WORLD RETAIL CONGRESS 2009 IN BARCELONA KEY ISSUES FROM THE CONGRESS By Jens Høgsted
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CONTENTS WORLD RETAIL CONGRESS 2009 ....................................................................................................................... 2 ECONOMIC RECOVERY IN SIGHT.................................................................................................................... 2 TRADING THROUGH THE DOWNTURN ........................................................................................................... 2 THE IMPORTANCE OF INNOVATION................................................................................................................ 2 CUSTOMER CENTRICITY IN FOCUS ................................................................................................................ 3 TRUE MULTICHANNEL STRATEGIES............................................................................................................... 4 SUSTAINABILITY - STILL A HOT TOPIC............................................................................................................ 4 THE POTENTIAL OF EMERGING MARKETS .................................................................................................... 5 WORLD RETAIL AWARDS 2009 ............................................................................................................................ 7 WANT TO KNOW MORE? ...................................................................................................................................... 8
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WORLD RETAIL CONGRESS 2009 SHORT SUMMARY OF THE KEY ISSUES AND TRENDS ON THE AGENDA
growth will have a significant positive spillover effect on the Asian and European economies.
In May 2009, over 1,000 retail executives and advisors from more than 50 countries around the world gathered in Barcelona for the World Retail Congress 09 (WRC). The three-day event included more than 50 sessions where top personalities from some of the world's leading retailers discussed current hot topics on the global retail agenda. Quartz+Co had a delegation at the conference, and we have summarised the key issues in this paper.
Dr. Ira Kalish had no doubt: "There will be some long-term structural effects of the crisis, but within a relatively short time frame, retailing will be fun again … the end of the global recession is in sight." He expected to see the first signs of this end in late 2009 or early 2010 – an opinion that was supported by several other top economists at the WRC.
The economic crisis naturally received a lot of attention. A large part of the conference was dedicated to discussions of the impact and length of the crisis and of how to navigate successfully through it. However, many themes not directly linked to the crisis were also the topic of lively debate. Across speakers and sessions, we have identified seven themes that summarise what is on the global retail agenda.
ECONOMIC RECOVERY IN SIGHT At this time last year, the economic crisis was primarily a US phenomenon that had yet to significantly impact retailers in the rest of the world. However, within the last 12 months, an increasing number of retailers around the world have found themselves caught between a credit contraction that has hit their suppliers and banks on the one hand and an economic downturn that has dramatically changed consumer spending on the other. At the WRC, the general tone was nonetheless optimistic. Deloitte director of global research Dr. Ira Kalish stressed that a recovery of the US and Chinese economies is key to global recovery. According to the US Census Bureau, US retail spending between January and May 2009 was 7.5% lower than that of the same period in 2008. A surprisingly sharp slowdown in the Chinese economy has had a huge impact on the rest of Asia. However, in China consumer spending still holds up well, and according to Dr. Ira Kalish, the US housing turnover and refinancing are accelerating, setting the stage for a rebound in consumer spending. This
However, not all attendants shared this optimism. Several retailers had more modest expectations to the future. In his presentation, Toys"R"Us CEO Jerry Storch argued that no one really knows how long the recession will last. The first fruits of a recovery are yet to be seen, and retailers therefore still need to be very cautious when planning the future. QUARTZ+CO'S VIEW ON THE ECONOMIC RECOVERY When this economic crisis will come to an end is indeed a very tough question to answer. At the WRC, there was a positive sense that the recession will end soon, but in general, leading economist disagree on the question. Most of our clients have been significantly impacted and have yet to see the light at the end of the tunnel. Our best advice for retailers is to prepare for a few lean years. If an upturn should appear sooner than expected, it will not happen so fast that retailers do not have time to adjust their strategies accordingly.
