It’s no secret that the publishing industry is struggling mightily as customers shift from paying for physical newspapers and magazines to reading information online, often for free. The shift has caused ruptures among other places at that bastion of French journalism, Le Monde, with the recent exit of the editor as staff rued the switch to online. So-called ‘lad’s mags’, the FHMs and Loaded magazines of the world, have been hit particularly hard, as the family PC and dial-up internet gave way to personal, portable devices and broadband connections, which provided easier access to more salacious content than the likes of Nuts could ever hope to provide. FHM’s monthly circulation is down almost 90% from a 1998 peak, according to the Financial Times. Condé Nast have pushed bravely into the new digital era, launching a comprehensive list of digital editions of its wares when the iPad launched in 2010. More recently, the company launched a new venture, La Maison. In association with Publicis and Google, the idea is to provide luxury goods companies with customer insights as well as content and technology solutions. We’ve often written about the need for more rigorous customer insights in the world of luxury, so it’s refreshing to see Condé Nast innovating and continuing to look beyond newsstand sales. We’ve written about other ways publishers are monetising their content here and here.
Time Warner is not alone then in its struggles for new ways of making money from previously flourishing revenue streams. According to The New York Times, Time Warner will be spinning off its publishing arm, Time Inc., with 90 magazines, 45 websites and $1.3bn in debt. In 2006, the article reports, Time Inc. produced $1bn in earnings, which has now receded to $370m. Revenue has declined in 22 of the last 24 quarters. This kind of move is not new. Rupert Murdoch acted in similar fashion recently when he split up News Corporation, creating 21st Century Fox. But with the publishing side of the business there were some diamonds in the rough for investors to take interest in; a couple of TV companies, as well as of course Dow Jones’ Wall Street Journal, which has been invested in heavily. Conversely, the feeling of the Time Inc spin-off was more one of being put out to pasture, particularly as the company will not have enough money to make any significant acquisitions. Like the turmoil at Le Monde, there have been managerial controversies, as those seeking to shake things up have tried to overcome historical divisions between the sales and editorial teams – something other large business journalism companies are reportedly struggling with – only to be met with frustration.
Setting that aside, Time Warner moved swiftly. A day later, the FT reported that the company was “finalising an investment” in Vice Media. We have written extensively about Vice previously, here. The company certainly seems to know how to reach fickle millennials, through a combination of interesting, off-beat journalism, content designed to create its own news, as well as compelling video documentaries that take an unusual look at topical subjects. Such an outlook however does not preclude it from partnering with corporations. As a millennial myself, it seems what people look for from those like Vice is authenticity, rather than the vanilla mediocrity arguably offered by others. We don’t mind commercialism as long as it’s transparent. It does not jar then when Intel is a major investor in its ‘content verticals’, or when last year 21st Century Fox invested $70m in the company. This bore fruit for the movie studio most recently in a tie-up promoting the upcoming Dawn of the Planet of the Apes. The sequel takes place 10 years after the 2011 film, and Fox briefed Vice to create three short films that would fill in the gaps. A great ploy, and the result is some compelling content to keep fans engaged in the run-up to the film’s release, particularly in territories where the film opens after the US market. Such activity is far beyond the purview of the traditional newspaper. But this is not necessarily a bad thing. Publishers must face up to the reality that newspapers alone will not deliver enough revenue to be sustainable. Seeking other content revenue streams while engaging in strategic partnerships with other companies looks, for now, to be a winning formula.
UPDATE 08/07/14: When it comes to engaging with millennials, mobile is most definitely the medium of choice. The FT reported today on Cosmopolitan magazine’s 200% surge in web visitors, year on year in May. Fully 69% of page views were from mobile devices (compared to a 25% average for the rest of the web). The publication has also wised up to the type of content this group likes to consume, as well as create. Troy Young, Hearst’s president of digital media, said the new site is “designed for fast creation of content of all types… Posts aren’t just text and pictures. They’re gifs, Tweets, Instagrams.” Mobile will only get the company so far though. PwC thinks US mobile advertising spending will account for only 4.6% of total media and entertainment advertising outlays this year. Cosmo is looking beyond mobile though to “exclusive events or experiences”, perhaps along the same lines as those other businesses are practicing who are looking for additional revenue streams. The article suggests users might “pay to see the first pictures of an occasion like Kanye West’s and Kim Kardashian’s recent wedding”. Beggars can’t be choosers.
