The Coresight Research team attended World Retail Congress 2018 in Madrid this week. Here are our top takeaways from the third and final day of the conference:

Third-Generation Retail and the Unification Driven by Platform Firms

The “intergeneration rotation” in retail is creating a third generation characterized by “retail as a service,” according to Dan O’Connor, Founder and CEO of RetailNet Group and Fellow at the Advanced Leadership Initiative at Harvard University, who spoke on the third day of the conference. O’Connor noted that third-generation retail is characterized by the prominence of marketplace and intermediary firms such as Alibaba, Amazon, WeChat, Facebook, Snapchat, Delivery Hero and Google, as well as by social media influencers. This new structure of retail is changing the supply chain by shifting where consumers go for information and how they connect with products and recommendations. O’Connor pointed to Alibaba as the single best creator of a unified marketplace model, citing its presence in adjacent and complementary sectors such as payments and cloud technology. Other takeaways from O’Connor’s presentation include:

• Firms such as Alibaba are driving the unification of the third-generation retail landscape, as they consolidate various types of retail and retail-adjacent services. This unification is also seen in mobile apps from firms such as Tencent, which is replacing stand-alone apps with Mini Programs embedded in its WeChat app.
• Retail is moving from store-based retailers with technology to tech firms with some stores.
• We are seeing the emergence of retail as a service, spanning automation, platform services and intermediary service providers. Tech giants such as Alibaba are driving this by collaborating with brick-and-mortar store brands.

Slide from Dan O’Connor’s presentation on third-generation retail at World Retail Congress 2018 Source: Coresight Research

Social Media as the New Storefront

Facebook’s Global Head of Retail and E-Commerce Strategy, Martin Barthel, said that there are three themes in a social-media-focused digitalization process:

• The first is personalization, and Barthel said that Facebook can help retailers personalize advertisements and product recommendations using machine learning, Facebook’s analysis of its users’ purchase intent signals and data inputs from retailers. Barthel said that 80% of Gen Zers and millennials expect mobile advertisements to be personalized.
• Second, Facebook thinks it can help physical stores level the data playing field with e-commerce by enabling them to target shoppers by location, and track who is coming into their stores and who is buying.
• Third, Barthel sees merchandising becoming more immersive, with huge consumer demand for video: he cited one survey that found that 70% of consumers would rather watch a video than read text when they need to learn about a product or brand. Barthel pointed to Instagram as one channel that retailers can use to share branded video content. He also noted that augmented reality will bring “augmented commerce” to shoppers in the coming years.

Barthel concluded by suggesting that social channels such as Facebook and Instagram are “retail’s new storefront.”

Source: Coresight Research

Luxottica Starts with the Consumer

Enrico Mistron, EVP of Corporate Business Services at Luxottica, pointed to three changes his company has seen in consumer demand. First, consumers are more sophisticated and want a rewarding experience when they shop. Second, shoppers want to be unique, so personalization is in demand. Third, consumers are connected, enabling brand owners to go directly to them and to leverage the communities that they create online. Luxottica’s supply chain spans raw materials to delivery to the customer. Mistron described how Luxottica had started from the consumer mind-set and worked backward in order to rethink elements of its supply chain in response to shifting demands. Some of its stores have become stock-free showrooms, and it changes ranges more frequently now. In addition, Luxottica clusters stores and adapts their assortments to local demands. Mistron noted that the company had experienced an increase in logistics costs, but that these were “completely offset” by fewer markdowns and fewer inventory write-offs.

Source: Coresight Research

Elsewhere on Day Three

A number of retailers are focused on reducing friction and speeding up the shopping process in physical stores. However, at the same time, brands are “escaping the prison” that is multibrand stores by creating stand-alone physical stores that are deeply engaging and, so, time consuming, according to futurist Howard Saunders. He pointed to ventures such as the Jack Daniel’s Lynchburg road show, Dyson’s stand-alone stores, and experiential shops from footwear firms Allbirds, Converse, Doc Martens and Melissa. Dimas Gimeno Álvarez, Chairman of department store retailer El Corte Inglés, is optimistic about the future of his company for three reasons. First, El Corte Inglés has close proximity to shoppers, with 94 stores reaching shoppers where they live, work and commute. Second, the company provides shoppers with the convenience of having a wide range of products under one roof. Third, the department store format is best placed to deliver a quality shopping experience. Álvarez also pointed to a lack of competition in the Spanish department store sector, as El Corte Inglés is the only department store chain in Spain. Lastly, Stefano Pessina, Executive Vice Chairman and CEO of Walgreens Boots Alliance, suggested that Amazon is unlikely to enter the pharmacy market. Pessina thinks that pharmacy is too highly regulated for Amazon, and he pointed to the fact that Amazon does not sell alcoholic drinks (a category that is less strictly regulated than pharmaceuticals) because of regulations.