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*Following the IADS CEO meeting in Mexico City last May, the IADS had the opportunity to travel to Panama to discover the Felix B. Maduro and Steven’s department store chains. The purpose was also to meet with the Felix B. Maduro leading team.

Small in size, but with a disproportionate GDP, Panama is an interesting country, standing both as a transit point between North and South America and as an entry gate (the country is dubbed “the Hub of the Americas"). While the Canal is a significant driver of the country’s economy, annually racking in $2bn and contributing 3% to the country’s GDP, it contributed to the development of a very dynamic service sector now representing 80% of the country’s economy.

Thanks to the service sector in a well-connected country, Panama was able to grow its GDP four times the regional average prior to the Covid-19 pandemic, at an average of +4.7% p.a., and in 2023 should grow +5.7%. As such, the combination of such dynamism with the fact of being a hub allows the country to attract regional and international money, which in turn favors retail.

We review our market visit below to understand how local department store companies have adapted to such conditions.*

Panama’s national retail background

The Covid-19 pandemic hit Panama’s economy hard, all the more that the country is reliant on global trade and tourism. As a consequence, the GDP contracted by 18% leading to an increase in the poverty rate. This led to a major deterioration of the labour market, impacting retail, with more than one out of five formal workers becoming informal.  Consequences remain visible today in terms of the quality of service in stores.

However, retail recovered rather swiftly, with sales growing in 2022 as high as in 2021. E-commerce took the lion’s share, as there is a growing middle class in the country, equipped with smartphones, and willing to make the most of the country’s advanced logistics and payment systems. Panama is the entry gate to Central and South America for many consumption goods, and as such, e-commerce has the advantage of being able to quickly present the widest variety of products to customers as soon as they are unloaded from ships and planes.

In addition, international brands are incentivized to open their own stores to make the most of the growing tourism taking place in the country (Panama is home to tropical beaches and temperate mountain regions, with tourism representing 15.9% of the country’s GDP in 2019), and the fact that they often already have logistic facilities there (either operated directly or via partners and distributors). Therefore, while the national airline, Copa, is clear about its ambitions to become a major regional player , tourists visiting Panama are now able to find any international brand they are familiar with, from Adidas, Lacoste, and Pandora to Chanel, Gucci and Louis Vuitton.

As a consequence, while in general retail looks promising for Panama, such perspectives are mostly about e-commerce and specialty stores, as well as the malls housing these businesses (Multi Plaza, Metromall, El Dorado, Multicentro). Unlike in other parts of the world where tourism is strong, Panama department stores do not house luxury brands, which operate by themselves their own stores. In addition, strong brands from other categories (sports, lifestyle) often do the same, forcing department stores to address B and C-level customers with a product offer which, at best, is made of relatively small brands sold in exclusivity, and at worse, a value proposition which mimics what is available elsewhere in the country and online.

Introducing Panama’s department store: Felix B. Maduro

Felix B. Maduro is the oldest department store in Panama (and one of its oldest companies), founded in 1877 by Esther Piza de Maduro under the name The Maduro Co. (then changed to Felix B. Maduro in 1928). The company initially focused on offering European imported perfumes, hats, and scarves and was the only store with an air-conditioned salon for displaying dresses, as well as the only business with windows to display products. Over the years, the company evolved and expanded its product offerings to cater to a broader range of customers: a second store was opened in Via Espana in 1972, a third one in 1985 and the first specialty retail units in 2001 (a toy store and an outlet, both under the department store name).

In 2015, after 138 years of family management, the retail chain composed of 4 stores by then was sold for $74m to Abdul Waked, a businessman who was later arrested for money laundering charges by the United States in 2016. As a consequence, the company was sold for $60m the same year to FBM Retail Corp, whose leading shareholder is Grupo Arrocha of Panama (which operates 33 pharmacies with 2,500 employees in the country), along with Grupo Diunsa, S.A. (the largest department store chain in Honduras), and A.F. International Corp (which has investments in supermarkets and real estate).

This sale allowed the department store company to continue operating (including its payment card and loyalty program schemes) and look at the future, with the objective to reach $120m revenue by 2020 and open 2 stores a year to reach 13 units. International expansion in Costa Rica and Honduras was also considered.

In 2019, e-commerce was launched, with a plan to increase the brand portfolio (including names such as Karl Lagerfeld, DNKY, Calvin Klein) and a partnership was inked with El Corte Inglés to expand its private label Sfera in Panama.

However, the difficulties created by the Covid-19 pandemic forced Felix B. Maduro to restructure its $70m debt in December 2020 by going through a bankruptcy process, which lasted until early 2022.

Numbers are not available; however, the turnover is estimated to be below $10m and today the company operates 5 locations: Via Espana, Multiplaza Pacific, Albrook Mall, Altaplaza Mall, Town Center.

A regional competitor: Steven’s

The history of the department store is more recent: in 1948, Samuel Eskenazi founded in a city outside Panama City a small shop, El Campeon, which grew to become a 9-large department store chain competing exclusively on the price point, operated by its holding, Grupo Tova. The group also opened Steven’s in 1999, and Madison Store in 2006 (7 stores in the country, also targeting the price-conscious customer).

Steven’s, contrary to its two sister companies, is competing in the same segment as Felix B. Maduro, in fashion, cosmetics, accessories and lifestyle, combined with elevated basics sold under private labels. The store chain has 5 branches and offers various services such as a loyalty program, Be You, which claims to have 135,000 members, and S Wedding, a wedding service.

It is extremely difficult to find any information about the group, which does not communicate about its financial performance.

All in all, both Felix B. Maduro and Steven’s compete in the same categories (luxury cosmetics, fashion, beauty, perfumes, makeup, toys, video games, accessories, homeware), at a similar price point, with a relatively similar brand offering.

Visiting Felix B. Maduro in Via Espana

Via Espana is the second-oldest location for the department store in Panama City, which opened in 1972 in a big box format (there is little to no architectural effort put into the building). The area was up-and-coming at that time, as Panama City has been sprawling for the past decades, and today includes many upper-end hotels located on large avenues.

The store's look, however, reflects its age: it has been built as a closed box, without windows but with large perspectives inside, reflecting the taste in terms of shopping in the 70s and 80s. As such, it looks relatively worn down today, all the more so with its surprising store zoning.

The ground floor represents the largest part of the store, and the transitions between categories can be sometimes brutal: the entrance leads the visitor directly to the men's ready-to-wear section (including a mix of brands like Jack & Jones, Nautica, Brooks, Dockers, and Levi's) and the women's shoe sections.

Both sections are very limited in terms of brand signage with a few exceptions (Ralph Lauren, and Brooks Brothers, which the group used to operate in free-standing stores in the past). Shoes are organized by brand with minimally branded wall units and lack visibility.

Then, cosmetics and Women’s RTW sections appear. Cosmetics present a selection of international brands in a very classical way (individual units with retro lit logos on black background), while women’s fashion (Michael Kors, Vero Moda, Ralph Lauren Esprit or Naf Naf ) is presented on flexible displays, just like the accessories nearby (Michael Kors, Kate Spade, and Calvin Klein). On the sides, lingerie shares the space with contemporary fashion and children's clothing.

The first-floor offers houseware items and an extensive toy section strangely separate from children’s clothing and which feels more like a supermarket display (which would suggest it is operated by a partner). A small food & beverage area managed by another partner can also be found alongside a beauty salon situated near restrooms—an odd zoning choice.

There is no Wi-Fi available within the store, making navigation difficult for foreign customers potentially visiting the store from a nearby hotel.

Visiting Felix B. Maduro in Multi Plaza Pacific Mall

The Multi Plaza Pacific mall belongs to the Salvadorian Grupo Roble company, which operates a total of 27 units in the region, but only one in Panama under the name Multi Plaza (there is another mall, Metromall, also owned by the group). Multi Plaza Pacific was built on the premises of a former airport and was designed as a “tourist mall”, including a luxury avenue including names such as Hermés, Chanel and Dior. It hosts more than 500 stores and features amenities such as valet parking and free Wi-Fi across the entirety of the premises.

The Felix B. Maduro store in this mall offers a stark contrast from the Via Espana store and is in line with its immediate environment (Saint Laurent, Dolce & Gabbana, Ferragamo), with attractive windows displaying Longchamps and Kate Spade.

The store is on two floors, and just like Via Espana, the zoning is somehow disconcerting. The entrance on the main avenue of the mall leads directly to the Accessories section, with dedicated and customized corners for brands such as Kate Spade, Longchamp, Vera Bradley and Ralph Lauren. The transition to the Women’s RTW section is more seamless than in the other store and gives brands an appealing visibility, be it through the space they are allocated, or the signage.

The floor also houses men’s RTW and accessories, as well as children’s wear, however, the transitions are often confusing from one universe to another. In spite of this, the floor has a lively atmosphere with ample lighting and is populated by efficient and accessible salespersons.

The first floor is confusing: here again, a large space is dedicated to a toy section near a home section and a café which is not particularly inviting. The confusing part comes from the fact that there is another Women’s RTW section, displaying brands also available on the other floor, such as Esprit, Vero Moda or Sfera (El Corte Inglés’ private label). According to the sales persons, this part of the store was dedicated to emphasizing both newness and large sizes, which sounded paradoxical.

While the Via Espana store gave the impression not to be tourist-ready by simple lack of Wi-Fi, here, purchasing a product proved difficult for anyone not speaking Spanish at the central cash desk.

Visiting Steven’s in Multi Plaza Pacific mall

Paradoxically, and contrary to what was expected, the Steven’s was not significantly different from the Felix B. Maduro store. The entrance leads to a luxury cosmetics section which displays the same international selection with the same type of display units. The ground floor is also home to the men’s fashion department, which has an elevated feeling with brands such as Givenchy, Perry Ellis, Carven and Oscar de la Renta. While brand signage is clear and visible, the general feeling is confusing due to crammed visual merchandising: for instance, shoes are presented in stacked boxes which gives an outlet feeling.

The Accessories and Shoes section, also on the same floor, gives the same elevated feeling with brands such as Kenneth Cole and Guess.

A buy-online pick-up instore stand was remarked during the visit, which was not spotted at Felix B. Maduro, suggesting that this service is not offered by the latter.

On the women’s floor, while the visual merchandising is as confusing as in the men’s section, brands are well put forward and the general feeling is very similar to Felix B. Maduro. The kidswear is probably a bit more chaotic. Interestingly enough, the size of the toy space is as large as in the Felix B. Maduro stores, suggesting that this is a very important market in Panama, however, the biggest difference is that in Steven’s, toys are organized and presented in branded corners, which at the same time suggests that brands are more involved, and also give a more international feeling to the store.

The home section is larger than at Felix B. Maduro and somehow ‘cleaner’, which is probably only due to the fact that a larger section of the store is dedicated to showing a similar range of products. The only true point of differentiation is the Pets section at Steven’s, a category not carried at Felix B. Maduro.

What can be remembered from such visits?

*Answering this question is complicated, and this is probably the biggest issue department stores in Panama face. Not only in both cases was the product offer, at best, standard, with a rather mainstream selection of brands available everywhere in the world, but the impressions, feelings and experiences were very similar from one to another. Neither Felix B. Maduro nor Steven’s were able to stand out of the crowd and differentiate from each other.

At the same time, it was clear when visiting the city that with tourism came an international crowd, not only from the US but also from Europe, and that this crowd was looking for surprises and different experiences no local department store was able to offer. As a consequence, both stores in the Multi Plaza Mall were rather empty during the visit while the mall itself was rather crowded (it was clear from the visit that the Felix B. Maduro store in Via Espana was a tier-2 location and treated as such).

This creates a vicious circle: by not taking risks or looking for a different positioning, none of these companies give themselves the means to attract interesting brands, which do not see the point in being in the retail environment they propose. As a consequence, the type of traffic they attract is mostly qualified in terms of price expectations, but neither in terms of expectations about selection nor brand curation, putting these companies at risk of having to face a competition better armed in the price war.

In short, both companies are swimming in the same pond of blandness with a very similar selection of brands, which is not enough to attract a new type of clientele. In addition, their lack of differentiation does not particularly encourage loyalty to one name or another. If Panama was an inaccessible country, or isolated from the rest of the world like how Chile has been in the past, this would not be an issue, but at a moment when, on the macro level, it is expected that Central and South America grow thanks to their structural strength, and on the national level Copa is determined to transform Panama City in a world-class hub, this is seems strategically dangerous.

This is why the partnership that Felix B. Maduro has inked with El Corte Inglés in 2019 to promote and develop their fast-fashion private label, Sfera, was a strategic step. It seems clear that there is a maximum ceiling in terms of price point that department stores can sell in their premises (both due to the nature of local demand and traffic, but also due to the fact that luxury brands are, so far, not incentivized to join them). For that reason, developing an exclusive fashion offer, with desirable labels at the right price point only available in their stores, is key. It addresses a growing demand from local customers that we have witnessed in the whole region, for new fashion labels at the right price. In that perspective, Felix B. Maduro has a card to play with Sfera, and, why not, could also benefit from a deeper collaboration with El Corte Inglés in order to sell more of their privately-branded products, including the El Corte Inglés homeware line (that Almacenes Siman in Salvador started to sell with great success).*

Credits: IADS (Selvane Mohandas du Ménil)

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IADS recently held a meeting all about the men's fashion brands to look out for in 2023. Based on market research, IADS and NellyRodi presented a curated selection of 17 brands that are trending right now.

Check out our selection of these brands, and the pictures, by clicking the button above!

MUST HAVE

AMI PARIS

Ami is a versatile brand that offers a wide range of clothing for everyday wear and special occasions. Their collections redefine Parisian elegance with each release, incorporating a touch of international flair. With a blend of classic and contemporary elements, Ami provides stylish and sophisticated options for individuals to express their personal style.

Check out the AMI Paris website here

CHECK OUT THE AMI PARIS INSTAGRAM

CARHARTT WIP

Carhartt WIP is a versatile and high-quality brand that offers products for all occasions. With a strong presence in Parisian department stores like Galeries Lafayette, Citadium and Printemps, it has become a popular choice for fashion enthusiasts.  From pet coats to working boots, Carhartt and Carhartt WIP offer a comprehensive range of products. .

Check out the CARHARTT WIP website here

check out the CARHARTT WIP instagram here

ARTE ANTWERP

Arte Antwerp offers accessible and stylish apparel at a wide price range. It is rapidly gaining popularity in department stores and becoming a wardrobe essential for men. Drawing inspiration from various arts, the brand combines contemporary and minimalist elements, catering to fashion enthusiasts and those seeking a chic yet simple style.

Check out the ARTE ANTWERP website here

check out the ARTE ANTWERP instagram here

NUDIE JEAN

Nudie Jeans is a retail brand that prioritizes sustainability. With an annual sustainability report, they showcase their eco-friendly practices. Through the Re-Use initiative, customers can purchase repaired pre-owned denim with patches and quilting. They specialize in mono-fabric and is committed to creating tomorrow's denim with upcycling techniques and innovative designs, all while maintaining an eco-conscious approach.

check out the nudie jean website here

check out the nudie jean instagram here

ISABEL MARANT

Isabel Marant, an established brand since 2017, has brought a fresh breeze to men's wardrobes by offering a blend of styles and colourful pieces. With a strong commitment to sustainability and durability, the brand consistently delivers high-quality products.

check out the isabel marant website here

check out the isabel marant instagram here

COMEBACKS

GANT

GANT made a surprising and audacious comeback under the leadership of Christophe Bastin, who revitalized the brand's preppy cool Ivy League heritage with a fresh perspective. GANT's new image communication embraces modernity and incorporates new generation codes for a contemporary and relevant appeal.

Check out the GANT Website Here 

check out the GANT instagram here

LACOSTE

With 90 years in the market, Lacoste has successfully reinvented itself through a GenZ and modern artistic direction. The brand has introduced a new line and a more fashionable collection to cater to evolving consumer tastes. Lacoste is also committed to diversity and inclusion, fostering an inclusive and welcoming environment for all.

check out the Lacoste website here 

check out the LACOSTE instagram here

AIGLE

Aigle, with its new visual identity, exudes modernity, freshness, and style. Under the artistic direction of Études Studio since October 2022, the brand demonstrates a strong commitment to sustainable fashion. Find Aigle at La Caserne, the esteemed hub for responsible and CSR brands in Paris.

check out the aigle website here 

check out the agile instagram here

RISING

S.S.DALEY

S.S.Daley embodies a poetic and delicate vision of men's fashion, crafting a wardrobe that exudes sensitivity and artistry. Their innovative designs have earned them the esteemed LVMH Prize 2022. With their unique aesthetic, S.S.Daley is riding the wave of the New Fashion Movement, redefining the boundaries of contemporary menswear.

Check out the s.s.daley website here

Check out the s.s.daley instagram here

BODE

Bode showcases a one-of-a-kind creative vision, revitalizing old fabrics from across the globe and infusing them with newfound vibrance. With their presence in Men's Fashion Week in February 2023 and the introduction of their new women's line, Bode promises to be the next ultimate brand to watch and follow closely.

check out the bode website here

check out the bode instagram here

ELEVENTY

Eleventy brings a fresh perspective to the world of tailoring, offering a range of versatile options designed to take you from morning to midnight. It presents a diverse colour range that exudes sophistication. The brand prides itself on delivering exceptional quality, craftsmanship, and value, with a perfect balance of style and affordability.

check out the eleventy website here

check out the eleventy instagram here

THISNEVERTHAT

Thisneverthat draws inspiration from the vibrant K-waves, creating clothing and prints that reflect this cultural influence. The brand is known for its numerous collaborations with renowned names such as New Balance and Casio, adding a unique touch to their collections.

check out the thisneverthat website here

check out the thisneverthat instagram here

DE BONNE FACTURE

De Bonne Facture effortlessly combines style and quality, delivering garments that never compromise on craftsmanship. Paying tribute to various local manufacturing cultures, the brand embraces a rich textile tradition that is artfully modernized for the demands of contemporary life.

check out the debonne facture here

check out de bonne facture instagram here

HIDDEN GEMS

CHERRY LA

Cherry LA brings a fresh and contemporary perspective to the classic American west wardrobe, offering a unique take on timeless styles. Their collaboration with Dover Street Market L.A in 2022 showcases their innovative approach. Handcrafted in Los Angeles, Cherry LA exemplifies exceptional quality and craftsmanship.

Check out the cherry la website here 

CHECK OUT THE cherry la instagram here

OUEST PARIS

Ouest Paris presents a modern and boundary-breaking vision of streetwear, challenging conventional codes by celebrating sexual freedom, diverse bodies, and life. With its new oversize forms, cutting-edge designs, and a distinctive blend of upcycled materials, Ouest Paris allows for endless mix and match possibilities, making a unique statement in the world of fashion.

CHECK OUT THE ouest paris WEBSITE HERE

CHECK OUT THE ouest paris INSTAGRAM HERE

MANASTASH

Manastash, born in Seattle and raised in Japan, is a brand that seamlessly blends functionality and style. They specialize in crafting outdoor clothing that not only serves its purpose but also prioritizes environmental consciousness, utilizing eco-friendly materials, offering a new and refreshing alternative to Patagonia.

Check out the manastash website here

check out the manatash instagram here

BAZISZT

Baziszt is a dynamic wardrobe that pays homage to Mediterranean craftsmanship. Their garments are perfectly suited for long summer nights and exude a vibrant and stylish aesthetic. Recognized for their excellence, Baziszt was featured in French Vogue's esteemed "Fashion: 18 Lovely French Brands to Know" ranking.

check out the baziszt website here

check out the baziszt instagram here

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*Following the IADS CEO meeting in Mexico City last May, where IADS members were able to visit the latest developments in El Palacio de Hierro’s flagships, the IADS had the opportunity to travel to Salvador to discover the Almacenes Siman stores. The purpose was to discover the market, know more about the company and meet with the leading team.

Siman is a 102-year-old company, operating in 4 countries with 15 stores, in addition to an e-commerce channel. It is almost fully covering the Chortis Block, the continental fragment where Honduras, Nicaragua, El Salvador and Guatemala are located (even though the company does not operate in Honduras but in Costa Rica instead).

Through an astute mix of clever business steering, opportunistic alliances and smart investments, the company managed to become the largest department store company in Central America throughout its history. As Siman is currently involved in a strategic business transformation in order to address the 21st-century challenges in the best position possible, the timing was perfect to discover this company which has become with time a driving force in the region and intends to stay the same in the coming years.

We review our store visit below to better understand this retail giant which is quietly growing on highly dynamic albeit not on the world map markets.*

Company history and background

Almacenes Siman was founded as a small shop in 1921 by J.J. Simán, an immigrant from Palestine, in downtown San Salvador. The business grew quietly with time, as Simán’s sons joined him in the development of the company, which incorporated into a limited company during the 60s under its current name. During that decade the company turned into a department store business, with the development and opening of the largest department store in Central America in 1970, downtown San Salvador (the store remained operational until its relocation in 2010). This 7,000 sqm location was the first store to display an escalator in the whole of Central America.

The company was dynamic, the store expanded and was equipped with a parking lot in 1974. A second location opened in 1983 in Metrocentro, the largest shopping centre of El Salvador at the time and outside of San Salvador city centre. Due to the 1986 earthquake, which damaged the original store in the city centre, a temporary location opened, La Casona which was by then a historic house located in the Escalon neighborhood of San Salvador. This location, which was originally temporary, was never shut down, and a real department store opened into a mall literally build all around the house, the Galerias Escalon shopping mall, in 1994.

The third department store opened in Santa Ana, the second-largest city in El Salvador, on an original surface of 1,500 sqm, in 1990. It was relocated to the Santa Ana Metrocentro shopping mall eight years later. The third-largest city in the country welcomed a Siman branch in 1994.

The coverage of El Salvador continued with time, especially with the opening of La Gran Via location, a large location in an open-air mall, which was a premiere for the country when it opened in 2004.

International expansion started in 1993 with the opening of a store in Guatemala City, followed by Nicaragua where the company bought an entire mall in 2002 to open a department store branch there. Both countries expanded: 3 stores were built in Guatemala in 2003, 2008 and 2015, and a second location opened in Nicaragua in 2008. Costa Rica operations started in 2009 where 2 stores are currently operating.

As of today, Almacenes Siman operates 15 stores in 4 countries, including 6 in El Salvador itself. In terms of stores, they represent on average a surface area of 10,000 sqm, with the smallest units ranging in the 5,000-8,000 sqm area. As a whole, the department store company welcomes 80m visitors a year, including 60m in their e-commerce channel, and reaches a turnover of $400m a year, of which 13% is achieved via e-commerce (composed of 8% of sales via infinite aisle systems available in stores, 5% of sales via the website, and 4% via WhatsApp). Usually, the website is the privileged destination for the Salvadorian diaspora living abroad (2M people, representing a third of the Salvadorian population) while WhatsApp is a channel for locals.

Interestingly, the Siman group is not only about department stores, as, in its natural evolution, the company tackled other types of business (the diversification came much more naturally than for similar companies in Chile, for instance, where expansion was financially motivated). This is why Grupo Siman also includes:

•    A real estate branch involved in developments now independent from the department store activity (the Galerias Escalon mall which Siman built is now the only one owned by the company),
•    Financial services with a credit card system, Credisiman,
•    Non-department store-owned retail activities, such as La Curaçao, Artefacta specialty stores chains, XClaim multibrand beauty chain or Prisma Moda, a down market Zara-like format of 1,800 sqm selling fashion and cosmetics,
•    Franchised partnerships, such as MAC cosmetics (9 stores in the region), or Inditex: it operates as a franchisee the Zara, Pull & Bear, Berksha, Massimo Dutti and Stradivarius in the whole region (18 stores in 5 countries including Honduras where there are no Siman department stores).

Of course, this gives the group a significant edge in terms of negotiation leverage with mall locations, which is completed by the number of private labels they operate also often available in free-standing stores in the country, such as Sabrina, Orange or Nicole. For instance, in the Multiplaza mall, one of the only upscale malls in El Salavador where Siman does not have a location, 25% of the mall offer are Siman’s private labels’ free standing locations, and a higher proportion of the brand offer also relates to Siman’s controlled brands portfolio: in total, in all Multiplaza malls of the region, Siman rents 70,000 sqm of retail space (including the Inditex locations).

Almacenes Siman also took great care to be perceived as an attractive and trustworthy name in the region, and not simply a place to shop. This is why the group made partnerships with regional artists and singers in order to promote a modern and socially-minded image of the company as early as 2010, especially by insisting on women’s rights, which should not be taken for granted in this part of the world.

Visiting the Almacenes Siman store in Galerias Escalon

Galerias Escalon is the only real estate property owned by Almacenes Siman for the last 30 years, as the company decided then to focus on the retail part of the business rather than on property development. It is the only mall in the world which has been built around a house, La Casona, which dates back to the 30s. La Casona used to be a temporary Siman store following the 1986 earthquake and was then restored while the mall was built all around, to be today a cultural place with exhibitions.

The mall now spans over 115,000 sqm and hosts 133 retail units, after a renovation which started in 2006, adding a fourth floor and a cinema theatre. The new Millenium Plaza 24 floors-high tower, which is connected to Galerias Escalon and includes offices, apartments and a hotel, has been built recently and is about to be inaugurated (Siman is involved in this new development).

There are now 2m inhabitants in San Salvador (out of 7m in the country) which explains the lack of large international luxury labels such as Chanel or Dior. The most high-end available in the country would be brands such as Carolina Herrera, in which operations Siman is involved.

The Siman department store spans over 4 floors and 11,000 sqm. 100% of the business is done in the wholesale model with the exception of some jewelry brands and the café / deli operators.

