Retail Radar

Covid, innovation and what’s to come.

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Por Guillermo D’Andrea

After many years of financial struggles, COVIS has provoked a real emergency leaving us on the edge of a change of paradigm. Reality is on hold and happens through digital media accelerating the forgotten processes of digital transformation. An unexpected impulse brings the forced inclusion of some unbanked social groups, elders, and those who used to resist themselves, creating a jump to the buying universe. A study from IAE’s CLEMER center by Martín Zemborain, Alfredo Blousson, and Joaquín Muro, affirms pioneers of the digital world see new tendencies accelerating and anticipate mandatory changes for those who want to still compete in the new normal the lockdown has brought.

Guillermo Bracciaforte from Workana, the online-work platform that reunites freelance professionals with companies foresees that for clients with the most resources for online operations, long-term changes are to come, hence the more digitalization, more remote work. In the future, what we do will be more important than where we do it. It will require more equipment and technology adaptation and some personal considerations to enjoy work from home while still being productive.

While lockdown does have a positive impact on people’s health, the economy is resenting and not all companies may survive. Felipe de Stefani, Warner Media Argentina, and Brasil’s general manager state this situation will bring a concentration and reconfiguration of market share. With a drop in sales of 80, even 90% in some areas, De Stefani sustains the formula for a successful business has lost its validity. Yesterday is suddenly, no longer there. With so much uncertainty, with a gold history tying us to the past it’s hard to look forward, but so needed to create a new vision of what’s to come.

It’s mandatory to be very aware of the short term results to ensure survivance, but also of the medium term because the situation is synchronic and global. In the quicker times of quarantine, the medium term is the way of exit and now the time of organization. After the sales drop, online shopping has been a lifeguard with the entire team’s being adapted for a storm with no way of exit in sight. NaranjaX has defied the status quo by digitalizing Tarjeta Naranja’s operation with online payment’s, Bluetooth POS, and payment link’s, tells it’s CEO, Gastón Irigoyen. They’ve also expanded their credits service to financial services including payments enabling a bigger banking use by leaning in credit card’s promotions. Volkswagen on the other hand, announced directly to their clients the launching of their newest SUV, Tarek, and offering discounts for their cars and pickups. Some electronics brands like Sony or Samsung are going directly after their clients. Complete industries are changing their profiles by skipping channels and tripling their call centers, transforming sellers and repositories in phone operators, and trying different options like pyramidal schemes or boosting their clients to sell online to get rewards and commissions like it’s the case for Magazine Luiza in Brasil.

That’s how channels grow and evolute. With limitations for movie theater dates or food courts, shopping malls are aiming for a “click and collect” style of traffic, something like fast-food’s drive-thru mode by using store inventories. This way multiple contact points with the client are met, not only as a sales point but also for communication that can be more direct and personalized and through different social media and channels. As for Samsung’s Mobile Sr Director, Bruno Drobeta, this way, with a tendency for service, digital media are becoming more humanized, and this shows a positive difference with chat-bots.

As for Moody’s, a rating agency, the impact will be stronger or softer depending on the industry, but excepting online services such as e-commerce or companies like Amazo, Google, or Facebook, everybody will feel the blow. Textiles, retailers, cars, appliances, and airlines are the ones with the most at stake. Oil and gas, steelwork, construction, media, chemicals, packed beverages, and agriculture will see a medium impact while arming, waste management, farmaceutical, fresh groceries, and their retailers won’t see any real impact.

In any case, some settled practices should be monitored, like inventorying for a possible shortage of products. It’s not convenient to ask for too much from providers because it could become poor management of inventory points Nur Malek Pascha, founder of EnvíoPack, and expert in logistics and e-commerce. The next months will be all about getting on track with a plain and severely beaten market, collaboration between every part of the supply chain will be more helpful than some selfish efforts.

When the quarantine will be over, some will be tempted to go back to business as usual. However, the consequences from the pandemic forsee longlasting effects that will force us to deepen the course of changes and adaptations to compete in the new normal. For traditional companies who work with organic development processes and with high goals, innovation tends to be the last priority in day to day operations. This explains why they respond slower to changes in contrast to digital dynamics, used to the faster process of trial and error. With new moderated goals, going from less to more while they learn to use new digital support tools and rethink their resources. Rappi comes in hand for supermarkets and grocery stores, helping them to accelerate their delivery times from days to just hours. The competition for supermarket aisle has moved to mobile apps.