TRADING THROUGH THE DOWNTURN Though the length of the current crisis was up for debate, there was absolute consensus that the crisis has impacted the consumer behaviour significantly and permanently. According to all leading experts at WRC, there will be no return to pre-recession trading. Trading successfully through and after the downturn will require a completely new approach to the consumers. "It is not a weather change … it is a climate change" Jim Stengel (former P&G executive) Tesco's International director Philip Clarke explained how grocery shoppers have reprioritised their values during the crisis. Adjusted buying patterns suggest that they do not need so many 2
choices. As a response, grocery retailers are increasingly focusing on discount and small box stores. Tesco has just launched the Express format in the US, the UK and China, and both Wal-Mart (Marketside) and Carrefour (Market) have launched new, smaller shop formats. At the conference, several top executives revealed the headlines in their strategies for trading through the downturn. One of them was Richard Simonin, CEO of the global lingerie retailer Etam, who carefully explained each step of his three-step plan for managing through the crisis: Improving store operations by: Optimising the store network Reviewing all processes and introducing strict control Focusing on core activities Working with the price perception of the products Streamlining the product mix Introducing "Customer in our heart" as an overall chain theme in Etam to increase employees' customer focus Creating innovative store concepts by: Upgrading the current shop concept to strengthen the attractiveness of the chain and ensure that the chain is ready for the toughened competition that the crisis has brought Introduction of a "sister" chain with a completely new and innovative store concept and design. The aim is to cater to a larger segment of customers within the core business, lingerie, thus leveraging Etam's scale and industry knowledge Reinforcing the brand by: Using co-branding with other clothing companies that target the same customer segment. Through this initiative, Etam is able to reach more customers while cutting marketing spend Concentrating their marketing resources on a few powerful campaigns rather than spreading out the resources. Most of Etam's marketing budget is spent on campaigns that use top models Marving Traub (former CEO of Bloomingdales) and Jim Stengel (former P&G executive) also had a few suggestions for how retailers can survive the downturn: Persuade the customers to get back into the
spending mindset … retailers need to upgrade the customer experience in order to maximise the likeliness of converting visit to sales. One simple
way to do this is by improving the in-store service level Keep innovating … the consumers becoming
more cost conscious does not mean that they do not value a unique product or unique shopping experience. On the contrary, investment and innovation have never been more crucial. Retailers should resist the temptation to cut costs here
Have a clearer value proposition … that fits
with the need of the customer. At all price levels, retailers need to be much more direct and explicit about what values and benefits the customer gets from buying the product. Most importantly, the retailer needs to make sure that what is offered is exactly what the customers demand (i.e. customer centricity)
Develop multichannel strategies … it is not just
a question of having an online shop but about thinking multichannel in much more creative ways. For instance, mobile commerce and social networking truly differentiate the retailer
"The Chinese character for crisis is the same as the one for chaos and includes two elements – one meaning 'danger' and the other 'opportunity'" Dr. William Fung (Li & Fung) QUARTZ+CO'S VIEW ON TRADING THROUGH DOWNTURN It is clear to everyone that the current economic crisis is serious and obviously calls for action. However, we believe that this crisis offers much more than a period of low growth for retailers. This situation offers an opportunity to consolidate market position for those retailers with a clear strategy. In our white paper Retailers at the edge of an opportunity, we have outlined how retailers via a simple, structured strategy process can optimise their business to become more profitable. Profitable retailers with room for investments should seize this golden opportunity to act while competitors are tied hand and foot. The current downturn is a great chance to acquire long-term market share that normally would not be up for grabs!
THE IMPORTANCE OF INNOVATION The recurring theme throughout the WRC was the notion that innovation is still key in tackling recession. Now more than ever, the retailers must do all they can to differentiate themselves and give 2
customers what they want – as well as what they did not even know that they wanted.
recession, retailers need to redouble their focus on the customer.
It is one thing to talk about maintaining a focus on innovation. But in a recession, where organisations are focused on cost-cutting, it is hard to translate these intentions to action. Nonetheless, according to Vittoria Radice, CEO of La Rinascente, the biggest Italian chain of department stores, it is very risky for retailers to stop innovation: "To come out of the recession successfully, there is a need to take risks. You may not have the means to do it, but there is a need to do it!"
But what is customer centricity? CEOs often state: "Our customers always come first!" But is this customer centricity?
How do you ensure that your efforts within innovation bear fruit? President of Estée Lauder, John Dempsey, underscored that you absolutely cannot. Most great ideas involve calculated risk, and even in these challenging times, retailers should allow a modest margin for failure. He continued by pointing out that innovation actually does not have to be difficult. Usually, the most successful innovations stem from the retailer's heritage: "All successful brands are successful because they have a unique DNA, so when innovating, you should go back to why you are/were successful and contemporise it." Successful innovation means striking a balance between ideas and commercial viability. As chairman of Disney Consumer Products John Demsey put it, "The very best companies have the ability to be very competitive and make incremental gains". He concluded his presentation with the comforting observation that the most innovative times in fashion and music historically have taken place in dire financial situations. QUARTZ+CO'S VIEW ON INNOVATION Innovation should not be set on standby because of the recession. On the contrary, change and innovation should become an even stronger integral part of day-to-day operations. In retail, many great innovations and ideas originate from the shop floor. During this recession, retailers must really look in the mirror and ask whether innovative processes are in line and if they ensure that vital input from the front-line is processed.