The ground floor is dedicated to cosmetics and accessories. Cosmetics are displayed in classical black-and-white, low-rise stands, with a few exceptions such as Elizabeth Arden. Accessories are displayed in 2 separate zones surrounding the cosmetics part, with the men’s section on the right and the women’s section on the left (a curiosity according to Siman as it would normally be the contrary). All accessories stands are built with the brand concept, be them large international ones, or private labels (70% of the men’s offer, with a price-conscious approach). Shoes are in the centre and more space is planned to help their development as the category is growing. The floor is dotted with Creditsiman stations allowing to access the credit card account on-site and managing operations.

The first floor is dedicated to fashion, from high-end to contemporary, for men and women. More accessories and shoes are available here. Also, private labels represent a significant share of the business and mix heavy branding with accessible prices on all product categories (polos are sold at $20). Design is made in-house and then produced abroad. They also consider other companies’ private labels as international names, such as El Corte Inglés’ Sfera, which boasts a 70 sqm space. Special categories (petite, maternity, curvy) are perfectly integrated in the shopping journey.

The second floor leads to a gourmet section and a deli (operated in concession), linking to the street entrance, which is not on the same level as the atrium where La Casona and the main entrance are located. This allows to direct the traffic to the nearby kids’ section, nicely set up with décor, and which allows to also push forward Orange, a private label addressing babies, kids and teens.

On this floor, customers have access to tactile screens giving access to more stock than what is displayed in the kids, sports and furniture categories. It works: 4% of the store sales are achieved via this channel (the target is 8%) with variable results from one category to another (kids are 2%, furniture is 10%).

The floor also hosts the Click & Collect space, including the front desk but also the back office, which houses the company’s WhatsApp sales team and the gift wrapping unit (the WhatsApp team was located in this store and in these premises as, since Siman owns the real estate, they do not cost as much as they would do in terms of lost retail space in a rented store). An astute system allows to serve 200-300 customers per day (in the Gran Via location there are 400 daily click & collect orders picked up).

The third space hosts the home & décor category, domestic appliances, sports and toys. A small café neighbours the “club bodas” and the “club de regalos”, two service points where customers can organize their weddings and parties.

The Credisiman options are heavily advertised in the furniture section, where the Customer Service desk is also located. 70% of the total customer service activity is dedicated to Credisiman.

Visiting the Gran Via mall

Gran Via is located on the Panamericana highway (which goes on the whole continent from North to South), next to two other malls, Cascadas (which is successful thanks to its Dollar City point of sale) and Multiplaza, as smaller location with a strong F&B and mid-range offer (Lacoste, Kenneth Cole, Mango, CH..) traction, where Siman does not operate a department store but many of its private labels and direct retail operations (such as Prisma Moda). A Sears is also nearby, operated by Mexican billionaire Carlos Slim.

While both Gran Via and Multiplaza opened in 2004, they are extremely different as Multiplaza insists on entertainment (with a giant slide in its entrance) while Gran Via is an open-air mall, giving the feeling to stroll in a new part of the city, and tends to be more perceived as a “lifestyle” centre.

The Siman store is currently extending on 2 floors and 10,000 sqm but an extension project, currently ongoing, will add 4,000 sqm extra within November 2023 (900 sqm retail space for each floor, more stock space for shoes, accessories and women’s fashion, and a set of new offices which will be built on an entirely new floor). In addition, a brand-new entrance will be built, with a completely new façade. This should change the dynamics of the store's traffic, as, for now, 20% of the traffic only goes through the entrance on the open-air part of the mall, and the rest from the inside, especially from the parking access.

In terms of general approach, the original store was built with a set customer path, materialized by the flooring and fixed lamps. It has been decided that the path should disappear, in order to let the traffic flow infuse in the store, which also implies that the whole store has been re-lamped in a totally new way. All product displays will be removable and flexible, in order to encourage mobility and rezoning when needed.

The whole ground floor will be dedicated to cosmetics (14% of the business), beauty and women’s universe, with the full fashion range from young adult and contemporary to high-end. Here again, private labels will be emphasized, as Sabrina will be displayed on 120 sqm, as much as the space dedicated to El Corte Inglés’ Sfera.

The first floor is dedicated to Men’s, kids, home & décor including appliances and furniture (home and electro domestics represent altogether 30% of the business) where El Corte Inglés private label is also displayed, and electronics, as well as a café, La Barrica.

In this store, the click & collect section is almost adjacent to the customer service, both located in the furniture section (click & collect pickers roam the store to fulfil their orders and can be recognized with their specific outfits).

In terms of services, the infinite aisle shopping service represents 4% of the furniture category turnover. Customers also have access to automated machines allowing them to access the website’s e-commerce section. In the electronics section, some experts are here to give advice on Apple’s Genius bar model.

Going further: what is next for Siman?

Siman has identified the following 5 challenges for the coming years:

*-    The regional challenge: how to thrive in Guatemala and Costa Rica, where the store coverage is significant but lower than in Salvador, therefore not bringing in the scale synergies one could expect,

•    Talents: similarly to IADS members who have decided to dedicate the 2023 Academy program to this topic, Siman is aware that they will need to attract new talents (sometimes in new areas) in order to remain competitive, and this will imply many organizational changes (which started with the appointment of the first CEO not coming from the family, Mr. Juan Pablo Galvez, last June).
•    The need to double down on Siman’s strength, Creditsiman and how to increase its penetration.
•    Some categories have to be addressed: shoes as their growth potential in terms of topline contribution is obvious, but also electronics, in order to contribute to the development of Credisiman. In the same way, the private labels business could also contribute to either the top line (by selling them to other companies) or the bottom line (by purchasing private labels from other companies such as El Corte Inglés).
•    The need to refurbish 5 stores which are all 20 years old in the coming 5 years.*

As a consequence, in order to tackle these highly interconnected challenges, the secret will lie in the combination of resource allocation and capability to innovate, both in terms of systems (a new POS system is being implemented, and new OMS and CRM systems are planned, in order to address the 500k customers in Siman’s database – another area of potential progress -), and organizational mindset, which is why Siman has signed a partnership with the IEM in Madrid to foster innovation within the 6,000-large team.

In a country that had been riddled by a civil war not so long ago, and where the crime rate used to be very high, the good fortune of Siman is impressive, as nothing is taken for granted and there is a constant preoccupation to make sure tomorrow’s challenges are addressed. Given the growth potential that is expected in the region in the coming years, chances are that Siman as a name will become more familiar to international players in the future.

Credits: IADS (Selvane Mohandas du Ménil)

Printable version here

*Improving Private Labels’ profitability is crucial to the department store business and is a top-of-mind priority for CEOs (this is why the 2022 Academy worked on this topic). Two major strong trends can be seen here:

-    Organisations (including the supply chain) have been reviewed and changed to be more cost-efficient as well as more agile.

-    Secondly, whether they are under an umbrella brand or not, Private Label portfolios have been reshuffled, which often resulted in the discontinuation of some brands to maintain margins, but also in opportunistic ventures.

Besides these 2 major sources of optimization, new questions are emerging lately. Improving branding and awareness is key to developing the business. The pricing strategy offers 2 different directions: the lower-price path, or a possible premiumization of Private Labels which is increasingly considered to grow margins. In addition, department stores and retailers sit on a data treasure as they know who’s buying what, where and how. With the emergence of the retail media business, it seems data could be leveraged to improve Private Labels’ efficiency and relevancy. However, some questions remain, and the Private Label digital strategy and the communication on CSR efforts are among the most important ones.*

Transforming Private Label organisation towards cost optimisation and production efficiency

Changing the model: ‘Coopetition’ and ‘Integration’?

There’s no one-size-fits-all model when it comes to Private Labels. Retailers rely on a variety of operating models, ranging from highly centralized organizations with dedicated resources (including brand management, product design, sourcing, marketing, and consumer insights) to decentralized operating models in which merchandising teams own much of the strategy and execution. The organisation question comes down to 2 organisational options:

•    Coopetition: the Private Label team is in charge of sourcing, style and product development, while the buying function is taken care of by the buying team in charge of national and international brand purchasing.

•    Integration: the buying responsibility is part of the Private Labels team’s duties.

The benefits of the ‘Coopetition’ model: the example of an IADS member

In 2021-22, an IADS member changed its organisation from Integration to Coopetition with several significant benefits:

•    The team downsized from 58 FTEs to 28. As an example, the kidswear team was reduced from 12 to 6,5 FTE thanks to management responsibility mutualised with another product category and fewer people in sourcing. Also, the buying responsibility went to buyers in charge of national brands. Finally, designers are now working freelance.

•    More efficiency at the design level thanks to a collaboration with a local creative intelligence agency defining clear creative directions for the season. Also, designers are now freelancers and are more eager to bring relevancy to the table.

•    National brand buyers are providing detailed and accurate feedback to challenge the product’s appeal.

Reorganising the supply chain: finding the balance between a more secure production and higher retail prices

In January 2021, the IADS offered to participants to compare their production schemes. At the time of this research, members’ production lead time (from offer definition kick-off to first date in-store) ranged between 37 and 61 weeks. With the Covid-19 impact on China, the war in Ukraine, and the energy shortage, department stores had to rethink their production schemes as explained in the IADS Merchandising dedicated to Private Labels end of 2022. Their main initiatives include production planning starting earlier, which saves up to 2 months on the production lead time. Also, nearshoring in the Euromed zone allow some members to save up to 8 weeks: however, it comes at a price, as production costs can vary by as much as +3% when switching from China to Euromed, while they can decrease by -4 to -8% in other South East Asian countries (but raising new operational and logistic questions). In any case, reliance on Chinese suppliers was reduced, sometimes by up to 6%, in favour of South East Asian countries (+6%) and the Euromed zone (+1.5%) to improve lead time and dilute the risk linked to producing in China. Finally, raw materials are 100% booked in advance with members committing to suppliers and paying later. As a result, compared to 2019, members had to increase their retail prices from 5% to 27% to secure margins.

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Optimizing the Private Label portfolio: downsizing, product efficiency, and a dose of opportunism

Cancelling brands is efficient

Cancelling inefficient brands is a widespread strategy coming with 2 options. The first one is about working under a single umbrella brand to avoid product overlapping and product gaps. For instance, Manor cancelled brands to only operate a Manor-labelled transversal brand. Despite a very different size and scale of the business, Magasin du Nord now also operates under a store umbrella brand. Both retailers see the umbrella brand as an opportunity to enhance the store brand itself. Knowing that having several brands requires dedicated investments, a single umbrella brand is also considered a way to be more cost-efficient. On its side, Galeries Lafayette reduced its brand portfolio to focus on one umbrella brand but kept an additional brand in womenswear, menswear and kidswear.

The second option is about relying on several Private Labels. IADS members such as El Corte Inglés and El Palacio de Hierro are not working with a single umbrella brand but with different brands, each of them having a clear DNA and a focus on a specific consumer group. Still, El Corte Inglés reduced from 41 brands in 2019 to 21 in 2022 to increase the initial margin, secure EOS sell-through close to 100% and a minimal turnover per label per year. At El Palacio de Hierro, 3 brands (out of 6) accounted for over 75% of sales. As a result, 2 inefficient womenswear brands were discontinued.

Favouring a mono-product strategy

As discussed with member IADS-1, mono-product categories have proved to be more easily profitable (men’s shirts, women’s soft accessories, cashmere sweaters, and linen during summer). SKU efficiency is key here, and a smaller number of them doesn’t mean success: to a certain extent, having fewer references and more colours in one reference has a positive impact on turnover (with an average of 5 colours). Also, the 2022 IADS Academy group analysed members’ anonymised figures: they found out that the number of SKUs is on average 5 times higher for the brands with the highest gross margin.

Expansion through opportunistic additional business

Agile expansion of Private Labels could possibly rely on product trends. Surfing the huge athleisure wave, Target’s brand All in Motion launched in 2020 is a good example: a year after it launched, the label achieved the company's goal of generating USD 1 billion in its first year. It was developed in-house, with an eye toward sustainability, quality, inclusivity, and consistent with the “more for less” Target mantra.

Buying out existing brands is also an interesting option favoured by Marks & Spencer. First, they reduced the number of Private Labels. Now, the company is buying out existing brands (such as Jaeger) to muscle its offer. Results seem promising: third-party brands account for 4.1% of the clothing and home sales, bringing in GBP 70m of revenue in 2021.

At some point, acquiring a brand and operating it collectively or developing one together was considered by some IADS members. In that regard, the example of Farfetch acquiring New Guards Group (Heron Preston, Opening Ceremony…) and the cosmetic brand Violet Grey is interesting but raises questions. The brand price point should be quite low to fit all department store members but right now such brands are facing huge difficulties as they can’t scale up to become omnichannel. Besides, even though customers are increasingly attracted to the same international brands, cultural differences still exist with the products local customers might favour.

Leveraging Private Labels: branding, pricing strategy and… data?

Brand image: building awareness to attract younger customers

When it comes to muscling the brand image and attracting Gen Z, partnering with external brands or influencers can be a winning strategy. Several examples are interesting to look at. Magasin du Nord had a collaboration with a major Danish influencer: a capsule of 11 styles priced at EUR 40-120 led to an impressive sell-through rate and net margin as well as important net sales. 54% of the customers were new customers and the number of online searches increased 5 times. Also, Fred Segal can represent an example of ultimate Private Label branding: benefiting from a certain coolness, the US lifestyle retailer betted on printing the store name and logo of its first Private Label t-shirts and hoodies (retailing at USD 390). Also, JCPenney recently partnered with the infamous brand Juicy Couture at a time when it was on trend again.

Pricing strategy: going low or going up, that is the question

Price has always been a key component in the success of Private Labels. John Lewis’ Anyday brand, positioned 20% to 40% lower than John Lewis' other own brands, recently expanded to reach new, younger customers. Promotional efforts worth GBP 500m (including the opening of an experiential free-standing store) seem to be working: 25% of Anyday shoppers are either new or reactivated customers, as well as younger, yet less wealthy shoppers. However, this strategy comes with the risk to fight de facto against powerful low-price competitors such as Primark. On its side, El Corte Inglés’ ambition is to transform some of its lower-price Private Labels into real brands. To continue with this strategy, UNIT (entry price vertical RTW and accessories brand) will soon launch brick-and-mortar stores in malls, close to Primark stores.

On another hand, premiumization includes higher price point, elevated marketing tactics and sustainability. Overall, consumers think that Private Labels are extremely good value for money which doesn’t mean being the cheapest they can be. Besides, for less powerful department stores, there is no interest in trying to be the cheapest. The price of the Private Labels is no longer the primary factor for some customers. This is the case at Target, where product quality is gaining more importance than price in building customer loyalty. Some retailers already tackled the idea of a premiumized Private Label: with Monoprix Gourmet‘s success (700 products), Monoprix (the French urban “variety” store) shows that the key factor is not about being the cheapest but offering quality to urbanites willing to pay more. In 2022, Printemps introduced a make-over of its Private Label fashion lines (men’s, women’s RTW and accessories). The Private Label was rebranded Saison 1865 (from the year the department store was created), hence decorrelating the store name. The claim is to offer transgenerational wardrobe essentials with excellent value for money and sustainable options. This premiumization comes with a 15% retail price increase overarched by a sustainable claim, more elaborated communication and marketing, which could help in building a true identity for the Private Label./nbsp]

Some IADS members’ department stores are already tackling higher price segments: Breuninger’s Ms & Hugs is successful with EUR 250 dresses for instance, and Manor performs well with rather high-priced items such as cashmere coats at EUR 600. Manor, Galeries Lafayette and El Palacio de Hierro are considering launching a premium Private Label, knowing that premium might have different meanings and price points from one department store to another. For instance, at Galeries Lafayette, the price point would be similar to Sandro’s and the inspiration would take cues from premium consumer aspirations (responsible, slow life, craftmanship). On its side, Manor would favour quality basics using fabrics such as Supima cotton.

Is data the next big lever for Private Labels?

Farfetch’s decision to launch a Private Label (dubbed There Was One, offering minimalist basics for women priced between USD 95 and USD 2,000) was informed by consumer shopping data. Data showed that since the start of the pandemic, shoppers were investing in long-lasting and sustainable pieces. Among the key factors to Private Label success, Alix Partners mentions that customers’ insights should be injected into all steps of product development processes. Firstly, this should be eased by the access retailers have to their own customers’ data through their various payment and loyalty schemes. This strategy already proved its efficiency: Amazon is famous for leveraging data to build several of its Private Labels, sometimes to the dismay of marketplace sellers. Secondly, retailers and department stores are currently entering the retail media business, putting store data at the brands’ disposal through dedicated platforms. This could serve the Private Label business as well as other brands.

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Private Label success is a complex combination of an effective and agile organisation, the right portfolio articulation, positioning, planning, and a dose of opportunism. While ensuring Private Label profitability and relevance remains a never-ending concern for department stores, additional levers for growth – if not all new – could be considered. Among them, doubling down efforts on branding and brand awareness could help create a true identity able to attract the younger generations, much needed to rejuvenate the customer base. The right pricing strategy is also key: in that perspective, department stores are assessing the possibility of a premium Private Label, which could be an additional way to grow the business and increase margins. While the latter has not proved to be broadly efficient yet, using sales and consumer data increasingly grows as a way to develop retailers’ businesses. The possibilities offered by new retail media ventures could be expanded to benefit Private Labels.

Also, additional questions are still unanswered. The digital strategy for Private Labels appears to be a work in progress for many department stores. It seems most members are not differentiating their online and offline product offers and didn’t truly build omnichannel strategies yet. Some department stores are more advanced though: for instance, El Corte Inglés’ Private Labels have their own landing page on El Corte Inglés’ website. This might lead the company to eventually create a specific website for each Private Label in the future. Also, Manor’s website promotes and prioritizes Private Labels products as soon as they are strong enough: this is the case with cashmere and ‘essentials’ sections putting Manor products first.

Another tricky question is about department stores' CSR efforts in Private Labels. Often more ambitious than national brands, department stores face issues when it comes to communicating information to customers: they have a hard time deciding on a “communication” umbrella efficient both offline and online. Risks for department stores are to appear as they are lacking credibility and of course, they could be accused of greenwashing. Overall, department stores didn’t find yet the right balance between providing precise information and being simple, honest, catchy and inspirational (including for their international consumers).*

Credits: IADS (Christine Montard)

Printable version here

Explore the pictures here

*Following the IADS CEO meeting in Mexico City last May, the IADS had the opportunity to travel to Chile to visit Paris Department Stores’ and Falabella’s flagships, located respectively in the Alto Las Condes center and in the Parque Arauco mall.

Chile is considered one of South America’s most prosperous nations, in terms of competitiveness and income per capita. Before the pandemic, with consistent GDP growth of around 3% to 4% annually, the country enjoyed economic diversification across sectors like mining, agriculture, manufacturing, services and tourism. The nation's stable institutions, market-oriented policies, extensive trade agreements, and high global competitiveness rankings attracted foreign investment.

The COVID-19 pandemic had a profound impact on Chile, affecting various aspects of society, the economy, and public health. The country witnessed a significant number of confirmed cases and fatalities, placing immense strain on the healthcare system. To curb the spread of the virus, strict measures such as lockdowns, travel restrictions, and social distancing were implemented. Being one of the leading countries in terms of vaccinating its population as early as December 2020, combined with the massive adoption of digital technologies and telecommuting, Chile was able to weather the crisis earlier than other countries, and this showed in Falabella’s numbers, then a member of IADS. While GDP shrank by -5.8% in 2020, it grew +23% in 2021, exceeding the previous record of 2018. While normalization took place in 2022, this led to an extraordinary expansion for retailers, both in nominal and in terms of e-commerce growth, a channel already well implemented in the country.

Falabella opened in great fanfare its newest flagship store in November 2021 (our report here) and it was hailed as a perfect integration of omnichannel practices into a physical store. The IADS took the opportunity of a visit to the region to go and review the store, and to compare it with its competitor’s neighbouring flagship store, Paris.*

History and background: Cencosud and Falabella, two multifaceted and similar giants

Almacenes Paris (Cencosud)

Almacenes Paris, a former member of the IADS (2000-2005) was established in Santiago in 1900 by José María Couso as Mueblería París. The store originally carried Italian merchandise copied from French models, and evolved into selling copies made by local artisans, before expanding into home (rugs, tapestries, mattresses, bed furnishing) and accessories (glassware, china, porcelain, cutlery and bathroom supplies). Fashion came later and the business was sold to Antonio Gálmez in 1910. The company changed its name to Almacenes Paris in 1950.

Almacenes Paris started to branch out from Santiago city centre by opening in the metropolitan area (Providencia) in 1983, in spite of a poor national economic context. It then continued expansion through a mix of opportunistic moves (the bankruptcy of Brazilian department store company Muricy in Chile in 1990, after 19 years of operations, allowed Paris to acquire their Parque Arauco and Mall Plaza Vespucio stores, both in the metropolitan region of Santiago ) and pure expansion (Plaza Oeste in 1994 and the first store outside Santiago in Concepcion in 1996), reaching a total of 7 department stores (each of a surface comprised between 8,000 and 15,000 sqm) by 1996, second to Falabella in terms of store number, and addressing middle-class customers.

It went public that same year and immediately engaged in diversification: real estate (by taking shares in Plaza del Trebol and Plaza Oeste existing malls, but also in new projects in Puente Alto and La Serena ones), speciality stores (by acquiring Tecnopolis, a chain of computer stores). It also doubled down on financial services: Almacenes Paris was the first retail company to introduce a credit card, Tarjeta Paris, in 1970, in Chile, and boasted 1.3m credit cards by 1998. They also kept on investing on a new venture, Paris Express, a virtual store enabling customers to purchase online, in 1999. By 2002 Paris was selling a third of its merchandise online.

The retail chain also kept expanding: 3 new stores were built, soon completed by the 1999 acquisition of failed Chilean operations of JCPenney (which had entered in 1994), allowing Paris to reap its Alto Las Condes mall store and to reach a total of 14 stores by 2000. A new corporate headquarters tower (Torre Paris in Providencia district) and 3 more stores allowed the chain to reach a total of 150,000 sqm of retail space disseminated in 16 stores in 2002. However, analysts worried that the company was falling behind its rivals Falabella and Ripley, which led to a corporate reorganisation into 4 subsidiaries: retail, industry, real estate and financial services. The leading source of income, however, was not coming from retail activity, but credit (75% of the group’s total sales were financed by its own credit cards).

As the retail division kept on lagging behind its rivals, the Gálmez family sold 52.4% of its shares to a group of various investors in August 2004, who implemented a turnaround plan. However, the country was shocked to learn that Cencosud, the largest retailer in Chile and Argentina with Jumbo and Santa Isabel hypermarket chains, made a surprise offer and was able to purchase 72.67% of the company in February 2005. As a consequence, Paris was no longer a public company and became a subsidiary of Cencosud.

Cencosud today is the largest retail company in Chile and the third largest in Latin America behind Companhia Brasileira de Distribuição and the Mexican Walmart de México y Centroamérica. It operates 3 supermarket brands (249 units), the Easy home improvement specialty chain (37 stores), 35 shopping centres, and the Cencosud Card (2.5m users in 2015) in addition to 49 department stores in the country for a total of 286,000 sqm of retail space (Cencosud also operates in the rest of the region, but Paris remains limited to Chile).

The department store company offers a mix of private labels (Alaniz, Attimo, Greenfield, among others), with international brands distributed in exclusivity (Brooks Brothers, Lacoste..) presented in brand corners, and is the third largest department store business in the country, behind Falabella and Ripley.

Falabella

A former member of the IADS (2006-2022), Falabella was founded in 1889 by Salvatore Falabella as a tailor shop in Santiago. Operations started to expand in 1937 when Alberto Solari joined, incorporating new products, opening new points of sales and revising the business model as a whole, until becoming a true department store in 1958 including home goods.

They opened their first store outside of Santiago in 1962 in Concepcion, however business development was slowed by the political and economic context of the country. Following suit in Almacenes Paris’ footsteps, Falabella launched its own credit card in 1980, called CMR Falabella. In the 80s, Arnaldo Falabella, the son of the founder, passed away, and Alberto Solari retired, leaving room for new management under the helm of Juan Cuneo Solari, his nephew. He led a group of investors and purchased 75% of the company, marking the beginning of diversification into finance, insurance, real estate and tourism.

Falabella took stakes in the Mall Plaza group, which opened 7 malls (Plaza Vespucio, Oeste, Talaba, Norde Santiago, El Trebol in Concepcion, La Serena and Los Angeles). By 1996 Falabella was operating 22 stores and had started international expansion in Argentina and Peru, when it became public the same year. Similarly, to Paris, expansion accelerated in various retail activities (through partnerships with Home Depot and a national drugstore chain), travels and insurance, and the launch of Banco Falabella.

They also jumped the Internet bandwagon by launching e-commerce activities in 1999, adding the final touch to a whole ecosystem where customers were able to find products from Falabella’s various divisions in many different places and stores, and financed by the retailer group. As a consequence, it held 43% of department stores market share in 2001. Expansion accelerated: the group extended its reach on the DYI market by purchasing Sodimac, the market leader, among others. The expansion was financed through capital increases, leading to the practical disappearance of the remaining family members on the map of significant shareholders. At that time, just like at Almacenes Paris, half of the company’s profit was coming from credit card operations.

The Falabella group today is present in Peru, Chile and Colombia (both Paris and Falabella took the opportunity of the Covid-19 pandemic to exit Argentina). Its activities encompass department stores, hypermarkets (Tottus, 72 units), DYI (Sodimac, 85 stores in Chile), real estate (in malls), banking (Banco Falabella), a travel and insurance company, a credit card service (7.2m active customers), as well as an Internet and mobile service provider company. In 2022 there are 47 department stores in Chile, of which 19 are in the Santiago metropolitan region.

