The new retail: apocalypse or new era?
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Retail Apocalypse. Voilà comment Business Insider qualifiait il y a quelques semaines la situation actuelle (et future ?) du retail. Et à raison : aux US plus de 8600 magasins physiques doivent fermer en 2019. La France n’est pas épargnée - en témoignent les fermetures de huit enseignes Gap et plus de 30 Conforama cet été, pour n'en citer que quelques unes. Dans le même temps, les Digitally Native Vertical Brands - ces ovnis du e-commerce devenus leaders aussi inspirants qu’anxiogènes - envahissent les rues. Littéralement : sur les 84 DNVB à fort potentiel identifiées en 2016 par Andy Dunn dans son article phare, 44 comptent désormais au moins un magasin physique. Ici aussi : difficile de se balader dans Paris aujourd’hui sans passer devant une boutique Sezane, Le Slip Français ou Jimmy Fairly. Pour passer à l'échelle, il semblerait que les DNVB doivent faire tomber le “D”. “Halo effect” disent les Américains pour décrire ce phénomène qui consiste à ouvrir une boutique physique pour considérablement augmenter les ventes online. Mais alors... Entre apocalypse et terre promise, à quoi ressemble vraiment le retail de demain ? Quel modèle, quels KPIs et quelles conditions pour émerger ?
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The new retail: apocalypse or new era?
- 1. The new retail: apocalypse or new era?
- 2. On one hand, This is the retail apocalypse 2
- 3. 3
- 4. Never have so many stores opened ,On the other,, 4
- 5. In the US, physical store openings in 2018 actually grew by more than 50% year over year For every retail company closing, five are opening stores Source: National Retail Association (NRA) 5
- 6. 5Y Growth +37% ROE 13% PER 19,7% Retail is witnessing an ‘extremization’ of its cohorts +81% 13% 26 Price Deliver value by selling at the lowest possible prices, ‘off-price’, clearly communicate that message to their consumers 5Y Growth +37% ROE 13% PER 19,7 Balanced Deliver value through a combination of price and promotion, and many offer widely available products or experiences +2% 9,4% 12,7 Source: Deloitte Insights, great retail bifurcation Premium Deliver value by premier or highly differentiated product or experience offerings 6
- 7. Net store openings and closings 109% Price Balanced -108,1% Premium +108,8% +263,8% Source: Deloitte Insights, great retail bifurcation 7
- 8. Stores, That are closing ● Decreased foot traffic in large format suburban stores ● Lack of omni-channel strategy: online & offline need to be complementary ● Brands need to relocate in the city-center FranceUSA 8
- 9. Stores, That are opening Discount chains ● DNVBs set to open 850 stores in 5 years ● Strong price-based positioning of Discount chains ● Both player are customer-centric and experience enthusiasts DNVBs Source: Retail Dive & JLL Research 9
- 11. First, economics The US economy is booming - but only profits the top 20% Over the past 5 years, the lower80% in the income distributionhave actually seen their incomestagnate or even shrink,with discretionary expensesconsiderably increasing: healthcare +62% education +41% food +17% and housing +12% Source: Deloitte Insights, great retail bifurcation 11
- 12. How does that matter to retail? Low-income choose physical, high-income choose digital 60% of low-income show propensity to shop in a physical store, while just over half of high-income consumers (52%) skew towards buying online (and this is cross-generational) Different incomes, different channels and preferences For those who have seen their income shrink, it’s all about the price Low-income consumers are 44% more likely to shop at discount retailers, supermarkets, convenience stores and department stores - regardless of their age ≠ income, ≠ channels & preferences How does that matter to retail? $ $$$ Price Experience Physical store Low-income choose physical, high-income choose digital 60% of low-income show propensity to shop in a physical store, while just over half of high-income consumers (52%) skew towards buying online (and this is cross-generational) For those who have seen their income shrink, it’s all about price Low-income consumers are 44% more likely to shop at discount retailers, supermarkets, convenience stores and department stores - regardless of their age Online store Source: Deloitte Insights, great retail bifurcation 12
- 13. Second, The emergence of a new retail model; 1. People Centered 2. Personal 3. Emotional 4. Harmonised Term ‘harmonized retail’ first introduced by Steve Dennis, Omnichannel is Dead. The Future is Harmonized retail 13
- 14. Second, The emergence of a new retail model; ..embodied by the DNVBs 14