UPDATE 10/07/14: Have all these corporate manoeuvres on the part of Time Warner been in the service of making itself appear an attractive acquisition? As the famous and clandestine Sun Valley conference takes place this week, rumours abounded that Google or 21st Century Fox were both interested in buying TW. This according to entertainment industry trade mag Variety, which commented, “Time Warner could be an attractive target. Moreover, unlike Fox or Liberty Media, it is not controlled by a founder or a founder’s family and with a market cap of $63.9 billion it is a relative bargain compared to the Walt Disney Co. and its $151 billion market cap”.
A recent McKinsey report declared that, for businesses, “The age of experimentation with digital is over“. That may be for most B2B and B2C private sector companies, but not for the luxury goods industry. Bemoaning the woeful development and investment in strategic initiatives for luxury brands online is something this blog has done once or twice before. There are understandable reasons why the industry has been reticent to commit to online retail, based on customer insight (the assumption that HNWIs don’t like to shop for something without being able to see and touch it for themselves) and conflicting priorities (physical store expansion into China and more experiential events has been the name of the game in recent years). But with a China slowdown mooted, particularly in the area of luxury gifting, and no real concrete research to show that HNWIs aren’t just as digitally savvy as their less liquid counterparts, there becomes less and less justification for what are, across the industry, woeful examples of digital strategy and innovation.
It can’t be easy for profitable businesses like LVMH, with an eye on quarterly earnings, to make drastic investments in the online space. Luxury’s brand equity often comes from provenance and tradition; a company’s roots are in its founding stores, the connotations of Milan, Florence, Paris, etc. They also worry about their neighbours; a flash-sale site or, worse, one full of counterfeit knock-offs, is always just a click away. From a logistical point of view, there is also the issue of back-end infrastructure to contend with. For several years, PPR (now Kering) ran much of its e-commerce business through Yoox, as we’ve talked about before. It would be wrong to single out those in luxury. L2 Thinktank recently tweeted with much excitement about Bacardi’s “cocktail discovery site” that worked seamlessly across web, mobile and tablet. Well, forgive us if we don’t leap for joy in an ecstasy of delirium, but this is 2014, that should be the minimum deliverable. Still, luxury is a sector in blatant need of redirection.
Burberry is lauded by many as an outlier in this world of luxury goods, a company that has truly embraced digital. For all the talk of such innovation though, the website itself is utterly dominated by a rote e-commerce site, as are its social networks such as Google+. It is the physical stores where technological innovation has been injected. And this is supposedly the company pushing the rest of its peers forward. It comes as little surprise then that eConsultancy published a superb piece at the end of April excoriating the sector, leaving no brand unscathed. Headlines included, “painfully slow load times“, “awful UX” and “not making much effort“. But the worst and most perplexing atrocity had to be the above screengrab on the purposeful hiding away of an e-commerce platform, one that was presumably quite expensive to source and implement in the first place. We can’t overestimate the necessity of having a clear user journey through to purchase, just as it would be difficult to overestimate the amount of luxury good companies that are guilty of this sin for which Dolce & Gabbana have been singled out for here.
On this note, Gucci’s recently relaunched mobile site – replacing among other things a tablet site that had been left to wither since 2010 – was welcome news to us, as it seemed to be also (logically) to those wishing to actually part with their money on Gucci wares. L2 in May reported the news, saying that the new site now accounts for 27% of all traffic, a 150% YoY increase. Sounds good, except that means traffic through the mobile site in 2013 was a miniscule 0.18%, right? Terrible.
There are signs of hope. Gucci’s move to invest in a new mobile site, though monumentally belated, is a welcome one. As more brands cotton on to the importance of online, the Financial Times recently reported on the moves many are making to secure ‘.luxury’ suffixes, in the wake of IPv6, if only to avoid the complications of cybersquatting. And Michael Kors, which seems only to be going from strength to strength every quarter, has praised its own social media presence for “driving international sales”. We’ve almost entirely focused on fashion brands here, but other companies within the luxury sector are getting the message loud and clear. Take the auction house Christie’s, a legacy company if ever there was one, having been founded in 1766. Not only have they dedicated time and energy to investing in major online auctions, they have also recently created a new sector vertical of ‘luxury’ within the house itself. New thinking might well take new talent, it will also take C-suite buy-in, as well an acceptance that digital commerce is an integral part of business now, no matter how exclusive your product is.
