs to avoid oversimplification when developing a strategy and keep room for manoeuvring, Karwa goes further by stating that "innovation departments" are ineffective in driving company-wide transformation (as this opposes day-to-day business to innovation). Instead, he stresses the need for companies (and their cultures) to make innovation an everyday practice, rather than a periodic transformation. In other words, dismiss the notion of transformation as a plan with a beginning and an end, but instead, see it as a perpetual movement within the organization.

Karwa acknowledges that this vision is disconcerting, if not uncomfortable, but for him, this is the price to pay to be stronger. Le Manh goes further by reminding us that crises are opportunities for organizations to emerge not different but stronger. While this is now a widely accepted statement, he affirmed that companies today have no excuse not to be ready for unforeseen events, as developing alternative contingency plans is a critical and essential piece of work in a world where disruption becomes the norm.

Pierre Le Manh and Lalit Karwa’s viewpoints highlight the necessity of integrating resilience, innovation, and adaptability into the very fabric of organizational culture. This approach requires a shift in mindset, from viewing transformation as a finite project to understanding it as an ongoing, integral part of business evolution.

To broaden the subject and to resonate with the essence of their messages, a fitting reference from Peter Drucker, whose forum sparked these discussions, can be utilized. Drucker, a visionary in the field of management, famously said, “The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.” This quote encapsulates the core theme of the discourse presented by Le Manh and Karwa. It suggests that the key to thriving in today’s rapidly changing business landscape lies not in adhering to outdated models and strategies, but in developing an agile, forward-thinking approach that can adapt to new challenges and opportunities.

This idea prompts a broader reflection on the future of business leadership and strategy. As organizations navigate through an era of unprecedented change and complexity, the principles and strategies discussed by these leaders could serve as a guiding framework for others. It emphasizes the importance of understanding the evolving dynamics of the global market, the increasing interconnectivity of systems, and the unpredictable nature of future challenges. By embracing a mindset of continuous learning, innovation, and adaptability, businesses can not only survive but thrive in the face of uncertainty, turning potential crises into opportunities for growth and transformation.

Credits: IADS (Selvane Mohandas du Menil)

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In 2023, despite a promising start to the year, IADS members experienced a significant turning point in the retail market following the summer. This shift was further exacerbated by terrorist attacks in Israel in October 2023, leading to global economic concerns, particularly regarding inflation and growth in 2024. These apprehensions were evident during the IADS General Assembly in November, prompting IADS to invite The Coca-Cola Company to share their insights with IADS CEOs for 2024 and the FMCG (Fast Moving Consumer Goods) market.

The presentation was delivered by Nikos Koumettis, President of the Europe Operating Unit at Coca-Cola, and Rami Sabanegh, Vice President of Strategy at Coca-Cola Europe. Nikos Koumettis began his career in Marketing and Sales, working for Kraft Jacobs Suchard, Elgeka and Papastratos/Phillip Morris, and joined Coca-Cola in 2001 as General Manager for Greece and Cyprus. Since then, he has built a wealth of experience in several international roles. Similarly, Rami Sabanegh has an impressive list of credentials and uses his extensive knowledge of management consulting as a member of Coca-Cola’s European leadership team, where he leads business analysis, strategy, insights and strategic transformation for 40 countries. Together, they shared their expertise on the European customer landscape, macroeconomic factors, sustainability, technological shifts and their company's extensive reach, serving 500 million customers across a wide product range.

Introduction: Europe is a highly diverse and challenging space to operate in

The diversity and unique characteristics of Europe's market make it a difficult and exciting retail space to navigate for companies, including Coca-Cola. The European market, spanning 40 countries, including the 27-nation European Union, presents a diverse landscape with multiple currencies and a population of 600 million residing in 250 million households. This market's allure lies in its blend of developed and emerging economies, extending from Ukraine to Switzerland. However, despite the immense opportunity this presents, there are also challenges faced by retailers in this vast market presented by a few distinct features of European constituents and consumers.