Interestingly, the department store division has been renamed ‘omnichannel retail’ in 2021 after it was decided that www.falabella.com (launched as early as 1999) would integrate e-commerce and marketplace services in a division separate from the physical department store operations.

Similarities

Both groups started online operations quite early, and often earlier than their international counterparts. Through a mix of in-house developments and external acquisitions, they both completed their digital capabilities in terms of product distribution, logistics and payment capabilities. As a consequence, both are able to offer a real ecosystem to their customers, similar to the Asian “super-apps”, but different in terms of how the various components are articulated and presented to customers (to respect privacy rules which, in Chile, are in line with the rest of the Western world).

Another similarity is linked to the fact that the metropolitan area of Santiago is saturated with department stores. As a consequence, growth came from services, such as travel and insurance first, but rapidly, banking appeared as the most interesting way to capture customers in the developing ecosystems. The financial strength of retail groups is extremely important: in 1998, 21% of all Chilean customer credit came from Falabella, Almacenes Paris and Ripley, representing 2% of the country’s GDP (this represented by then 10m credit owners out of 14m total population by then). They have then largely contributed to the progress of debit card, credit card and digital wallet ownership in the country.

Today, Falabella and Cencosud’s banking services are ranking high in a country where 74% of the population (19,4m people in 2022) have a bank account (vs. 49% in the region). This financial evolution helped Falabella and Almacenes Paris to develop large customer databases early, which in turn explains why they were able to enter the e-commerce and digital world early.

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Visiting the Almacenes Paris store in Alto Las Condes

The Alto Las Condes 231,000-sqm-wide mall is a medium to high-positioned mall, catering for the needs of the posh Las Condes neighbourhood (which may be why the mall is surprisingly not accessible by public transportation). While there are Falabella and Ripley units in the mall, the highlight is for sure the 4-floor Paris store, which used to be a JC Penney store  and is now a flagship for the company, headquartered in the mall itself.

The ground floor is dedicated to a strange mix of categories, as it presents fragrances, women’s shoes, kidswear and toys, as well as lingerie. Transitions from categories to categories are harsh and immediate, this is a feature that is also common to Falabella, and product universes are often simply juxtaposed next to each other.

The first floor is dedicated to women’s fashion. The floor is mostly dedicated to private labels (another common feature with Falabella), with a concept store section including brands such as Hoss Entropia (a Spanish brand) and more anonymous labels such as Tienda de Carolina or Club Mol. Overall, it is obvious that there is a glass ceiling in terms of price point but also in the types of styles presented to Chilean customers. The purpose is more to sell garment than pure fashion, and international brands are hardly visible apart from names such as Springfield, Allsaints or Esprit.

Interestingly, sustainability is a very visible and outspoken topic, through various aspects:

-    Some ceiling decors that remind the ones at Galeries Lafayette Re-Store,

-    A vintage shop-in-shop, well merchandised and fully integrated in the omnichannel processes (customers have the possibility to return products within 24 hours from home after purchase, and access more second-hand products online, through an infinite aisle accessible with a QR code),

-    A denim recycling point, “Foster”.

In spite of the product offer not being very fashionable, customers can customize their purchases at a “Paris lab”.

The second floor is dedicated to men’s fashion, and tech, which is literally next to the sport section. Tech brands are heavily branded but tend to be more seamlessly intricated in the RTW environment than the categories on the ground floor. The floor is designed with a category approach in mind rather than lifestyle: everything is available (RTW, shoes, underwear, accessories) in dedicated spaces next to each other, and poorly transitioned. The sport section, near the Tech category, also presents women’s products.

The third floor is dedicated to home & décor, as well as services and a gourmet section. The scenic effort is more visible here, in order to help customers project themselves with the displayed products. The travel agency is located in the middle of the tableware section, and white goods are presented in front of the sofas and other home furniture rather than being connected next to the kitchen and home accessories section.

Overall, the store has an impression of being mostly dedicated to selling private labels, in a rather straightforward approach that still relies on a category approach rather than thinking in terms of universes. Two elements were however noteworthy: the sustainable communication as already mentioned, but also and more importantly the omnipresent omnichannel capabilities across the store:

-    On all floors, customers have access to barcode readers that allow them to get price information about the product they are scanning thanks to their loyalty card,

-    Other readers also allow reviewing the points left and the available credit limit on the store card. Those readers encourage the use of the Paris app, luring customers with specific and tailor-made promotions only available on their own app.

-    Most of those readers are available in zones also presenting banking services allowing customers to draw cash, manage bank accounts, and use other services.

-    Tactile screens give more product options to customers, especially in the Home & Décor section.

-    When it comes to paying for the purchases, customers have the choice of either walking into the staff cash desks or using the Express cash desk, a self-service check-out where customers have to remove the anti-theft systems by themselves, under the supervision of a distant staff.

-    The Click and collect pick-up space is located on the 3rd floor, either in the customer service section or in the “Retiro express” one if customers have chosen the speedy option.

All in all, the store gave a strong impression of being well equipped and connected in terms of systems, which are all designed to help customers with their purchases.

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Visiting the Falabella Parque Arauco store

The Parque Arauco mall is not especially new, as it opened in 1982, and constantly evolved, through territorial expansion, with for instance the open-air luxury district, which opened in 2013 with the likes of Louis Vuitton and Armani. Falabella entered the mall in 1983 when it purchased the failed Sears department store, and Paris in 1991 when Muricy went bankrupt. Ripley also joined the mall later on. Today, the mall is 110,000 sqm-wide and aims at an international and touristic clientele, even though there is no public transportation connection as the subway connection is only planned in 2027.

Falabella relocated its Parque de Arauco store in the mall in 2021 to a new and larger location, on 25,000 sqm and 4 floors, which makes it the largest of its kind in South America. The store was hailed as an omnichannel proof of concept for Falabella when it opened, as it is equipped with the latest available tech and systems.

The ground floor is dedicated to men’s and tech. The overall impression is the omnipresence of a specific design, which gives the store more identity than the Paris one in Alto Las Condes. However, the surprising and sometimes brutal lack of transition between categories is also very present here, as they are simply juxtaposed and not designed to merge into each other, in the framework of a customer journey.

The men’s section is quite extensive and includes a mix of private labels and mid-market international brands such as Dockers, Polo or Lacoste in RTW, Clark’s or Aldo in shoes, Levi’s and Nike in denim and sportswear. It is all about customer experience: sport attire can be customized, and outfits can be made to measure in the formalwear section.

The electronic section includes a gaming zone, obviously aimed at the younger generation, but surprisingly located very near the store pop-up activation section, which was dedicated at the time of the visit to Carolina Herrera (women’s offer). As a consequence, the commercial animation felt a bit disconnected in this specific location.

The whole store has a backbone of automatic staircases framed with giant screens, on which seasonal animations and promotional messages are displayed. As a consequence, moving from floor to floor feels very dynamic and energetic.

The second floor is dedicated to women’s cosmetics and accessories. The staircase brings customers immediately next to a café as each floor has a F&B offering in the customer landing one. Here also, the zoning feels surprising, with shoes in front of lingerie and next to cosmetics (the cosmetic one feels very luxurious thanks to the use of heavy lighting and low-rise display furniture). The accessories section feels busy in terms of product density with a mix of private labels and brands such as Bimba y Lola. Here again, there is a feeling of a glass ceiling in terms of maximum price point and brand type offered to customers.

The third floor is dedicated to women’s fashion. Brands are presented in lightly decorated shop-in-shops, which makes them slightly more attractive than in the men’s section. The circulation plan is a bit more complex as the space is also dotted with small lounge spaces mixing RTW and accessories, with dedicated cash desks suggesting they are operated in concessions.

Significant spaces are allocated to international mass brands (Mango, Maison 123) and Falabella’s private labels: Sybilla, University, Basement. A personal shopper service is located just next to the fitting rooms, and in the case of Sybilla, the space is so large that it has its own cash desk (both staffed and self-check-out).

Across the floor, many messages related to sustainability are made extremely visible and insist on Falabella’s various commitments.

The fourth floor is dedicated to Home & Décor, and kids. In the kids section, an ice cream zone and a Samsung store make the connection with the home section.

In the home section, next to the heavily branded and decorated electro-domestic section, a virtual showroom displays on a huge screen any piece of furniture selected on an Ipad and allows customers to see its full-size rendering. Once visualized, the product can be sent to the customer’s shopping cart.

Just like at Paris, omnichannel capabilities are everywhere:

-    Screens allow customers to browse the website (which raises questions in terms of internal organization and incentives as instore and online operations are operated by 2 different business units),

-    QR codes on tags allow to have access to in-store ordering, asking for help or advice. However, those services are accessible via a Wifi system that cannot be used without a Chilean PIN number, which is not possible for a tourist,

-    The click & collect space, in the Men’s space, is beautifully executed and has been designed to make the potential waiting time painless,

-    All Falabella services, including banking, insurance and other, are available on dedicated machines across the store.

Here also, the store feels modern, well-equipped and fully integrated into a real omnichannel ecosystem placing the customer at the centre of the model.

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Going further: the job is done?

*Overall, the technology demonstration and its full integration in stores are impressive at both retailers. While the Falabella store is newer, and therefore its design is more modern, when it came to the range of services made available to customers, both Falabella and Paris felt on par.

However… in both cases, the selection made available in-store, both in terms of price point, types of products and brands, was relatively uninspiring and felt mundane. While Chile is a relatively closed country with specific states, it is nonetheless a fact that the younger generation is more connected everywhere in the world and more aware of the trends. For that reason, it felt very hard to imagine that both stores were able to draw a younger crowd, and during both visits, the clientele felt rather middle-aged, with a middle-class income, and not really looking for something fancy.

In addition, the product and brand offering felt very similar from one store to another, even though there were many private labels presented. One may only wonder if, while Chile is more advanced than others in terms of omnichannel capabilities, it is not lagging behind in terms of product assortment and desirability, a key feature to remain competitive in front of large pure players and disruptors such as Shein, all looking for such new rich markets.*

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Credits: IADS (Selvane Mohandas du Ménil)

Printable version here

*In recent years, inventory tracking has become increasingly sophisticated and popular. In that regard, RFID (radio frequency identification) is being used to provide real-time location tracking of inventory items. In 2021, a study conducted by Accenture revealed that the use of RFID in North American retail was booming with 93% of store chains saying that they are using RFID, especially as e-commerce grew so quickly with Covid. In addition, RFID can be coupled with endless other technologies, such as the Internet of Things (physical devices embedded with technology and connected), to offer customers more unique experiences.

Also according to Accenture, information captured from RFID technology can be used in collaboration with blockchain, supply chain analytics, self-checkout, supporting omnichannel fulfilment, reducing stockouts and improving customer engagement.

In addition to more efficient inventory management, RFID can help reduce supply chain waste and help businesses to grow more sustainably at a time when consumers are increasingly asking retailers for more responsible operations.

So, what’s not to love about RFID? It happens that successful case studies are plenty, but as discussed during the IADS Supply Chain Meeting held in June 2023, there is no consensus about RFID among IADS members. Let’s understand why.*

How RFID can help reduce the cost of supply chain waste

Avery Dennison came as a guest speaker for the Supply Chain Meeting to explain the benefits of RFID technology in reducing supply chain waste. To measure the real cost of supply chain waste, they conducted 2 global surveys covering 5 markets (UK, US, France, China and Japan) and 5 industries (apparel, food, beauty, pharmaceuticals and automotive): no less than a total of USD 163bn worth of revenue is lost every year in discarded inventory. In the apparel industry alone, 6% goes to waste due to overproduction and damage, representing USD 15.3bn worth of inventory. In the beauty and personal care industry, waste represents over 10% of products.

More in detail, RFID provides solutions to the challenges arising from supply chain waste:

• There is a disconnect between sustainability concerns and supply chain initiatives: 58% of businesses surveyed are actively tracking supply chain waste but not aligning sustainability with supply chain initiatives. Efficient inventory handling is a solution as it reduces overproduction and therefore cuts down on CO2 emissions and packaging waste, allowing companies to reach ESG targets more quickly and efficiently.
• Overproduction is a major issue as companies are investing in additional inventory to avoid product shortage and consumer dissatisfaction. Overproduction occurs due to a lack of clarity on the amount of stock already being produced, distributed and purchased. Inventory visibility is a solution: item-level end-to-end visibility of inventory negates the need for safety stocks and companies can better implement FIFO (First-In, First-Out) policies.
• Damage is triggering inventory waste: 4.3% of inventory is wasted globally due to the accidental damage or destruction of goods, representing a total of USD 81.6 billion of global inventory value wasted across the five sectors. Data can pinpoint where damage occurs and by knowing exactly where and how damage occurs, supply chain teams can work with suppliers to solve issues.

Companies recognize these problems, and those surveyed said their use of key technologies such as blockchain, RFID, AI, robotics and drones will at least double in the next two years (54% currently track unique items within their supply chain, but this will rise to 100% in future, which could help to reduce waste). According to Auburn University, apparel retailers currently have 65% inventory accuracy but with RFID, the rate improves up to 99%. On its side, McKinsey identified ‘more than’ a 25% improvement in inventory accuracy by using RFID in retail.

Case studies: from back-of-house technology to customer-facing enhanced experience

There are several ways to use RFID. Uniqlo has extensive technologies in place from item tracking to ultra-fast stock take (they can inventory a pile of clothes in seconds) and seamless self-checkout. French sports retailer Decathlon also took advantage of RFID, and the company is said to have profitable operations. They started RFID implementation with one product category and then, step by step expanded to additional ones. The process was successful, and this is also the method Avery Dennison would recommend. Implementing RFID depends on volumes: it usually requires a 3-month pilot to implement, test and adjust. Depending on volumes, implementing RFID on one product range per year could be a safe and efficient pace.

Grupo Boticario, a beauty brand in Brazil, uses on-metal RFID tags as they seek end-to-end traceability across its increasingly complex supply chain. Thanks to these tags purpose-built for beauty, stockouts were reduced by as much as 97% and the identification of hidden stockouts increased by more than half. For the company, a key use for RFID is FEFO (First-Expired, First-Out), which eliminates most product expiration and allows them to balance inventories between the front and back-of-house.

Adidas is using RFID for its Infinite Play circular programme in the UK. The solution allowed them to deal with reverse logistics, scale their ability to buy back products and give them a second life. RFID also allowed Adidas to be certain of the product’s authenticity.

Etam (French lingerie brand) adopted digital ID technologies to drive omnichannel innovation and transparency. The brand’s ‘Try @ Home’ initiative leverages RFID as a way to increase consumer convenience. Also, clients can scan the QR code on product labels to get instant access to short videos that provide insights into the actual factory where the item was produced.

As explained during the Shoptalk retail conference held in May 2023, H&M’s COS smart store’s ambition (currently in a testing phase) is to serve both the staff and the customers as well as to connect the digital and physical worlds using RFID technology. Overhead RFID readers are set up in the store, fitting and stock rooms allowing the store staff to have a constant view of where products are on their mobile app. On top of showing a map of the store to see where the item they are looking for is located, the mobile app also provides style suggestions able to help sales associates increase turnover. The RFID technology also helps with store replenishing and merchandising. For COS, it represents a true competitive advantage as new employees can be very productive in a reduced amount of time. On the customer side, once the item is brought to the fitting room, the RFID tag automatically connects to the screen in the fitting room: style suggestions are proposed, as well as additional products. Using the screen, shoppers can also request different sizes and access mobile checkout. Overall, according to COS management, their smart store based on RFID technology is said to significantly elevate the customer experience and increase sales.

IADS members’ experience with RFID technology

Why is there no consensus about the technology? It seems the potential provided by RFID is not used to its maximum, proving that efficiency is limited. Also, as mentioned by members, the technology has been here for a while now and many retailers have not yet embraced it. Besides, many questions need to be answered, such as at which stage of the operations should RFID tags be added to the product. It seems ideal to have suppliers putting them on products but in case it’s not negotiable, is it still beneficial and efficient enough to add them to goods at the department store’s DC? Besides, RFID implementation is in essence more challenging for a retailer than for a brand. Let’s also remember when Walmart announced that all of its suppliers needed to have their pallets tagged with RFID in under two years. This forced adoption ended up leading to RFID’s demise when the project resulted in the realisation that the costs, at the time, outweighed the benefits. Then the project was deemed a failure in the retail industry.

One IADS member has been using RFID quite extensively for 7 years (especially with their Private Labels). Digital IDs are put at the suppliers’ facilities. The department store convinced some external brands to include RFID in their products, but it can sometimes come with insoluble problems:

If a brand is only doing it for a single retailer and not implementing the technology as a strategic move, the quality of information can be very poor.

So far it has been impossible to put RFID on very small items, FMCG and bulk items.

Companies, such as luxury brands which are essential to many department stores, are refusing to invest in RFID technologies.

Also, and out of security reasons, this IADS member decided not to use the technology in payment processes and as an anti-theft device. Tags can be too easily removed compared to hard EAS anti-theft tags. While they are reviewing the possibility of mixing both technologies in soft tags, their security department feels that these tags can be cut or damaged very easily.

RFID costs can be an issue: they are difficult to evaluate as they depend on volumes. Still, Avery Dennison estimates that RFID tags are roughly USD 50 per 1,000 whereas fabric tags are USD 20 per 1,000 and paper tags are USD 30 per 1,000. RFID technology can be put inside the price label, so retailers can optimise the cost of the tag. Also, the information embedded in the RFID tag can include any information such as product composition, traceability facts and instructions for use, showing multiple ways of optimising product tagging. In the end, retailers could only have one tag including all related product information from the origin of materials to the price tag for customers.

Ultimately, the technology is pricey, but the ROI could be fast and straightforward. The IADS member using it identified the main RFID benefits:

The cost and productivity of the physical stocktake management. With RFID, it’s possible to inventory 5,000 tags in one minute. Since it’s so much faster, it reduces the in-store inventory cost and labour management. Stores can easily run weekly stocktakes whereas they could only do 3 per year previously. Some retailers see QR codes as a cheaper, yet efficient alternative to digital IDs, but QR codes don’t give the possibility to scan multiple products at the same time.

It is also critical to omnichannel business growth: with quick commerce delivery options, a very accurate inventory is much needed.

There are benefits on lost products as RFID technology works better than any relevant IT system. Sales also increased since the stock is more accurate and products are easy to locate and retrieve.

|  |  |  |

| --- | --- | --- |

| Pros of RFID | Cons of RFID | RFID benefits acknowledged by IADS members |

| Reduce disconnection between sustainability concerns and supply chain initiatives | Lack of security as tags can be too easily removed compared to hard EAS anti-theft tags | Item tracking allows frequent ultra-fast stock take |

| Reduce overproduction | Time-consuming implementation process | Accurate stock, needed in quick commerce |

| Reduce damage to products | Onboard suppliers and brands | Increase in sales |

| Item tracking for ultra-fast stock take | Cost |  |

| Increase stock accuracy, needed in quick commerce | More challenging for a retailer than for a brand |  |

| Increase sales |  |  |

| Efficient store replenishing and merchandising |  |  |

| Seamless self-checkout |  |  |

| Reduce waste thanks to FEFO (First-Expired, First-Out) and FIFO (First-In, First-Out) policies |  |  |

| Helps with reverse logistics for returns and buying back products |  |  |

| Increase customer convenience with product suggestions and information |  |  |

| New store employees are quickly productive |  |  |

Pros and cons of RFID and what IADS members think about the technology

*Whether it’s at the DC or in-store, having an accurate inventory is an obvious RFID’s ROI. The technology can also be used to source products for delivery or for stores from the best places depending on factors such as time, location, or sustainability. At the store level, faster and more frequent stocktakes, more proper replenishments and the easy localisation of products can automatically increase sales but also give more time for sales associates to take care of customers and sell.

Finally, at a time when crises are coming more often, RFID technology allows users to support the many disruptions in the supply chain by providing visibility and efficiency. For example during Covid, many shipping containers were backed up with lots of products in them. With RFID-enabled products, retailers could scan the container to prioritize the ones to unload and the ones that could wait without disrupting the business even further.

Despite such benefits, retailers are tiptoeing when it comes to extensively using RFID technology. Costs, long implementation process, collaboration with brands on the topic and in-store security issues seem to represent obstacles.*

Credits: IADS (Christine Montard)

El palacio de hierro store pictures

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*The Mexican member of the IADS, El Palacio de Hierro, is one of the largest in the world by turnover. Founded in 1891 with a store in the centre of Mexico City, the company was the first Public Limited Company in the country’s retail industry. El Palacio de Hierro, owned by Grupo Bal, is also the owner of shopping centres in the country.

Lately, the introduction of experiences to generate traffic and answer customers’ expectations has been key to El Palacio de Hierro’s strategy. Whether it is Polanco, Perisur or their new Coyoacan store, each of them offers something unique, from architectural features (such as Coyoacan’s huge 1,270 square-meter glass dome on the top floor) to product offerings and unprecedented and tailor-made services. Celebrating Mexican history, culture, and art, each store reflects the group’s strategy of offering different designs inspired from their direct environment.

The IADS travelled to Mexico for the CEO mid-year meeting in May 2023, an opportunity to visit the Coyoacan store and the recently refurbished Polanco and Perisur stores.*

Coyoacan store: storytelling and ‘retail-tainment’ at their best

Architecture and design

A year ago, following a US$140m investment, El Palacio de Hierro reopened its Coyoacan store located in the Mitikah shopping mall. The Coyoacan area is Mexico City’s second most visited place in Mexico, thanks to its cultural and historical importance. The Coyoacan store design takes cues from its neighbourhood’s architecture and famous inhabitants such as the actress Dolores del Río, the photographer Gabriel Figueroa, the artist Frida Kahlo, the actor and filmmaker Emilio "El Indio" Fernández, the architect Miguel Ángel de Quevedo Zubieta and the poet Salvador Novo. Spanning 5 floors, each floor is dedicated to a cultural icon. For instance, embroideries from Frida Kahlo's dresses have become reliefs on the ceiling. Also, the typical doorways and facade textures of the Coyoacan area are replicated in the separation of spaces and on the doors. Frida Kahlo’s house’s, Casa Azul mosaics are reinterpreted on the floor of the ground floor atrium. Others are more subtle and show rare and amazing attention to detail: for example, the iron structures separating spaces in the restaurant atrium subtly form the letters of El Palacio de Hierro. The store also includes eighteen murals inspired by Coyoacan and designed by Mexican artists, the most striking being the ones covering the escalators.

Wandering the floors

With a part of the mall still under construction, the store is not fully finalized yet: when finished, it will be 46,000 sqm, an expansion from its current 38,000 sqm surface.

The ground floor gathers the luxury accessories and beauty department. Some displays reproduce the staircase of the home of Dolores del Rio. The atrium gives the feeling of a village and the terrazzo reproduces the Casa Azul house. The luxury department emphasizes quality jewellery and watches with a mix of Mexican and international brands in a space inspired by one of the most renowned cinematographers and directors of Mexican cinema.

The beauty department features the cosmetics brand on the periphery and mass-market brands on the back. More interestingly, Origen (El Palacio de Hierro’s new beauty and wellness space) gathers niche, green and clean brands. Designed to compete with Sephora, the concept was imagined to be able to attract and test new brands. It is independent from the rest of the store but feels fully connected. Not brand-personalized, the space is by essence very flexible and looks luxurious. The space is elegant and modern, reflecting the product and brand curation. It is divided into four categories: clean, vegan, organic, and positive impact. The concept will be rolled out with the same ‘look and feel’ to encourage recognition. A hair studio and nail bar complete the space. Also, Sisley opened their first spa in LATAM in the space.

El Palacio de Hierro’s ambition is to be the leader in niche fragrances. The perfume department features palm trees replicas and is inspired by Mexican actress Lolita. The space combines California landscapes with Mexican architecture with simple white displays and mirrored details. A concierge to advise customers is available close to this section.

A ’Hello Yellow’ section completes the ground floor. The space is offering a selection of yellow products anchored to El Palacio de Hierro’s identity. Overall, a lot of effort is put into storytelling.

The first floor gathers women and kids categories. The women’s department has an elegant and modern feel, with florals, geometric patterns, and silver and gold details. From casual wear to a space dedicated to special occasion dresses, the department’s ambition is to serve every need. The space beautifully mimics cobblestone streets as well as colonial houses, and also integrates coffee shops serving as transitions between the escalators and the shoe section. Personal shopping services are connected to the elevator for easy access. With a very homey feeling, the fitting rooms are not far and can be privatized for VIPs.

Vibrant colours, geometric patterns, and flowers fill the children’s department which was inspired by the Casa Azul house. In a creative and playful environment, kids are guaranteed to be entertained in this space which also features the Kids Lab and Candy Shop. The Kids Lab is a fun hair salon which includes toys to keep children entertained. Kids up to 16 years old can have their hair or nails done with non-toxic dyes and accessories. Next to the hair salon which is cleverly located, visitors will find the Candy Shop. Here, kids and adults alike can indulge in candy, pastries, chocolates, ice cream, and more.

With a sophisticated, sleek aesthetic, and the use of wood and darker colours, the second floor is the home for men’s shopping and entertainment. The floor gathers a dynamic selection of RTW brands (including casual and formal wear but also a multi-brand store dedicated to Mexican brands) and men’s shoes with a very smooth transition between sneakers and formal offerings. In the shoe section, cleaning and maintenance services for sneakers and other footwear are available to shoppers: professionals can diagnose shoes and have them look brand new in two weeks.