Interesting video from the FT on Moncler, above. London’s more tony neighbourhoods of Chelsea and Belgravia have seen an explosion of thick down jackets over the past three years, mostly colourful, all with the same logo on them. They are worn as much by macho Eurotrash as Yummy Mummies. The brand is seemingly reaching a tipping point, where exclusivity leads to a bling reputation, where mass acceptance is quickly followed by mass exodus. La Martina has done a good job of steering clear of such waters, as we reported on in a state of retail article. While Moncler considers its IPO and a strategy for selling hot coats in Hawaii, North Face takes a completely different tack, embracing its mass appeal while still communicating an aspirational feel by showcasing the demanding professionals who use their apparel. Canada Goose, another recent entrant into the winter sportswear / city chic market, has also seemed to have had a burst of popularity recently. Zeitgeist saw no fewer than a dozen such coats around Soho and Chelsea this past weekend. An interview with the CEO of the company earlier this year described the strategy thus: “By focusing on the made-in-Canada, used-in-Canada story behind the coats, people would clamour for them.”
It will be interesting to see what happens to Canada Goose as it develops; whether it will try to emulate the more ritzy path of Moncler or the performance-related one of North Face. Zeitgeist doesn’t see many people in Europe on the ski slopes wearing Moncler, and doesn’t see many players on the polo field wearing La Martina (unless they are a sponsor). North Face, on the other hand, seems to have a deeply-seated place among hikers and skiiers, particularly in North America. Time – and a sound strategy – will tell whether Moncler retains its exclusive airs.
Are incumbent companies starting to see the light when it comes to embracing digital? Evidence is slowly starting to point in that direction.
Artists are known for embracing change and innovation, but the art market itself has been slow to adapt to changing consumer behaviour. Now mega e-tailer Amazon is selling art on its site, and venerable auction house Christie’s is pushing headlong into online-only sales, as Mashable recently reported. And while fashion designers know how to use digital to push the envelope, the fashion industry as a business has been notorious for their skittishness at investing in efficient, immersive digital experiences for their customers, so worried are they about detracting from the brand. So it was reassuring to see during Paris Fashion Week recently that French marque Chloé had gotten the message. As Zeitgeist’s dear friend and fashion aficionado Rachel Arthur details on her blog, the brand launched a dedicated microsite for their runway show. Brands like Burberry and Louis Vuitton have been doing this for at least three years, so in of itself it’s nothing new. What made the experience different were two things. Firstly, the site created a journey that started before the show, and continued after it, rather than merely offering a stream of live video and little else. More importantly, it tried to make the experience one that reflected the influence of those watching. As Rachel points out,
“As the event unfolded, so too did different albums under a moodboard header, including one for the collection looks, one for accessories, another for the guests, and one from backstage. Users could click on individual images and share them via Twitter, Facebook, Pinterest or Weibo, or heart them to add them to their own personal moodboard page.
‘[We] are excited to see how you direct your own Chloé show,’ read the invite.”
The recognition of platforms like Weibo should be seen as another coup for Chloé. Too often, companies send out communications to global audiences with perfunctory links to Facebook and Twitter. Not only is there no call to action for these links (why is it that the user should go there?), but there is no recognition that one of the world’s most populous and prosperous markets are more into their Renren and Weibo.
Elsewhere, despite what seems like some niggling problems, Zeitgeist was excited and intrigued to read about Disney‘s latest foray into embracing how consumers use digital devices, this time creating a second-screen experience in movie theaters. Second Screen Live, as Disney have branded it, doesn’t immediately sound particularly logical, as GigaOm point out,
“Of all the places I’d thought would be forbidden to the second screen experience, movie theaters were near the top of my list. After all, you’re paying a premium ticket price for the opportunity to sit in a dark theater and immerse yourself in a narrative — second screen devices operate in direct opposition to that.”
And yet the Little Mermaid experience that the writer goes on to describe cannot be faulted for its attempt at innovation, at reaching beyond current thinking (not to mention revenue streams), in order to forge a new relationship between the viewer and the product. Kudos.
