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Advanced Retailing: Coming Face to Face with the Omni Channel PhenomenonInstructors: John C. Williams and Jean Rickli

1:00-2:30pm

Jean Rickli and John Williams

J.C. Williams Group2

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Resources • Retail 4G

• Retail Innovations

• National Retail Bulletin (NRB)

• www.jcwg.com

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Totally New Game!I. Introduction: Massive Disruption!

II. Changing Consumer

III. Ways to Make Money

IV. Retail Strategies that Work

V. New World of Retail

VI. Planning for the Future

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I. Introduction: Massive Disruption

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Enter: A New Distribution Channel!

NOW!

Traders

Fairs Towns Stores Catalogues

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New Distribution Channel has Created:

• New technologies

• New shopping patterns

• New operating models

• New everything!

Biggest Single Business Disrupter…Ever!

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New Channel is at a Tipping Point• Select commodities are at 20% online

• Same size of market…different distribution!

The pie has not grown—other channels impacted!

2% 20%

StoresStores

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Retail in Distribution – Old Way

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Shopping Today

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New Compressed LifecycleEmerging Growth Maturity Decline

0–2 2–10 10–15 15+Years

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The Retail LifecycleUnless innovation, decline is certain!

Sales & Profit Growth

Home Delivery

Drug Stores

Department Stores

Supercentres

Supermarkets

Automated Shopping

Discount Stores

Digital

HypermarketsHome Improvement

C‐stores

Gen. Merch.

Fast Food

Music Retailers

Teen Specialty Retailers

Office Superstores

Toy Superstores

Lifestyle Retailers

Wholesale Clubs

Personalization/ Customization

Hard Discount

Dollar Stores

Innovation Acceptance Maturity Decline

Omni‐channel Video

Quick Casual Rest.

E‐commerce

Global Platforms 

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Successful Retailing

• Touches the ever-evolving consumer

• Always changing life cycle

• Has more of what people want, less of what they don’t want

• Differentiates

• Difficult to do exceptionally

• Finds the right people

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Thousands of Different Contacts/Customers – 24 Hours a Day, 365 Days a year, global

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The Really Big Picture!Time Retail Format Values Customer

1900–1950 Department Stores

Main Street Assortment Traditional

1950–1990 Specialty Stores Shopping Centre Variety Middle

Mass

1990–2000 Big‐Box Power Centre Value Suburban

2000–2010 Rise of E‐retail Web Convenience Young

2010 Cross‐Channel Store, Catalogue, Web

Research 

Simple

Low cost

Instantly

Mass

Early Adopters

Digital Tablet

Mobile Smart Phone

2012–2020 Omni‐channel Store

Digital

Price

Convenience

Assortment

Global 

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The Decline of Department Stores

Department Store Share of Non-Auto Retail Sales (1995–2016)

Source: U.S. Census Bureau – Department stores (excl. Leased Departments) share of Total Retail Sales (excl. motor vehicle and parts dealers) 

12.6%12.2%12.1% 11.8%

11.3%10.6%

10.2%9.6%

8.9%8.3%

7.7%7.2%

6.8%6.3% 6.3% 6.0%

5.6%5.2% 4.9% 4.6% 4.5% 4.2%

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U.S. Online and Web-influenced Retail Sales ($ billions)

$1,551 $1,524 $1,512 $1,506 $1,513

$294  $325  $355  $385  $414 

$1,374  $1,481  $1,580 $1,677 

$1,766 

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

2014 2015 2016 2017 2018

Web‐influencedoffline sales

Online retailsales

Offline Sales

52% 54% 56% 58% 59%U.S. online and web-influenced retail sales as a % of total sales

For $1 spent online, $5 of offlinesales are influenced by the Web

Source: JupiterResearch17

JCPenney.comOmni-channel Synergy

$157 $195 $201

$446 $485

$608

$887

Internet Retail Catalogue Internet +Catalogue

Internet +Retail

Catalogue +Retail

Catalogue +Retail +Internet

Ave

rag

e Y

earl

y D

olla

rs S

pen

t b

y C

ust

om

er

Total Spending Increases as Customers Shop Multiple Channels

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II. Changing ConsumerThose darn shoppers keep changing on me!

