World Retail Congress 2010 Â– Round-up
Retailers around the globe are grappling with embracing the new digital world while also balancing this with their existing stores estates and the infrastructures that support these legacy operations. By Glynn Davis
At the World Retail Congress in Berlin last week these were the recurring themes delivered by many of the speakers who had congregated from around the world, which highlights how big an issue the digital wave is to established retailers.
It’s becoming a digital world
MichaelGould, chairman and chief executive of US-based Bloomingdale’s, might have highlighted how vitally important people are to retailing success but he could not escape discussing just how valuable are the customers that shop across both the company’s online and physical stores.
"We can see the cross over with online and these customers have 2.8 times the value of a customer that only goes into our shops. It’s about being omni- channel,” suggests Gould.
Angela Ahrendts, chief executive at Burberry, was equally vocal about the impact of the internet on her business and recalls her early days at the company when dealing with “a digital tsunami, on top of the financial crisis”. But a focus on the former has enabled £80 million of inefficiencies to be taken out of the business.
Digital now affects all parts of the business, she reveals: “Two years ago we started hiring digital experts for our ‘Strategic Innovation Council’ and this is changing the way we do business. [Digital] content connects all that we do.”
This has involved streaming live catwalk shows direct to big screens in the group’s flagship stores around the world and for orders to be taken immediately in-store on iPads. “Working in this integrated way is the only way to do it. This is the requirement of the digital world and it also extends to our suppliers,” says Ahrendts.
This might be the requirement but this does not make it easy for traditional stores-based retailers to adapt to this changing world. Susan Aubrey-Cound, director of multi-channel development at Marks & Spencer, says there has to be a “big shift in mindset” and that this is a big challenge for established merchants.
Multi-channel integration is a challenge
Even when there is an acceptance that the company should capitalise on the growth that is being enjoyed online by multi-channel retailers, she says it is still a tough task to get sign-off on developing a true integrated multi-channel strategy.
“It can be hard to put together a compelling business case as it’s very easy for people to challenge the capital expenditure with its untested ROI so you need some quick wins. You have to demonstrate strategic wins. We do small trials outside London and get the teams to buy-into it.”
She indicated that M&S was in the process of “tying together” its legacy stock systems (for the stores) with the dynamic of one-to-one ordering (for internet orders) and is two years down a three-to-four year journey although Aubrey-Cound admitted this time-frame “changes as things get added”.
For a growing number of retailers this growth in the online channel and the recognition of the benefits of a multi-channel approach is posing problems as it casts a light on the issue of how to deal with their store estates.
Growing need for right-sizing of store portfolios
Thomas Fox, chief executive of German-based department store Karstadt, says the company has a lot of stores and is looking at how to re-configure its space. He cites multi-media products as being previously big in-store but not anymore as sales have shifted online. “What do we do with the space? We need flexibility,” he says.
One consideration is to bring in other brands on a concession basis but he describes this as “sweet poison” and adds: “It reduces complexity but you need to retain the core of your retail brand.”
Christopher Lee, president of PDO Advisors and former executive director of Forever 21, is working with Sears Roebuck in the US to “right-size” its extensive real estate portfolio through an innovative revenue-sharing model.
This involves the creation of the SR3 chain that will take space within 50 Sears department store and let it to young, exciting brands that are not stocked in the Sears stores. “It’s a solution to a hangover of retail space. We said, ‘let’s take a slice and right-size your estate’. There is a need for [such] alliances,” says Lee.
Customers are taking charge of inventory
Another way the internet and digital technology is impacting on store space is through social media and online reviews. Ian Cheshire, chief executive of Kingfisher, suggests communication between customers via channels like Facebook and Twitter and retailer’s own forums is a “game-changer” that is taking retailers away from their long-held role as “editors of choice” and moving inventory choices into the hands of the customer.
Trying to get a handle on this activity requires retailers to be adept at handling data relating to their customers, which is itself posing challenges for retailers. “The investments we make are now more data-led but we are creating so much of the [customer data] stuff that you can’t see the wood for the trees. I’d like to know the customer better and respond. You have to follow the money, follow the data,” recommends Cheshire.
Learn to love your customer data
Launa Inman, chief executive of Target Australia, agrees: “We’ve a large loyalty programme and we use the card [and its customer data] to understand what drives customer behaviour. But the big thing is how do you use the data? What does it tell you?”
Philipp Schindler, vice president for northern and central Europe at Google, is not surprisingly an advocate of retailers using data to enhance their businesses. He suggests great benefits can be derived from better utilising search data and points to the statistic that $1 invested in search can result in $10 spent offline by customers.
“Look at the internet as your best business partner. Learn to love the data. Google Insights shows what customers are buying and searching for. Large retailers are using this rich data and can target customers at a better level than ever before – based on their searches,” he suggests.
Never forget people still count
However increasingly important data and digital technology becomes to the retail world there is plenty of evidence to show that this can be a driver of revenue for both the online and physical stores channels, which is a positive message for traditional retailers and their large store estates.
Gould at Bloomingdale’s provided further positive thoughts when highlighting just how valuable the store employees are to the success of his multi-channel business - especially at his New York flagship store.
He suggests the 59th Street outlet has “two per cent own label and maybe All Saints” as the only things that customers cannot buy from somebody else within a 10 block radius of the store. “It’s all about the people,” he says.
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