Europe's population is on the verge of decline, even when immigration is considered, it is also a swiftly aging demographic with one in four Europeans aged over 60, and it features an increasing trend towards single or two-person urban households. These shifts hold significant implications for companies, including Coca-Cola, leading to evolved market strategies and the introduction of different types of product lines including zero-sugar and zero-caffeine products.

Such demographic changes should also be considered by department store businesses but are often overlooked by retail marketing departments. The evolving market, such as the ageing European consumer demographic, necessitates adjustments and adapting to the consumers’ needs. An example of such a change is the need to print larger product labels and price tags for ageing customers. As Europe continues to face macroeconomic crises and businesses must learn how to adapt to a ‘business as usual’ volatility, they need to think about how customers will respond and reallocate resources effectively to survive.

If the customer is ever evolving, who is the target audience?

Customers have undergone significant behavioural changes in response to various market forces, displaying both short-term and permanent shifts. In the short term, behaviours include down-trading, where consumers opt for discounters and private labels. The new generation of thrifty shoppers is showing reduced spending on non-essential FMCG products and a focus on finding the best deals. The more permanent changes that are here to stay include more planned purchases, reduced impulse buying, smaller but more frequent shopping trips, and an emphasis on value for money.

Coca-Cola is adapting dynamically to these shifts by developing fresh and healthier products, expanding retail partnerships, and implementing dynamic pricing strategies. Coca-Cola's revenue growth management methods involve offering various pack options at different price points per channel to address customer affordability and preferences toward value. The change in demand can be seen when analysing discrepancies in purchasing between regions and countries. The Classic Coca-Cola product is growing in Eastern countries, while in the West, growth mostly is driven by Coca-Cola Zero or low-calorie equivalents.

Another way Coca-Cola has shown its creative adaptability to a transformed consumer is with the offering of products in new formats such as its smaller 150mL cans to allow customers to still enjoy Classic Coca-Cola, but also control their calorie intake. These changes stress the importance of differentiation in terms of value for money, as middle-market brands face competition from discounters' private labels and premium products.

How macroeconomics push Coca-Cola to adjust its strategy

Europe is experiencing a transformation of trends that are reshaping consumer behaviours and business strategies, which are likely to extend to other markets in the future. These trends include a growing emphasis on health and wellness, with EU customers actively seeking mental and physical well-being. Coca-Cola acknowledges this trend's impact on customers and employees, addressing issues such as mental health support for staff.

Environmental concerns are also on the rise, with European consumers increasingly becoming more eco-conscious, prompting brands to adopt sustainable practices. It is also important to acknowledge that compliance with evolving government regulations is difficult as directives are still being set in place (noting that Brussels's demands for the European Union are stricter and more challenging compared to meeting the United Nations' expectations). Coca-Cola is actively addressing the evolving regulatory sustainability framework in Europe by keeping up with these directives and setting ambitious targets. These targets include giving back more water than they use, which they have already achieved, and focusing on increasing the scale of recyclable packaging use, with a target of 50% by 2030. CO2 emissions remain a challenge, and the company has committed to achieving Net Zero for bottlers by 2040, implying a substantial annual decrease of 8% which is a very ambitious goal.

Implementing digital strategies into marketing efforts

Technological shifts, including increased tech literacy and AI usage among consumers of all ages, are also changing how people consume and interact with brands. The company aims to have a visible presence where customers are investing in digital media and targeting the 18-28 age group to stay relevant and measure the effectiveness of their investments. Achieving relevance with young emerging consumers also includes shifts in Coca-Cola's talent acquisition. The company has an average age of 26-27 with a low turnover rate of 4%, meaning they value the company and tend to stay longer to grow with the company.

Coca-Cola's growing digital investments serve several strategic objectives, other than just appealing to a younger customer and talent base. These digital investments have a dual purpose: one aspect focuses on bringing the brand closer to customers, while the other aims to ensure the availability of appropriate digital platforms for various aspects like e-commerce.