Lastly, Zeitgeist wanted to mention the US television network Fox as a classic example of a company that has slowly come to realise the power of working with digital, rather than against it. In years passed, companies like Fox were indisputably heavily involved in digital, but only from a punitive standpoint. Fox and others were ruthless in their distribution of takedown notices to sites hosting content they deemed to infringe on their product. Fan sites that exploded in support and admiration for shows like The X-Files were summarily threatened with legal action and closed. There was little thought given to the positive sentiment sites were creating around the product, and little thought given to the destruction of brand equity that such takedown notices brought about. Not to mention the dessication of communities that had come together from different parts of the world, their single shared attribute being that they were evangelists of what you were selling. Clips of shows, such as The Simpsons, appearing on YouTube would be treated with similar disdain. So it shows how far we’ve come in a few years that this morning when Zeitgeist went onto YouTube he was greeted on the homepage with a sponsored link from Fox pointing him to the opening scenes of the latest Simpsons episode, before it aired. Definitely a move in the right direction.
At Cannes Lions tomorrow, Burberry’s Chief Creative Officer Christopher Bailey will ask “What if ads didn’t have to look or feel like ads?”. In a guest post, Chloé Hajnal-Corob writes about how luxury goods companies are seeking new and diverging paths in order to engage with their customers. Chloé spent time working at a fashion startup earlier in the year, assisting with the launch of a fashion hub for Vine videos, among other things. She is currently placed at Editd, a fashion data insight company.
This spring, the House of Dior descended upon Harrods in London, one of the world’s premier department stores, for their “So Dior” exhibition and café. Last month, for one week only, Hermès had their “Festival des Métiers”, at London’s Saatchi Gallery. These two events represent a recent trend for providing luxury experiences, and though they are markedly different in some ways, they share a common goal: to drive revenues via brand education.
The “So Dior” exhibition, café and pop-up boutique took over a large designated area of Harrods alongside their usual concessions. Their presence was felt throughout, and Harrods have described the takeover as “a luxury-charged adventure combining French Savoir Faire and British charm”, the premise of which is to showcase the brand’s relationship with the store, and Christian Dior’s personal affiliation with the capital. Zeitgeist and I paid a visit, after seeing the social media hype from opening night. The event did not disappoint. On arrival, we were offered a private tour of the exhibition. What followed was a complete education into the history, heritage and identity of the brand and designers (Christian Dior, as well as Yves Saint Laurent, John Galliano and now, Raf Simons). The assiduousness and attention to detail demonstrated in the event were striking, and the quality of the experience was exceptional. It stands in particular favour given it was a free event, especially when compared with similar exhibitions such as the recent Valentino show at Somerset House, for which entrance was £12.50. We wondered if Dior and Harrods would set a precedent for luxury experiences where no fee is charged. Enter Hermès’s Festival des Metiers, which has been touring the world in a travelling circus of craftsmen, demonstrating their skills, and charging nothing for the privilege of seeing them. This harks back to how customers at high-end boutiques are treated, but without obvious intent to purchase. We are rewarded for our passion for the brand, not simply our contribution to sales.
What is the ROI for these free events then, when the cost of execution is so high? Both exhibitions come after a lengthy stream of brand “experiences” (as noted in a previous Zeitgeist article) that represent the latest luxury market strategy for driving revenue and footfall to retail spaces, in attempt to allay fears of a mass exodus of shoppers from the street to the website. However, Dior’s CEO, Christian Toledano reportedly told vogue.co.uk at the launch party of the event: “This isn’t a marketing tool… It’s a transmission of Couture”. But these are not mutually exclusive concepts; rather they are means to the same end, and arguably an education into the brand is simply the chosen method of marketing. Indeed, Hermès openly acknowledges the lucrative repercussions these luxury experiences have. An article in the FT cites that the event, in each city, draws around 30,000 visitors, which in turn increases footfall to brick and mortar stores. A twenty percent increase, to be precise, in the week following the festival in Seattle, Washington. In a far more low-key event than Dior, these are impressive figures, particularly given that no attempt at sales was made on the exhibition site. A bespoke, or even generic, selection of products on sale at the event would likely have been very popular.