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Demographics

Changing Population Changing Households

Income Polarization

Demographics

Ethnic Diversity

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Percent of Population over 50

Source: U.S. Census Bureau

24.4%25.6% 26.0% 25.8% 25.5% 26.0%

27.6%29.8%

31.5%

34.6%35.9% 36.7% 37.3% 38.1% 39.0% 39.9% 40.4% 40.9% 41.5%

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

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Population is Shifting to Older Age Cohorts

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New Role of Women

• +50% college degrees

• Majority of law, doctors, teachers, business

• 15–20% are at the top

• Median age for marriage: 1960=20; 2015=27

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Changing Diversity of the U.S. PopulationIt will drive increased complexity and new targeting efforts for retailers

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Changing Diversity of the Canadian PopulationDistribution of Foreign-born Population, by place of birth

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Percent of Women Ages 20 to 64 in the Workforce

0

10

20

30

40

50

60

70

80

90

100

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Per

cen

tag

e

Civilian labor force participation rates by sex, 1950 to 2005 and projected 2010 to 2050

Men Women 27Source: Bureau of Labor Statistics

Haves & Have Nots Mean Household Income(adjusted dollars)

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Success Has Been In Catering To The Extremes…

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Changes in Consumers’ Values

• Social consciousness

• Environmental sensitivity

• Traditional values

• Empowered consumers

• Value orientation

• Time compression

What is going on right now?

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Trading Up and Trading Down

Trading Up

Trading Down

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Shifting Priorities

Consumers are adding more criteria to their shopping requirements beyond the initial selection of a product or service.

Goods Services

Over eight in 10 women prefer to “do something for themselves” rather than “buy something for themselves,” it is no surprise that luxury services are often in strong demand and that, according to American Demographics, 72% of women said that their last luxury purchase was because they wanted to “treat themselves to something special.”

Customer Behaviour:

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Shifting Priorities

Item Solution

Customer Behaviour:

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Shifting Priorities

Mass Individualization

Customer Behaviour:

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So, the Future Consumer…

• Income?

• Debt?

• Aging?

• Negative towards consumption?

• Demanding?

• Services?

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III. Ways To Make Money

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Profit Model: Traditional Retailers

Dept. Store/SpecialtyChain

PromotionalDept. Store

MassMerchandiser/

ChainDiscounter

SpecialtyBook Store

Sales 100% 100% 100% 100%

Gross Margin ±40% 35% 28% 39%

OperatingExpenses

±37% 32% 26% 35%

Operating Profit 3% 3% 2% 4%

Turnover 3–4 4 3–4 2–3

Sales per sq. ft. $200/300 $200/300 $300 $250

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Profit Model: New Wave Retailers

EDLP*Discounter

Super Centre

CategoryKiller

ClubWarehouse

Sales 100% 100% 100% 100%

Gross Margin 25% 23% 15–22% 11 –12%

OperatingExpenses

19% 18% 13 – 18% 10%

OperatingProfit

6% 5% 4% +2%

Turnover 6–8 12 7 12+

Sales per sq. ft. $300 $500 +$700 $1000

What is the Difference?

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Profit Model: Internet Models

Sales 100.0%

Gross Margin 29

Operating Expenses 29

Operating Profit 0%

CAGR (’01–’08)* +20%

Turnover 11.1

Source: Annual Reports 39

Plus New Operating Models!

Activity OldNow (Fast Fashion)

Create/buy 2–3 months 13 days

Delivered 4 weeks/3 days 1–2 days, 2 hours

Advertised 4 weeks/2 days 1 week, instantly

Sold In stores Anywhere

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“NOW POWER” Drives Growth!

Metrics Old New 

Growth 0–3% 20%

Time to market 2–3 months 13 days

Margin % ‐40% ±60%

Turnover 4 20

Result $160 $1,200

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NEW Lower Expenses—for Some

Old New

Distribution Centre

Some handlingAutomated

Random locationDronesMultiple DCs

In‐storeSemi‐selfFull service cash(Some self serve)

RobotsSame 30% payroll

Payroll 17–20%10–15%5% if club

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In Summary

• Speed Save 2 months

• Margins Add 10–20%

• Costs Save 5–10%

• Growth High velocity 5–20%

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New Competition

• No rules

• Most liked

• Fastest

• 450 million SKUs

• Now Whole Foods

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Amazon Disrupts!