Coca-Cola’s overarching vision is to replicate the brand's offline success in the online world, relying heavily on first-party data to understand customers and tailor offerings to them. Additionally, these investments are driven by the pursuit of measurable ROIs, a feature not readily available through traditional media channels.

Conclusion: An extreme need for adaptability

The insights presented by the Coca-Cola Company shed light on the multifaceted dynamics of the European market and the evolving behaviours of consumers that department stores should consider when developing marketing strategies and business models. The European market's diversity, ageing population, and changing household structures are factors influencing customer preferences, leading to short-term and permanent shifts in buying habits. These changes have been ignored by many marketing departments in favour of more traditional techniques, yet as pointed out by the Coca-Cola company, they are key to remaining relevant and innovative in an ever-changing consumer landscape. Coca-Cola’s insights highlighted the need for retailers in Europe and those operating across differing cities, regions, and countries to adapt to changing demographics, stay up to date on economic conditions, and respond to evolving consumer behaviours. Retailers should focus on offering value for money, addressing wellness and sustainability concerns, and leveraging digital marketing to remain competitive in this consistently dynamic market.

Credits: IADS (Mary Jane Shea)

What: Fung Group releases its annual report on Chinese department stores.

Why it is important: While competition intensifies, focus remains on the store experience, quality and efficiency, and differenciation. In short, the market is maturing.

The China Department Stores Report 2023-2024 by Fung Business Intelligence and CCAGM outlines key industry trends and challenges, including a focus on recovery, digitalization, store upgrades, and sustainable development. It highlights increased competition, especially in cosmetics, and challenges like reduced consumer spending and the impact of e-commerce. The report suggests strategies like enhancing core business capabilities and creating value through experiential offerings. It also recommends government actions to support the industry's healthy development. Data from 80 department store operators were analyzed for this comprehensive industry overview.

Fung' China Department Store report 2023-2024

What: Savills reports that Chinese customers are morphing into hedonists.

Why it is important: Are Chinese retailers ready? And what about international department stores eagerly waiting for Chinese customers to return?

The retail sector in China experienced a robust recovery in 2023, with strong rebounds in tourism, film attendance, and the performing arts. According to a report by Savills, Chinese consumers are now focusing more on escapism, entertainment, and relaxation amid complex economic conditions.

Box office figures reached 86% of pre-pandemic levels, indicating strong consumer demand for entertainment activities. Major cities are allocating around 16% of shopping mall space to entertainment zones, reflecting the growing trend towards dedicating more retail space to leisure.

The report also highlighted the emergence of new brands and concepts within traditional retail categories, particularly in sectors like sports and child-related spaces. Family entertainment, theaters, art instruction, and specialized sports have become key drivers of leasing demand.

Retail sales demonstrated significant rebounds across various consumer categories, with sectors like F&B and apparel showing robust growth exceeding 15%. Niche product categories, such as fishing, skiing, perfumes, and instant cameras, saw import values more than double compared to 2019.

Despite economic slowdown fears, Chinese consumers are becoming more discerning, focusing on value for money, quality, taste, and product substance over packaging. There is also a rise in founder-led brands leveraging social media and unique experiences to build consumer loyalty.

The report highlights a surge of entrepreneurship in the retail sector, fueled by domestic startups, as well as a growing interest among retailers in diversifying into non-traditional locations, such as city center backstreets and side roads.

Furthermore, sustainability is gaining traction, with luxury brands leading efforts to reduce energy consumption and obtain LEED certification for retail spaces.

Chinese consumers prioritise entertainement and relaxation in retail

What: Weekly insight on US retail loyalty programs from Sujeet Naik at Coresight Research.

Why it is important: Loyalty programs are pivotal for US retailers to gather crucial consumer data, personalize marketing efforts, and increase sales. Understanding current consumer desires and trends helps retailers adapt and enhance these programs effectively.