Both events encouraged significant online chatter, though neither seems to have been particularly driven by the host brands. Dior at Harrods was littered with high impact branded totems, ripe for the social media picking, and as usual, Twitter, Facebook and Instagram were filled with images and comments from the event, and now Vine, twitter’s 6-second video app, provided the ideal way to document the experiential nature of the event. It is interesting that Dior made no attempt at harnessing or leveraging the veritable mass of attention the event garnered. On investigation, I found only a limited amount of content around the event on Dior’s twitter feed and Facebook timeline. There was no official hashtag for the event and no evidence (that I could find) of any engagement with consumers who were talking about it. Hermès, though a far more low-key affair, “discreet to the point of invisible branding”, were no less well-represented in the social media space, but were almost equally poor at engineering and engaging with their online audience. The hashtag #festivaldesmetiers seems to have been widely adopted but it is completely unclear whether this was brand-driven, and Facebook interaction was limited to a single status update announcing the event. For brands that exert meticulous control over themselves in the physical space (something that was made patent in the exhibitions), it is strange that they are not attempting to implement this in the digital space, where barriers are borderless and the opportunity for damage is massive. This is a bold (perhaps naïve) move in the current climate, albeit that both events seem to have been highly successful.
It is somewhat ironic that Dior’s exhibition was held at Harrods – an obviously commercial venue, where special Dior products were available to buy – choosing to assert their mission as education rather than marketing. By contrast, Hermès chose an established art space to host their Festival des Metiers, albeit one that is often known for its consumer links, and have clearly acknowledged the potential of education as a means of marketing. Neither space is less appropriate then the other, but both are indicative of the kind of events hosted. Harrods, with its lavish window displays, reputation for luxury and labyrinthine layout, was apt for Dior’s fantastical and grandiose display, not to mention that it was intended to draw on the relationship between brand and department store. The Saatchi gallery’s minimal open space provided a neat backdrop for hosting “a rendez-vous with the Hermès craftspeople”, and apparently, sought to appeal to a younger demographic than perhaps the Hermès customer would ordinarily be. It is appropriate too, to present what can only be described as a fine art and craft, in an artistic space. It’s a notion that rival (and owner of Dior), LVMH, clearly thought worth cashing in on, since they have subsequently launched a similar initiative: the Journées Particulières, which this year will see it open 40 of its ateliers to the public for a weekend.
Both Dior and Hermès certainly made good attempts at getting people to engage physically (as well as virtually). The “So Dior” exhibition, and of course the café, were multi-sensorial. Beyond visual aesthetics, short films with headphones were provided, touch-sensitive technology was exploited and food inspired by Dior’s cookbook made for a wholly engrossing experience. Perfume was a key focus of the exhibition, explored from many different angles; not content with simply handing out the usual sticks of paper to smell, Dior and Harrods provided a telephone box (grey and white, in-keeping with brand décor, naturally) emitting one of Dior’s signature scents. Hermès was less immersive but more intimate; the possibility of viewing and interacting with those who create the product (and by extension the legacy), and even partaking in the sewing of scarves or ties, successfully created a feeling of exclusivity and privilege that the event no doubt strove for.
Toledano stated of the “So Dior” exhibition, “We need to explain why and how we do what we do. I want people to understand the passion, the innovation and our commitment to excellence.” In a similar vein, Guillaume de Seynes, great grandson of Emile Hermès explained: “We want to demonstrate that for us, craftsmanship is something that happens everyday.” Both brands sought to educate the consumer about themselves – Dior by making comment on the ideas and inspiration that produce the end product, and Hermès by demonstrating their commitment to the heritage of the brand by maintaining the quality of garments through skill of craftsmanship. Were they successful in their mission? Certainly; both provided real insight and inspiration. In doing so, Dior and Harrods, and Hermès’s Festival des Metiers, created an opportunity to become part of a legacy, and with this, the aspiration to turn something memorable into something wearable.
“Everything has become more experiential”
– Dante D’Angelo, brand and consumer development director at Valentino
It is an odd state of affairs indeed for the retail sector at the moment. On the one hand, consumers are flocking to digital devices like never before, particularly for their shopping. Conversely, this means that the physical experience of shopping becomes rarer, creating more opportunities for specialism. An article in the Financial Times a few weeks ago read as if a commercial plague had swept through the UK high street over the past few years. With 4,000 stores affected, 2012 was, according to data from the Centre for Retail Research, the “worst year since the start of the credit crisis in 2008″. Names of erstwhile stalwarts like Woolworth’s, Jessop’s, Peacocks and Clinton Cards have all fallen under the knife. As we wrote at the beginning of last month, what little salvation there is lies in embracing digital technologies.