Entertainment and services are at their best with a bookstore (including notebooks, travel gadgets, stationery and fun objects) and a barber shop with traditional aesthetics such as wooden furniture and vintage chairs. Services include haircuts, classic shaving, and beard and moustache styling. A tattoo parlour is adjacent to the barber shop: fathers and sons are confident to come together thanks to the El Palacio de Hierro brand power.  Also, the second floor is the home of a mezcaleria: emphasizing the mezcal culture, the bar provides a collection of more than 100 brands. Finally, the tech space reproduces the trees of the Coyoacan village. Products are demonstrated with iPads and customers are encouraged to touch and try out the various devices to ease the purchasing process.

The home department located on the third floor is a comforting and inviting space, with light wood, exposed brick, and shades of pink. Also, the floor gathers pet products, luggage and the following services: optics, click & collect, customer service, insurance, travel and a dedicated service for celebrations.

Decorated by Mexican contemporary artists, the fourth floor is for F&B (on top of a variety of gourmet food and drinks throughout the store). Zubieta is the department store’s first contemporary Mexican restaurant. It has a natural atmosphere with wooden chairs and tables, green accents, and tree decorations. El Gran Café Palacio is also an option for customers to take a break from their shopping spree. Visitors will also find La Terraza Palacio which features a variety of cuisines that can be enjoyed under the big glass dome. Restaurants are accessible outside of the store opening hours.

Polanco and Perisur stores are offering a good balance between products and services

Polanco store

Opened in 2015, Polanco is a very different experience from Coyoacan which shows a much more immersive strategy. The store entrance can initially give the feeling of a mall with a lot of luxury shop-in-shops. El Palacio de Hierro wants to make sure Polanco’s customers would not feel they are in a mall but in a store with its own identity, which is why they are progressively challenging the brands’ designs, asking for more transparency and see-through. Some shop-in-shops have 3 floors and are connected (Gucci, Louis Vuitton with 475 sqm, Chanel). 90% of Polanco’s customers do not shop in Masaryk Street (100 meters away) which explains that brands have a store in Polanco and another one 500 meters away. The interior design is inspired by the city centre, with reference to Paseo de la Reforma (the main street in Mexico City). Pop-up spaces are reproducing the railings of the street, the atriums are decorated with lamps inspired by the ones on the street, and the canopy is reproducing the Camino Real Hotel symbol, Finally, the ceiling is a homage to the Anthropology Museum in Mexico.

The ground floor is dedicated to beauty, luxury and accessories. Overall, the customer journey is being adjusted and oriented towards more fashion and luxury: for instance, Saint Laurent is taking additional space and absorbing Aristocrazy space. Brands are increasingly encouraged to have see-through stores to maintain harmony. A Moreau (leather goods) pop-up store is at the crossroad between the luxury and cosmetics spaces. Nearby, there are soft corners for bags and accessories displayed in a double exposure with other store locations. The cosmetics area reproduces the Alameda area, another part of the Mexico City centre, and its trees. Also, there is a new writing accessories space, which is working well and a new fine jewellery multi-brand space. The VIP room is used for brand presentations. Designed by a local artisan, benches are available throughout the floor and can be moved around. The atrium has a coffee shop which is an exclusive concept. Its roof is covered with LED screens reproducing the Chapultepec area.

The first floor is dedicated to women and kids. The women’s fashion categories include contemporary (with tree reproductions to separate spaces, and a seating area) and nightgowns (with a salon feeling). A huge shoe department includes a multi-brand space at its centre, shop-in-shops on the periphery and a sneaker maker. In the middle of the fashion space, there is a huge spa (for men and women) located in the middle of the fashion department, as well as a section dedicated to leather RTW and personal shopping services (accessible to all customers).

The shoe area leads to a second atrium where the kids’ department is located, decorated with palm trees as a reference to Chapultepec. The kids’ department is built with reference to a local amusement park, including a rollercoaster track decorating the ceiling.

The floor is also home to unique offerings: Chanel Privé for massage services and La Maison Dior for fragrances. Also, ‘La Suite’ is a 120 sqm apartment dedicated to receiving customers. Interestingly the space is not only used for hosting VIPs but also families for bridal try-ons or ceremony outfit buying. Brands can use the space to present their collections to customers, in which case 50% of the customers are invited by El Palacio de Hierro. This service is not charged (neither to customers nor to brands, the latter only paying for their catering). The space is also open at night.

Inspired by the Chapultepec area, the men’s department as well as F&B offerings are located on the second floor with the escalator leading to restaurants, a whisky and tequila bar and a terrace with a city view. The men’s department includes a barber shop operated by a very old and well-known company from the Mexico City centre. Finally, the third floor is for the home department with a showroom space where customers can try beds. The space is equipped with curtains allowing shoppers to get some privacy.

Perisur store

The store has a completely different feeling and takes cues from the volcanic stones and the sculptures from the 1968 Olympics which were held in the neighbourhood. The store is dedicated to Lance Wyman, the designer of the Mexico 1968 logo (there is a café named after him on the ground floor). The atrium offers a huge mobile moving with the air and the canopies reproduce the Perisur logo.

The ground floor gathers cosmetics, luxury and accessories. Boutiques are all see-through. The accessories multi-brand space is equipped with a luminous ceiling, reproducing the aesthetics of Pedregal houses (the name of the area). The fragrance multi-brand space is equipped with video columns. Close to the escalators, the Lance coffee shop is a destination point for people all around the store. There is also a champagne room treated as a boutique and a small VIP room also used for brand presentations.

The first floor gathers women and kids categories. The transition between women’s RTW and shoes is very wide and easy, only separated by cash desks. This is the most profitable area of the store. Kids are offered a cookie space just near the click & collect space. There is a thoughtful transition towards the women’s section which is completely open to the mall. An escalator leads to a Fauchon café, right in the middle of the fashion section. Personal shopping services are also near the escalators, in a space decorated as an apartment.

El Palacio de Hierro’s men’s customer base is very loyal. The second floor is their home and also offers sports, electronics and services. As in Coyoacan, there is a sneaker cleaning service. Shoes can be shipped to customers’ homes for 3 or more products. There is a bar located in contemporary fashion and a restaurant close to the pet section.

The third floor is for home categories, food and restaurants. The home section is offering a space dedicated to “solutions” (architects, designers, etc…). The food section is decorated with typical tiles from Pedregal houses. The standard restaurant concept Cantina Palacio is available here, only with a different feeling from Coyacan’s. Overall, El Palacio de Hierro’s F&B activities represent 300,000 customers per month. Restaurants (30 POS) are welcoming 13,000 customers per month, food halls welcome 107,000 customers per month and canteens (19 POS) serve 1 billion meals per year. Product sourcing is directly coming from farms.

El Palacio de Hierro’s services: a customer-centric vision

Palacio Contigo: maximizing contact with customers

Palacio Contigo is the name for both the loyalty card program and a customer-focused team. The team centralizes all customer services (before the pandemic customer service was dispatched per BU). There is a unique phone number for customers and call centres have been converted into contact centres operating through phone, WhatsApp, social media, website... Customers can ask any question via WhatsApp and book a product, but the purchase has to be in-store. This new organisation allowed El Palacio de Hierro to serve customers when stores were closed. It also helped reduce the complaints and increase NPS.

Suites and personal shoppers for all!

Not only dedicated to luxury shoppers, suites are available in all stores and used to help customers organize parties, buy products, and have meetings with specialists for special services such as house refurbishing. Basically, they can be used for anything to maximize the business. Due to the pandemic, customers learnt about this service and are increasingly using it. To run these suites, El Palacio de Hierro relies on 40 personal shoppers dispatched throughout the company. They are trained by the brands which send them information about the collections. The personal shopping team is not attached to one of the 14 stores but is independent. A manager oversees Mexico City and operations, another one manages the office and figures. Two drivers and a van are also part of the team to serve customers. Finally, two beauty concierges are available in 6 stores.

Optimization is on the way

Some challenges remain when it comes to data. El Palacio de Hierro misses the connection between POS transactions and the database. They use Salesforce and several different software which do not always work well together. The goal for the end of 2023 is to achieve a full connection able to offer the company a unique and holistic customer vision.

El Palacio de Hierro also works on how to convey personal shopping online. A new team was created in March 2023. For now, a bot pops up on the e-commerce website in all sections except for luxury (as for luxury products, it appears when customers start to scroll down). Also, they have to make sure that only the right people on the staff see and use the database at the right moment.

El Palacio de Hierro’s stores are remarkable in many ways. Firstly, and with incredible attention to detail and storytelling, they are purposely very different from one another as they intend to be truly part of their environment by using interesting neighbourhood architectural features or by paying homage to local cultural figures. Secondly, experiences and services, whether it is a personal shopping suite, a restaurant, a candy shop for kids or a barber shop in the men’s department, are efficiently and seamlessly embedded into product offerings. As a result, El Palacio de Hierro stores can be seen as great examples of customer-centricity.

Credits: IADS (Christine Montard)

Printable version here

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

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

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

*Table of contents

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

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

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

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

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

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

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

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

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

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

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

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

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

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

•    Generate personalised marketing messages.

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

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

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

•    Support category management and sourcing.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

•    Other reasons (10%).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Credits: IADS (Christine Montard)

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Back in March 2021, Dr Christopher Knee shared his views on cultural goods, specifically books, in an IADS Exclusive. Two years later, the cultural goods footprint in retail is growing in renewed ways, justifying a new look at the topic.

Several reasons are underlying the cultural goods trend. On one hand, the cultural goods business at large is growing as explained by Bain & Company and Altagamma in their 2021 luxury report: with the reopening of art fairs, the art market recorded a post-Covid renewed interest in art with an increasing participation of new and younger consumers buying in the mid-priced segment. Besides investment and speculation purposes, this phenomenon is also sustained by the new pivotal role of home and the intertwining of living and working. On another hand, many luxury brands are morphing from high-quality product manufacturers to cultural actors, offering consumers ‘on steroids’ value proposition and raising the bar for other retailers.

This expanded value proposition is an additional way to answer new consumers’ expectations for more experiences beyond the traditional retail transactional relationship. From that perspective, increasing the retail’s cultural component and the cultural goods offerings represent an additional opportunity to drive traffic in stores and possibly generate additional turnover.

High-end art is a traffic and brand builder, but could art selling generate turnover?

Many department stores display art in their stores. For more than 30 years, Le Bon Marché in Paris has supported the contemporary art scene by acquiring paintings, sculptures and drawings as well as exceptional design pieces. Visible everywhere in the store and in parts of displays for some design pieces, the store is now giving its collections an additional experiential value by monetizing visits (for a EUR 20 fee).

Galeries Lafayette also ventures into exhibiting art: since 2016, they are showing a massive ‘Light Machine’ by French artist Xavier Veilhan in the Haussmann men’s store. More recently, and now that the famous cupola renovation is completed (a cultural attraction in itself), they brought an art installation called ‘Time to Breathe’ by the Korean artist Kimsooja, which offers a new vision of the cupola. By covering the inside historic dome with a film that diffracts the sun's rays, Kimsooja creates ephemeral luminous effects on the exterior surfaces and in the interior spaces of the dome. To create a new experience, visitors can even book a visit to the in-between dome.

Since 2020, South Korean major department stores such as Shinsegae, Lotte and Hyundai are venturing into the art market in 2 ways. Firstly, they jumped into the art market by collaborating with existing art fairs: for example, Hyundai and Lotte’s Busan branches are partnering with local art fairs. Secondly, they are incorporating art pieces in their stores to enhance the customers’ shopping journey (up to 250 pieces for Shinsegae). As for other Western countries, interest in art grew during Covid-19, particularly among the Millennial and Gen Z generations. Overall, the purpose of art displays in department stores is about enhancing company branding and not trying to make a profit out of selling art pieces.

But art also increasingly enters department stores in transactional ways. In May 2023, Lotte announced they would open a pop-up store showcasing 200 different kinds of merchandise from the National Museum of Korea (replicas, limited editions). Here, this museum ‘gift shop’ overlaps with national pride amid the Hallyu cultural wave. Similarly to Lotte, La Samaritaine opened a 5-month ‘gift shop’ run by the international art gallery Perrotin at the time of the store reopening in June 2021. The 200 sqm pop-up store offered cultural goods such as art books, artists’ limited editions, replicas, goodies and decorative objects. Besides product selling, offering cultural goods was a great way to make the offer dedicated to younger customers more dynamic and attractive.

Finally, in May 2023, Galeries Lafayette Nice Massena store hosted a performing 50 sqm pop-up store dedicated to controversial, yet very successful, French artist Richard Orlinsky. The space was selling limited editions of the artist’s famous gorilla sculpture and an exclusive highly commercial capsule collection including items priced under EUR 100 such as t-shirts, pens, puzzles, suitcases, iPhone and AirPod cases.

Selling cultural goods thanks to partnerships

As explained by Dr Christopher Knee, some department stores have not abandoned books but run this business in partnership with bookstore partners. Harrods in London partners with WHSmith to manage their lower-ground bookstore. De Bijenkorf in Amsterdam has handed its book department over to AKO, part of Audex. In 2021, Manor signed a partnership with FNAC (a legacy French retailer specialised in cultural goods) to open 27 shop-in-shops to provide books, audio, video and electronics. There are business limits to partnerships though: having limited brand awareness in the German-speaking part of Switzerland, FNAC and Manor recently decided to close 10 shop-in-shops.

As part of their turnaround strategy launched in March 2022, Printemps announced that cultural goods would be part of their revamped product offerings. Pursuing their existing partnership with the famous Parisian bookstore Gibert, they opened a 490 sqm bookstore located on the 7th floor of the Haussmann men’s building. The space offers more than 20,000 books including 20% of second-hand books and also a very large selection of Japanese manga books. This is a smart move as the category is highly praised by Gen Z who is massively buying manga (France is the second market for such books). Filled with natural light and offering a great view of Paris rooftops, the bookstore is coming along with appealing food and beverage offerings, making the entire space a relaxing and engaging place. Whether profitable or not, this type of offering can generate traffic when shrewdly targeted and create the kind of lifestyle experience and ecosystem that consumers are currently looking for.

Being part of the Zeitgeist: cultural prizes and sponsorship

Brands are increasingly embracing culture to be visible to additional groups of consumers and to be a player in the Zeitgeist. Supported by the Loewe Foundation, the brand created a Craft Prize to support international artisans who create objects using materials such as ceramics, metal, leather, textiles, glass, wood, etc. To emphasize its cultural impact, the latest edition of the Loewe Craft Prize award ceremony was held by Fran Lebowitz (a famous New Yorker intellectual leading figure) at the Noguchi Museum in New York at a time when the brand is willing to grow its footprint in the US.

The world of department stores also participates in cultural prizes or acts as a sponsor. In the US, Neiman Marcus has 3 fashion awards which were given to Brunello Cucinelli, Loewe’s artistic director Jonathan Anderson and shoe designer Amina Muaddi. The department store will invest in merchandising, brand marketing and in-store experiences to promote these brands to its customer base. Closer to the IADS, the Manor Cultural Prize offers an opportunity to discover a wide range of emerging artists throughout Switzerland. For more than 40 years, the prize-winning artists have had exhibitions of their work throughout the country.

In terms of sponsorship, in 2022, Galeries Lafayette Group renewed its support for the international contemporary art scene by becoming a partner for emerging art galleries during the first-ever edition of Paris+ by Art Basel. The Group supported and boosted the visibility of 16 galleries and artists. Also, the group runs Lafayette Anticipations, a foundation supporting contemporary creation. The Foundation acts as a catalyser, providing artists with unique conditions to produce, experiment and exhibit their art.

Beyond retail: becoming a cultural ecosystem

Big luxury brands have always had privileged relationships with the art world in many ways, from product offerings (think Yves Saint Laurent’s Van Gogh sunflower jacket and Mondrian dress) to brands sponsoring art institutions (Chanel and Rolex being Paris Opera’s major sponsors) or art museums (Pinault Foundation in Venice and Paris and Louis Vuitton Foundation in Paris). Art and commerce have always been a great match and it’s only growing.

Since December 2022, the Louis Vuitton Dream exhibition is held in their Paris HQ, celebrating 160 years of creative exchanges with artists such as Jeff Koons and Yayoi Kusama. The exhibition includes a curated gift shop and a famous pastry chef restaurant offering logo-stamped cakes. Overall, Louis Vuitton is doing more than ‘only’ transforming into a luxury lifestyle brand: the value proposition is now to dress, eat, drink, sleep (they will open a hotel), and soon read and watch Louis Vuitton. It’s a complete mental ecosystem. And speaking of watching, Kering’s Saint Laurent launched a motion picture production company in 2023 with a first venture financing the latest Pedro Almodovar movie. Also, LVMH’s Loewe entered the world of high-end design with an exhibition held as part of the 2023 Salone del Mobile in Milano: building on their reputation for craftsmanship, they showed different weaving techniques in various materials to reinvent humble chairs. Chairs were sold out in minutes.

In the word of department stores, Flannels is currently rethinking the role of its London flagship store. They opened a new space dubbed Flannels X. Rather than a space designed to sell products, it is meant to become an ever-evolving cultural playground of pop-ups, gigs and exhibitions for cultural creators to exchange and broadcast ideas. On the occasion of Beyoncé’s tour coming to London at the end of May 2023, Flannels X had a pop-up store showing a big part of the Beyoncé x Balmain couture collection for the first time, and also selling merchandise from Beyonce’s Renaissance World Tour. This initiative positions the store at the intersection of luxury and pop culture to offer more experiences and reach younger audiences.

In Hong Kong, on top of their art village, art collection, art space and events, K11 malls launched its Art Foundation, a non-profit organisation dedicated to fostering the development of Chinese contemporary art. Committed to supporting artists and young curators through exhibitions, artist residencies, and educational programmes, the foundation also established partnerships with leading art and cultural institutions around the world, Centre Pompidou in Paris, and the Metropolitan Museum of Art in New York among others.

Since their inception, department stores have always been cultural stakeholders. Their remarkable architecture, the size of the stores, the unprecedented abundance of products and the revolution they initiated in buying and selling made them an essential part of the Zeitgeist.

They lost a bit of their grip over the past decades. While fashion usually is department stores’ main source of revenue, cultural goods and footprint can for sure contribute to improving the shoppers’ journey (if not generate turnover), not to mention how acting as a cultural player can contribute to creating the experiences consumers are looking for.

Credits: IADS (Christine Montard)

Printable version here

ChatGPT constantly made the headlines for the past 9 months and its adoption was massive (it reached 100m monthly active users in January 2023, 2 months after its launch. For comparison, it took 9 months for TikTok and 2,5 years for Instagram to reach the same amount of MAU). However, ChatGPT is just the tip of the iceberg, more precisely a ‘demo’ product showing to the general public the capabilities of Generative AI (a system able to answer queries, or ‘prompts’, after having been trained on large amounts of data, and therefore capable to bring answers which are going further than simply mimicking the data it learnt).

Generative AI has already started to disrupt many industries and retail is no exception. This is the reason why IADS invited Cyrille Vincey, Partner in Advanced Analytics at Bain & Company, to provide IADS member CEOs with more information and give a few examples of use cases in retail.

Cyrille Vincey has been in data science for 25 years in various industries, always obsessed with bridging business matters on one side, with technology and data science on the other.

After having started his career at a software publisher, applying operational research and graph theory approaches to supply chain optimization, he founded a data science startup, later acquired by an e-commerce player. He then took on a CDO role and shipped a large-scale audience-sharing platform used by 8,000 e-retailers.

As a consultant, Cyrille has been working primarily in the retail industry and assisted on most of the tech M&A deals in Europe, including ad tech, digital trust and enterprise software. At Bain, he fosters the next generation of data-enabled consultants and works closely with Open AI in the framework of the Bain x Open AI alliance.

He defines himself as a ‘data nerd’, a ‘tech guy’ who has been in tech entrepreneurship for 25 years and half-jokingly opened his presentation by mentioning that, now that AI is a commercially available product, people like him are not needed anymore, as businesses and organizations now only need software engineers to plug pipes and coordinate the new AI-powered tools available at hand.

Generative AI: landscape and perspectives

What are we talking about?

Generative AI, and large learning language models (LLMs), represent a new paradigm of artificial intelligence, which unlocks advanced capabilities to replicate human capabilities (perceive & understand, communicate & create, reason & plan, act & use tools). For instance, ChatGPT can complete a poem when fed with the beginning of it, based on the probability of the words’ occurrences.

The 2 root causes for this breakthrough are a 2017 research paper from Google describing a new architecture for deep learning models and the fact that IT costs for training this new type of model have been consistently falling for the past 3 years, by a factor of 100 (even though a training iteration for a large company would still cost EUR 20m today, that’s still a bargain when compared to the cost 3 years ago).

Vincey remarked that while OpenAI made a big splash with ChatGPT, the winners of this new arms race might be very well Google and Microsoft, who have the pipelines needed to integrate and scale this tech, make it available to the general public, and disrupt the way companies operate by providing them with new tools.

He also stressed the fact that ChatGPT is just a demo layer of a larger model, GPT, a text-to-text model. There are also other OpenAI products: Co-Pilot (text-to-code), Whisper (speech-to-text), Dall-E2 (text-to-image), Clip (image-to-text). This product portfolio will be questioned in Q4 2023 with the release of a general model proposing a multi-modal convergence (users will be able to use whatever form of input, text, image, speech or code, and to choose the form of the output they want as well). Vincey is convinced that this first general model will encourage the appearance of new applications still unheard of today. For instance, an entire PDF can be analyzed by this new model, and relevant parts can be extracted for use in a specific given context.

An impactful breakthrough in all industries

These new-gen AI-powered tools are fundamentally built with a general purpose in mind, while the previous models (IBM Watson, Einstein…) were built with a specific purpose. Generative AI models can be used out of the box by companies and applied to every internal use case. Therefore, AI innovation projects within organizations now take weeks, if not days, and not 6 months anymore like they used to. This allows industrializing innovation and experimentation with very limited time and costs. Companies who are late in AI-powered decision-making process investments, use Gen AI to leapfrog and do quite advanced things.

Generative AI does not, however, replace the existing quantitative AI-based decision models relying on machine learning and operation research, as it is not, by no means, a one-size-fits-all solution. Instead, it completes them by providing the possibility to bridge the decision taken thanks to the quantitative model, to stakeholders (partners, suppliers, clients, employees…), with adapted context. Gen AI is the ‘last mile’ of the decision-making process. For instance, if a company has invested in a quantitative AI tool to monitor prices and define the best price to be offered, Gen AI will generate ready-to-use pitches for negotiation with suppliers supporting the commercial team in charge.

How does it change business?

The shifts created by the rise of Gen AI have impacted all aspects of businesses and organizations. From a tech perspective, there are no more barriers. Now that AI is a commercial product, in-house development

does not make sense anymore and is not a strategic advantage. The focus now is on the use case play, rather than ensuring that the use cases can be powered. Companies are rushing to find applications for this new capability.

From a general business perspective, all industries are impacted. AI is a mature and business-ready tech, and finding the right way to use it is a competitive advantage, especially in low-margin sectors such are retail. Vincey mentioned that only 1/3 of the use cases developed at Bain are customer-facing solutions, while the remaining 2/3 are backstage efforts on productivity.

Now that tech is just a product that can be bought off the shelf, companies have only one strategic asset: their proprietary data. The urgency is to define the best opportunity how to combine AI products with company data. In that game, companies can either decide to be the first mover or the fast follower. All options are valid.

The impacts in terms of new needed mindset, capability to test, risk and encourage innovation within organizations, are heavily felt and visible. This is why phasing is key:

• The first phase is to develop and deploy Gen AI tools in employee assistance, to save time, limit errors and increase productivity (for instance, to help employees better recommend products to their customers),
• The second phase is to see AI as a co-pilot, proactively making propositions. For instance, AI can manage real-time customer engagement.
• The third phase is to consider full automation. Carrefour’s new chatbot takes over the relationship between the e-commerce website and the customer.

A tectonic shift in retail and for department stores

There are 4 current archetypes across industries on how Gen AI is used:

• Content generation, including images and assets. Coca-Cola now uses a platform based on GPT-4 and DALL-E to create artwork based on company archives and A/B test them at scale (millions of copies are created and tested automatically, vs. 2 in the past, which were developed by a third party). Carrefour uses Gen AI to deal with product data management (product descriptions).
• Advanced analytics, such as a predictive NPS based on conversations. Morgan Stanley has developed a model to help their advisors with AI ‘listening’ to their conversations and making product suggestions in real-time.
• Personalized chatbots, such as Carrefour which has developed a conversational grocery shopping chatbot, are able to make recipe proposals according to customers’ needs, adjust them and propose a full cart of

products needed to make such meals.

• Information retrieval, where syntheses are generated from unstructured data. Salesforce is developing a tool which generates AI-powered content for CRM across the data available in all Salesforce clouds. The Carrefour case perfectly illustrates the capability offered by Gen AI to leapfrog and quickly implement new services and usages: the chatbot, addressing a website with 15m MAUs, has been developed in 6 weeks between kickoff and going live. It can propose a list of menus according to the dietary requirements of the customer, adjust them, and suggest a shopping cart with the right quantity of ingredients needed, in a given budget. Only 10% of the whole development needed specific information from Carrefour, the rest came from the learning capabilities of GPT.

Where in the value chain Gen AI can impact retail?

The answer is simple: everywhere, both in customer-facing operations and backstage.

• In the outreach part, marketing is enhanced with tailor-made propositions customized at scale, which in turn provide the company with a smart view of the customer (for instance, Carrefour has now access to the

customer’s decision-making process easily as it can monitor it in real-time thanks to the client’s interactions with the chatbot), while, in terms of internal processes, Gen AI can help in RFP creation, vendors communications and negotiations, as well as category recommendations.