CUSTOMER CENTRICITY IN FOCUS Customer centricity was the topic of many sessions at the WRC. When consumers' budgets contract as dramatically as in the current global economic
To put customer centricity into context, the WRC panel started by defining what customer centricity is not. In their view it is not: Customer first, as this cannot guide decisionmaking A loyalty card, as discount cards do not necessarily engender real loyalty Market research, as this only tells you what to do, not why and how A strong service culture, this is good – but not enough Aiming products at target segments, as this is only push not pull Customer centricity is about pulling customers towards you by creating value for them and thereby earning their loyalty. For Robert A. Willett, CEO of Best Buy, the most important aspects of customer centricity are: 1. Look through the lens of the customer: What do the customers truly value 2. Make the organisation put the customer at the centre of everything it does: All costs should be allocated to customer segments and customer segment P&Ls tracked 3. Create a culture which ensures creative and local solutions in the shops: Front-line personnel needs to be encouraged to develop creative local solutions in each shop Customer segmentation was a hot topic. The challenge is to move beyond the brand's target group and develop tailored approaches to each customer segment within the target group. How can you encompass more customer segments – for instance the family man, the bachelor, the specialist – in one concept? The panel attendants agreed that through strong segment strategies you can target specific customer groups. Best Buy even claimed to present specific stories to different customer segments in the same shop.
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QUARTZ+CO'S VIEW ON CUSTOMER CENTRICITY Many Nordic retailers draw customers towards their shops through strong business models and brands. However, few Nordic retailers work thoroughly with customer segments. They may have a target group connected to their brand, but have yet to define the segments within this target group. Retailers need to ask themselves: Which customer segments enter our shops, and how do the different stories we tell fit these segments and make them buy our products?
TRUE MULTICHANNEL STRATEGIES Online retailing is enjoying double-digit growth even while markets in general are down. This makes online retailing an important topic. Retailers like Borders (bookstore) and Forever 21 (fashion) at WRC related their success to online retailing. But Ron Marshall, CEO of Borders Group, also stressed how important it is for retailers to realise that being a true multichannel retailer includes much more than just opening on online store. He explained how Borders has developed a number of channels other than the psychical and online shops. To Borders, events, readings in the shops, facebook etc. are also important touchpoints to open a dialogue with the customers. The key is to create synergies between the channels or customer touchpoints and make them work towards the same goal: to get the loyal customers you need and keep a continuous dialogue going with them. At another session, Matt Harker, VP at LEGO Retail, presented LEGO's work on multichannel retailing. Just like Ron Marshall from Borders, he emphasised the importance of using all possible customer touchpoints to create customer loyalty and even a customer community. In the following figure, their channels and customer touchpoints in focus are illustrated. Figure 1 LEGO's channels or customer touchpoints QUARTZ+CO'S VIEW ON MULTICHANNEL E-mail dialogue
Physical shops Club magazine
Theme parks LEGO's channels or customers points
Console games
Online shop
Online games
Robotics competitions
STRATEGIES There are few excuses for not having online business these days. Customers are ready, and growth has been resilient to the recession, as customers increasingly search for bargains online. Quartz+Co has helped many retailers establish a foundation for their online business by designing and implementing online retail strategies. However, few Nordic retailers have truly multichannel strategies in the sense that they exploit channel synergies and develop an ongoing dialogue with their customers. Both from our experiences and from various cases mentioned at the WRC, it is obvious that many retailers do not even have an overview of all their customer touchpoints. Therefore, they cannot ask themselves what to do with them and if they need even more. They are fighting the battle for loyal customers with one hand tied behind their back.