The luxury sector however has its own special, gilt-edged cards to play. In St. Tropez, the Christian Dior boutique’s ample courtyard has recently been made use of with an all-day restaurant. Louis Vuitton have a cinema screening classic Italian films in their Rome boutique. It’s no wonder such brands have also branched into the hospitality sector, the former working with the St. Regis to develop branded rooms, the latter into full-scale hotel management. Ferragamo have been involved in the hotel sector for years. Two recent examples show how companies can extend the experience for visitors, and help drive revenue at the same time.
The auction house Sotheby’s will tomorrow auction a rather large collection of surrealist art. One of the few things that definitively puts it ahead of Christie’s is that it has its own cafe, which, last week and this week, is pushing the surrealism theme into its catering (see above menu). It’s a simple, creative idea that creates a cohesive brand, celebrates a big event, and ultimately hopes to drive revenue from peripheral streams around the auction. The RA’s current Manet exhibition is taking a leaf from this tactic, opening later but charging double the usual rates for a special experience, including a drink and a guide. The other interesting news of note was a new tactic being employed by the fashion company Valentino. Not content merely with having a major exhibition at London’s Somerset House, the label is also tinkering in an innovative way with its event structure. As detailed last week in Bloomberg Businessweek, Valentino is opening a new boutique in New York later this year, during which the typical glitterati will be in attendance. However, the new idea comes in the form of the company inviting prized customers to the opening for the chance to rub shoulders with said VIPs, for a steep price. Similarly, Gucci is offering its non-VIP customers tours of its Florence workshops for the first time.
Something that Zeitgeist has been noticing for a couple of years now, recently echoed by Boston Consulting Group (BCG) senior partner Jean-Marc Bellaiche, is the importance, particularly for those in their 20s – like Zeitgeist – that people place in defining themselves by what they’ve done rather than what they own: “In an era of over-consumption, people are realizing that there is more than just buying products… Buying experiences provides more pleasure and satisfaction”. On a macro level there is significant bifurcation in the retail market; not everyone will be able to afford in creating extraordinary experiences for their customers. A recent BCG report helps illustrate this, noting that while the apparel sector as a whole saw shareholder returns fall by 1.3% for the period 2007-2011, the top ten players produced a weighted average annual total shareholder return of 19%. Expect then for retailers – those that can – to increasingly provide exclusive experiences to their customers, beyond the celebrity, whether it be early product releases, tours, or events. Just don’t expect it to come without a pricetag.
It’s a common fallacy to think of a time before a change in status quo as somehow being magically problem-free. A Panglossian world where all was well and nothing needed to change, and wasn’t it a shame that it had to. Similarly, we cannot blithely consign the retail industry of the past to some glorious era when everything was perfect; far from it. The industry has been under continual evolution, with no absence of controversy on the way. It was therefore a timely reminder, as well as being a fascinating article in its own right, when the New York Times provided readers recently with a potted history and a gaze into the future of Manhattan department store stalwart, Barneys. Not only is their past one in which the original proprietor sought to undercut his own suit suppliers, creating a bootlegging economy by literally ripping out their labels and replacing them with his own, but it was also one where department stores served a very different purpose to what they do today. They had less direct competition, not least unforeseen competition in the form of shops without a physical presence. Moreover, today they are run in an extremely different way, with an arguably much healthier emphasis on revenue (though some might say this comes at the expense of a feeling of luxury, in a lobby now brimming with handbags and little breathing room). The problems and opportunities for Barneys could serve as an analogy for the industry of which it is a part.
Despite brief reprieves such as Black Friday (click on headline image for CNBC’s coverage), as well as the expected post-Christmas shopping frenzy, can one of the main problems affecting retail at the moment simply be that it is undergoing an industry-wide bout of creative destruction? Zeitgeist has written about the nature of creative destruction before, and whether or not that is to blame for retail’s woes, the sector is certainly in the doldrums. In the UK, retailers are expecting a “challenging” year ahead. Recent research from Deloitte shows 194 retailers fell into administration in 2012, compared with 183 in 2011 and 165 in 2010. So, unlike the general economy, which broadly can be said to be enjoying a sclerotic recovery of sorts, the state of retail is one of continuing decline. How did this happen, and what steps can be taken to address this?