In this week's Analyst Corner, Sujeet Naik delves into the evolving landscape of US retail loyalty programs. The discussion is anchored by findings from a recent Coresight Research survey, indicating that 57% of loyalty program members tend to spend more with the retailer after joining. This edition explores the impact of loyalty programs in gathering first-party consumer data crucial for personalization and compliance with privacy standards. The primary consumer incentives include discounts, free shipping, and earning points, but experiential rewards are becoming increasingly important for fostering long-term customer loyalty. The report also highlights emerging trends in loyalty programs, such as the integration of sustainability and the use of AI to enhance personalization and engagement. The insights provided are crucial for retailers looking to adapt to the dynamic retail environment and optimize their loyalty strategies to boost customer retention and sales.

Analyst Corner—blending monetary rewards, experiences and technology

What: A detailed examination of China's department store sector, its growth drivers, challenges, and the evolving strategies of operators amidst a competitive e-commerce landscape.

Why it is important: China's retail sector is pivotal globally, influenced by its substantial middle class and shifting consumer dynamics. Understanding these trends offers insights into future global retail developments and highlights the transformative strategies necessary for traditional retail models to remain competitive.

The article outlines the current state and future prospects of China's consumer goods market, focusing on department stores. With anticipated GDP and retail sales growth, two-thirds of department store operators expect sales to increase, despite facing significant challenges from e-commerce competition. Helen Chin of Fung Business Intelligence elaborates on the transformation efforts in the sector, emphasizing digitalization, operational efficiency, and the strategic shift towards consultancy roles over mere merchandising.

Department stores are increasingly integrating community, culture, and tourism to enhance consumer engagement, exemplified by innovative projects like Chongqing's department store. Digital transformation challenges, such as system integration and scalability, remain prominent, alongside the need to quantify digital ROI.

Operational strategies include focusing on niche markets and renovating to create lifestyle centers that offer varied consumer experiences. The article also discusses backend data collaboration and the need for policy support to aid transformation towards sustainability and digital integration, highlighting innovative companies like Unifi3D, which facilitates digital transitions in retail.

Chin predicts ongoing emphasis on digitalization, sustainability, and niche targeting, underscoring the need to maintain competitiveness against e-commerce through technology integration and adapting to consumer preferences.

Retail expert on China’s department store dilemma and potential growth drivers

What: The Publicis Media report discusses the transformative changes and emerging opportunities in the retail media landscape during 2024.

Why it is important: This transformation is crucial as it directly impacts how brands strategize and execute advertising campaigns amid evolving consumer behaviors and technological advancements. Understanding these shifts is essential for brands to stay competitive and effectively engage with their audience in a rapidly changing market.

The report outlines the dynamic shifts in consumer behavior influenced by macroeconomic factors such as rising living costs and global uncertainties. It highlights the significant impact of technological advances like generative AI and the shift towards a cookieless digital environment on the advertising industry. The piece emphasizes the importance of adapting to these changes, especially with upcoming major events like EURO 2024, the Paris Summer Olympics, and the UK General Election providing unique opportunities for brand exposure. Key challenges for brands include mastering the use of first-party data without infringing on consumer privacy, leveraging new in-store media technologies, and accommodating the influx of non-endemic advertisers. The article suggests that navigating these challenges successfully can lead to substantial growth for brands that are agile and strategic in their approach to the evolving retail media landscape.

The retail media revolution

What: Retail X reviews the state of luxury and the macro trends  affecting the industry.

Why it is important: Second hand, sustainability and younger customers are on everyone’s lips.

The global luxury goods market was valued at $354.81 billion in 2023, up from $312.63 billion in 2022. The average revenue per user globally for the sector stands at $46.19 in 2023, up from $41.07 in 2022. Luxury fashion continues to be the largest single segment within luxury, accounting for around a third of total spend in 2023. Growth has been driven by a resurgence in Europe of high-end spenders returning to travel.