SUSTAINABILITY – STILL A HOT TOPIC Though the financial crisis loomed large at the WRC, there was still room for another important topic: sustainability. Several sessions were dedicated to this topic, and the message was clear: sustainability is no longer an appendage to the business model, it is a central element. To paraphrase one of the panel discussions: Focusing on sustainability across the retail value chain is no longer elemental to the business ‌ it is fundamental! But has the current economic crisis led consumers to focus less on sustainability? According to a Havas Media consumer survey of more than 22,000 respondents across 10 markets, the answer is a resounding no! More than two-thirds of consumers claim they would go out of their way to find out more about companies' social and environmental practices. Almost half of consumers are prepared to pay more for sustainable products. Focusing on sustainability does not necessarily contradict with the retailer's objective of making a profit. In a session on sustainability and the supply chain UK retailers, Argos and DSGi described how focusing on sustainability has yielded major cost savings. Both are now rerouting runs and using multi-deck trailers to increase the amount of space they can occupy in trucks. The upshot has been a significant reduction of lorry miles, cost savings and a reduction of CO2 emissions all at the same time.
Online universe
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Argos' director of supply operations Duncan Kendal argued that cost and CO2 savings can be found anywhere. Thinking outside the box can generate some very fruitful initiatives. For example, they have asked a supplier of low-cost mattresses to remove air from the mattresses prior to shipping, reducing their size significantly thus reducing lorry space, which has had a positive impact in both economic and carbon terms. "It is not about retailers not doing bad … it is about actively doing good!" David Shriver (Special Advisor, Carrefour) At the conference, a number of UK retailers were particularly showcased for their sustainability initiatives: Marks & Spencer: Has launched a "Plan A" with
THE POTENTIAL OF EMERGING MARKETS In keeping with previous years, emerging markets were a WRC topic in 2009. However, things have clearly changed. Expansions into emerging markets are less bold and more directed as the focus has changed to core markets. Despite this, there was general agreement that opportunities still exist for the prepared retailer with a strong and proven concept. As the international director of Tesco put it: "The window of opportunity in emerging markets appears to be opening, not closing … you can say that things are going to be slow or difficult but you have to look at the long run" Phillip Clarke (International Director, Tesco)
100 sustainability targets for the company pertaining to energy, waste, sourcing and people over the next five years. An 80% reduction in the number of plastic shopping bags has already been realised Tesco: Has defined a sustainability manifesto that applies across the global chain. Tesco has set a target for the whole business to halve its carbon footprint by the year 2020
Through different sessions a number of specific markets were discussed – especially India, China and Russia. For these markets, forecasted growth is still approximately 10% or more between 2009 and 2013.
Tesco's Corporate Affairs Director Lucy NevilleRolfe summarised the sustainability discussion by cautioning against a half-hearted approach to sustainability. "The world's greatest retailers today … have sustainability as an integral part of what they do rather than opting for a pick-and-mix approach… and to those of you who are not consistent in the sustainability message delivered to shoppers … you will see it backfire big time!"
The CEO of Shoppers Stop insisted now is the time to invest in India, as many retailers have already established a presence. If you want to reach a large market share you cannot wait.
QUARTZ+CO'S VIEW ON SUSTAINABILITY The WRC very clearly emphasised what many retailers have known for years: the issue of sustainability must move up on the strategic agenda for retailers worldwide. Focusing on sustainability makes sense not just from an ethical point of view but also from a profit motive. Yet, too many retailers today are hesitant to truly commit themselves to sustainability. We know that the challenge of incorporating principles supporting sustainability may seem immense and confusing. There simply is no magical Swiss Army knife. Nevertheless, sustainability is a challenge that all retailers can and should address following a structured process.
India The panel disagreed as to whether or not now is the time to enter India.
"Come to India in the next five years or don't bother" BS Nagesh (CEO, Shoppers Stop)
However, he pointed out that successful entry requires knowledge of the country. India is not homogeneous, and you cannot see it as entering one country, but rather a group of related markets. Rather than opening shops in all the large Indian cities and expanding from there, retailers should focus on taking one region at a time. Ian Cheshire, chief executive of the world's third largest home improvement retailer, on the other hand, had a slightly different view of the attractiveness of going to India. "For some emerging markets, such as India, it's too early and the market isn't ready for a large home improvement retailer yet" Ian Cheshire, CEO, Kingfisher 5
China Retailers attending the panel discussion, like Spar International, Tesco and the local player Wumart Stores, all agreed that the opportunity still abounds in China. Tesco's International Director Phil Clarke said the company would continue to invest in China, adding roughly the same amount of space in 2009 as in 2008. Growth among the top 100 chains has, however, slowed because of the general market slowdown and market penetration that was high before the recession. Smaller chains with low market penetration do not feel the slowdown as acutely since they are still growing market shares.
especially since rents have plummeted. He noted that fashion retail rents are three to four times lower compared to pre-recession levels. QUARTZ+CO'S VIEW ON EMERGING MARKETS Retailers have become more cautious about emerging markets, especially if they have not yet established a presence – and rightfully so. The primary focus should be on consolidating existing markets and reinforcing the bottom-line. Global retailers with a strong retail concept and efficient model, however, still have large opportunities in emerging markets. These retailers should not be holding themselves back.