- 15. ..embodied by the DNVBs Second, The emergence of a new retail model; 15
- 17. Text The name says it all 17
- 18. Digitally Native A cosmetics tech company Tech staff 40% of Glossier staff are tech profiles Own tech solutions Warby Parker’s proprietary algorithm to perfectly place virtual frames on the user’s face Data at the core of operations Casper tracks user data at each touch-point and constantly runs A/B testing to test new ideas and solutions 18
- 19. 2 days , Vertical A single line of products Something as simple as flowers Control over the supply chain Traditional market: 4 to 5 intermediaries taking 10% to 20% fees each Producer Consumer 7 days , Producer Consumer Source: Bergamotte’s podcast & interview 19
- 20. “Brand” is at the core of their business. Through storytelling, community and user-centricity 2.4M followers on Instagram __ Channel slack with top 100 customers for co-construction __ “70% of online sales & traffic come from peer-to -peer referrals” Emilie Weiss, CEO & founder Source: Recode Decode (Jan 2019), interview of Glossier CEO Emily Weiss 20
- 21. Brands that master instagram and influencer networks like none other Fenty Beauty 8.7M followers 880k website ;visits per month Kylie cosmetics 22.5M followers Kylie Jenner 150M followers 1.1M website visits per month 70% of Revolve’s sales come from influencers 21
- 22. 👼👼 22
- 23. “We are going to shut the company down before we go to physical retail.” Michael Preysmann, Everlane CEO. Text 2012 23
- 24. .. but as they grow, they move offline Today, 1700+ stores are operated by DNVBs in the US 2018 20152017 2010 20132010 Source: Kevin Campos, a principal at Venture Capital firm Fifth Wall, and Thinknum Alternative Data, Forbes 24
- 25. “Everlane needed to open stores because ‘basically’ no online-only companies are profitable Michael Preysmann, Everlane CEO. 2019 25
- 26. Value Creation ● Goods & services ● Production methods ● Markets ● Raw material sources ● Methods of organisation ● CLV > CAC ● Barriers to entry ● Market size ● Scalable operational model Value Retention Text Product Customer Experience Emotion Convenience Value Creation and and Creating value, Retaining value J.Schumpeter, Theory of Creative Destruction 26
- 27. Going beyond the first core community: the limit of digital Core ? CAC is exploding Facebook & Google are becoming the new middleman. Facebook Ad costs have increased 17x over 2011 & 2018 90% of sales still happen offline Online sales over the next five years are estimated to grow 11.7% annually vs 1.7%. Yet, event so, in 5 years time, offline will still make more than 80% of all sales. Competition arrives fast, it’s hard to differentiate At the time of Casper’s launch (2014), there were no mattress-in-a-box services. Today, there are 175. 27
- 28. Text Offline, the new lever to boost sales... online Source: ICSC Halo effect The opening of a bricks-and-mortar store leads to a 37% spike in web traffic for that company $100 spent offline $131 additional spent offline $167 additional spent online $100 spent online (within store catchment) 28
- 30. Text DNVBs are redefining the physical retail’s role Traditional retail store A Check-out: A point of sales for the brand Product Sell what at store’s stock KPIs of a store: sales, traffic, conversion Purchase experience No unicity DNVB retail store A Check-in: A customer acquisition levier Customer Zero-to-no stock, with delivery KPIs: NPS, number of posts, number of visits Brand experience Exclusivity, unicity Vs Text DNVBs are redefining the role of physical retail Traditional retail store Check-out: A point of sales for the brand Product Sell what’s at store’s stock Purchase experience KPIs: on sales DNVB retail store Check-in: A lever for customer acquisition Customer Zero-to-no stock, with delivery Brand experience KPIs: on experience & impressions VS 30
- 31. Text DNVBs are redefining the physical retail’s role Text DNVBs target locations to be exactly where their targets are Tediber, no-stock store in the core of the Marais. The brand can get a 60m2 store in the center of the city instead of a 200m2 one in the suburbs like the usual furniture stores. A touch and feel store Visible by everyone in the street, not only instagram followers 31
- 32. Text DNVBs are redefining the physical retail’s role Text From product purchase to a brand experience Sézane, the store as a branding media After the Apartments, Sézane launched Libre Service in Batignolles neighborhood “We want people to come to spend a moment with us” Morgane Sézalory Tables, multiple brands magnifying Sézane products, a vintage corner, upcycling and repairs corner, tea & coffee available. 32