Experience shows the capacity teams have to evolve, and how valuable are trained resources who know the business for companies. Thanks to remote work, on-line training allows the company to compete in a scene that has been abruptly forced to adapt to digital tools. 

It’ll be needed a serious answer, to support and to lead the way for the team and the supply chain. Manufacturers and retailers would have to collaborate to align their operations to depressed demand, transformed by consequences from the pandemic. The everyday business will take up to two years to go back to normal, and by that time, consumer’s habits will already be used to the changes made. Social distance has also made shopping a longer experience, with a queue outside shops. Shifts to avoid agglomerations in public transportation will complicate the pace of life making a priority to simplify shopping experiences. A true test for any company’s capacity to adapt, Fernando “Bana” Benegas, Secretary of Innovation and Digital Transformation for the Buenos Aires city Government adds, teams should be interdisciplinary and flexible. Goodbye functionality, welcome collaboration, and coordination from digital times. Dare to unlearn and bet boldly in renewing business within changing paradigms. Is in uncertainty when the future is written.

Guillermo D’Andrea runs the Center for leadership in Markets and Retailing at IAE Business School.

This is the best time for a change.

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Por Guillermo D’Andrea

Two very different companies, Starbucks and fashion entrepreneur Rebecca Minkoff are leading the way amidst disruption. In the next eighteen months, Starbucks will be closing at least 400 shops across the USA, well above the 100 average they close each year for different reasons. However, in their SEC report, signed by CEO Kevin Johnson, they weren’t referring to the pandemic, but more of a change of course.

It’s all about “Starbucks Pickup”, a new smaller mode where clients pick up their previously made order. Amazing considering the company founded herself as a “third place” in-between home and work, with free wifi to work, spend some quality time with friends, or just hang out. They’ve also opened in February their fifth Reserve Roastery in Tokyo among the previous ones in Seattle, Milan, New York, and Shanghai, a 9000ft, four stories shop to try coffee from around the world. The main reason is acknowledging their client’s change of habits: 80% of their transactions were made to-go, a study from the last two years reveals.

This takes us to review the process behind their decision. With the app, Starbucks can track the purchasing route of their clients. When and how the purchase starts, at the store or before, as the app allows to order with anticipation. On top of that, they can see the frequency and shopping habits by studying every receipt.

Through this, they learned the following. For starters, they are constantly updating themselves about client behavior and change of habits. Starbucks exploits every piece of information to make strategic decisions. Not even the companies with rewards programs and customer’s cards have come close to this. Business intelligence development is mandatory to analyze client behavior, shopping frequency and repetition, and variety of products. The issue is not the lack of information but the interest in knowing more about the consumers, benefiting from the information we do have by exploiting the databases.

Long before, employees of the department store used to take notes about each client, that way, they kept long-lasting relations that could even include future generations of each family. Some even remember those details but self-service made intimacy vanish completely to the point where even clients don’t greet the employees of stores where they are regulars.

This connection is not a part of their interest, missing a chance of rewarding loyalty, boost the service, or expand the product range for the client’s sake. The sky is the limit.

In Rebecca Minkoff’s case, the fashion designer known for being at the forefront of smart, interactive stores driven by her brother and CEO, Uri, she learned from the 2008 crisis, that accessibility is fruitful. When she dropped the price of her $495-$595 handbags, sales grew 548%. Ever since her brand is worth $100 million, and to this day she uses what she learned back then. During a crisis, many fail are put in evidence, is better not to hide or deny them. It’s better, to be honest, clients prefer those who recognize their mistakes and apologizes for them. Reach to your clients, take advantage of social media, understand what has changed during the lockdown. Today, it’s all about empathy and value content, not so much about offers. Being creative with commercial investment, distributing to social media, and online content what used to be only for traditional media. Offers and content can engage the client’s interest. Try and fail without fear, learning and readiness make it worth it. 

Ultimately, technology has made us more humans. Covid-19 has shown us our team’s intimacy, kids, dogs, schedule, and home decor are showed through video-calls. In the case of clients, we learn when they take some time off to wonder about products, see what they ask and what they are into. Now it’s a great time to ask ourselves about how our clients changed over the last years and how to upgrade our offers. We have no doubts, shopping experience no longer starts at stores, but way before at home, sometimes, it doesn’t even need a store. How can we upgrade this experience, make it simpler and friendlier now that everyone’s lives, kid or adult, goes from screen to screen?