Zeitgeist would argue that bricks and mortar stores are suffering in essence due to a greater amount of competition. By which, we do not just mean more retailers, on different platforms. Whether it be from other activities (e.g. gaming, whether MMOs like World of Warcraft or simpler social gaming like Angry Birds), or other avenues of shopping (i.e. e-commerce, which Morgan Stanley recently predicted would be a $1 trillion dollar market by 2016), there is less time to shop and more ways to do it. The idea of going to shop in a mall now – once a staple of American past-time – is a much rarer thing today. It would be naive to ignore global pressures from other suppliers and brands around the world as putting a competitive strain on domestic retailers too. Critically, and mostly due to social media, there are now so many more ways and places to reach a consumer that it is difficult for the actual sell to reach the consumer’s ears. This is in part because companies have had to extend their brand activity to such peripheries that the lifestyle angle (e.g. Nike Plus) supercedes the call-to-action, i.e. the ‘BUY ME’. The above video from McKinsey nicely illustrates all the ways that CMOs have to think about winning consumers over, which now extend far beyond the store.
If we look at the in-store experience for a moment without considering externalities, there is certainly opportunity that exists for the innovative retailer. Near the end of last year, the Financial Times published a very interesting case study on polo supplier La Martina. The company’s origins are in making quality polo equipment, from mallets to helmets and everything in between, for professional players. As they expanded – a couple of years ago becoming the principle sponsor of that melange of chic and chav, the Cartier tournament at Guards Polo Club – there came a point where the company had to decide whether it was going to be a mass-fashion brand, or remain something more select and exclusive. As the article in the FT quite rightly points out, “Moving further towards the fashion mainstream risked diluting the brand and exposing it to volatile consumer tastes.” The decision was made to seek what was known as ‘quality volume’. The company has ensured the number of distributors remains low. Zeitgeist would venture to say this doesn’t stop the clothing design itself straying from its somewhat more refined roots, with large logos and status-seeking colours and insignia. Financially though, sales are “growing more than 20% a year in Europe and Latin America”, which is perhaps what counts most currently.
In the higher world of luxury retail, Louis Vuitton is often at the forefront (not least because of its sustained and engaging digital work). While we’re focusing purely on retail environments though, it was interesting to note that the company recently set up shop (literally) on the left bank of Paris; a pop-up literary salon, to be precise. Such strokes of inspiration and innovation are not uncommon at Vuitton. They help show the brand in a new light, and, crucially, help leverage its provenance and differentiate it from its competition. Sadly, when Zeitgeist went to visit, there was a distinct feeling of disappointment that much more could have been done with the space, which, while nicely curated (see above), did little to sell the brand, particularly as literally nothing was for sale. The stand-out piece, an illustrated edition of Kerouac’s On the Road, by Ed Ruscha, Zeitgeist had seen around two years ago when it was on show at the Gagosian in London. Not every new idea works, but it is important that Louis Vuitton is always there at the forefront, trying and mostly succeeding.
So what ways are there that retailers should be innovating, perhaps beyond the store? One of the more infuriating things Zeitgeist hears constructed as a polemic is that of retail versus the smartphone. This is a very literal allusion, which NBC news were guilty of toward the end of last year. “Retail execs say they’re winning the battle versus smartphones”, the headline blared. What a more nuanced analysis of the situation would realise is that it is less a case of one versus the other, than one helping the other. The store and the phone are both trying to achieve the same things, namely, help the consumer and drive revenue for the company. Any retail strategy should avoid at all costs seeing these two as warring platforms, if only because it is mobile inevitably that will win. With much more sound thinking, eConsultancy recently published an article on the merits of providing in-store WiFi. At first this seems a risky proposition, especially if we are to follow NBC’s knee-jerk way of thinking, i.e. that mobile poses a distinct threat to a retailer’s revenue. The act of browsing in-store, then purchasing a product on a phone is known as showrooming, and, no doubt aided by the catchy name, its supposed threat has quickly made many a store manager nervous. However, as the eConsultancy article readily concedes, this trend is unavoidable, and it can either be ignored or embraced. Deloitte estimated in November that smartphones and tablets will yield almost $1bn in M-commerce revenues over the Christmas period in the UK, and influence in-store sales with a considerably larger value. That same month in the US, Bain & Co. estimated that “digital will influence more than 50% of all holiday retail sales, or about $400 billion”. Those retailers who are going to succeed are the ones who will embrace mobile, digital and their opportunities. eConsultancy offer,
“For example, they could prompt customers to visit web pages with reviews of the products they are considering in store. This could be a powerful driver of sales… WiFi in store also provides a way to capture customer details and target them with offers. In fact, many customers would be willing to receive some offers in return for the convenience of accessing a decent wi-fi network. Tesco recently introduced this in its larger stores… 74% of respondents would be happy for a retailer to send a text or email with promotions while they’re using in-store WiFi.”