Asia leads in revenue generation, contributing $135.2 billion to the total. Europe has seen the largest percentage change in revenues from luxury, switching from a 5% downturn in 2022 to a 25% rise in 2023. The US generates the most revenue per shopper from luxury sales, accounting for $169 per capita. Europe comes in at $135 per shopper, way ahead of Asia at $30 per shopper. Chinese, Indian and Egyptian shoppers all predict that their luxury spending will increase over the coming year.

Millennials make up the largest single group of shoppers for luxury, accounting for 26%. Surprisingly, younger Gen Z shoppers are the second largest group of luxury spenders, accounting for 21%.

The majority of global luxury shopping took place in stores worldwide in 2023, with just 13.9% using online channels. From a revenue point of view, this is consistent by channel across all regions. Of those who shop online, 61% are doing so on mobile, with 76% of Asian shoppers using mobile, compared to 47% of Europeans. This is driven by many luxury purchases taking place during travel. However, growth in younger shoppers in China and India is seeing luxury in Asia becoming an increasingly mobile-centric affair.

Luxury has reinvented itself as a paragon of ethical and sustainable production and many shoppers are starting to increase their spend in the sector as a result. 46% of shoppers were looking to purchase sustainable luxury clothing and 28% second hand luxury clothing in 2023, marking a continuing and growing shift in how luxury is seen as an investment in sustainable living. Not only has the sector embraced sustainable practices, but consumers see buying luxury - and second-hand luxury - as a way to circumvent fast fashion while buying more unique items.

Together with young shoppers embracing luxury brands, the sector is, in 2024, in rude health. The market context section of the report highlights that luxury's post-pandemic recovry accelerates worldwide, driven by affordable luxury, sustainable shoppers and travel. Despite global economic woes, the luxury goods market worldwide has had another stellar year. While the lockdowns and curtailment of travel in 2020 hit the sector hard, it has been surprisingly quick to rebound, surpassing its pre-pandemic 2019 revenues in 2022. What's more, 2023 has seen this growth accelerate, with global luxury goods sales hitting $354.8 billion for the year.The average spend on luxury by consumers worldwide has similarly seen rapid recovery, with 2023 levels of individual spend exceeding pre-pandemic levels by almost 11%, totalling $46.20 per person.

The state of luxury in 2024

What: the Economist reviews how logistics is a moving field in these troubled times.

Why it is important: Want resilience? Forget about just in time and start stockpiling products.

Supply chain disruptions have continued in 2023, from a collapsed bridge blocking the Port of Baltimore to earthquakes in Taiwan impacting chip production. These issues, while not as severe as the COVID-19 pandemic, serve as reminders for companies to build more resilient supply chains.

The simplest way to do this is to hold larger inventories of raw materials and finished products. However, this comes with significant costs. Higher interest rates make the short-term financing needed for these larger inventories more expensive. Limited warehouse space also means higher storage costs. Major companies now have billions more tied up in working capital compared to pre-pandemic.

This inventory buildup reflects a longer-term trend. Retailers had been able to push more inventory onto their suppliers through the 1990s and 2000s, as globalization made supply chains more efficient. But now the balance of power is shifting back, with retailers regaining control.

Retailers now have better data and insights into consumer demand, putting pressure on suppliers to deliver "on time in full" (OTIF). Manufacturers have two options to meet this - either make products in advance based on forecasts, or build excess production capacity to react quickly. Both options come with financial costs.

As inventories build up further down the supply chain, it creates a ripple effect. Channel inventory (goods sitting with distributors/retailers) is 30-110% higher than pre-pandemic in many industries. This makes retailers and distributors reluctant to order more, causing further inventory accumulation at factories.

To ease the strain, manufacturers are trying tactics like reducing product variety. Hasbro, Coca-Cola, and others are paring down their product ranges. This makes inventory management easier, though it comes with the risk of losing out on consumer trends.

Overall, the article suggests that inventory challenges and the shifting balance of power in supply chains have become a chronic condition for manufacturers. The ability to dictate terms is highly dependent on having the "hot" products that consumers demand at any given time. Maintaining the right inventory levels and production capacity remains an ongoing challenge.