• In the “decide & buy” part, Gen AI impacts personalized targeting, product information (which is dynamically managed), checkout & payment, and customer service. It also impacts operations (employee enablement,

report generation, product design…) and HR.

• In the “receive & return” part, AI can help with the delivery scheduling and tracking, and provide help with returns, which are also more easily processed internally.
• Finally, in the” use” part, AI impacts customer connectivity and loyalty, and efficiency.

For Vincey, the impact of Gen AI is virtually unlimited. Some tests have been made on the supply part of Carrefour’s business, and GPT proved able to analyze and score RFPs on a quantitative and qualitative basis and recommend modifications that proved correct to buyers.

Bain noted from their own experiences with their customers that the productivity gain is on average +30% in the back office with the use of Gen AI.

Reimagining product categories and customer experiences

For department stores interested in beauty and fashion, he mentioned that Gen AI was specially adapted to 5 main use cases:

• Marketing campaign booster,
• Website content optimization,
• Community management,
• In-app beauty coaching,
• In-store beauty advisor personal assistant for salespersons

When it comes to customer experience exemplifications, Vincey showed a few demos of actual use cases:

• The US-based insurance company USAA uses a combination of GPT and DALL-E to create dozens of personalized ad copies according to a specific customer profile and a problematic, and A/B test them at scale,
• Adidas uses GPT in social media, where Gen AI makes proposals of answers to be sent to customer comments, in order to generate interaction,
• USAA uses GPT in up-sale and cross-sale with the analysis of credit card history, it can make mass-personalized emails (that can be also tweaked with external information) to be sent to customers.

*How can retailers move forward?

As of now, there are three ways for companies to address the challenges and opportunities created by Gen AI:

• Some decide to go into a full 360° transformation journey, based on a leap of faith, and the purpose is to go fast in the transformation in order to reap market share and reduce the cost of operations. This is the case with Coca-Cola or Carrefour.
• Some see Gen AI as a use case acceleration and adopt a test & learn approach with 1 to 2 use cases, which are developed and implemented quickly, to prove out the opportunity and identify the requirements for scale. This bottom-up strategy allows them to act and then strategize.
• Finally, some companies are voluntarily slower in their approach and decide to identify the value at stake by looking at their most critical use cases opportunities compared to their business strategy, and then implement those projects with a top-down approach.*

Whatever the option is chosen, no retailer has the choice to ignore what is going on now with AI, as the risk would be to be left on the side of the road. The change is equivalent to the 1990s when PCs and Internet invaded office spaces, with the difference that this change took place in 10 years, whereas now the timeframe for adaptation is much more reduced. For instance, at Bain, the technology component of the organization involves 1,500 technologists, including 400 data scientists, of which 150 specialized in text mining and analytics. In the course of only one year, these 150 people got rid of their in-house toolbox of natural language processing techniques, and now exclusively use GPT. The disruption in the consulting field is huge, and retail should expect a similar shift.

Vincey also reminded the audience that Gen AI is a great way to catch up with big tech as the leverage effect can be huge, not only in terms of business approach or organizational processes but also in terms of company mindset. It is all about granting the right to the teams to innovate, test and learn, sometimes at the risk of making mistakes.

For that reason, change can only happen if CEOs show the way and encourage such behaviour, if these tests do not take place in the mission-critical part of the business.

Credits: IADS (Selvane Mohandas du Ménil)

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Europe is on a mission to become the world’s first climate-neutral continent by 2050, but this is not a small feat. To achieve such a status, the EU is having to crack down on the way businesses are run and how people conduct their everyday lives in Europe. As a way to reduce the environmental impact caused by retailers, the European Union has started to define and impose new regulations that retailers must comply with. These directives are coming in waves and impacting certain players differently than others, thus raising questions and needing clarification. There are many of these sustainability regulations already in effect, but they are continuing to develop and become more stringent as the EU strives to become more sustainable and environmentally conscious, especially as it seeks to lead the world on the road to a more sustainable future.

Rules, regulations, and directives...the next wave of change

The number of directives, regulations, and reporting standards are multiplying faster than businesses and retailers can keep up. All of these codes are being set up to tackle ways to reverse the damage done by businesses with large value chains that touch various corners of the world. Overall, the objective is to ensure that there is visibility of their operational impacts and measurable metrics that can be used to benchmark and improve. While the number of regulations are many, and often they are being continuously rewritten and replaced as things evolve, IADS members have shared a few key ones that are already impacting their decision-making and investment processes.

The Corporate Sustainability Reporting Directive (CSRD) forces companies to publicly disclose detailed and transparent information on how sustainability issues affect their own business (covering Scope 1 and 2 emissions) and what impacts a business has on people and the environment (covering Scope 3 emissions). To achieve the latter, CSRD will soon require a double materiality assessment which identifies all potential negative and positive impacts connected with the company’s operations and value chain. CSRD aims to create a standard framework for companies to report on their sustainability efforts, thus enabling investors and stakeholders to make informed decisions about investing in sustainable businesses. The CSRD encourages companies to reduce their environmental footprint and contribute to the EU’s green economy.

The EU Deforestation-Free Regulation (EURD) was adopted to ensure that companies curb the impact their operations have on deforestation as well as protect indigenous people’s rights. This regulation mandates extensive due diligence on the value chain for all operators and traders dealing with products derived from cattle, cocoa, coffee, palm oil, rubber, soy, and wood. Risk assessments will have to include a broad view of whether the goods were produced in compliance with relevant local laws and with the informed consent of indigenous people. As the EURD requires a lot of communication and collaboration around the world with remote communities, it will be challenging to achieve compliance without the proper traceability tools (which are not mature yet).

The EU Green Claims Directive aims to set rules on how companies can market their environmental impacts and performance in order to eliminate misleading environmental messaging. As department stores pull together various brands and labels in one marketplace, it is very difficult for them to ensure there are zero misleading claims on the products across all their categories. This directive might eventually require retailers to educate and set their own guidelines for the brands in their stores.

The silver lining: sustainability regulations also present opportunities

Despite the uneasiness that new regulations can bring thanks to the many unknowns and new boundaries set, there are still many ways that businesses can play these new standards to their advantage. There are three main areas of opportunity with the upcoming sustainability regulations that are going into effect: innovation, collaboration, and financial opportunities.

First of all, in order to meet the new guidelines and reporting standards that require traceability and tracking of Scope 3 GHG emissions for benchmarking, there will need to be a lot of innovation. Retail supply chains are disjointed and will require a complete overhaul in order to be able to achieve what these new regulations set out to control.  Unfortunately, this means that the number of solutions and ‘quick fixes’ are multiplying, making it difficult for impacted businesses such as retailers to sift through the noise to understand which tools to adopt and which processes to invest in. While this may seem unclear at the moment, there will be a time when a winning solution will emerge, and it will probably be thanks to a successful use case from a player such as a mega-retailer.

Secondly, department stores and other types of legacy businesses will need to rely on communication and learning from each other's successes and failures in order for the industry to make advancements in these uncharted waters. Collaboration is the next key opportunity to help the industry grow and develop. With the current regulatory landscape, compliance is not simply black and white. Therefore, all businesses need to come together to work towards a common standard which can hold retail adjacent stakeholders accountable for their business practices to ensure everyone is on an even playing field in the journey to advancement. The road to achieving such a standard seems daunting, but there are coalitions and associations such as the Sustainable Apparel Coalition and Amfori that are leading the way in how such benchmarking can be achieved. It is not perfect, but it is an important first step in regard to setting the foundation for collaboration among all players in the retail value chain.

The third major opportunity that retailers should jump on is financial opportunities thanks to low-interest government loans that are being issued to help businesses make their operations more efficient which in turn makes them more sustainable. This kind of financing can allow retailers to significantly reduce energy consumption, leading to lower utility bills and an improved property value. Such investment plans are also key to innovation as technology plays a large role in operation efficiency, therefore the loan can also support digital transformation milestones.  Some IADS members have already taken advantage of such opportunities and found that it is a great way to get the C-Suite on board as it is an opportunity to invest in the business while also meeting regulatory requirements.

As new opportunities emerge, it is important to act now

Overall, the problem that retailers are facing is that regulation is moving faster than technology at this point. This means retailers are having to scramble and rely on piecing together data from various sources and tools in order to come up with the right information to put on their non-financial sustainability reports. Since the regulatory landscape is moving at such a fast pace, it is important for retailers to stay on track, or even better, get ahead of the curve.

A number of IADS members have found that addressing regulatory requirements before they go into effect has been a great strategy to ease the process. For example, CSRD does not require double materiality assessments until 2024, but some IADS members have already started to conduct this evaluation to be sure that the business runs smoothly in the coming year. Acting in advance has also helped ease their minds as the process was much easier than anticipated and they can now focus on ’business as usual’ projects rather than chasing after being compliant.

It is no secret that keeping up with and complying with regulations is extremely complex, but some members have noted that it is especially helpful to build a relationship with EuroCommerce, a retail and wholesale association that informs their members about EU policy and legislation, among other things. This highlights yet again the importance and need for collaboration across industry players.

Conclusion: there is a such thing as first-mover advantage

What is the lesson learned? We continue to echo our latest White Paper ‘Reinventing department stores through sustainability’ in saying that the most important step is to get started and get started now. It is important to recognize that there is no clear path to take, but the longer businesses wait to tackle the new regulations, the harder and more expensive it will be to transition the business.

*Department stores should use these sustainability regulations as ways to make their core business more efficient while taking advantage of government handouts such as low-interest loans, especially while there is still a bit of flexibility in how activities are regulated. It is also key to start building collaborative relationships with all players to not get left out of the important conversations and decisions as to where the industry goes next.

In the retail sustainability landscape, it pays to be a first mover.*

Credits: IADS (Mary Jane Shea)

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IADS recently held a meeting all about the Women's Fashion brands to look out for in 2023. Based on market research, IADS and NellyRodi presented a curated selection of 15 brands that are trending right now.

Check out our selection of these brands, and the pictures, by clicking the button below!

Explore The brands and pictures here

OUTDOOR

ECOALF

Ecoalf is a new-era brand the is pioneering ethical fashion by producing clothes made from plastic waste found in the ocean. Their clothes are made for surfing, yoga, pilates, running, cycling and post-workout.

Check out the ECOALF website here

CHECK OUT THE ECOALF INSTAGRAM

ROA HIKING

ROA employs crossover, experimental techniques to shape a product that reflects a hybrid attitude towards the landscapes. ROA takes the sportswear attitude and applies it to outdoor footwear. The brand exalts the

values of functionality through the use of avant-garde materials and construction techniques of performance derivation.

Check out the ROA HIKING website here

check out the ROA HIKING instagram here

ALK PHENIX

A new era of functional fashion. The brand produces Japanese minimalist style products that combine functional materials to create its own technical materials. Innovation and an adventurous philosophy are at the centre of the brand.

Check out the Alk Phenix website here

check out the Alk Phenix instagram here

MATEK

With an atypical aesthetic and style, Matek creates clothes for skiing and snowboarding. The brand has a unique combination of fashion-forward designs and functional performance. Products ensure protection, comfort and mobility even in harsh weather conditions.

Check out thematek website here

Check out the matek instagram here

ACTIVEWEAR

RAPHA

Renowned for its stylish and refined designs that combine style and functionality in its cycling apparel and accessories. Technical innovations are embedded into its products, such as breathable fabrics, ergonomic cuts and reflective detail to enhance comfort and cyclist safety.

Check out the RAPHA Website Here 

check out the rapha instagram here

GIRLFRIEND COLLECTIVE

Known for its body and sporty positive brand attitude. Each pair of leggings are made from approximately 25 recycled plastic bottles. The brand prioritises transparency regarding its supply chain and offers inclusive sizing options promoting body positivity and inclusivity.

check out the GIRLFRIEND COLLECTIVE website here 

check out the GIRLFRIEND COLLECTIVE instagram here

UNRUN

Activewear made by Olympic champions. Effortlessly cool, versatile and edgy products available in a full range of colours. Unrun also has curated a strong community of feminine athletes.

check out the unrun website here 

check out the unrun instagram here

CARDO PARIS

Luxury and premium poolwear brand. Products are an extension of the poolwear style territory into more fashionable and casual products: sophisticated skirts.

check out the cardo paris website here

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ATHLEISURE

VAARA

Contemporary wardrobe tailored to the active body that exudes comfort and elegance. Products are versatile and made with fine materials that are soft and recycled.

Check out the vaara website here

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NINEPINE

Swedish brand that produces minimal, aesthetic and technical activewear made out of organic cotton. Clothes are versatile and can be worn both to do sport or relax in the city for any occasion.

Check out the ninepine website here 

CHECK OUT THE ninepine instagram here

7 DAYS ACTIVE

Versatile athletic clothing made of organic cotton. Product design is technical and stylish with bold colours and cuts, graphic prints and retro aesthetics. The brand motto is to inspire individual stories of motion.

CHECK OUT THE 7 days active WEBSITE HERE

CHECK OUT 7 days active INSTAGRAM HERE

COLORFUL STANDARD

Products made in Portugal out of organic cotton and merino wool. The brand embraces an eco-responsible approach to creating sportswear essentials with neat cuts and a wide range of colours.

check out the colorful standard website here

Check out the colorful standard instagram here

TECH-IPMENTS

STARCK X BALISTON

Baliston by Starck is the first collection of AI-augmented shoes to capture biometric data straight from your feet. It is made with just five materials: castor bean yarn, sugarcane, organic cotton, natural rubber and recycled plastic.

Check out the STARCK X BALISTON website here

check out the STARCK X BALISTON instagram here

SUNNTO

World renowned sports watches that are high quality with advanced featured, making them popular among outdoor enthusiasts and professional athletes. The watches are equipped with GPS navigation, heart rate monitoring and activity tracking.

check out the sunnto website here

check out the sunnto instagram here

COWBOY

An electric bike made for urban riders with a sleek design and connectivity capabilities. Each bike is outfitted with its electric motor enabling riders to travel longer distances or tougher terrain with minimal effort.

check out the cowboy website here

check out the cowboy instagram here

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IADS recently held a meeting all about the cosmetics, beauty and wellness brands to look out for in 2023. Based on market research, IADS and NellyRodi presented a curated selection of 10 brands that are trending right now.

Check out our selection of these brands, and the pictures, by clicking the button below!

explore the brands and pictures here

SKINCARE

TOPICALS

Topicals is skincare designed for flare ups. The effective, science-backed formulas address specific skin problems such as hyperpigmentation and eczema. The brand creates an inclusive environment by representing imperfect skin and designing their products to support every skin type and shade.

Check out the TOPICAL website here

CHECK OUT THE TOPICAL INSTAGRAM

DIEUX

Dieux is a clinically vetted skincare company that wants its consumers to know exactly what they are buying and how it works. Their products are rooted in science, price transparent, and responsibly sourced. .

Check out the Dieux website here

check out the Dieux instagram here

HERBAR

Berlin-based skincare brand, Herbar, takes a holistic approach to beauty that values plants and their benefits for skin, mood, and health. Using fauna, flora, and fungi-only formulations the brand champions sustainable beauty and the establishment of a responsible and transparent production and harvesting system.

Check out the HERBAR website here

check out the HERBAR instagram here

MAKEUP

YOUTHFORIA

Youthforia is a clean and sustainable makeup brand that creates makeup that acts like skincare. The brand has innovative and playful makeup that customers are able to sleep in thanks to its high quality, unique formulas.

Check out the YOUTHFORIA Website Here 

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ECLO

Eclo is formulated from vegan, organic, 100% natural ingredients that mostly come from regenerative agriculture. Their product range includes blushes, foundations, eye shadows, and lipsticks that come in compostable packaging. Not oly are their products good for the planet, but they are also good for the skin.

check out the Eclo website here 

check out the Eclo instagram here

19/99

19/99 is creating a new narrative in the beauty industry where individuals can define their own image of beauty. The brand has multi-use essentials that are easy to use, designed for people of all ages, and made with clean ingredients

check out the 19/99 website here 

check out the 19/99 instagram here

HAIR

OWAY

Oway uses naturally derived solutions for a variety of hair solutions. Their concentrated and multisensory hair and scalp products are rich in active ingredients and formulated according to the brand’s agrocosmetica principles which are put in place to improve the wellbeing of the Earth and others.

Check out the OWay website here

Check out the oway instagram here

PERFUME

NONFICTION

This lifestyle beauty brand sells products that offer moments of intimate well-being on a daily basis. They encourage customers to reset, refresh, and create a space for self. All products are formulated with high-quality and carefully curated ingredients to create unique scents that are inspired by natural environments, and the cultural traditions and lifestyle of Korea.

Check out the NONFICTION website here 

CHECK OUT THE NONFICTION instagram here

THE NUE CO.

The Nue Co. is an interhealth brand that is bridging the gap between health and the environment. With sustainability at the root of everything they do, Nue Co. is pro-science, pro-clean, and pro-planet. They are on a mission to redefin supplements, but also sell functional fragrances that have scents with proven efficacy on the body and mind, as well as skin and haircare products.

CHECK OUT THE NUE CO. WEBSITE HERE

CHECK OUT THE NUE CO. INSTAGRAM HERE

OTHER CATEGORIES

GESKE

Geske is a Germany beauty tool brand that is launching soon. They offer a wide range of multifunctional beauty tech tools at an affordable pricepoint that are designed with dermatoligists and aesthetic doctors. Additionally, the tools offer a personalized experience as they connect to the brand’s smartphone application.

Check out the GESKE website here

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IADS recently held a meeting on the home and decor sector. Based on market research, NellyRodi and The Style Pulse presented the most innovative brands from different segments in home and decor including furniture, tableware, decor, home appliances and electronics. The presentations had a large focus on tableware as it is the top-performing segment in home and decor at the moment.

Check out our selection of these brands and the pictures by clicking the button below!

explore the brands and pictures here

FURNITURE

MAISON DADA

Created in Shanghai, Maison Dada creates products that are bold, playful and daring. The brand fuses ancestral Asian influences, such as lacquer and ceramics, with a modern and colourful style to produce decorative furniture inspired by Surrealism.

Check out the Maison Dada website here

CHECK OUT Maison Dada's INSTAGRAM

HOUTIQUE

Houtique is a furniture and lighting editor that defines itself as a design incubator. Several designers work together to create its bohemian, colourful and joyful aesthetic. Products are subtly inspired by nature.

Check out the Houtique website here

check out the Houtique instagram here

POPUS

Popus furniture utilises vibrant colours, vintage prints and elegant materials. They allow customers to compose their own furniture with the opportunity to choose colours, fabrics and patterns.

Check out the Popus website here

check out the Popus instagram here

TABLEWARE

STUDIO ARHOJ

Fusing together Scandinavian and Japanese minimalism, Arhoj offers handcrafted creations made with passion. Designed to enhance the functional aspect of tableware, each product is hand-made and hand-decorated in Copenhagen.

Check out the Studio arhoj Website Here 

check out the studio arhoj instagram here

LA DOUBLE J

The Milanese brand offers its tableware line that consists of vintage patterned plates and maximalist ceramics and linens. The brand edits the very best of Italy and what was originally a shoppable magazine selling vintage clothing and jewellery, became a full lifestyle label now offering its own fashion and tableware.

check out the La double j website here 

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MARIE DAAGE

Marie Daâge creates elegant and modern tableware to make every table a work of art. Each piece of porcelain is hand-painted and custom-made in local workshops, making it the haute couture of the table. The brand is an ode to the French art of living.

check out the Marie Daâge website here 

check out the Marie Daâge instagram here

ARTSENIAS DEL ATLANTICO

A collection of handcrafted pieces made by craftsmen in Colombia. Products are 100% made with local raw materials and artisan labour. They offer tableware, trays, placemats and more.

check out the Artsenias del Atlantico website here

Check out the Artsenias del Atlantico instagram here

MAISON FRAGILE

Maison Fragile produces porcelain tableware, made in France. The brand seeks to re-enchant the French art of living and the labour process consists of fifteen steps to make every piece. Maison Fragile has partnered with prestigious Michelin-starred chefs and the Élysée Palace.

check out the maison fragile website here

check out the maison fragile instagram here

MINVAL LIVING

Sophisticated pieces with sleek designs and elegant curves inspired by the art of the table of medieval monarchies. Minval uses noble and luxurious materials such as silver and marble to give tables a sense of royalty.

check out the minval living website here

check out the minval living instagram here

DECOR

ANNA + NINA

Anna + Nina use colourful designs to bring joy to interiors. The founders use inspiration from their travels to Bali and Thailand to bring rich colours and complex patterns into everyday life. The brand values every step of creation, from the manufacturing process to design to ensure all collections are made with love and attention.

Check out the anna + nina website here

Check out the anna + nina instagram here

PAPERMINT

Produced in Paris, France, Papermint offers made-to-measure and customisable wallpaper. The brand values creativity and explores all types of styles.

Check out the papermint website here 

check out the papermint instagram here

MATTINA MODERNA

Matina Moderna creates colourful lamps that bring life into every interior. Each lamp is handcrafted and hand-painted by a ceramist in Portugal and crafted in France by an artisan. The brand is a mother-daughter project and every product is one-of-a-kind.

check out the mattina moderna website here

check out the mattina moderna instagram here

ARETI

Areti is a collaboration of Swedish and German craftsmen to produce high-quality furniture and lighting. Areti values elegant and simple shapes and lines.

check out the areti website here

check out the areti instagram here

HOME APPLIANCES

STEAMERY

Steamery is a Scandinavian textile care brand. They make clothing care products such as steamers, fabric shavers and clothing brushes. On a grand scale, Steamery aims to slow down unsustainable processes and inspire a slow fashion lifestyle.

Check out the sTEAMERY website here 

CHECK OUT THE STEAMERY instagram here

ELECTRONICS

AMIBOT TECH

Amibot offers different types of robots adapted to the needs of every individual, ranging from vacuums to window cleaners. The brand is committed to local and eco-responsible production and all robotic vacuums are recyclable.

Check out the AMIBOT TECH website here

CHECK OUT THE AMIBOT TECH INSTAGRAM HERE

TRANSPARENT SPEAKER

The Swedish brand has made an innovative and differentiating design with a commitment to product circularity - all of its modules are forever upgradeable. They aspire to be the first circular tech brand and firmly believe that companies are responsible for removing electronic waste from the world.

Check out the transparent speaker website here

check out the transparent speaker instagram here

PRINTABLE VERSION HERE

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

Check out our selection of these brands, and the pictures, by clicking the button below!

Explore the brands and pictures here

FORMAL WEAR

RECTO

Recto is named for the right hand page of a book, alluding to what is yet tobe written. The word is formal and neutral, which is reflective of the brandsidentity. The RECTO label focuses on sleek staples with neurtral tones,making the pieces ideal for a minimalist or capsule wardrobe.

Check out the Recto website here

CHECK OUT recto's INSTAGRAM

TOVE

Tove curates a collection of elevated feminine pieces that transcendseasons and transition easily between occasions. They set out to create aminimal and refined wardrobe for the modern woman using expertcraftsmanship and luxury fabrics that are of the finest quality, natural,organic, and recylced with environmental and social certifications.

Check out the tove website here

check out the tove instagram here

THE GARMENT

The Garment is founded by a duo who have been inspired across decadesand have a deep affection for vintage garments. This can be seen in theirpieces which feature impeccable knitwear and precise tailoring in achromatic palette balanced between gray, white, and black. They focus onmaking beautiful garments in a more responsible manner through sharingtheir fabric and garment makers, offsetting CO2 emissions, and usingresponsible fabrics.

Check out the garment website here

check out the garment instagram here

DAILY WEAR

ALÉMAIS

ALEMAIS is a contemporary band that focuses on artisanal techniqueswhile respecting traditional craft. They use natural, durable and organicfibres to create unique pieces with fun and colorful prints.

Check out the alemais Website Here 

check out the alemais instagram here

7115 BY SZEKY

7115 is a design studio founded in New York City with a focus on creating an artful and robust wardrobe. They create classic and timeless pieces with a minimal and raw aesthetic in a neutral color palette. With each piece being expertly crafted and tailored, the brand aims to provide functionable and comfortable clothing that will last for years to come.

check out the 7115 BY SZEKY website here 

check out the 7115 BY SZEKY instagram here

TRENDY / CONTEMPORARY WEAR

PALOMA WOOL

This Barcelona-born brand is inspired freely by the act of getting dressed. Paloma Wool blends notions of community with artisanal qualities and a distinctly elemental aesthetic inspired by land and cityscape. Pieces are locally produced and often desgined in collaboration with local artists.

Check out the Paloma wool website here

Check out the paloma wool instagram here

ESTHÉ CLOTHING

ESTHE is a contemporary fashion brand based in Greece with a curated range of unique pieces. The brand is committed to sustainable practices and invests in local communities. Their pieces are feminine and relaxed, featuring nique pleating techniques, sophisticated shapes and dynamic textures.

Check out the esthe website here 

check out the esthe instagram here

INNOVATIVE WEAR

PH5

An advanced contemporary women's brand that aims to to inspire people to completely rethink knitwear and tell the world that knitwear is more than just a winter fabric. The brand leans towards edgy with a touch of feminitiy, combining whimsical designs with architectural dimensions of knitting techniques and even features UV reactive pieces.

Check out the PH5 website here 

CHECK OUT THE PH5 instagram here

OCCASION WEAR

MINUIT

MINUIT is a combination of industrial NYC, classic Paris, androgynefeminine, past and future. Their pieces are minialmist and sophisticated, with a delicate and feminine approach. With pieces that are full of texutre and functional, the creators share their love of art and architecture through their clothing.