These kind of features all speak more broadly to improving and simplifying the in-store experience. They also illustrate a trend in the blending between the virtual and physical retail spaces. Major retailers, not just in luxury, are leading the way in this. Walmart hopes to generate $9bn in digital sales by the end of its next fiscal year. CEO Mike Duke told Fast Company, “The way our customers shop in an increasingly interconnected world is changing”. This interconnectedness is not new, but it is accelerating, and the mainstream arrival of 4G will only help spur it on further. The company is soon to launch a food subscription service, pairing registrants with gourmet, organic, ethnic foods, spear-headed by @WalmartLabs, which is also launching a Facebook gifting service. At the same time, it must be said the company is hedging its bets, continuing with the questionable strategy of building more ‘Supercenters’, the first of which, at the time a revolutionary concept, they opened in 1988.
One interesting development has been the arrival of stores previously restricted to being online into the high street, something which Zeitgeist noted last year. This trend has continued, with eBay recently opening a pop-up store in London’s Covent Garden. These examples are little more than gimmicks though, serving only to remind consumers of the brands’ online presence. Amazon are considering a much bolder move, that of creating permanent physical retail locations, if, as CEO Jeff Bezos says, they can come up with a “truly differentiated idea”. That idea and plan would be anathema to those at Walmart, Target et al., who see Amazon as enough of a competitor as it is, especially with their recent purchase of diapers.com and zappos.com. It serves to illustrate why Walmart’s digital strategies are being taken so seriously internally and invested in so heavily. Amazon though has its own reasons for concern. Earlier in the article we referenced the influence of global pressures on retailers. Amazon is by no means immune to this. Chinese online retailer Tmall will overtake Amazon in sales to become the world’s largest internet retailer by 2016, when Tmall’s sales are projected to hit $100 billion that year, compared to $94 billion for Amazon. The linked article illustrates a divide in the purpose of retail platforms. While Amazon is easy-to-use, engaging and aesthetically pleasing, a Chinese alternative like Taobao is much more bare-bones. As the person interviewed for the article says, “It’s more about pricing – it’s much cheaper. It’s not about how great the experience is. Amazon has a much better experience I guess – but the prices are better on Taobao.”
So how can we make for a more flexible shopping experience? One which perhaps recognises the need in some users to be demanding a sumptuous retail experience, and in others the need for a quick, frugal bargain? Some permutations are beginning to be analysed, and offered. Some of these permutations are being met with caution by media and shoppers. This month, the Wall Street Journal reported that retailer Staples has developed a complex pricing strategy online. Specifically, the WSJ found, it raises prices more than 86% of the time when it finds the online shopper has a physical Staples store nearby. Similar such permutations in other areas are now eminently possible, thanks in no small part to the rise of so-called Big Data. Though the Staples price fluctuations were treated with controversy at the WSJ, they do point to a more realistic supply-and-demand infrastructure, which could really fall under the umbrella of consumer ‘fairness’, that mythical goal for which retailers strive. Furthemore, being able to access CRM data and attune communications programmes to people in specific geographical areas might enable better and more efficient targeting. Digital also allows for a far more immersive experience on the consumer side. ASOS illustrate this particularly well with their click-to-buy videos.
As the Boston Consulting Group point out in a recent report, with the understated title ‘Digital’s Disruption of Consumer Goods and Retail’, “the first few waves of the digital revolution have upended the retail industry. The coming changes promise even more turmoil”. This turmoil also presents problems and opportunities for the marketing of retail services, which must be subject to just as much change. If we look at the print industry, also comparatively shaken by digital disruption, it is interesting to note the way in which the very nature of it has had to change, as well as the way its benefits are communicated. It is essential that retailers not see the havoc being waged on their businesses as an opportunity to ‘stick to what they do best’ and bury their head in the sand. This is the time for them to drive innovation, yes at the risk of an unambitious quarterly statement, and embrace digital and specifically M-commerce. What makes this easy for those companies that have so far resisted the call is that there is ample evidence of retailers big and small, value-oriented to luxury-minded, who have already embraced these new ideas and platforms. Their successes and failures serve as great templates for future executions. And who knows, the state of retail might not be such a bad one to live in after all. Until the next revolution…