Supply chains: who is the boss?

What: This article reviews the development of fashion e-commerce over the past 20 years, detailing how early pioneers like Net-a-Porter initiated changes in how consumers purchase fashion online and the subsequent challenges and adaptations within the industry.

Why it is important: The shift to online shopping transformed the retail landscape, offering global access to luxury fashion and challenging traditional retail norms. The narrative outlines the rise and stabilization of e-commerce, the financial strains under rapid growth expectations, and the ongoing need for innovation as consumer behaviors evolve.

The article traces the inception and growth of fashion e-commerce, starting with Natalie Massenet’s innovative idea for Net-a-Porter in 2000, which combined luxury fashion with online convenience. This new model significantly impacted consumer expectations and the retail industry, prompting the rise of various e-commerce platforms. However, despite the initial success, many of these platforms now face financial difficulties due to the high costs of maintaining online operations and intense competition.

Net-a-Porter, now merged with Yoox, and other platforms like Farfetch and Matches have experienced profitability challenges, with Farfetch narrowly avoiding bankruptcy and Matches facing closure. The narrative also discusses the strategic shifts and financial maneuvers companies have made to remain viable, such as Farfetch’s various partnerships and focus shifts.

The industry's evolution from Web1 to Web3 is marked by technological advancements and changing consumer expectations, with ongoing challenges in personalization, logistics, and profitability. The article concludes by suggesting that the future of e-commerce may hinge on blending traditional retail strategies with the innovative capabilities introduced by the first online disruptors, emphasizing simplicity, focus, and customer experience.

The dawn and demise of retail disruptors: How the last 20 years changed shopping

What: Mid-market department stores like Macy’s, Kohl’s, and Nordstrom are losing ground to online fast fashion and off-price competitors, despite efforts to innovate and downsize.

Why it is important: To survive and thrive, these department stores need a complete overhaul of their value proposition. This involves curating unique, competitively priced, and exclusive product selections that stand out from online and budget-friendly options. Given their existing physical presence, these stores have an edge if they can leverage it correctly by offering products that resonate with current consumer preferences and trends.

Mid-market American department stores are at a critical juncture, facing declining sales and competition from online giants and off-price retailers. Despite closing unprofitable locations and experimenting with new retail concepts, these traditional retailers continue to lose customers. Experts argue that mere innovation isn't enough; these stores need to fundamentally reinvent their product offerings. By focusing on unique, well-priced, and exclusive items, department stores can leverage their physical presence to offer a shopping experience that online platforms cannot replicate. However, transforming such entrenched retail giants is a monumental task, akin to "turning around the Titanic." Yet, with strategic brand partnerships, refreshed in-house labels, and a focus on a more curated and exciting product mix, there is a pathway to relevancy and success in today's retail landscape.

Innovation won’t save department stores. The right products will.

What: The rise in credit card delinquencies and a proposed cap on late payment fees pose significant risks to US department stores like Macy's, Nordstrom, and Kohl's, which heavily rely on income from profit-sharing agreements with partner banks.

Why it is important: Department stores have been facing a prolonged decline in their core retail business, and the income from credit card agreements has been a critical lifeline. With new regulations potentially capping late fees and credit card delinquencies increasing, these retailers may see a significant impact on their operating income, further challenging an already struggling sector.

US department stores are facing a precarious situation as credit card delinquencies rise and regulations propose to cap late payment fees. Despite not owning their credit card portfolios, major retailers like Macy's, Nordstrom, and Kohl's derive a significant portion of their operating income from profit-sharing agreements with banks. These agreements are lucrative due to high interest charges and late fees associated with store-branded credit cards. However, a proposed rule to cap late fees could severely impact these retailers' earnings, particularly Kohl's, which could potentially face an operating loss without credit card income. The impending changes underscore the vulnerability of a retail sector already in decline, overly dependent on credit-related income amidst faltering sales growth and increasing delinquencies.

Why US department stores have most to fear as credit card debt sours