Check out the MINUIT website here

CHECK OUT THE minuit HERE

MIRROR PALAIS

Mirror Palais is an NYC-based brand most known for its dresses which arevintage inspired, delicate, plafyul, and feminine. The brand features piecesthat are lingere-inspired and unique yet timeless.

Check out the Mirror palais website here

check out the mirror palais instagram here

CHRISTOPHER ESBER

Christopher Esber is an Australian designer who has built a globalreputation for contemporary tailoring with a sophisticated approach. Hiscollections are innovative and radiate confidence with elegance,minimalism, and laid back sensuality.

Check out the CHRISTOPHER ESBER website here

Check out the CHRISTOPHER ESBER instagram here

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The IADS attended the 2023 edition of the Global Fashion Summit which took place from June 27th to the 28th in Copenhagen. This year’s theme was “ambition to action” and was an opportunity for industry leaders and professionals to share their knowledge, tools and experience to help shift the industry from vague aspiration towards concrete implementation to achieve a net-positive industry.

The overall tone of the summit was rather ominous - the clock is ticking, as 2025 sustainability targets are approaching quickly and seem unachievable, 2030 targets are the new focus as the global climate emergency becomes more pressing, and the fashion industry is not moving fast enough. In efforts to push the industry forward, the conference was an opportunity for industry leaders to share actionable case studies, step-by-step guides and conversations aimed to simplify complex topics. The IADS highlights the key takeaways and important resources for our members below.

Collaboration is key

The topic of collaboration when it comes to sustainability is nothing new as the industry has already established that working together is vital in order to see real progress. The crown princess of Denmark opened the first day of the summit and urged the industry to “work together locally and globally.”

Efforts to collaborate across the industry have already been established in recent years, one of the most notable initiatives being The Fashion Pact. Eva von Avensleben, Executive Director and Secretary General of The Fashion Pact, highlighted the importance of adopting unified methods and fostering a collaborative mindset throughout the entire value chain. She stated, “This means we need to include all stakeholders in conversations from suppliers and manufacturers to retailers and brands.”

Conversations regarding the inclusion of all voices from the value chain were a major talking point across both days. Hakan Karaosman, Professor at Cardiff University described supply chains as social economical ecosystems and explained how supply chains and social justice go hand in hand. In his talk, he further discussed how inclusive decision-making from retailers, suppliers and supply chain workers is vital in order to achieve a just transition in decarbonising the supply chain and an overall more sustainable and equitable industry.

Strategic partnerships were also showcased heavily throughout the summit. Integrated logistics company, Maersk, joined Puma and H&M on stage to display the ways in which these alliances have helped reduce scope 2 and scope 3 emissions by making shipping and transport logistics more efficient. Thomas Liske, Global Director of Puma, shared that even though its increase in transport efficiency would cause Maersk a 10% decrease in its business, Maersk has adopted a bigger picture vision for the industry and showed its commitment to long-term goals when it comes to its sustainability promises. For H&M, finding relevant partners, as they did with Maersk, who aligned with their goals was a necessity on the greater sustainability journey to see true progress.

Other industry alliances have come together to promote circularity and transparency, such as the Vestiaire Collective, Chloé and EON collaboration. The alliance announced earlier this year, that the Chloé Vertical initiative sets to roll out EON-powered Digital IDs for each Chloé product including ready-to-wear, bags and shoes. The Digital ID allows consumers to access information regarding the product and material, assistance for repairs and resale options with Vestiaire Collective. The initiative is an industry first, and in doing so Chloé is making resale easier for customers while also offering them the opportunity to make informed decisions about the transparency, traceability and circularity of their products.

On a wider scale, LVMH’s Antoine Arnault called for a luxury-specific sustainability pact to create a space that allows actors in the luxury sector to aggregate together to exchange best practices, share suppliers and more. He believes that if the luxury sector wants to see meaningful change when it comes to sustainability, coming together – even as competitors – as necessary.

LVMH wasn’t the only one offering an olive branch to competitors in an effort to work collaboratively. Allbirds unveiled their zero-carbon shoe, "M0.0NSHOT", along with an online toolkit, "Recipe B0.0K", which provides detailed information about the shoe's creation process to allow other businesses and rivals to draw inspiration to make their own sustainable products.

Crafting the narrative: How to communicate around sustainability

Setting targets and shifting business operations to achieve a sustainable business model is only one piece of the puzzle, and retailers and brands are now considering what the best practices are when it comes to communicating their sustainability efforts to consumers. In today’s world, taking a stand on sustainability is no longer a nice-to-have, but rather a necessity, and green hushing, when organisations stay silent regarding their sustainability efforts in an effort to avoid greenwashing accusations, is no longer acceptable.

In a talk titled ‘What comes next for communicating sustainability?’, the panelists discuss the ways organisations can properly communicate this complex topic to their consumers effectively. The impacts of greenwashing are damaging, and consumers are pushing back on greenwashing claims and are demanding to be informed by retailers.

According to Shakaila Forbes-Bell, Founder of Fashion is Psychology, consumers do not want brands flooding them with information and policies, but rather they want accurate information allowing them to be well-informed. Furthermore, she states that consumers desire the power to make informed decisions and require positive reinforcement that they are making good decisions by choosing sustainable products, and retailers who provide positive reinforcement can differentiate themselves from the competition in the eyes of the consumer.

When it comes to avoiding sharing misleading information, the panellists urged retailers that they ensure their statements are science-based and must include accurate and robust data in order to substantiate their claims.

Other panellists reiterated the importance that businesses should not treat sustainability as a marketing trend and instead need to make a commitment to make sustainability marketing systemic and to avoid getting caught in the cyclical marketing trends.

To further help businesses communicate around their sustainability efforts and actions, the United Nations Environment Programme (UNEP) and the UN Climate Change launched The Sustainable Fashion Communication Playbook, a guide designed to outline how to align fashion communication with global climate goals. It offers actionable frameworks for communicators to counter misinformation and greenwashing, reduce messaging the perpetuates overconsumption, redirect aspiration to more sustainable lifestyles and empowers consumers in their role as citizens to demand greater action from businesses and policymakers.

UNEP also presented The Eight Principles for Sustainable Fashion Communication, which includes a list of dos and don’ts, checklists and case studies for communicators to reference.

Resources like the ones provided by UNEP are key as the era of superficial sustainability claims and unethical practices are nearing its end as policies will compel companies to take full responsibility and accountability.

Regulation and profitability: An age-old question

The industry is subject to regulation coming down the pipeline, especially in Europe. The conference featured various conversations on policy, attempting to make complex regulations easier to understand.

What was of consensus, however, was that regulation is needed – the fashion industry will not change unless this happens. So now the industry acknowledges that regulation is needed what next?

Many businesses are struggling with the incoming regulations as there is a huge lack of resources. Not all brands and retailers have equal access to resources and businesses are operating in different countries with different policies coming from all directions, and many are finding it hard to stay afloat, unless they are a big industry player that has ample access to resources. So, what could help mend this unequal playing field and lack of resources? Harmonisation from policymakers can help, but a vital resource that many businesses need for survival is money. Investment and cash flow will be necessary for businesses to keep their heads above water as the slew of regulations ensues.

For brands and retailers, in a talk titled, ‘The Race to Net Zero: Decarbonising the Supply Chain’, panellists emphasised the importance of investing in tools that help measure sustainability efforts. For example, Marks & Spencer and Target are harnessing impact intelligence platform, Worldly, that delivers data specific to supply chain, products and operations to help retailers improve its product sourcing, carbon footprint and more. James Schaffer, Chief Strategy Officer at Worldly, discussed how platforms like Worldly can be the key needed to help the industry close the data gap by providing data, and in turn, insights.

We have also rounded up a selection of interesting startups that may be worth investing in for our members to support their path to sustainability:

• Carbonfact: Scalable life-cycle assessments to help brands and retailers lower their carbon emissions.
• IDFactory: End-to-end global supply chain traceability solution made to address the following challenges: lack of traceability, lack of transparency, supply chain disruption risk and supply chain sustainability risk.
• Reverse Resources: SaaS platform to match textile waste with the best possible recycling solutions, enable predictive transparency and build data-driven supply chains.
• Retraced: Platform that supports fashion and textile companies to digitise and trace their supply chains, efficiently manage their compliance data and gain full transparency down to the raw materials.

Conclusion

While we have seen little pockets of progress over recent years when it comes to sustainability, it is safe to say that the fashion industry is not moving fast enough. The overall mood of the conference was somewhat ominous as business leaders feel the pressure of facing crack-down regulations in the EU. While regulation is needed to see real progress and change, the transition to comply is no easy feat for businesses as they try to remain profitable.

2022 White Paper

Credits: IADS (Kaitlyn Lim)

DE PRATI STORE PICTURES

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Following the IADS CEO meeting in Mexico City last May, where IADS members were able to visit the latest developments in El Palacio de Hierro’s flagships (Coyoacan, Polanco and Perisur), the IADS had the opportunity to travel to Ecuador to discover the De Prati stores. The purpose was to understand more about the market, the company and the vision of the CEO, Priscilla Altamirano.

A rather small country when compared to its neighbours (Colombia and Peru), Ecuador is classified as an upper-middle-income country, with a developing economy dependent on exports (agricultural products, oil). The country regularly topped the South American GDP growth charts in the 00s and even ranked the second most performing country in 2022. Since 1999, extreme poverty decreased significantly, and employment increased, fueling the growth of the middle class which aspired to consume.

De Prati, which was founded in 1940 in Guayaquil, the trading centre of the country, managed to fulfil these needs, becoming the largest department store company in the country, with 16 stores and an e-commerce website. Unlike its European counterparts, which had available resources to learn from each other and innovate (thanks to organizations such as the IADS, but also through a vast array of suppliers and brands, and the lack of regulation at the time which allowed unrestricted data exchange), De Prati, while always being the leader in the country, had to invent each step of its development by itself, by developing in-house what was needed and finding solutions on its own.

The result is a company that has been posting an average EBIT margin of 20% and a net profit margin of anywhere between 13 and 15% for the last decade, with a much-loved retailer brand and strong social involvement. This is not too bad for a business that has developed almost in a closed circuit, which makes it an interesting use case to review the company’s competitive advantages, as well as the stores that we visited.

Company history and background

De Prati was founded in 1940 by Italian entrepreneur Mario De Prati and his wife Domenica Cavanna, as a fabric store, which later also included homeware and tableware. After a fire destroyed the initial location, the first department store per se opened in 1951 in Luque Street, in Guayaquil, a location still in operation today. The company was a pioneer in many ways: it introduced the first payment card in the country, Credito De Prati, in 1968, the first national private label business in 1973, with local production, and the first Ecuadorian e-commerce website in 2007 (the website had already been launched in 2002).

The Credito de Prati card proved instrumental in establishing De Prati as a leader in the market, as it allowed it to capture and retain a significant share of the clientele who has access, in addition to credit, to special offers and perks (for instance, customers get a 30-day full guarantee with the possibility to return the product with no questions asked, a much-loved option that explains why, in the country, brands such as Apple and Samsung perform 80% of their business with Credito De Prati). Today, the program involves 1m active customers (Ecuador’s total population is 17m but the truly addressable target clientele base is much lower than that).

Also, when it comes to fashion, Ecuador has long remained isolated from the international brands’ sphere of attention, for its relatively small size as a market. For instance, Inditex came to Ecuador only in 2015 (introducing a new logic in the market based on markdowns and high-frequency seasonality). For that reason, De Prati’s private label business allowed them to develop a faithful client base, looking for interesting designs at low prices. 18 in-house designers develop the Women’s, Men’s and Kids’ private lines which are then manufactured in the country.

Today, the company operates 16 stores (7 in Guayaquil, 7 in Quito, the capital city where De Prati started operating in 1986, one in Manta and one in Machala, which opened in April 2023), and a website, to accommodate the needs of 18 million yearly visitors (online and offline), all powered by 2,300 associates. 50% of the total business is made in the historical location of Guayaquil, while Quito, more upmarket, represents 40%, and e-commerce close to 6% (this does not include digital activities related to stores, such as WhatsApp sales or instore iPad ordering, which are all attached to stores).

Every single store is positive and contributes to the final result of 20% EBIT margin on average, for a total turnover of $270m in 2022 (the same amount as the previous record in 2019) and an expected $305m in 2023. The whole business is 100% wholesale, as the company does not operate concessions or consignment (for big-ticket items, such as domestic appliances, the company “showrooms” the products and dropships them from the suppliers’ warehouses). In terms of categories, fashion represents 80% of the business, home 9% and tech 8%.

During the visit in Guayaquil, it was clear that each store had been developed according to a specific context, and for that reason, was perfectly adapted to its environment, while always keeping a very identifiable layout and branding.

Policentro: making the most of the opportunities in the company’s most profitable location

Policentro is the oldest mall in Guayaquil, and by far the most profitable location for De Prati. The specificity of this mall is that locations are not rented by retailers, but owned, which means that the mall itself is very similar to a condominium in terms of management (and this can create some inertia when it comes to renovating it or making sure that the brand and product offering remains relevant which raises some questions for the future).

For historical reasons based on real estate opportunities, De Prati operates three different units in the mall, each dedicated to a category: a women’s store (RTW, accessories, shoes and beauty), a men’s and kids one, including sport and electronics, and a home & decor store, for a total of 5,000 sqm. The core business is fashion (women, men and shoes), of which 70% is done with private labels. Women’s fashion itself represents 27% of the business, and Cosmetics and beauty 11%. For that category, even though brands are supplied by third parties, De Prati keeps firm control of the brand selection, price point, quantities in stock and promotions.

All three units have been designed with standardization and flexibility in mind, in order to be able to change the store overnight. This approach proved instrumental in dealing with the Covid-19 pandemic and allowed them to transform stores in e-commerce fulfilment centres during the 3 months of lockdown-related closures.

In the women’s store (due to be refurbished next year), most of the RTW space is dedicated to private labels, but third-party brands, such as Springfield or Veromoda, are presented in either dedicated branded spaces or a multi-brand testing space for the smaller ones.  In shoes, 80% of the business is achieved with third-party brands (Steve Madden, Michael Kors).

The men’s store was recently refurbished with the help of a Mexican designer and includes more visible third-party brands, such as Springfield or Aeropostale, presented in a very dynamic and airy concept, that slightly differs in the formal section, compared to the contemporary or the sport ones. The kid’s section is a mix of branded locations and generic displays. The category is extremely competitive in the country. Finally, a small electronics location presents a selection of products, completed by an “infinite aisle” option on digital screens, where customers can order from a wider selection and then pay at the cash desk.

The home stores are located on the first floor of the mall, where many services are available (banks and post offices). The location used to be the kid’s store in the past and that was the most profitable location of the whole mall. In the home category, 40% of the business is made with home textiles.

Overall, Policentro is a surprising location as all categories are spread over the mall in different locations. The fact that De Prati was able to purchase the locations (and amortize them) explains the high profitability of these operations overall, however, the disadvantage of split spaces is felt in terms of cost of people and refurbishment.

San Marino: a “lab” store in an upmarket mall

San Marino is a mall located 5 minutes away from Policentro by car and is very different. While inertia related to the ownership is felt at Policentro in terms of overall customer experience, San Marino feels much more dynamic, thanks to a very different set of tenants (including fashion names ranging from Pull & Bear, H&M to Polo, Tommy Hilfiger or Esprit) and a permanent renovation that allows the mall to look very modern, even though the mall layout is very disconcerting in terms of brands adjacencies.

The brand assortment implies that in that mall, the competition is harsher than in Policentro, which is why the De Prati store is relatively small, 2,500 sqm (vs. 6,000 sqm on average for the rest of the stores), and pushes a “curated’ assortment, only focused on women, men and young fashion.

Here again, the store fixtures are very flexible but they allow customers to understand where they stand in terms of product categories, which is not specifically the case in Policentro.

This store, significantly smaller than the others, is mostly used to show De Prati’s relevance in terms of fashion in a mall where the brand offer is one of the edgiest in the country. For that reason, this is where the company tests new brands, and also new ideas for its own private labels. This is also where De Prati can test the adequacy of its basics offer, which is planned to grow by a double-digit rate of up to 30% of the business in fashion, in order to make the most of the fact that these items are never marked down.

Plaza Navona: build-a-store

Plaza Navona is a real estate program that has been developed by De Prati, up north in the city on the way to Samborodon, a very wealthy suburb. This is why the relatively modestly sized mall (26,000 sqm) is positioned as a family shopping centre, aimed at the posh neighbourhood but also the middle class that started to relocate to Samborodon a few years ago. The mall is managed by De Prati itself, with a new team that has been created on the spot.

This also explains why the De Prati store concept of 7,000 sqm is slightly different from the other ones visited so far, and it is the most recent one (the new store in Machala, opened in April 2023, takes on this concept). The fixtures are lower and allow visitors to embrace the whole store easily, while also giving an impression of lightness and modernity. Third-party brands are much more visible than in the other stores (and in higher proportion), including some specific to this location (Oscar de la Renta, Chaps for men).

Plaza Navona is also the store where De Prati tests its innovative processes, both in customer-facing solutions and in behind-the-scenes improvements:

-    In customer-facing solutions, digital screens allow them to scan a barcode and check the stock availability of the product in all De Prati stores, book it, and pay for it with a nearby salesperson. Also, mobile POS is being tested in the store.

-    In the behind-the-scenes improvement, the store has been the one in the chain to have real-time visibility on its stock updated every 15 minutes thanks to a system developed internally from an SAP platform. The development team is currently deploying a solution allowing store staff to be able to immediately locate a product in the stockroom, which also gives useful data in terms of forecasts and auto replenishment, in addition to significantly reducing the waiting time for customers when asking for a specific size or colour.

Plaza Navona being closer to a place where many wealthy customers live, is a store destination for them when they want to equip their homes. For that reason, the share of home and electronics is higher in that store when compared to the other ones, with the pick-up section for online purchases is on the first floor, in the home and electronics section. In terms of stock management for these two product categories, De Prati only buys on firm conditions a certain stock amount in order to be able to display products in stores, and also guarantees larger stock quantities in the supplier’s warehouse. In that way, the stock imported for Ecuador will be reserved as the first priority given to De Prati.

This store represents the state-of-the-art savoir-faire at De Prati today, as well as a first incursion in the domain of mall development and management. A larger project of 90,000 sqm, is planned for 2026 and will also be a premiere in the country with such a scale.

Downtown: where everything started

We had the opportunity to visit the first historical location of the company as well, which allowed us to measure the level of innovation and progress made by the company between its first location and the latest store in Guayaquil, Plaza Navona.

The nature of the location has changed with time, as the area evolved, from being mainly residential in the ‘40s, to being more of an office and banking area. As a consequence, traffic patterns are different from the other stores which are close to the places where customers live.

Due also to its history, the store is spread across different buildings with different levels, leading to having floor differences on some floors. Only one building has windows, which also explains why the feeling is different, less airy than the other stores, an impression reinforced by the low ceilings and the rather old concept.

The last floor of the store is dedicated to the outlet section, as well as the customer service desk.

The specificities of the business at De Prati

De Prati is special for many reasons, as it has developed its own way in several areas of operation, to reach efficiency: private labels, BOPIS, and social commitment.

Private labels represent 70% of the total business and are designed in-house, fabrics are bought in Asia and products are made in Ecuador. Collections are kept in store according to a very simple calendar: they remain at full price for 90 days (in fashion) or 120 days (in home), then they are automatically marked down at 30%, 50% and then 80%, before being taken out of stores. This scheme allows the company to avoid having seasonal sales in the store (including third-party brands): during seasonal events, it is not about product clearance, but a maximum of 30% discount off fresh products, to which customers can add an additional 10% discount if they own the De Prati card. Given the size of the private label business in the fashion category, which represents 80% of the total business, this system allows them to have a very healthy margin structure, as overall the company enjoys 70% of sales at full price and promotions capped at 30% of the business. However, in order to remain relevant with the younger clientele, the plan is to introduce more third-party brands (international labels), from 19% today to 55% in 2026.

When it comes to picking up online sales, the store pick-up is the only free option, which allows 60% of all e-commerce orders to be picked up in stores. For that reason, e-commerce operations are profitable and total logistics costs for the company are limited to 6% of total sales. Also, returns are kept at an extremely low level (less than 1% in-store and 3.3% online) thanks to this approach and in spite of the 30-days-no-questions-asked return possibilities offered by the De Prati Credito card.

Finally, De Prati is also very much involved socially speaking, in addition to remaining committed to Ecuadorian production for its private labels. In 2014 it launched the ‘Mujeres Confeccionistas’ training program which allows women to grow and become independent. The program focuses on 3 pillars:

-    Improve self-consideration and provide a way to generate new life opportunities,

-    Teach entrepreneurship and basics in management,

-    Teach how to use social media to develop a business.

This program is open in every city where De Prati has a store and less than 5% of graduates work in factories after attending it, as they prefer launching their own activity and becoming more empowered. De Prati has also made agreements with national and Latin American universities in order to help its employees to validate their knowledge with diplomas.

Going further: for the sake of evolution

The most striking point about De Prati is the notion of permanent adaptation. The context is challenging: more brands are entering the country, prices are becoming an issue for most customers, and from a social point of view, violence is increasing, to the point of influencing customer behaviour as they now come earlier in the day and avoid staying until 6:30 pm when it is unsafe in the streets.

In order to face those realities, the company bets everything on its teams and their capability to develop and deploy new ideas, from customer processes to new systems. De Prati is currently developing an app which will provide a new purchase option for its customers, while also sticking to the needs of the younger clientele it wants to attract, in complement to a new brand offering including more international labels.

That permanent capability of adaptation has created a sentiment of pride to belong to such a company, which is palpable when discussing with the teams, and reinforced by the larger commitments of De Prati, which announced in 2022 a commitment to invest $80m in the country, in order to contribute to its development. Feeling this pride was probably the most impressive during the visit, as it really appeared as a true competitive asset for De Prati in the future.

Credits: IADS (Selvane Mohandas du Ménil)

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The IADS attended the 2023 Viva Technology conference that took place from June 14th to 16th in Paris to scout the key trends and interesting startups that could be of value to our members. We have highlighted the most relevant retail trends, topics and solutions that were strongly featured in this year’s edition of VivaTech.

VivaTech 2023 reflected the current state of the world – AI is all the buzz! Meanwhile, AR and web3 technologies are also still a significant focus as businesses gain a better grasp of how to leverage these technologies properly. And of course, businesses cannot write off the topic of sustainability, as the impending regulations are looming over their heads.

AI: the main attraction

AI undoubtedly dominated the show during this year’s edition. As Artificial Intelligence, specifically OpenAI, has taken the world by storm, ChatGPT has almost become synonymous with AI. This is not surprising as many retail organisations are harnessing this technology in a variety of ways. For example, Zalando has launched a ChatGPT assistant, and Hyundai department store is testing an AI system similar to ChatGPT for their copywriting. Other retailers have also been tapping into ChatGPT to make their chatbots smarter and VivaTech was the occasion to show off some of these interesting use cases.

Case study: Carrefour teams up with OpenAI to harness the powers of generative AI

In a rather timely manner, Carrefour announced its plans to launch a generative AI-powered shopping experience with OpenAI one week before VivaTech. Inside the exhibition, Carrefour had its own booth showcasing the ways in which it aims to utilise generative AI to enhance the customer experience and transform its working methods.

The retailer introduced a new AI Chatbot based on ChatGPT, called Hopla, which has been integrated into its website to assist customers with their daily shopping. Customers can seek assistance from the chatbot when it comes to selecting products within a specific budget, considering dietary restrictions and food constraints, or generating menu ideas.

Through the collaboration with OpenAI, Carrefour is also employing AI to enhance its product descriptions and streamline internal procurement procedures. These initiatives form a crucial component of Carrefour’s plan to enhance overall customer satisfaction and revolutionise its operational practices.

Although ChatGPT and AI are somewhat synonymous, AI overall should not be reduced to ChatGPT alone. Below is a selection of AI-powered startups scouted at VivaTech that may be of interest to our members.

• ChatLabs: AI-powered social experience platform that generates a unique, personalised journey for each customer based on the creative context of social media and level of engagement with brand content. ChatLabs was a finalist for the 2023 LVMH Innovation Award.
• Safira.ai: AI-based solution that generates, optimises and enhances online retailer’s product data to create an engaging shopping experience. It automates and professionalises the steps required to run an e-commerce shop.
• Vrdrobe LLC: Mobile app that harnesses AI technology to enable the user to try on clothes, shoes and glasses with their camera, thanks to AR models.
• Neobrain: Digital platform with three solutions based on AI to help companies match talent to opportunities, turning skills into collective performance. The platform was awarded the number one talent marketplace solution in Europe.

AR and virtual experiences: the future is digital

Augmented Reality and other digital experiences were also heavily present throughout the exhibition, likely due to the fact that businesses now have a greater understanding of how to leverage the Metaverse and other Web3 applications. Notably, many luxury brands like Dior, were showcasing their digital experiences as a means to provide distinct consumer experiences.

Case study: Emperia: Creating an immersive virtual store for Bloomingdale’s

Emperia is an immersive virtual store platform for retailers and fashion brands to create their own virtual and Metaverse experiences. Some of their clients include Ralph Lauren, Lacoste and Dior Beauty, as well as a department store client – Bloomingdale’s.

Bloomingdale’s launched their first-ever virtual store with Emperia in celebration of the company’s 150-year anniversary. The virtual store featured games, special surprises and a Bloomingdale’s exclusive collection for its anniversary celebration.

It also included rooms dedicated to brands, allowing Bloomingdale’s to sell virtual spaces to brands such as Chanel, Ralph Lauren, Nespresso and others. Essentially, it recreated the traditional retail concept of the concession model and transformed it into an e-concession in the virtual world.