Leadership changes over sensibility o emotional intelligence, an essential quality, not just with clients, but also to collaborate with every part of a business – team, suppliers, community, and society -, it could even help you rephrase a brand-based concept of “third home”.

Both Starbucks and Rebecca Minkoff have shown us, in the midst of uncertainty and dark weather, this is the best time for changes. It’s mandatory to accelerate decisions and be prepared for the new normal forming in front of our eyes through the weeks. Tomorrow could be too late.

Business management Professor at IAE Business School

Forever 21 downfalls. Challenges for their buyers and lessons to align on and offline retail operations.

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Last September, Forever 21 made a public notice and leaving some doubts and interesting lessons behind. Founded in 1984 by Do Wong Chang and Jin Sook, his wife who liked to be called Mrs. Chang. They focused on a large range of fast fashion style clothing. Stores received new items almost every day, sometimes designer’s knock off – leading to some trials for not complying with intellectual property- with competitive prices, almost everything under $60. This helps them boost their global growth: as of November 2010, while many stores closed their doors, they landed in Manhattan, opening their 5th Av. Store with a DJ and games. Later, they’d opened the Causeway Bay’s store in Hong Kong with a $1,4 million rent a month, still lower than their 50000ft in Fresno, California. In the following years, London, Beijing, Shanghai, Tokyo, Manila, Praga, Bucarest, Varsovia, Beirut, Cape Town, Sydney, Mexico, Rio de Janeiro, Santiago de Chile, and Montevideo joined the list with 200 stores in 43 countries. As of 2014, the 722 stores profited for $4000 million, but in 2016, troubles were already rising.

Starting with the online experience: it wasn’t easy nor fun, something that retailers preferred but clients resented. Management was in a few hands, Mrs. Chang and Mrs. Ok (another south Korean couple very close to the Chang’s) and a 20 people team in LA, this reflected in the fast rotation of experienced executives.

Reaching 800 stores in 50 countries calls for some discipline and procedures to properly supply each store. Budgets didn’t match the previous sales, but Chang’s and Oks instincts. Coats were sent to every store even when it was summer, some pieces could be too revealing for the Middle East or too big for Asia. There wasn’t a product plan for each market and there wasn’t a concern for sustainability or younger customers losing interest in fast fashion and malls. Other times, the stores didn’t have the time to organize new products that just stacked on dressing rooms until they were returned to the distribution center where they’d go out of sight. Some other times, suppliers didn’t charge for returned goods or had payment issues.

Rumors have it, Simon Property Group and Authentic Brands, Nautica, Juicy Couture, Aeropostale, Nine West, and Sports Illustrated magazine owners, want to buy Forever 21, who is already closing stores and in a short time would run out of funds to keep running. It’s the second try for Simon Properties, each year they receive more than half of the company’s $450 million rent payment. Last  July, conversations seized as the Chang’s stated they wanted to still run their business. It is possible, today they are willing to reconsider, after closing several stores and being near bankrupt if their creditors don’t approve their plans.

In times of accelerated change, the punctilious area is more exposed. It’s mandatory to focus on four key elements:

1- Keep close and ongoing contact with clients. Knowing their conversations to understand the choice changes and new trends, offering a new shopping experience that allows fluid interaction between on and offline. Make shopping easier, when and where they want to, is also a way to stay ahead of today’s changing trends.

2- Focus on adding value to the customer. Taking care of the value a customer has throughout its life is essential for any retailer who wants their brand to survive through market changes. In this sense, adjusting supplies, categories, services, and communication to establish valuable relations with customers.

3- Maximize assets rotation. Stores, inventory, employees are the main assets at stake, and ensuring their full contribution is key to be competitive in a market opened by the digital revolution who is responsible for the downfall of those who don’t have enough discipline to manage their business. Logistics is a key activity, minimizing movements and maximizing rotation, the relationship with suppliers is a way of creating value. The trick is to align the supply chain procedure from manufacturers to stores, to clients.

4- All of this needs technology, for back up procedures and customer care. Ensuring the first to maximize the value creation while taking care of customers to build long-lasting relationships to strengthen the brand. Retailing’s digital transformation means finding the balance between support systems and digital evolution for the user’s online experience. 