- 33. Text From salesperson to live community manager Marionnaud Sales Assistant job offer Sézane Sales Assistant job offer 33
- 34. The new KPIs for the physical store Text Conversion rate Footfall Sales in the store area (both online & offline) Posts social networks Halo effect (average basket online after an offline purchase for an identified customer and vice versa) Sales-in-store Net promoter score Average basket 34
- 36. Build, buy or partner, traditional strategies applied to DNVBs 1. Create #Build #Partner Build it yourself Build it from your partner community 2. Buy & grow #Buy Buy, do not absorb but support growth 3. Adapt #Buy #Build Buy it, learn from it and then adapt the model you target with your own rules 36
- 38. The Build strategy Traditional players are launching their own DNVBs, with mixed results. 2018 Be prepared to CAC growth Strong launch, Ontex reduced marketing investment ? Lillydoo 420k website visits/month Little Big Change 52k visits/month 2017 Know what you're good at The best social media launch 30M$ invested 50,1% shareholder Turnover 570M in 2019 10% engagement rate 2017 Don’t do things by half Poor delivery experience, no marketing strategy Dollar Shave Club 2.5M visits/month Bic Shave Club 21k visits/month Different results... 38
- 40. Buy Shiseido acquired Drunk Elephant for $845M in October 2019, a fast way for the group to access a more premium target on a new market (clean beauty) through a brand that already masters digital codes. But it is expensive... Drunk Elephant expected revenue in 2019: $100M 8-9x multiple deal Source: Bloomberg 40
- 41. The Shiseido Strategy: acquisition of Drunk Elephant Strong international footprint (even more in Asia)// Know-how of physical retail operations Performing best on premium brands Yoy sales growth of 16% (compared to 12% of cosmetics and personal care) // Not performing well in Americas / and EMEA operating margins -8.7% and -6.4% // Not enough online sales 16,4% of sales Slow internationalization Willing to strengthen in Asia// Low physical retail presence Only through Sephora// Premium clean beauty positioning Strong presence in the US ebitda margins between 20% and 30% , // Know-how of online sales models Strong growth x4 sales between 2016 and 2019, $100bn revenue expected in 2019 $845M deal, Enter the clean beauty market with a premium high growth brand while offering an international offline footprint Source: Bloomberg 41
- 43. Acquired in 2016 $3bn 2017 $310M $50M 2018 $100M Buy then build: The Walmart strategy In 2019 : $1bn lost by e-commerce division Sell; Modcloth Oct 2019 Slow down; Bonobos: ● staff reduction 2019 ● online sales decreased by 12% following acquisition 43
- 44. Text Then Walmart changed its strategy In 2018, Walmart launched Allswell, a Casper-like company, distributed in Walmart stores and website and for Walmart’s current customers. And it seems to work… Then Walmart changed its strategy In 2018, Walmart launched Allswell, a Casper-like company, distributed in Walmart stores and website and for Walmart’s current customers. “I feel like our job is to develop direct to consumer brands that are purpose-driven that serve the widest possible group that we can.” Andy Dunn Founder of Bonobos Senior VP of digital consumer brands 44
- 45. The face;of, ,new;retail?; So what really is... 45
- 46. In 2010, there were 32 equity deals in the direct-to-consumer retail space. ;By 2017, the annual deal count rose up to 196 ;deals. Last year, there were 173 deals, and there ;were 104 this year through August. With so many brands advertising on the same channels, attempting to reach the same customers, costs quickly began to rise. More money more problems… “Many brands have found themselves trapped in the vortex of venture capital, where the more money a company raises, the more money it needs to raise.” Alex Song CEO of the Innovation Department Former PE Associate Goldman Sachs 46
- 47. is learning from its predecessors’ problems. ,A new, ,generation ,of,digital, ,companies, 47
- 48. “The expertise of retailers is necessary for consumers, especially in the performance category, we have 5,000 doors which means that if 20 people per day in each store touch our products, that’s 100,000 contacts. Comparing that to digital acquisition, if you’re paying for 100,000 click throughs and it costs $3 per click through — that’s $300,000 per day.” David Alleman, CEO On Running. 48
- 49. Text A future of an abundance of brands.. or re-aggregation? October 2019 French DNVBs create an association to better collaboration between them October 2019 URW experiences a new concept at Carrousel du Louvres with several DNVB 49