Launching a virtual experience proved successful for Bloomingdale's as it was crucial in creating a new, innovative online shopping experience for customers and providing a platform for concessions.

It was evident that digital and innovative experiences remained at the forefront of businesses' minds at VivaTech, as AR and other virtual experiences were prominently featured in the exhibition. Here is a selection of intriguing startups in the sector that we discovered at this year's salon:

• Kivisense: AR-powered solutions that provide hyper-realistic try-ons for various store categories, including clothing, footwear, watches, handbags, eyewear and jewellery.
• BryanThings: Digital ‘retailtainment’ company that designs digital point of sale solutions for global and luxury brands, counting L’Oréal, Dior and Le Bon Marché among its clients.
• Cobalt: Merges digital and physical retail through a 3D immersive Metaverse experience for VR, desktop and web. It links real products to NFTs with NFC C-link chips, ensuring authenticity, supply chain transparency and data integration with logistics and CRM systems.
• GK Concept: Agency that creates bespoke interactive experiences in-store, strengthening the connection between consumers and brands. They design, develop and manufacture their own retail technologies.
• Veris Behavior: Develops VR, neuromarketing and data technology to conduct immersive consumer studies, assisting companies in the retail, consumer goods and hospitality sectors in validating their commercial and marketing strategies before launching to the market.
• Vyking: 3D and virtual try-on technology with an end-to-end platform, enabling fashion retailers to seamlessly create, scale and track 3D and AR shopping experiences both online and in-store.

Sustainability: still a pressing topic

Sustainability remains a pressing topic across all industries, with upcoming regulations driving businesses to prioritise their Scope 3 emissions and daily operations. However, the focus on sustainability was somewhat less prominent at this year’s conference than the last.

Kristen Davis, CEO of CinqC, chaired the panel discussions titled ‘Shifting to a Sustainable Business Model’. The panel included Julie Linn Teigland, Area Managing Partner EMEA at EY, Marie Ekeland, Founder and President of 2050.DO and Claire Martin, VP of CSR at CMA CGM. Together, the panelists discussed the importance for businesses embarking on a sustainability journey to look beyond individual countries or specific sectors and to consider ecosystems. Why? Examining ecosystems offers greater access to talent, resources and knowledge, and serves as a crucial avenue for businesses to observe how larger companies are collaborating with startups and other organisations to pave the way towards achieving a more sustainable business model.

Here is a selection of interesting startups in the sustainability sector that we pulled together from this year’s edition:

• EON: A product cloud platform that delivers business value with a digital ID for every product. This enables retailers to trace products from end-to-end, unlock and scale new business models, instantly authenticate their products, and engage customers long after the sale.
• Finds: A solution that serves as an overstock matcher, connecting fashion brands with surplus inventory to resellers, NGOs, and recyclers. Its aim is to maximise monetisation and achieve circularity.
• Carbon8: A circular impact company that converts carbon and industrial residues into sustainable value streams. Through its solution, it seeks to assist heavy industries decarbonising while transitioning to a more circular operation.
• Woola: A company that takes waste wool, material that would otherwise be discarded, and transforms it into a sustainable alternative to plastic bubble wrap.

Other retail solutions

Department stores are complex, centuries-old organisations who are constantly on the market for new solutions to help them stay relevant and work efficiently, here is a selection of startups that we scouted at VivaTech that we believe are relevant for department stores:

-    Alpha: A clienteling platform that simplifies and enriches the sales associate-client relationship. Sales associates can offer a "Red Carpet" like shopping experience to their clients thanks to a communication channel filled with product inspiration, client requests, style sessions and one click buy & try capabilities.

-    Fabriq: An app that combines digital tools for improving shop floor management, aiming to enhance the efficiency of shop floor staff, expedite the resolution of operational issues, enable seamless information flow, and leverage operational data to enhance daily decision-making.

-    Bloom: A business intelligence platform that analyses discussions and engagement and harvests data on social media to generate strategic insights for decision-makers to help brands leverage opportunities and detect risks.

This year’s VivaTech was also an opportunity for influencers to discuss the major advancements taking place in the wider technology industry. Among the overall 150,000 attendees, influencers such as Elon Musk, Bernard Arnault and Marc Benioff were in attendance, including French President, Emmanuel Macron, who discussed the AI landscape in France. This is a small piece of the fruitful exchange that VivaTech 2023 offered, and we can't wait to see what the next edition of VivaTech holds. See you in 2024 VivaTech!

Credits: IADS (Kaitlyn Lim)

THAT CONCEPT STORE PICTURES

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The IADS recently had the opportunity to visit THAT Concept store, located in the Mall of the Emirates, which represents a new breed of retail in a region dominated by malls and department stores.

THAT Concept store, taking on many of the concept-store codes known elsewhere in the world, includes many of the recent innovations spotted here and there across the planet, often made by department store companies looking to reinvent themselves through smaller formats, acting as showrooms located closer to communities of customers. Interestingly enough, this concept store is owned and operated by the Majid-Al-Futtaim Group (MAF), which uses it both as a window of its retail savoir-faire and also as a testing ground for brands.

For all these reasons, we review our store visit below, in order to understand how a mall owner turned franchise operator is using a concept store to deepen its retail expertise in all formats and test brands for further expansion, and share learnings for department stores across the world, especially for the ones currently experimenting new formats.

Company history and background

The eponymous individual founded the Majid Al Futtaim group (MAF) in 1992. Majid Al Futtaim (1934 – 2021) was the cousin of Abdulla Al Futtaim, head of the Al-Futtaim group, founded in 1930, an integrated commercial, industrial and services organization in the UAE, Qatar, Egypt, HK and Macau, and specialized in automotive, consumer electronic retail, and franchised retail (Robinsons, IKEA, Toys’R’Us and Marks & Spencer). Both cousins split in 1992 with Majid willing to focus on retail real estate.

MAF is now divided into 4 divisions:

-    Properties, including ownership and operations of 29 malls (including the Mall of the Emirates in Dubai, the Mall of Egypt in Cairo, the Mall of Oman, the Mall of Saudi, City Centre Bahrain, Mirdif City Centre, City Centre Muscat and City Centre Suhar commercial centres) for a total of 1.8m square meters, and 13 hotels and communities,

-    Retail, including 450 Carrefour franchised hypermarkets and supermarkets,

-    Entertainment, including 580 cinemas and 4 brands such as Ski Dubai,

-    Lifestyle, including a selection of brands ranging from Lego to Lululemon, to All Saints, Hollister, Abercrombie & Fitch, and THAT Concept store.

MAF reported in 2022 a revenue of AED 36.3bn (€9,96bn, +12% vs 2021) and a net profit of AED 2.4 bn (€0.6 bn, -2% vs 21), of which the lifestyle division, to which THAT Concept store belongs, represented a revenue of AED 801m (€199m, +38% vs ’21) and an EBITDA of AED 25m (€6.24m, +317%).

The Mall of Emirates was opened in 2005 and boasts 245,000 sqm of retail spaces, with an occupancy rate of 98%. It includes 630 retail outlets, 80 luxury stores, 250 flagship stores and more than 100 restaurants, as well as Ski Dubai, a 500-seat capacity Community Theatre and Arts Centre, as well as Magic Planet, an indoor family entertainment centre.

THAT Concept store initial promises

THAT concept store was opened in January 2021 on 4,500 sqm and two floors, in an area of the Mall of the Emirates (Via Rodeo) which was previously dedicated to luxury mono-brand stores, now relocated either on the ground floor or in a new luxury section.

The promise of this opening was to bring a new perspective in terms of the shopping experience, in a market where immersive retail is omnipresent. Just like a true concept store, it is all about bringing a very special experience, combining fashion, beauty, art, and lifestyle products under one roof, completed by a full set of services, in order to cater for the needs of a demanding clientele. For those reasons, THAT Concept store is built on the following 6 key pillars:

1. An innovative shopping experience: the goal is to provide a fresh and immersive shopping experience by showcasing a wide range of handpicked products from both international and regional brands, usually (but not systematically) not available elsewhere in the UAE.
2. A curated selection: the store features a carefully curated selection of fashion, beauty, home, and lifestyle items, with the ambition to cater to a diverse clientele.
3. A platform for local talent: local and regional designers are able to showcase their work and connect with shoppers.
4. An art and culture scene: Art exhibitions, cultural events, and other interactive experiences are hosted, fostering creativity and promoting a sense of community.
5. Personalization and customer services, such as styling consultations and beauty treatments, are here to enhance the overall shopping experience and cater to individual needs.
6. Design and ambience: The store boasts a visually appealing interior design, with contemporary aesthetics that encourages exploration and discovery.

In addition to that, according to the store CEO, MAF also uses this store as a lab to test brands candidates for further expansion in case of success. Potential successful brands are assessed by gathering data in terms of try-ons, selection and purchases so that the group can engage in conversations with such brands in terms of distribution enlargement (MAF has the possibility to engage in franchised development in the region).

Visiting the store: how to bring something new on an oversaturated market?

First of all, one can say that the location of the store is not exactly the easiest, even though MAF (which owns the whole commercial centre) has implemented clear signage across The Mall of The Emirates in order to guide customers: THAT Concept store is located at the end of Rodeo Drive, in a space which used to host luxury boutiques flagships.

In that area, one can find a mix of luxury and fashion brands, such as Isabel Marant, Roger Vivier, Etoile, as well as gourmet food such as Ladurée, so the issue is not so much the immediate adjacencies, which all make sense. What is more problematic is on the one hand the series of hoardings still installed (Thom Browne, Bvlgari or even generic hoardings) which suggests that the revamping of the area is not yet finished and on another hand the proximity of Harvey Nichols (which has a clear high-end positioning) and Bloomingdale’s (more mass), which makes it difficult for something intermediate to position itself and capture market shares. In other words, it is difficult to get there, and there are many distractions on the way including competing value propositions.

However, once customers are in the store, the look and feel is radically different from anything available in the mall and probably in the whole of Dubai, with a profusion of innovative and edgy brands (more than 150 fashion brands such as JW Anderson, Simone Rocha, Paco Rabane or Vetements) all displayed in a holistic, proper and specific concept that reminds a bit of what Galeries Lafayette did in their Champs Elysées location.

The store concept is all about contemporary décor, making nods to the Arabic culture in a giant suspended display designed by local artists. It can be a little disconcerting as it is thought to be a space for exploration, so many retail codes have been reshuffled. The goal is to display a great edit in a uniquely designed space, thought to be versatile and adaptable to different situations (brands, popups, new spaces, etc..).

The store, which opened on January 21, was initially designed to be fully genderless and tried unprecedented ways of displaying products (e.g. shop by colours), however, this proved tricky for the region, which is why this approach was dropped during the summer of 22 when a new management team took over. The new GM, who boasts an extensive experience at Al Tayer Group and Emaar, worked closely with the Creative and Visual Director at MAF (also an Al Tayer alumni), and reviewed the zoning, with areas divided into categories and brands sometimes mixing gender (a nod to the initial intention).

The first floor directly leads to the jewellery area (the second best performing area after fashion, which represents 70% of the business) where brands are presented with THAT-specific signage (a common trait across the store which again reminds of the Galeries Lafayette Champs Elysées location). The product category is coupled with the very large and extensive sunglasses area, both presented on generic wall units and coloured carts, which really encourage customers to touch and try the products. A sushi restaurant completes the space, which will be replaced by a tea room with sweets in order to encourage all-day long lounging.

On the other side of the floor (as the very large Atrium divides the space and provides a great visual perspective on both the upper floor and the ground floor giving access to the carpark, even though it also complexifies the in-store journey), women’s fashion, shoes and accessories are presented in clearly divided spaces, with a special mention to the shoe space, which encourages try-ons and product exploration.

Private shoppers and salons are also available in this space and can be booked for now on the premises. An app allowing customers to book such services and also to connect THAT Concept Store to the MAF group loyalty program is on its way.

A very surprising element on this floor is the access to the elevator: to enter it, customers have to go across the recreation of a local supermarket (a ‘baqala’) selling only very typical brands resonating with every Middle East young customer (Oreo cookies, Lay’s and Pringles snacks, etc…). As a consequence, it really is a visually enticing magnet, and a smart way to upgrade this otherwise dead space. For now, the monetization of the whole installation is still to be fine-tuned, and ideas to connect this space to MAF-operated Carrefour hypermarkets were discussed during the visit.

The second floor is dedicated to unisex and male fashion, including streetwear and sneakers, beauty & cosmetics, as well as the home and design category (the third-best performing category). Again, special care has been brought to the overall experience and feeling, with strong visual designs and attention to detail (such as decorations integrated into the concrete flooring). The home and décor area, in particular, is extremely appealing and presents a selection of products and brands which is unmatched in the country.

On that floor, customers can also find an on-site hair salon, a barber, a nail and brow bar, as well as a yoga and fitness studio, with classes starting as early as 6:30 am in order to cater for working customers. When it comes to services, THAT proposes a very wide palette of options, from the tailoring service to the possibility to drop off laundry or ask for dry cleaning.

Finally, tech is all across the place, with smart mirrors in fitting rooms (allowing shoppers to ask for other colour or sizing options from the cabin), and interactive pop-ups for shoppers to try new tech. The idea is to further invest in tech in order to gather more data about brand successes and be able to leverage that data to consider further investing in brands (for instance, Santa Maria Novella is being tested that way).

Like it or not, one must say that the value proposition of the store is very different from what can be found elsewhere in the market, and would not even be out of place in any European capital (a feature that could raise the question of knowing if such a proposition is not too edgy, or perhaps early, for Dubai).

Are all promises fulfilled?

There are some elements in the concept that might be questionable, such as the location of the store as already mentioned, but potentially also the name itself, which might prove difficult to market on a larger scale (and which made writing this article difficult).

But the special sauce at THAT concept store is that it is run as a department store (in terms of back-of-store operations or brand purchases, all merchandise being own bought) but creatively managed like a concept store. This, completed by the size of the space (4,500 sqm), puts THAT Concept store in a category of stores which include department store companies-backed concept stores, such as Galeries Lafayette Champs Elysées as already mentioned, but also SKP-S, Coin Excelsior in Italy, U-Plex in Seoul, WOW in Madrid, Showfields in NY or, to some extent, the concept-store part at la Samaritaine in Paris or Bloomie’s in the US. THAT Concept store captures this current trend within department stores of having smaller formats, thought to be fully immersive and experiential, with a special display that takes distance from the traditional approach.

Having said that, the store promise is yet to be completed, as the perspective of being a lab to test brands is great but not yet fully operational, and probably very expensive to run if the purpose is only to test them. This is why it will be interesting to follow the evolution of the space in terms of tech equipment and additional experiential spaces, such as F&B offers, to assess to what extent MAF is ready to innovate in a market which is not particularly in demand of such innovations.

THAT Concept store is not a department store and does not claim to be. However, its approach in terms of the customer journey (especially by proposing a lifestyle approach rather than a category one) and store feeling is resonating with department stores’ efforts to reinvent the way they curate and present their offer, as well as their efforts to create a concept store feeling in order to assess their fashion credibility. It is a great inspiration for companies looking for ways to revamp their multi-brand areas with a specific brand identity and a compelling customer journey and visit.

For that reason, the store is an interesting visit, even though a bit frustrating when it comes to its present capability to gather data and truly act as a lab for brands, which is now the main focus of the managing team. However, it already managed to propose a radically different way to sell brands on the market, which has not gone unnoticed. While some are wondering if this is not too innovative for an otherwise conservative clientele, THAT Concept store provides a new option on the market and a refreshing take on how brands can enter Dubai and the GCC countries

Credits: IADS (Selvane Mohandas du Ménil)

AHLENS STORE PICTURES

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The IADS travelled to Sweden last April to meet with the new CEO and owner, Mr Ayad al-Saffar, almost a year after his inception at Åhléns. The purpose was to discuss and understand his plans and vision for the century-old department store company.

After a first year spent reviewing the fundamentals of the company, Mr Al-Saffar started to operate significant and structural changes to the business model, and they might very well be a game-changer in this part of the world. Rather surprisingly given the fact that Åhléns already operates 47 stores in a country with 10.42m inhabitants and ranked second in Europe in terms of retail density (after Monaco), he also detailed his plans to open more stores in second and third-tier cities, thanks to his new approach to business.

We review our store visit below to understand to what extent Åhléns will revolutionize the Nordic market with its new approach.

Company history and background

Åhléns was founded as a mail order business in 1899 in Insjön, a small town north of Stockholm, by two associates, Johan Petter Åhlén and Erik Holm. Within 10 years, Åhléns was a 1.5m SEK business (€128k in today’s money) with 255 employees, and the founder decided it was time to move to Stockholm in a newly acquired 7-story building.

Diversification started in 1932 with the opening of a first department store chain, Tempo, promising the lowest prices possible to customers. The physical retail activity of the company grew consistently, leading to the closure of the mail order business during the ‘60s, the opening of Åhléns City, the current flagship store, in 1964, and the progressive conversion of Tempo stores into Åhléns until 1985.

In 1988, the Åhlén family sold the company to Axel Johnson AB, a Swedish family business specialized in trade and services in Europe and part of the Axel Johnson Group, a Swedish international conglomerate. Åhléns was the only department store business operated by Axel Johnson AB, which portfolio also included Kicks (an beauty & fragrance e-commerce pure player which mutualized purchases with Åhléns), Axfood (a 300-large grocery stores chain under various names), an investment company in retail businesses, a restaurant wholesaler and an IT reseller. At Åhléns, the owner focused on developing the brand portfolio (mainly through concession deals and private labels development), automating the operations with a new warehouse, developing an outlet offering, and pushing the e-commerce business. Investments were made in both existing stores (Åhléns city stores were refurbished in Stockholm and Gothenburg in 2018) as well as in expanding the network (including outlet stores).

Åhléns reached a total turnover of SEK 5,019 (€431m) in ‘19, compared to SEK 4,809m in ’18 (€412m) and posted a net loss of SEK -116m (-€10m), compared to SEK -131m in ’18 (€ -11.2m), with 1,806 employees at the time. Just before the pandemic, the main focus of the company was to expand the outlet stores network, push private labels, and, more importantly, continue its heavy investments in IT to support e-commerce and marketplace expansion, which explained at the time the losses posted. The Covid-19 pandemic took its toll on the company, which saw sales decrease -15%, and losses almost tripling, even though Sweden never went into a lockdown and stores never closed. These difficulties, combined with Axel Johnson AB’s strategic focus on turning away from consumer goods, led to the sale of Åhléns in ‘22 after 34 years of ownership to a group of investors led by Mr Ayad Al-Saffar.

Al-Saffar, a seasoned retailer, came from Lebanon as a refugee to Sweden in 1984. Incarnating the “Swedish dream”, he started as a salesman on markets, before founding a watch wholesale company in ‘91 and being offered to purchase loss-making Ur&Penn, a 40-store-wide watches and jewellery specialist then owned by the H&M group. Al Saffar managed to turn the company around in one year by reviewing the assortment and the price point, and the company grew to 100 stores today. Al Saffar achieved a similar turning-around performance with Dutch loss-making retailers Lucardi in 2006 and Kijkshop in 2007.

Today, Åhléns as a whole achieves a total turnover of SEK 4.7bn (€403m), with 47 stores and an e-commerce platform, operated by a total of 3,000 employees accommodating the needs of some 60m annual visitors (in a country with 10.43m inhabitants). It concentrates on fashion, beauty and homeware, and has a loyalty program (Åhléns club) with 2.5m members.

Åhléns positions itself as “the department store with a smart mix”, providing solutions for time-pressed customers to simplify their lives by mixing the right brands, including sustainable ones (Åhléns issues ESG reports in Swedish every year).

Visiting a Tier II location

The first Åhléns store visited is located in Östermalmstorg, a posh neighbourhood 500m away from Birger Jarlsgatan, an avenue planted with luxury and fashion free-standing stores, from Chanel, Louis Vuitton and Prada, to Zadig & Voltaire, Max Mara and Zara, and faces a square with significant traffic in terms of local customers (this is not a touristy place).

By European standards when looking at a city centre unit, the store is disconcerting: windows are not fully utilized, as it was chosen instead to allow customers to see through them and see the store, and the small size of the store appears at first sight when entering (1,500 sqm).

The ground floor is dedicated to cosmetics, displayed with standard brand fixtures and name reminders, while fragrances are presented behind a closed glass wall, forcing customers to ask an operator to access them. The floor also displays summer wear and accessories (all with generic, middle-priced, local brands) and a para pharmacy section. The cash desk does not offer additional services.

The basement is connected to the subway system, and the entrance is also equipped with Post Nord pickup stations, allowing customers to retrieve parcels and click & collect items, not far from the cash desk. The floor displays kids wear and toys, as well as the home category, rather well-staged. However, overall, the experience lacks inspiration, and each retail space has a visible reference number, likely to help retail operators and brands to locate where they should set up their stores but instead impacts the customer experience.

The upper floor is mainly dedicated to women’s fashion and lingerie, with a mix of generic concepts and branded shop-in-shops. For fashion brands, shop-in-shops are more detailed and immersive than for lingerie brands where in reality they are only dedicated and delimited spaces with a brand reminder on the walls. A section is dedicated to activewear with brands such as Esprit, Levi’s and the Åhléns private label, and there is also a tiny men’s underwear section.

During the visit, the clientele was exclusively composed of middle-aged women.

Even though the visit was, somehow, disappointing, when discussing with Mr Al-Saffar, it appeared that this store, which was to be refurbished and modernized, was profitable, just like 100% of the 47 stores currently operated in the country.

Visiting a flagship location

The second store visited was the massive Åhléns City store, right in the centre of the city, at the same distance from the Royal House, the museum island, the train station, the Culture house and the high street. Talk about a flagship: the department store, built in 1964 and now rented from a real estate company, occupies an entire block of 40,000 sqm, and represents 20% of the company’s total revenue (125m€) thanks to very significant traffic for such a small country: 15m people visit the location every year (more than the Stockholm train station and airport).

The massive façade is windowless in red bricks as the initial objective was to make sure it would be easily recognizable and become a landmark. Åhléns uses this space to advertise collections and brands.

The ground floor is dedicated to cosmetics, fragrances, shoes and accessories. However, the plan is to move the shoe section and increase the space allocated to bags. The CEO explained that the first year of his tenure was dedicated to stabilizing and structuring operations (especially in terms of brand supplies) and that the new zoning of the store was next on the plan.

The luxury usual suspects (Dior, Byredo, Chanel) are operated in concession, in a high-traffic section at the entrance of the store (in semi-personalized spaces) with the purpose to increase the brand portfolio there. A Joe & the Juice bar, still present at the time of the visit, is planned to be removed and replaced with a watches section, in order to not interfere with the fragrance space. The rest of the product offer is a mix of private labels (such as Carin Wester, a private label developed by the previous management with a local designer celebrity, which Al-Saffar has repositioned both in terms of image and price point, and decided to design internally), and foreign brands operating in consignment, with good margin rates for Åhléns (more than 60%).

An upscale café completes the experience, which is overall very nice, as the store, in spite of its huge dimensions, is airy and the sight gives an impression of unconstrained space.

The first floor is dedicated to women’s fashion (luxury, contemporary, denim and activewear) as well as lingerie. The fashion section is mostly an alignment of shop-in-shop with each brand’s concept, with the exception of Åhléns Studio, a multi-brand section right in the middle of the floor (similar to the SKP-S multi-brand sections at SKP in Beijing) with a specific in-house concept. Most of the floor is operated in wholesale terms, which allows for negotiating discounts against immediate payments, with the exception of a few brands (Tiger of Sweden, Filipa K and others). This has been one of Al-Saffar’s main points of focus in the past 12 months as his goal was to reduce the number of brands operating in concessions, in order to regain control of the assortment and increase the operating margin, by reverting to a 90% rate of brands operated in wholesale.

This is why, for instance, the denim section was under construction at the time of the visit, as the new brand assortment (a mix of labels already in Sweden and exclusive ones) was being finalized. Switching from a concession business to a wholesale business obviously requires acquiring the needed savoir-faire (buying team), which means time in terms of recruitment and training.

The second floor is dedicated to home and kids. The Home section is rather beautifully staged with a very Nordic taste, and both this section and the kids one (apparel and toys) offer a selection of international and local brands, completed with private labels either developed by Al-Saffar or redeployed (such as the Rikiki kids line). A family room is available for customers willing either to relax from the shopping heist with their families or have their kids under supervision while they are in the store. The family room is astutely located near a café and the toys section.

The third floor is dedicated to menswear, services, such as a barber, and personal shopping services. Just like for women, menswear is a mix of international, local and private labels, and the target is to increase the number of brands operated in wholesale terms. The barber is quite well-executed, albeit not really visible from the floor and only customers in the know might find it easily.

The personal shopping service space is very welcoming and spacious, dotted with products in double exposure in order to entice shopping. The space can be booked in advance and is connected with the club membership program, with a system developed in-house and based on purchase value, with 3 different membership levels. The software developed by Åhléns teams also includes a system in which customer feedback received via email is collected, compiled and reviewed with the adequate teams on a daily basis.

The fourth floor is currently rented by Muji but the plan is to replace them with a new offer that remains to be defined. It could be either an extension of the Gourmet section which already occupies a side of the building, or a new upscale F&B section taking full advantage of the terrace, or a flex office space based on what Saks Fifth Avenue has developed in New York with WeWork at the time.

Interestingly, there are also many questions about the corporate offices, which are also on that floor, with offices enjoying incomparable views and a huge private terrace which is completely underused while avoiding demotivating employees who have been used to these offices since the 60s.

The Åhléns project is a work in motion, and the visit came at the right time to fully grasp the size of the transformation Mr Al-Saffar has started for the company.