Main conclusions from the discussion on China include: A regional approach is needed When entering China, you need to take a regional approach, as Cordon Campbell, Managing Director of Spar International, pointed out. Like India, it is a very large, heterogeneous country, and you need to conquer it step by step Sales growth strong in tier-two and -three cities Sales growth has shifted from being strong in large and traditional tier-one cities to second- and third-tier cities Very large potential in ecommerce Dr. Wu Jianzhong, Chairman of Chinese-based Wumart Stores, pointed out that there is a large and unexploited potential in ecommerce, as more than 300 million Chinese people have access to the internet Russia Panel attendants were divided over whether retailers should attempt to enter the Russian market at this time. Oleg Tzarkov, Managing Partner of Svarog Capital Advisors, contended that it is not a good time for retailers to enter Russia. However, the international crisis will expose the weak standing of inefficiently run players. This will create opportunities for retailers with an efficient business model to grow organically by buying small companies. He added that multiples required to buy a retail company have dropped from 6-14 x EBITDA in January 2008 to 3-10 x EBITDA in January 2009. Dixy Group president Ilya Yakubson disagreed and claimed that it is the time to come to Russia, 6
WORLD RETAIL AWARDS 2009 RETAILER OF THE YEAR Apple Retail Other nominees: Aldi Pao de Açucar Group Fast Retailing Primark Wal-Mart MULTI MARKET RETAILER OF THE YEAR Inditex Other nominees: Aldi Fast Retailing Koton Mothercare PPR EMERGING MARKET RETAILER OF THE YEAR Wumart Stores Other nominees: BreadTalk Empik Fozzy Group SMYK Truworths International BEST IN-STORE ADVERTISING CAMPAIGN Saks Fifth Avenue: "Holiday 2008" Other nominees: Carrefour: With Love to Environment Flexa: Invest in Your Children Max: Max in the City Nokia Flagship: Nokia Nseries Campaign 2008 Shoppers Stop: Start Something New
RETAIL DESIGN OF THE YEAR Nike Town, London Other nominees: Harvey Nichols – Harvey Nichols, Jakarta HMV – Liverpool One, UK & Ireland Monki AB – Monki City of Oil and Steel, Sweden Teknosa – Planet, Istanbul Timberland – Westfield, London RETAIL INNOVATION OF THE YEAR Fashionology Other nominees: Aqui É Koton Real - Future Store/METRO Group Undiz Urban Outfitters E-TAILER OF THE YEAR Zappos.com Other nominees: mydeco.com New Look Retailers Tesco.com Topman.com YOOX Group RESPONSIBLE RETAILER OF THE YEAR Migros, Switzerland Other nominees: Cargills Food City Marks and Spencer Tesco WM Morrison Supermarkets Woolworths Holdings – South Africa OUTSTANDING LEADERSHIP AWARD Ron Johnson, Apple
BEST DIGITAL CAMPAIGN JC Penney: "Beware of the Doghouse" Other nominees: HSBC: Green Sale Kmart: Kmart style show off OfficeMax: Penny Pranks Sears: Back to school TK MAXX: Get the look for less
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WANT TO KNOW MORE? Quartz+Co is the leading management consulting company for Nordic retail and FMCG customers. We have built valuable experience through the projects we have solved together with our Nordic customers (50+ projects).
M: +45 22 70 64 74 E: jens.hogsted@quartzco.com W: www.quartzco.com
The retail experts at Quartz+Co have solid strategic skills, a high level of industry knowledge and vast experience with implementing best practice within operations, marketing, organisation, concept development and chain management. We have created documented and lasting business improvements and are today serving as "house consultants" for at number of the most recognised retail brands in the Nordic region.
Jens Høgsted xx
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