• Prime members: 60% USA; 30% Canada

• Impacts national brands

• Now 50% e-commerce

• Driving all innovation ($15 billion per year)

• Alexa and Echo voice enabled speakers

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New Opportunities• Logistics being redefined• Mega DCs:

– Robotics, drones– Random storage

• Cross-dock• Specialists:

– Cool– Fast movers– Fresh

• Warerooms: hubs with store• Strategic locations• Total technology driven

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Retail Operating Statement

Net sales (after taxes and returns)

Less cost of goods:

Freight‐in

Markdowns, shrinkage, work room

Gross margin, gross profit

Less:

Expenses:    fixed

variable

depreciation (non‐cash)

Pre‐tax profit

100%

45%

5%

50%

44%

6%

50%

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Retail Operating Statement – Expenses

Wages (store and non-store; management and staff)

Benefits

Occupancy (rent, taxes, etc.)

Marketing

Accounting, IT

Banking, credit

Administration

Buying

Receiving

Depreciation

Total expenses

Pretax profit

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3

10

4

2

2

2

1

1

2

44

6%

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Operating Ratios

• Sales and sales per square foot

• Retail system

• Markdowns

• Sales/wages ratio

• Net profit

• Stock to sales ratio

• Turnover

• Gross margin return on inventory investment

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Sales and Sales per Square Foot

• All ratios are measured as a % of net sales. Sales are after taxes and returns

• Sales per square foot:Net annual sales $350,000Total selling area in sq. ft. 1,000

• Measure productivity and efficiency• Track and follow closely• Why the big range in performance by category?

= $350

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The Balance Sheet

• Provides a financial snapshot of the assets and liabilities of the company

• Prepared at least once a year (or on a monthly or quarterly basis)

• The primary tool (used both internally and externally) to assess the health of your business

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Retail Balance Sheet(e.g., Successful Supermarket)

Assets ($000)

Current CashShort‐termAccounts ReceivableInventoryOther; Total

$686$364$381$1,310$175; $2,916

Major Fixed assets, real estateOther; Total

$4,174$4,851; $9,025

Liabilities ($000)

Current Accounts payableIncome tax dueBank loan, etc.Debt due in year

$2,242$78$630$259; $3,209

Long‐term Debt (bonds) $2,684; $5,893

Shareholder Equity CapitalRetained earnings

$3,124$9,017

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Financial Ratios• Liquidity Ratios:

– Current Ratio– Inventory Turnover/Ratio– Accounts

Receivable/Ratio– Profitability and Activity

Ratios– Gross and Net Profit

Margins– Return on Net Assets

(RONA)– Break-even Calculation

• Gotta Know– Inventory Turnover/Ratio– Profitability and Activity

Ratios– Gross and Net Profit

Margins

• Otta Know– Break-even Calculation

• Can Know– Current Ratio– Accounts

Receivable/Ratio– Return on Net Assets

(RONA)

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IV. Retail Strategies That Work

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Where can I go?

Can I cover all the bases?

How will I become a legend?

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Retail Strategic Compass Model

Which ‘E’ will you be rated a 5 on?

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A Customer Focused Strategy

• Strategic Es Compass Model:– Is customer based

– Solutions are often multi-faceted

– Retailing is a service/solutions industry

– That’s the value added!

– Need to score 4s on one to survive

– Can score 4/5 on two to dominate

– Score 5 on three to become legendary

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Easy: “They are Efficient, I Save Time”

• Location and open hours• Layout, signage, checkout – efficient • Omni-channel e-retail support – shopping

anywhere• Assortment dominance (all in one place)• Big-box, Home Depot, Bed, Bath and Beyond—

one-stop; shopper saves time• Shoppers Drug Mart/McDonald’s are

everywhere• Amazon’s services

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Economical: “ I Always Save There"

• Lowest prices and speed are important

• Operational efficiency – drive costs out and download to customers

• Supply chain management

• Walmart, Costco, Dollarama, Uniqlo

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Experiential “I’m Going to Reward Myself Today”

• Learning, free fun, sensual, sophisticated

• Constant renewal is required

• Disney, Eataly, Build-a-Bear Workshop, amazon

• Theatricalization of shopping!

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Ego: “I Really Think This Store Reflects Who I Am!”