What’s next for Åhléns?

Al-Saffar's most important plan is to review the way the department store company has worked with suppliers so far.

Historically, and for various reasons (non-aligned seasons, high import duties, different currencies), retailers in Nordic countries have always relied on third parties acting as importers and distributors to bring in brands and operate them. We already reviewed what it implied with NK, also in Stockholm: until the pandemic, NK was acting as a mall and leased spaces to brands and operators. When one of those operators went bankrupt in 2021, NK had no choice but to purchase its operations and learn how to operate fashion instead of simply managing real estate. Al-Saffar, a seasoned retailer, wants to go much further than that, and this is why he spend the past year cancelling concession agreements and reverting to a 90% wholesale model.

*While such a model theoretically allows to keep a much tighter control on the product selection and therefore the store positioning, Al-Saffar also states that it allows him to take a greater share of the pie, as he does not share the margin with anyone. This is also the reason why he wants to expand the private label business from 20% today to 35%, and his approach is very simple:

-    Either source products in Asia and label them adequately,

-    Or negotiate with foreign brands the exclusive rights of distribution in the whole of Sweden (the 47 stores fleet is an argument in that kind of conversation), as exemplified with the cosmetics brand Inglot

-    Or purchase the rights of an individual and build a brand accordingly. For instance, he made a deal with a Swedish chef to be able to use his name and face on a new line of kitchen accessories he will develop and sell in his stores.*

This approach allows him not only to consider keeping all 47 stores, which are all profitable but to plan expansions, including in second and third-tier cities and smaller ones, where the new stores will present 65% of private labels in their product offer.

That new approach, in which third parties are eliminated from the equation, is quite new in Sweden and in the Nordics in general and might very well be a game-changer for Åhléns and the region. While it is some kind of normalization as this move would make the Nordics more in line with usual business practices in the rest of Europe, it might also contribute to a more general movement for brands to see Scandinavia as a new market, as they could expand there with fewer constraints than in the past. As a consequence, the hype we noted last year when visiting the region could be very well fuelled by a new gold rush for brands looking for European pockets of growth.

Credits: IADS (Selvane Mohandas du Ménil)

PRINTABLE VERSION HERE

The IADS helps members address multifaceted issues from answering their most operational questions or coordinating information flow to helping them address future challenges by questioning their methodologies and providing a different perspective.

This is the reason why the IADS invited Demet Ikiler, COO EMEA at Publicis Group, to discuss the white-hot Retail Media topic. Retail Media Networks (RMNs) are making the headlines for their ability to generate an additional flow of revenue with high margin yields, while making the most of department stores’ most prized assets: their own sales channels. However, since the press often emphasizes big players’ actions, such as Amazon and Walmart, the purpose of this conversation was to give all department store CEOs a good understanding of the situation and the stakes at hand while discussing what would be needed for a department store company to launch its own RMN.

Demet Ikiler was appointed Chief Operating Officer of Publicis Groupe EMEA in January 2023. She joined after over two decades at WPP, where she was a member of GroupM’s global leadership team as CEO of GroupM EMEA and WPP Country chair, responsible for scaling and delivering more innovative cross-culture solutions for clients. Demet has been recognized by Fortune and The Economist as one of the ten most powerful female CEOs and as an Empower 100 Executive Role Model in 2022. She is also a board member of the United Nations Global Compact, leading its diversity and inclusion chapter. Prior to WPP, Demet Ikiler worked at Zenith and Saatchi & Saatchi.

Introduction: Defining Retail Media

Publicis Groupe defines Retail Media as selling advertisers the possibility to operate online campaigns aimed at the retailer’s own audience, on both its onsite platforms (own website) or offsite (on publisher premise), as a major evolution from pure trade marketing.

The development of retail media has been catalyzed by the progressive disappearance of third-party cookies, as, thanks to this move, retailers’ infrastructures gain more value in the eyes of advertisers (brands): it is no longer only about near-term sales on the platform (the purpose of trade marketing), but also a way to generate visibility, awareness and raise consideration as well.

In short, retail media answers more marketing needs than trade marketing and can provide much more precise ROI evaluation than ever before. CPG brands, for instance, need to reinvent their whole performance marketing approach, and retail media allows them to do so very precisely.

Also, the fact that retailers operate both e-commerce and stores enables advertisers to target customers during their whole journey, starting offsite on a publisher’s website with a co-branded retailer/brand display, continuing in-store with a digital screen, then to social media, and in product search results, all which is happening in real-time.

Ikiler explained that the net new revenue to be expected is capped: 60% to 70% of retail media revenues are new, an already significant and sizable new share. While a fraction of the money comes from the trade marketing budget (30% to 40% maximum for Publicis), its biggest share comes from a reallocation from other digital or traditional channels (print, TV/radio, social media...), i.e. a net gain for the retailer.

An opportunity first seized by the largest players

Retail media is in the headlines now and is generating a lot of noise, justifiably so: Arthur Sadoun, Publicis Groupe CEO, expects retail media to surpass traditional TV advertising spend by 2025, i.e. in 18 months (Ikiler notes that this new budget allocation dispatch is already happening for some of Publicis’ customers).

Such a rise is linked to the continuous e-commerce growth from the past 20 years in an exponential manner, transforming some retailers into “audience hubs” with massive scale:

-    Amazon, which moved early, is the first retail media network to have emerged, and by combining its other assets (grocery and supermarkets) was able to take a dominant position with advertisers.

-    Walmart has an addressable audience (expressed in millions of monthly viewers or users) that surpasses Google’s and Facebook’s. Therefore, they can gather massive amounts of consumer data, which opens opportunities to monetize this audience.

The stakes are high: while there is a ceiling in terms of margins when it comes to retailing physical products (10 to 20%), it can go as high as 40-45% offsite and 80% onsite when it comes to selling advertising inventory, due to the low cost of production. Amazon’s advertising services, which started in 2020, already represent almost $40bn in 2022, i.e. half of AWS, the largest non-retail activity within the company. The advertising activity’s margin is estimated between 70 and 90%, which explains why this activity drew a lot of attention.

Publicis Groupe believes that retail media, even though it is massively growing (US digital media budget allocation to retail media has increased from 16% in ’19 to 25% in ’21, to reach $77bn in ’21 and $95bn in ’22), is still on the rise.

At some stage, Europe (and the rest of the world) will be closing the gap and should contribute to the global growth of this industry. It is not a US and China-only phenomenon, and new players are appearing in other countries, such as Carrefour and Intermarché in France, Boots and Tesco in the UK, and Falabella in Chile. While everybody has Amazon’s success in mind, there is room for other types of retailers, in terms of businesses and sizes, for them to monetize their platform.

Retailers should not take customers’ adhesion to RMN for granted

Some might be wary that customers might not be very happy with retail media, as clients could get annoyed to see a bunch of ads on retailers’ platforms across their journey. 70% of product search results on Amazon are sponsored. While this might not be much of an issue for Amazon, other retailers whose reputations lie on curation and selection might see this, justifiably so, as a risk.

This is why Publicis Groupe advises being extremely careful of the onsite customer journey and leveraging data to target consumers off their platforms, in other words, on publishers’ sites. Retail media is, in that sense, a great way to attract and capture new customers, in a more subtle way than hammering them on the retailer’s website itself. The cherry on the cake is that such customer acquisition is funded by suppliers.

The scale effect: how to compete with giants

Most retailers, especially in Europe, present a very fragmented offer, with a variety of products and different measurement tools, when compared to giants such as Amazon or Walmart. In that perspective, being able to compete with them can be seen as an illusion. However, Publicis believes that this fragmentation might represent an opportunity, and they have already started exploring it through new ventures, such as Citrus, a white label offering for a variety of retailers.

Ikiler argued that retail media is a reality that will end up hitting every market and vertical. Brands will increasingly ask to have access to such capabilities, which is, in itself, a very good reason to get prepared. In other words, this represents an opportunity that should not be shed for fear of competition. The reason is that retail media is inserting itself perfectly in the omnichannel transformation that all department stores are currently going through, as the physical stores themselves represent a competitive advantage compared to Amazon.

CEOs interested in retail media should focus their attention on two vital topics:

-    Systems: the market is increasingly gearing towards self-service proposals, i.e. SaaS offerings to brands, in contrast to managed services in the past. This requires a very significant tech investment. However, this will allow being able to deal with more brands at the same time, with a lower marginal cost. Also, retailers entering this space now will have access to all-in-one solutions available off-the-shelf and already up to date, which will reduce the time to market.

-    Organization: while the trend is moving towards in-house sales teams to have more strategic conversations with brands, which can be resource-intensive, new offerings on the market allow outsourcing services to optimize the ramp-up of activities, which is then progressively transferred to internal teams.

Ikiler concluded by observing that, given the relative similarities of department store companies in terms of size, nature of the business and offering, there would be some logic in teaming up and harmonizing technology and ROI calculation, while tracking across the board  to generate a common approach with brands. In other words, she recommends retailers team up together to generate new revenues out of their current existing assets.

Is the topic of retail media network a strategic one for department stores? There are so many priorities to deal with that it could be tempting to disregard this subject as it is more an opportunity than a necessity (digital transformation, human organizations, addressing AI or dealing with the sustainability requirements are examples of vital necessities for department stores). However, we also believe that any topic helping department stores when it comes to their productivity is crucial to know and to consider, which is the reason why the IADS will be dedicating its 2023 White Paper to Retail Media, in order to dive deeper into the topic and understand in full its ins and outs, and what’s in for department stores.

Credits: IADS (Selvane Mohandas du Ménil)

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The IADS joined cybersecurity professionals from various retail businesses at the RH-ISAC conference hosted by Nestlé in Barcelona in April ‘23. RH-ISAC provides a trusted forum for its members in the retail, hospitality, and related industries to share cybersecurity threat intelligence, best practices, and mitigation strategies. IADS attended on behalf of its members in order to get a better understanding of what is happening in the space.

The two-day workshop was an occasion for industry leaders to share the latest information and challenges around the cybersecurity landscape. Retail experts discussed the latest cybersecurity trends and threats especially in regard to advancements in ChatGPT, AI, Machine Learning, as well as the importance of implementing fusion centres.

ChatGPT: Cybersecurity risks vs business opportunities

To kick off the workshop, an icebreaker question was raised: How will ChatGPT impact cybersecurity? The answers varied from opportunities to warnings. First of all, ChatGPT offers opportunities for the task force of a company, especially lower-level employees, that want to learn new skills and received AI assistance. However, its performance is not always perfect and has even been proven to adopt biases based on its training. And as ChatGPT is susceptible to the information it is fed; it can also be taught to be bad. Therefore, attackers have even more opportunities to automate or expand their attacks.

One cybersecurity expert brought up the point that ChatGPT is technically the new-gen Google or Facebook because when these platforms came around, users were openly sharing their private and sensitive information. Without thinking people share their location, post photos of themselves, and search for information that should be treated privately. ChatGPT users are doing the exact same thing, but now also including private company information. For example, a software engineer might copy and paste code into ChatGPT to ask it to fix any problems with it. But within the code, there could be proprietary or sensitive information.

The more the workforce relies on AI to complete their work, the harder it is for companies to control and ban its use. ChatGPT is not the only AI tool, as now there are various iterations of ChatGPT’s power thanks to the APIs that have been released by OpenAI. Banning all of these tools would be impossible for companies. Therefore, reactive organizations will need to create policies and promote best practices, while also reviewing NDAs (Non-disclosure agreements) with the teams to ensure there are no risks with the AI tools being used in terms of data breaches.

Despite the red flags, ChatGPT and generative AI technology should be seen as exciting opportunities that can be harnessed for the good of a company. There are ways that organizations can use these solutions to scale and automatize their business to create more efficient operations.

Maximizing cyber resilience with AI and Machine Learning

Ignasi Paredes-Oliva, Data Science Project Manager at Nestlé shared how he is using AI and Machine Learning (ML) to automate the company’s threat detection and response. ChatGPT is integrating itself in almost every business unit thanks to various solutions harnessing its technology. For example, Microsoft has introduced Security Copilot to respond to incidents faster using AI. AI is becoming so advanced that tools such as AutoGPT are even allowing users to give an objective to a machine that then runs fully autonomously to complete a task.

As such technology advances, it is important for companies to keep in mind that threat actors will increase as tech barriers decrease. Attackers will be better overall, especially in terms of effectiveness, automation, and scale. But from a defense perspective, companies can also use the same type of technology to empower themselves to better counterattacks.

Historically, threat detection has been set by static rules, past incidents, and user behaviour. So currently, companies are protected against known attacks, but AI can help defend against future types of attacks that have not been seen before.

Nestlé is experimenting with AI to be able to anticipate threats while also automating processes. One solution that has come up with is a machine that automatically categorizes incidents into low, medium, and high risk and then, therefore, assigns a task to it. For example, all low-risk incidents are closed automatically, medium-risk ones are sent to the 24/7 incident response team, and high-risk incidents are escalated to the right people. Another AI machine can detect phishing emails based on language used within the text and warn the user. A third example is a machine that can detect brand impersonation of Nestlé’s logo across other sites so they are aware of any trademark infringement or impersonations that could negatively impact the brand.

Nestlé has already developed 10 to 15 AI solutions within their security business. So far, these solutions have resulted in increased threat detection and better operational efficiency. This suggests there are massive opportunities to boost cyber resilience with AI. Nestlé found that in this domain, the focus should be on building software products that actually bring real ROI to the business. Finally, in order to push such solutions through the business, there will need to be clear alignment with the management team as well as constant communication across all stakeholders.

Fusion centres: Bringing efficiency and communication to cybersecurity teams

Ahold Delhaize shared the process they undertook with Booz Allen Hamilton to build their Cyber fusion roadmap which is a framework that outlines the process of integrating and coordinating cybersecurity operations across the organization. Cyber fusion is the unification of all security and related functions—such as orchestration/automation, data analysis, incident response, and threat intelligence—into one operational group in order to better integrate threat detection, management, and response processes, and facilitate security collaboration between people, teams, and devices. For example, the September 11th terrorist attacks in NYC could have been prevented if the right information had been uncovered in the data and shared. Therefore, governments are now creating fusion centres to anticipate and prevent major issues such as attacks on the country from occurring.

The same can be said about retail. The 2013 Target data breach where hackers stole credit card information from millions of customers also could have been prevented if they had a better grasp on their network security environment. These tragic and damaging instances have led to the importance of getting fusion centres implemented across every business type to be able to respond, escalate, and communicate during incidents.

Implementing a fusion centre takes a lot of planning and evaluation. In order for a fusion centre roadmap to be built out, there needs to be a complete understanding of who needs to do what and when. A very detailed blueprint of the fusion centre maps out the organization of people, processes, technology, and governance. Implementing the fusion centre typically takes 3 years to build out the core functions, enhance and expand the opportunities to other areas and to deploy proactive measures.

Each company's fusion centre will be unique but aims to make headcount more efficient while eliminating redundant work or gaps between silos. Transforming operations can be challenging, but convincing employees to abandon inefficient practices is crucial for success. Ultimately, fusion centres allow staff members to have more bandwidth for tasks they are passionate about but previously lacked time for.

Conclusion: Cybersecurity teams are transitioning from defense to offense

According to ENISA (European Union Agency for Cybersecurity), which was created to enhance the EU’s cybersecurity capabilities and assist member states in addressing cyber threat vulnerabilities, the Commerce and Retail sector faces major threats that are targeting monetization services. For example, such threats can impact booking and payment capabilities, which are key components of the core business.

Retail businesses are also being hit with data leakage, ransomware, and malware which can occur through website infections, skims or stolen payment card information, among other things. For example, in 2020, South Korean conglomerate and retail giant E-Land suffered a ransomware attack causing 23 of its retail stores to suspend operations while they dealt with the attack. As retail businesses rely more and more on technology, the opportunity for threats increases, but so do the opportunities for advancement.

Specifically, the cybersecurity space has been hit by major technological advancements thanks to progress made in AI and ML solutions that are bringing new challenges to businesses. As technology advances, so do the techniques and capabilities of attackers. But the ‘bad guys’ are not the only ones that are becoming more empowered, cybersecurity teams can now leverage advanced AI tools to be able to build machines that can anticipate future attacks and automate processes to better manage, categorize, and escalate the various threats.

As such technologies advance, the human side of the business remains key. Cyber-attacks can be prevented through the implementation of proper communication channels.  Therefore, fusion centres are being built out to create a unified security team that addresses gaps and removes redundancies, thus making each position more efficient and reactive.

Historically, cybersecurity teams have played defense – addressing threats and incidents as they occurred, and responses were based on past events. But now, thanks to generative AI and ML and efficient communication hubs, a company’s cybersecurity team is able to anticipate future issues in order to put out a flame rather than face a fire.

Credits: IADS (Mary Jane Shea)

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To the relief of many retailers, Chinese borders reopened in January 2023 after 3 years of closure. While they learnt how to survive during and after the pandemic by addressing local clients and other nationalities, they eagerly waited to see Chinese tourists back in stores, especially in Europe, where they represented 50% of luxury sales before the pandemic, according to Altagamma.

2022 was not bad for continental European retailers: Galeries Lafayette and Printemps in France almost fully recovered to their 2019 levels, while La Rinascente in Italy, Breuninger in Germany and El Corte Inglés in Spain all exceeded either their 2019 sales revenues or profits. This can be attributed to several factors, the strength of the US dollar (an incentive for US tourists to splurge into luxury purchases in Europe), European tourists criss-crossing the continent to spend their Covid-19 savings, the UK decision to scrap VAT relief channelling clients to Paris, Milan and other destinations, among others.

However, these conjunctural factors are not expected to last. In parallel, while the Chinese appetite for luxury has not faded, overseas retailers wonder if they will be able to get a piece of the pie, which is why anxiety about Chinese tourism is mounting. Knowing when exactly they will be back, and what they will be looking for, is key to make sure stores are properly prepared to welcome such customers again.

This article was first released on MindRetail as an op-ed.

Will Chinese customers be back on time to save the next season?

According to various sources, a large-scale return of Chinese tourists should be expected in Europe only during the second half of 2023 (either during the summer or the Golden Week in October), while the most pessimistic reports mention early 2024.

It’s not that they do not wish to travel, on the contrary: just after the borders reopened, Fliggy (Alibaba’s travel branch) reported an increase of 200% in travel bookings, while Chinese travel agency Trip.com noted that outbound travel bookings multiplied by 18 times last April. However, long-haul international trips are another story:

-    A backlog of passport renewals and visa applications in China after 3 years of closure explains why closer destinations such as Hong Kong, Thailand, Japan and Singapore are easier to visit (not to mention the efforts these countries actively pursue to court Chinese tourists, such as Hong Kong giving away free airline tickets and food vouchers to encourage visits),

-    Airline tickets are scarce, as ramping up the frequency of flights takes time and people. For instance, Air France opened 6 weekly flights in May, up from 1 in January, far from the 30 operated pre-pandemic. Add to that diplomatic arm-wrestling since Chinese companies are not restricted to fly over Russia to come to Europe, while European companies see their operational costs increase by more than 20% to go around Russia (due to the war-related restrictions), and this is the perfect cocktail for high flight prices and a lengthy return to normal,

-    In addition, China developed its own luxury market during the pandemic, as illustrated by Hainan, the duty-free national mecca, where overall sales doubled in 3 years and customers can find prices which are competitive even with France (while, in the past, the price difference could justify a trip there).

Consequently, the sight of Chinese tour-operators in European city centers is still a distant idea. On XiaoHongShu (the “Chinese answer to Instagram”), out of all cities mentioned from September 2022 to April 2023, only London made it in the top 10 destinations (Paris is ranked 13th).

This does not mean that Chinese tourism has not resurrected at all. LVMH’s CFO mentioned that a new breed of Chinese tourists, travelling as individuals and not in tours anymore, was spotted across the globe. This raises another question about the very nature of these post-pandemic Chinese tourists.

Who are the Chinese tourists currently travelling to Europe?

So far, they are wealthier, with a higher education background, and probably more demanding than the ones that came to Europe in tours before the pandemic. This is not to be taken lightly:

-    They favour safe and Chinese-friendly places, i.e. countries that offer easy access to visa and security. For instance, Italy is taking the lead over France when it comes to visas. While French retailers are pressuring the government to speed up the flight frequency, Italy lowered the visa application cost, a smart move given that the first country visited usually pockets a significant share of tourists’ budgets. Security also explains the rise of newcomers, such as Balkan countries (Montenegro, Croatia, Georgia), as they are being seen safer than traditional destinations.

-    They are highly digital, well-informed, and unresponsive to clichés (such as rabbit-shaped products for the year of the rabbit). They favour experience and discovery over products and are also extremely interested in wellness and health-related options. Some of them even combine business trips and leisure travel, which raises questions in terms of how to accommodate such customers.

In short, recipes of the past won’t work. First, retailers’ attractivity should not be taken for granted, and the ones who invested during the pandemic to overhaul their shopping experience (such as Printemps’s revamp or the Galeries Lafayette flagship store renovating its cupola) will reap the benefits of their patience. Second, Chinese customers will be expecting a very different set of products and services, which should come as a justification for such travel. In other words, European retailers are now facing competition from China itself when it comes to tourists visiting their stores, and the risk of disappointment is real.

How are retailers preparing themselves?

The reopening of Galeries Lafayette’s Shopping and Welcome centre last month, a 2,800 sqm space dedicated to Asian clientele after 3 years of closure, is only the visible part of the iceberg on how Europe is preparing itself to welcome back Chinese customers. It would be misleading however to believe that retailers rely on old recipes to welcome these new-gen tourists.

First, they are preparing through a total reinvention of their product offer:

-    While they had to cap that category during the lockdown, stores are muscling their ultra-luxury offer, mirroring what brands are doing either at home (with the opening of a mega-flagship such as Dior or Cartier in Paris) or in China (with salons only opened to ultra HNWI in the Chanel, Louis Vuitton and Gucci stores at SKP). This has translated into new and larger spaces (such as with the new Rolex boutique in Galeries Lafayette or the double-decker stores in El Corte Inglés) but also the multiplication of takeovers, as seen in Harrods (Louis Vuitton, Dior, Celine) or KaDeWe (Dior). When it comes to the category, it is all about stocking up bags and hard luxury goods over RTW, which implies difficult negotiations with brands who prefer to keep these high-margin products for themselves.

-    They also focus on curating new brands, to provide younger customers (84% of Chinese travellers are Millennials and Gen X) uniqueness and originality with niche product offering. This is why Breuninger has opened B-Spaces, designed to provide a radically and highly curated selection of products.

-    Surfing on the growing interest from Chinese customers for fragrances, perfume bars have been reinvented:  Printemps and KaDeWe both redesigned their spaces. More generally, wellness is growing in China, as Covid impacted mental health. As a consequence, gyms are opening everywhere in the country, and wellness is now a trend meaning that new offerings, such as Galeries Lafayette’s Wellness Galerie, could prove to be a master move.

However, as mentioned, retailers also adapt to the fact that Chinese customers look beyond products (8 out of 10 favour experiences):

-    They crave for in-store experience (a common sight at home in places such as SKP-S). This is why luxury brands’ flagship stores and initiatives (such as the LV Dream restaurant) should attract crowds, and retailers should develop new concepts, such as WOW in Madrid. Also, culinary experiences are now key in department stores, which is why the first Michelin-starred restaurant opened in a department store, at El Corte Inglés.

-    Services are crucial, as Chinese customers no longer wish to queue for hours outside of a store. They prefer to connect with a local sales associate who knows them and can advise them personally. This pushes retailers to invest in their CRM, such as with Magasin du Nord. Also, being able to deliver products to their hotel, or offering them click & collect for products selected when in China for pick up while in the store, are services that are being developed. Every detail counts: La Samaritaine’s automatic tax-free kiosks are a competitive advantage for customers valuing speed and convenience.

-    Overall, retailers are developing “China-ready” teams, including Chinese speakers, translating point-of-sale material, and offering Chinese payment systems (China UnionPay, Alipay, WeChat Pay). Such teams are also trained to learn the culture codes and avoid any misstep.

Conclusion: standing out of the crowd will not be a question of products, but systems

The most difficult will be, however, to stand out of the crowd not only by being perceived as the “must-be” visited place, but also by being visible where Chinese customers look for information, i.e. the appropriate social media (60% of wealthy Chinese customers research a product online before buying it). Retailers have to make a choice, as there are significant differences between WeChat (where Harrods launched branded stickers), Tmall (where El Corte Inglés has a store) and others. That also implies having a dedicated content and marketing team, understanding the market to partner with the right KOLs, and a Chinese-focused promotional calendar (while CNY and Golden Week used to be the main events, Single Day, Couple Day and Women’s Day are now significant opportunities).

Finally, CRM systems that companies have rushed to deploy in the past few years will be delivering their full value, especially trans-national ones. Central Thailand’s unified system, which allows customers to accumulate points when indifferently shopping at la Rinascente (Italy), Illum (Denmark), Globus (Switzerland) or Selfridges (UK) represent, a good use case that should appeal to Chinese customers when travelling in Europe.

Credits: IADS (Selvane Mohandas du Ménil)

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

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

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

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

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

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

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

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

Introduction: a global overview of the world situation

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

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

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

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

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

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

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

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

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

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

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

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

Tech is a necessity, but not an end-game

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

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

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

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

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

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

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

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

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

The transformation of leadership and how to manage customers and teams

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

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

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

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

-    Are they relevant for the business?

-    Do they positively contribute to the distribution?

-    What do they bring to the structure?

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

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

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

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

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

Extraordinary times indeed!

To go further:

WRC CHAIRMAN REPORT

Credits: IADS (Selvane Mohandas du Ménil)