It’s been a while since retailers have started to grow out of stores. Combining on and offlines operations, offering an extended experience before, after, and during the sale is imperative today. There is no room nor advantage to hand off to players who are entirely based online, who can do personalized offers thanks to logistic and value chains aligned with the support of technology. Retailing future is a merge between online and offline, but only those who understand and can transform their company in this sense can keep operating in a different scenario than the one who saw them grow.

These topics will be discussed in depth at the on-lin/off-line retail management program, aimed at the senior director of retailment stores that want to align themselves to these practices, combining offline strategies with online development. Over the course of three days, we’ll work on strategic development models and retailer management. We’ll analyze trends and support tools for online retailing management. The next issue will start on May 18th in Madrid, Spain IESE Business School offices.

Guillermo D’Andrea is a Retail Management professor at IESE Business School in Argentina and Spain.

Todo Moda. The reasons behind a world-class retailer.

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Todo Moda is part of the Blue Star Group. Founded in 1995, its profit goes up to $300milions, has 850 stores, and 4500 employees in Argentina, Chile, Peru, and Mexico. This alone is remarkable, but why does it stand up among so many others who have also survived in a country with a difficult track record that has razed fortunes and whole companies. Is in this context that Todo Moda has managed to develop an international chain, showing qualities that deserve some recognition: resilience, keeping a clear north, a global vision, building a safe international supply, solving succession, and professionalism, including top-class method and expanding to international markets.

Let’s start with the resilience needed to survive in a country with a regular crisis that has, in the last 60 years, razed fortunes and companies. Todo Moda origin’s story is related to Carlos Castelli’s one.

At only 14 years old, he combined his technical studies with a job as a jeweler’s apprentice, assembling products in his room in the popular neighborhood Abasto. Those were the first steps of a rough road that would take him to the world. The next year, his technical training took him to develop a continuous welding method to produce metallic meshes for watches and jewelry, three years later he had a production team of 40 people. Yet, in 1967, a state-taxing operation, who monopolized the gold sale, closed the stores forcing him to become a street vendor looking for new clients every day to survive. As the gold-products demand decreased, his father-in-law showed him in 1973 the rise of silver chains in Europe squares. After finding a manufacturer in Bariloche with italian machines from the post-war era, he finds a jeweler to sell his pieces to. He sold out in a day. The success brings him to grow and expand his operation, he started buying in Orient, growing until the end of 1970’s crisis pushes him into debt. In the next seven years, he pays debts, producing for brands like Pierre Cardin who take him back to business until 1989’s new crisis, and back to paying debts it is. In 1994 he reaches for his next product: earrings but is not so easy. Trusting his experience and not ready to give up, in 1995 he decides to open his first shop: Todo por un peso (everything for $1). The store is small, next to Once’s train station, and some music speakers attract customers. Quickly, with success, he transforms it to Todo Moda, and his young kids Martín and Mariana tag along. 

They open a few more shops, next to other train stations, where traffic is guaranteed, and then some new stores, in 2003, Isadora a new brand, aiming for grown women with more buying power seals his growth path.

The manufacturer can’t keep up, but a sustainable solution is needed. So in 2004, Castelli settles in Yibu, China, without knowing a word o chines, and in 6 months he trains a new manufacturer and his team in production techniques, settling a global supply agreement that lasts to this day. This way, his local production, the one that ensures the high rotation products, delivering every 72hs, is supplemented, ensuring the cash flow, not a minor detail in an Argentinian market, one of the most unstable in the world. 

With Martin, Mariana, and Cecilia’s involvement, willing to study and develop, the family’s succession begins, with the complications these proceedings tend to have. The daughters bring the design to the pieces, while Martin, based on his engineering studies, is focused on procedures. The global vision starts to form. Better than the competitors, the company has an eye on the international players. A partner opens a store in downtown Mexico DF, the seed of international expansion where today lays half the store including Chile, Peru, Vietnam and in a short-term future, even Colombia and Brasil, fizzling out the risk of basing themselves in an unstable place like Argentina, who today represents 30% of sales. 

A general manager set the tone for professionalization, and some advisors for retail practices worldwide with whom a team of engineers is formed, focused on the Todo Moda Machine. In a short time, experts with global experience in brands like Zara or Mango join the team, bringing world-class corporative practices, strengthening procedures and systems following the ideas of Martin, CEO of Blue Star Group. 

In 2020 will have 2000 and 15.000 employees, with a $1000million turnover” he announced in a recent interview. Vision, company values and the qualities installed through the years will probably back these statements that place Todo Moda between the big fashion accessories players of the world.

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