• Status: relates to very specific niche customers

• Quality beyond physical experience

• Neiman Marcus, Tiffany, Cole Hahn, Club Monaco, H&M, Zara

• Club-like, limited distribution

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Add the WOW Factor!

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It’s 100% About Strategic Alignment

• Are the key tactics, systems and processes aligned with the strategy and culture?– Culture: Core values, business values and

fundamental activities

– Key Elements:

- Merchandising - Operation - IT

- Marketing - Services - Design

- Real Estate - Design - Finances

• Omni-channel distribution

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V. New World Of Retail

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DefinitionsE-commerce retail• A transactional online channel to purchase products that need to be

delivered physically (excludes travel and downloads unless otherwise specified)

Mobile• Smartphones and tablets (unless otherwise specified) Multi-channel model• Multiple sales channels (e.g., store, web, catalog) not necessarily used in a

coordinated manner―which produces a fragmented experienceOmni-channel = Seamless cross-channel retailer• Use a new retail paradigm which employs the coordinated use of multiple

channels (e.g., store, web, mobile, social) to support customer sales, and education in a seamless and consistent manner

Pure Play retailer• A retailer who only sells through one channel

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Terminology is in Constant Flux

• Omni-channel – Improved cross-channel

– A business model and operational model

– The way consumers shop today

• Tech term = Unified commerce = Single platform

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Mobile Users Buy More

Google Shopper Marketing Council, 2013 82

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Retail and Social Media • 90% of people have

used social media in some way to communicate directly with a brand.

• Social media surpasses phone and email as the first place most people turn when they have a problem or issue with a product or service.

Source: Sprout Social Customer Survey, 2016 83

Big DATA to Transform Activities and Events

Metric Description Formula

Conversion rate % of visitors to orders Online order/visitor

CTR – click through rate % of recipients clicked to trackable link

Clicks/recipients

Time on web page Avg. visitor stay on page Avg. time/page per visit

Average order $ Avg. $/order Sales/order

Source: KPMG/NRF

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Online Marketplaces

Online Power• $89B (2014)• 426 items/sec sold 2013 holiday

• 100 fulfillment centres est.• 2 million 3rd party sellers

• Amazon Drones• Amazon Services• Amazon Prime• Instant Video• Workspaces • Affiliate Program

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Online Power

• Gross sales $1.9 BILLION IN 2014• Up 43% from 2013• 1.35M active sellers, 19.8M active buyers• Mobile accounted for 36.1% of GMS and 53.2% of visits

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Smart Shopping Rooms

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Nordstrom

• New fulfillment centre

• 30% Capex on Technology (20% before)

• Tech platform, fulfillment capability, personalization to keep up with omni-channel and smartphone savvy customer base

• iPads in dressing rooms (in-store experiences)

• Improvements in mobile site

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Bullseye Playground

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Topman Communityhttps://www.thinkwithgoogle.com/campaigns/the-future-of-shopping.html

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Online shopping in fashion area

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ION - Singapore

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Plaza 66A chain shopping mallin ShenYang, LiaoNingProvince, China

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VI. Planning For The FutureOmni-channel and your mall

Lifecycle audit of tenants

Getting tenant mix right97

Omni-channel and Your Centre

• Retailers on multiple platforms

• Seamless experience for consumers

• Retailers are figuring it out

• What’s the role of the shopping centre?

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Shopping Centres &

Partnerships

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Aggregated Delivery Services

100

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Pick-up Locations

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Mobile & Web Food Ordering

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Beauty Events

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Westfield Mall – San Francisco• Fashion show in the mall

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In SummaryA sea-change in values and consumption.

What are your tenants doing about it?

• Shift in retail channels

• What retailers will thrive?

• What new trends are emerging?

• How will you take action on weak retail?

• How to harness omni-channel

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Course Evaluation

Please Complete Your Evaluation Now.

1. Take Out Your Smartphone or Tablet

2. Go to survey.icsc.org/PDWCC

3. Select this course: Advanced Retailing: Coming Face to Face with the Omni Channel Phenomenon

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The Retail Shop.Toronto Chicago Montrealwww.jcwg.com(416) 921-4181

Jean Ricklijrickli@jcwg.com

John Williamsjwilliams@jcwg.com

Thank you and keep in touch